Full text of Minutes of the Board of Governors of the Federal Reserve System : Meeting Minutes, February 4, 1954, Volume 41, Part 1

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179
Minutes of actions taken by the Board of Governors of the
Federal Reserve System on Thursday, February 4, 1954.

The Board

met in the Board Room at 10:00 a.m.
PRESENT:

Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

Martin, Chairman
Szymczak
Evans
Vardaman
Mills
Robertson
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

Carpenter, Secretary
Sherman, Assistant Secretary
Kenyon, Assistant Secretary
Thurston, Assistant to the Board
Riefler, Assistant to the Chairman
Thomas, Economic Adviser to the Board
Young, Director, Division of Research
and Statistics
Mr. Youngdahl, Assistant Director, Division
of Research and Statistics
Telegrams had been received before this meeting from the Federal Reserve Banks of Boston and San Francisco stating that the directors
of those Banks had acted, subject to review and determination by the
Board of Governors, to reduce the discount rate at the respective Banks
from 2 per cent to 1-3/4 per cent.

In addition, Chairman Martin reported

11117ing been advised informally that the directors of at least two other
Federal Reserve Banks were expected to take similar action at meetings
to be held today.
Following a discussion of the reasons justifying a reduction in
the discount rate at this time, it was agreed that the Board would meet
again this afternoon at 4:00 p.m., at which time it would consider approving




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a reduction in the discount rate, effective February 5, 1954, at any
Federal Reserve Benk the directors of which had taken such action by
that time and advised the Board.
At this point Mr. Solomon, Assistant General Counsel, entered
the room.
As the result of questions which arose relating to certain
activities, or proposed activities, of corporations organized under
section 27(a) of the Federal Reserve Act (the so-called Edge Act corporations), the staff had undertaken, beginning in early 1953, a study of

the proper scope of activities of such corporations, with particular
reference to activities in the United States.

The results of that study

were embodied in the following memoranda and attachments, copies of which
had been sent to the members of the Board prior to this meeting:
Memorandum dated November 6, 1953, from Mr. Solomon,
Assistant General Counsel, submitting a draft of an
"Outline of Activities of an Edge Corporation Which
Are Appropriate or Inappropriate in the United btates".
Memorandum dated December 4, 1953, from Mr. Goodman,
Assistant Director, Division of Examinations, submitting a proposed revision, or alternative draft, of the
outline submitted by Mr. Solomon.
Governor Robertson stated that he and Governor Szymczak had met
vith interested members of the staff and that in view of the differences
Of opinion between the Legal Division and the Division of Examinations as
to the proper scope of activities of Edge Act corporations in the United
States and the complexity of the subject, it was his recommendation that




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2/4/54
the study be carried forward by an ad hoc committee appointed by the
Board which would retain the services of some qualified person outside
the System to direct the study at the staff level.

He envisaged that

the investigation would include consultation with, and receipt of views
from, persons having knowledge of or having an interest in the activities
of Edge Act corporations.
Agreement was expressed by the

other members of the Board re-

garding the desirability of obtaining more data on the subject and regarding the approach suggested by Governor Robertson.

It was suggested,

however, that it might not be necessary to name an ad hoc committee but
that the Board might designate one of its members to have charge of the
study.
Following a discussion, this
suggestion was approved unanimously
and Governor Szymczak was designated
as the member of the Board to have
charge of the study, with the understanding that he was authorized to
negotiate for the services of a
qualified outside person who would
direct the technical phases of the
investigation, that he would be free
to confer with the other members of
the Board to such extent as he might
desire and to utilize the services of
members of the staff in any way that
he saw fit, and that at the conclusion
of the study he would submit recommendations to the Board.
At this point Mr. Allen, Director, Division of Personnel AdMinistration, entered the




room.

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2/4/54
At the joint meeting of the Board and the Presidents of the
Federal Reserve Banks on December 15,

1953, the Presidents' Conference

submitted to the Board a recommendation that the rules and regulations
Of the Retirement System of the Federal Reserve Banks be amended so as
to allow credit for service rendered prior to age 21 and prior to the
establishment of the Retirement System.

The recommendation was the

subject of a memorandum dated January 25, 1954, from the Division of
Personnel

Administration, copies of which had been sent to the members

of the Board prior to this meeting.

The memorandum reviewed the situa-

tion which had given rise to the recommendation of the Presidents' Conference and stated reasons which might be given for and against
favorable action by the Board in respect to the proposed amendment.
Following additional comments on the matter by Mr. Allen, there
was a general discussion of the proposal during which reference was made
to the liberal benefits that were provided without cost to Reserve Bank
employees when the Retirement System was established and to the considerable cost of funding the liability that would accrue if the proposal
were adopted.

It was noted in this connection that only a relatively

small percentage of the Reserve Bank personnel would benefit thereby.
At the conclusion of the
discussion, unanimous approval
was given to a letter to Mr.
Leach, Chairman of the Presidents'
Conference, in the following form:
The Board of Governors has considered the recommendation
of the Conference of Presidents in its meeting of December 14




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2/4/54

and 15, 1953, that the Rules and Regulations of the Retire—
ment System of the Federal Reserve Banks be amended to allow
service credit prior to age 21 and prior to the establishment
of the Retirement System.
The Board is of the opinion that any inequities caused
by this restriction are not sufficiently great to warrant
such an amendment at this time. The Board feels that the
initial treatment of prior service employees was sufficiently
generous, that this restriction is very moderate in compari—
son to those normally found, and that the estimated cost cf
$2,500,000 for funding the accrued liability thus set up
could not be justified at this time.
With reference to the discussion on January 12, 19540 regarding
Proposed amendments to the regulations of the Home Loan Bank Board con—
cerning branches and agencies of Federal savings and loan associations,
Governor Robertson stated that hearings subsequently were held before
the Home Loan Bank Board, that almost all of those who appeared opposed
the contemplated amendments, and that hearings were now planned before
a subcommittee of the Senate Banking and Currency Committee. He said that
in the circumstances he had requested the Legal Division to draft a
statement which might be presented by the Board if its views were requested,
and that if such a request was received the statement mould be submitted
to the Board for consideration.
The meeting then recessed and reconvened at 4:00 p.m. with all
of the members of the Board except Governor Szymczak present.

Messrs.

Carpenter, Sherman, Kenyon, Thurston, Riefler, Thomas, Young, Youngdahl,
and Molony, Assistant to Mr. Thurston, were also present.
It was stated that advice had now been received that the directors
Of the Federal Reserve Banks of Boston, New York, Philadelphia, St. Louis,




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and San Francisco had acted to reduce the discount rate at the respective
Banks from 2 per cent to 1-3/4 per cent.

These Banks had also made certain

Changes in other rates in their existing schedules.
Thereupon, unanimous approval
was given to telegrams reading as
follows, with the understanding that
advice would be sent by telegram to
the Presidents of all Federal Reserve
Banks and that a notice would be sent
to the Federal Register:
To.Mr. Erickson

President

Federal Reserve Bank of Boston

Reurtel February 4, Board approves effective February 5,
rates of 1-3/4 per cent on discounts for and advances
to member banks under Sections 13 and 13a; 2-1/4 per cent
on advances urlder Section 10(b); and 2-3/4 per cent on advances to individuals, partnerships or corporations other
than member banks under last paragraph of Section 13. Otherwise Board approves establishment by your Bank, without change,
of rates of discount and purchase in Bank's existing schedule,
advice of which was contained in your telegram of February 4.
Board's announcement will be handed to press at 4:45 p.m.
Eastern Standard Time today for immediate release.

1954,

To Mr. Treiber, First Vice President, Federal Reserve Bank of New York
Reurtel February 4, Board approves effective February 5,
1954, rates of 1-3/4 per cent on discounts for and advances to
member banks under Sections 13 and 23a and 2-1/4 per cent on
advances under Section 10(b). Otherwise Board approves establishment by your Bank, without change, of rates of discount
and purchase in Bank's existing schedule, advice of which was
contained in your telegram of February 4. Board's announcement
will be handed to press at 4:45 p.m. Eastern Standard Time today for immediate release.
1A- McCreedy, Vice President and Secretary, Federal Reserve Bank of
To "4•
1211IalalPhia
Reurtel February 4, Board approves effective February 5,
1954, rates of 1-3/4 per cent on discounts and advances to
member banks under Section 13 and 13a; 2-1/4 per cent on advances under Section 10(b); and 1-3/4 per cent on discounts




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2/4/54

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for Federal Intermediate Credit Banks. Otherwise Board
approves establishment by your Bank, -without change, of
rates of discount and purchase in Bank's existing schedule,
advice of which was contained in your telegram of February 4. Board's announcement will be handed to press at
4:45 p.m. Eastern Standard Time today for immediate release.
To Mr. Johns, President Federal Reserve Bank of St. Louis
Reurtel February h, Board approves effective February 5, 1954, rates of 1-3/4 per cent on discounts for and
advances to member banks under Sections 13 and 13a; 2-1/4
per cent on advances under Section 10(b); and 1-3/4 to
2-1/4 per cent on discounts for and purchases from financing
institutions under Section 13b for which financing institution is obligated. Otherwise Board approves establishment
by your Bank, without change, of rates of discount and purchase in Bank's existing schedule, advice of which was contained in your telegram of February 4. Board's announcement will be handed to press at 4:45 p.m. Eastern Standard
Time today for immediate release.
12, Mr. Millard, Vice President Federal Reserve Bank of San Francisco
Reurtel February 3, Board approves effective February 5, 1954, rates of 1-3/4 per cent on discounts and advances to member banks under Sections 13 and 13a; 2-1/4
per cent on advances under Section 10(b); and 1-3/4 per
cent on discounts for Federal Intermediate Credit Banks.
Otherwise Board approves establishment by your Bank, without change, of rates of discount and purchase in Bank's
existing schedule, advice of which was contained in your
telegram of February 3. Board's announcement will be handed
to press at 4:45 p.m. Eastern Standard Time today for immediate release.
The press statement referred
to in the foregoing telegrams was
approved unanimously by the Board
in the following form:
The directors of the Federal Reserve Banks of Boston,
New York, Philadelphia, St. Louis, and San Francisco have established a discount rate at the respective Banks of 1-3/4
per cent, and the Board of Governors has approved these actions,
effective Friday, February 5, 1954. The rate previously in effect at these Banks was 2 per cent.




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-8Chairman Martin stated that Governor Szymczak was prevented

from attending this meeting because of illness but had asked that the
minutes reflect his concurrence in the above action.
Messrs. Thurston and Molony then withdrew from the meeting.
Governor Evans said that on the occasion of a recent visit to
the Board's offices, Mr. Johns, President of the Federal Reserve Bank
of St. Louis, discussed further developments in connection with the
selection of a site for a new Louisville Branch building, and that it
appeared there was now general agreement in Louisville on a site which

had previously been under consideration.

He said that the directors of

the branch and the head office were to consider the matter at meetings
In the near future, and that, in all likelihood, a recommendation would
be submitted to the Board of Governors shortly.

Governor Evans went

on to say that the plans reported by President Johns called for the
acquisition of somewhat less than a full block, and that he (Governor
Evans) had suggested that the Reserve Bank explore the advisability of
acquiring the remaining parcels in the block.
The meeting then adjourned.

During the day the following addi-

tional actions were taken by the Board with all of the members present:
Minutes of actions taken by the Board of Governors of the Federal Reserve System on February




3, 1954, were approved unanimously.

2/4/54

-9Letter to Mr. Brawner, Federal Reserve Agent, Federal Reserve

Bank of San Francisco, reading as follows:
In accordance with the request contained in your letter
of January 29, 1954, the Board of Governors approves the appointment of Mr. John E. Walsh as an Alternate Assistant Federal Reserve Agent at the Federal Reserve Bank of San Francisco.
This approval is given with the understanding that Mr.
Walsh will be placed upon the Federal Reserve Agent's pay roll
and will be solely responsible to him or, during a vacancy in
the office of the Agent, to the Assistant Federal Reserve Agent,
and to the Board of Governors, for the proper performance of
his duties. When not engaged in the performance of his duties
as Alternate Assistant Federal Reserve Agent he may, with the
approval of the Federal Reserve Agent or, during a vacancy in
the office of the Federal Reserve Agent, of the Assistant Federal Reserve Agent, and the President, perform such work for
the Bank as will not be inconsistent with his duties as Alternate Assistant Federal Reserve Agent.
It is noted from your letter that, upon the approval of
Mr. Walsh's appointment as an Alternate Assistant Federal Reserve Agent by the Board of Governors, he will execute the
usual oath of office which will be forwarded to the Board of
Governors together with advice of the effective date of his
appointment.
Approved unanimously.
Letter to Mr. Dawes, Vice President, Federal Reserve Bank of
Chicago, reading as follows:
This refers to your letter of January 28, 1954 with
respect to amendments to the bylaws of the Federal Reserve
Bank of Chicago and its Detroit branch. It is noted that
these amendments merely reflect the recent change in the territory apportioned to the Detroit branch and increase the board
of directors of such branch from 5 to 7 members.
The Board has heretofore given its approval for the
change in territory of the branch and hereby gives its approval to the increase in the number of directors.




Approved unanimously.

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2/4/54

-10Letter to the Presidents of all Federal Reserve Banks reading

as follows:
The classification of member banks for purposes of
electing Class A and Class B directors was discussed at the
joint meeting of the Board and the Presidents on September
24, 1953, at which time there was general agreement that
the formula suggested by the Board in 1934, if interpreted
flexibly with regard for variations in the several Federal
Reserve Districts, is a satisfactory base.
For convenient reference the 1934 suggestion (Board's
letter of September 19, 1934, X-8012) is restated below:
The number of member banks in Group 2 will be approximately one-third of the total number of member banks in the district, with the number of member banks in Group 1 as nearly as may be in the
same ratio to the total number of all member banks
as the combined capital and surplus of member banks
In Group 3 bears to the combined capital and surplus of all member banks.
It was understood at the September joint meeting that
each Federal Reserve Bank would make a review after the close
of 1953 and submit to the Board any suggestions for changes
in the classification of member banks for electoral purposes.
It will be appreciated if you will inform the Board of
the results of the review, together with your recommendation,
by May 1. In this connection, please supply a tabulation
showing under the present classification, and under the proposed classification if a change is recommended, percentages
of each group to the total for both the number and the capital
and surplus of member banks in the district.
Also; please furnish the Board with an array, as of the
end of 1953, of the member banks according to combined capital
and surplus, those having the smallest capital and surplus to
be shown first, together with cumulations of number and capital
and surplus, totals of which should agree with call-report data.
This statement should be prepared in the form used heretofore
(Board's letter of October 12, 1928, X-6159) and restated below
for convenience. The capital and surplus of a member bank for
this purpose should be the same as that used in determining its
required holdings of Federal Reserve bank stock.




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NUMBER AND CAPITAL AND SURPLUS OF MEMBER BANES IN
FEDERAL RESERVE DISTRICT, GROUPED ACCORDING TO CAPITAL AND
SURPLUS




condition reports)

(Based on
Capital
and
su*lus
$25,000
26,000
27,000

CumulatfVe figures
Number of banks ,
Number of
with capital and
Capital
t and surplus I
surplus shown
banks

3

$75,000

2
2

127,000
181,000

Approved unanimously.

3

5

7