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Minutes of actions taken by the Board of Governors of the Federal Reserve System on Thursday, January 25, 1951. The Board met in the Board Room at 9:15 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. Carpenter, Secretary Sherman, Assistant Secretary Kenyon, Assistant Secretary Thurston, Assistant to the Board Riefler, Assistant to the Chairman Thomas, Economic Adviser to the Board Vest, General Counsel Townsend, Solicitor Young, Director, Division of Research and Statistics Mr. Hilkert, Acting Director, Division of Personnel Administration At Mr. Evans' request, Mr. Townsend referred to a letter from the Federal Reserve Bank of Chicago, dated January 19, 1951, transrig a report of an investigation of Royis Appliance Company, 13el°it) Wisconsin, which disclosed numerous wilful violations of Regulati -°11 W, Consumer Credit, by that firm as a result of which the "j-cago Bank recommended that steps be taken to bring a civil Proceerl• ' 11-1C against the registrant to enjoin it from continuing to 171°14-te the Regulation. Upon motion by Mr. Evans, unanimous approval was given to an order in the following form, with the understanding that Mr. Chase would be author- 1S5 1/25/51. -2ized to incur such expenses for reporting service in conducting the investigation as in his judgment might be necessary, and that the 1951 budget of the Office of the Solicitor would be increased by an amount sufficient to cover such costs: "UNITED STATES OF AMERICA BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM At a meeting of the Board of Governors of the Federal Reserve System held at its offices in the City of Washington, D. C., on the 25th day of January, A. D., 1951 1717T- he Matter of ROY'S APPLIANCE COMPANY ORDER DIRECTING INVESTIGATION AND DESIGNATING aFICERS TO TAKE TFSTELONY "Members of the staff of the Federal Reserve Bank of Chicago have reported information to that Bank, which that Bank has transmitted to the Board, which tends to Show that Roy's Appliance Company has made instalment sales of appliances subject to Regulation di: 1. Without obtaining the down payments required by Regulation VI; 2. Without preserving such books of account, records and other papers as are relevant to establishing whether or not credit extended by it is in conformity with the requirements of Regulation W. II "The Board, having considered the aforesaid report by members of the staff of the Federal Reserve Bank of Chicago, and for the purpose of (1) determining whether Roy's Appli- . ce Company has violated the provisions of Regulation 'a 7"d (2) aiding in the enforcement of said Regulation, deems ?LA, necessary and appropriate that an investigation be made determine whether Roy's Appliance Company has engaged in e acts and practices set forth in paragraph I hereof, or 'QV acts and practices of similar purport or object. III "IT IS ORDERED, pursuant to Section 604 of the Defense Prod Act of 1950 that an investigation be made to uetermine the matters set forth in paragraph II hereof. IT IS FURTHER ORDERED, pursuant to the provisions of Sect l°n 604 of the Defense Production Act of 1950 that for n 186 1/25/51 -3- "the purpose of such investigation G. Howland Chase and Paul C. Hodge, and each of them, is hereby designated an Officer of the Board and empowered to administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, or other records deemed relevant or material to the inquiry, and to perform all other duties in connection therewith as authorized by law. "By the Board. (Signed) S. R.Carpenter, Secrotaryen In connection with the foregoing, Mr. Vardaman stated that he felt that when the Board went to the trouble and expense of bringa civil proceeding against a wilful violator of the Regulation, t should also take steps to institute criminal proceedings, and Mr. T°wneend reviewed the reasons why he thought this, would be inadvisable from the standpoint of the effective enforcement of the Regulation Mr0 Townsend withdrew from the meeting at this point. Mro Szymczak stated that at the suggestion of Mr. Evans, the l'el'acnIrlel Committee had considered the advisability of offering le@slation to amend the Civil Service Retirement Act so as to permit ine*ers of the Board of Governors to become members of the Retirement SY8tern - of the Federal Reserve Banks rather than to continue as membe 8 of the Civil Service Retirement and Disability Fund. He went on to 8ay that there was a difference of opinion within the Personnel Co ITnj,ttee concerning the desirability of such a move, that it raised 1/25/51 the question of what if anything should be done with respect to emPloyees of the Board who were members of the Civil Service Retirement '1111 (1, and that the presentation of the suggestion at this time might Vws rise to a number of questions as to the personnel of the Board and their status. Mr. Evans stated that he felt it would be desirable to take tePs to have the law amended to permit members of the Board of Govto withdraw from membership in the Civil Service Retirement d Disability Fund and to become members of the Retirement System of the Federal Reserve Banks, that he realized there was some feeling that. t this question were taken up it might result in an effort to g all employees of the Federal Reserve System 'Under civil service, that it would be his recommendation that the staff be authorized to ' ' 1 4-ore the matter with members of the staff of the Civil Service Conbnis sion for the purpose of ascertaining whether the Commission 'Nola °Ipiect to the introduction of such legislation at the proper time. At Chairman McCabe's suggestion, it WAS understood that Messrs. Carpenter and Hilkert would consider the manner in which the matter Should be taken up with representatives of the Civil Service Commission. Mr. dent of Vardaman referred to a draft of letter to Mr. Sproul, Presi- the Federal Reserve Bank of New York, stating that the Board corteurrea Ii the action of that Bank's directors, as reported in a tter dated JanuarY 9) 19513 authorizing John H. Alliams, Economic RS 1/25/51 —5— Adviser, to spend about four weeks in Paris as an adviser to the Organization of European Economic Cooperation. He also referred to the circumstances under which Mr. Stead, Vice President of the Federal Reserve Bank of St. Louis, was granted leave by that bank to accept an assignment to assist the Secretary of the Interior, and to the fact that both of these actions were approved by the respective banks before axivice concerning them was sent to the Board. Mr. Vardaman stated that Was his understanding that the Banks had been requested by the 13°ard to bring such requests for services of personnel to the Board's ttention before final action was taken by the directors of the banks °11 the request, that in the instances mentioned this procedure was riet observed) and that he felt steps should be taken to have the banks 11-low the procedure of submitting such requests to the Board before final action. Mr. Szymczak stated that the New York Bank had long taken the P"ition that it did not need to submit such matters for the considerof the Board, but that it did make a practice of informing the Boarcl '4 of actions it took in granting leaves of absence to its personnel tC) . in foreign assignments. Chairman McCabe suggested that the outstanding letters of instructioilt ° the Federal Reserve Banks on this matter be reviewed for the °86 of ascertaining what if any changes therein would be desirable. This suggestion was approved unanimously. 1R9 I/ 25/51 -6Thereupon, unanimous approval was given to a letter to Mr. Sproul as follows: "The Board concurs in the action of your Bank's directors, as advised in your letter of January 9, authorizing Dr. John H. Williams, Economic Adviser, to spend about four weeks in Paris as an adviser to the Organization for European Economic Cooperation in connection with the preparation of its third annual report and in connection with discussions of the transition between an economic aid program and a rearmament program. It is noted that Dr. Williams left for Paris on this assignment on January 9." At this point all of the members of the staff with the exe(r'tion of Messrs. Carpenter and Hilkert withdrew from the meeting. Mr. Szymczak stated that at the meeting of the Personnel Committee yesterday consideration was given to advices that had been re- ed from some of the Federal Reserve Banks of actions taken by the boards of directors of the Banks to increase the salaries of certain the p (4ficers of the Banks. The actions of the directors, Mr. Szyt czak said, raised the question whether the Board should give ec3r181dcrati0n to the recommendations of the directors at this time, 4111 it was the conclusion of the Personnel Committee that the matter 8hoiarl ‘4 1°0 presented to the Board for decision. The question was discussed in the light of the very sub81:anti , increases in salaries and wages that had taken place throughcAlt thc,' country in the recent period and the unfavorable position in eh the Federal Reserve Banks had been placed from the standpoint "attl'aeting and retaining the necessary well-qualified officers to 190 1/25/51 -7- enable the Banks to operate at a high level of efficiency and to discharge effectively the broader responsibilities which the Banks have as a part of the central banking organization of the country. Reference was made in this connection to the reasons for the present arIrlgement under which the salaries proposed for the Federal Reserve 8allk3 of New York and Chicago are considered by the Board in March, for the Federal Reserve Banks of Boston, Philadelphia, Cleveland, San Francisco in April, and the remaining six Banks in May. Mr. '944 2Y1iczak stated that the procedure had been adopted by the Board because of the great difficulty which had been experienced in finding adequately to consider the recommendations from all of the Fed' el al Reserve Banks in December of each year when the Board was occur) ; A With a number of year-end matters such as the budgets of the Ped°1'al Reserve Banks and the appointment of directors. He added that the -4,4sting procedure was designed to meet this difficulty and to • )1 ' d the Board ample time to consider the proposals received from the Federal Reserve Banks and that, while he did not object to an eXce PtLon being made in the procedure for this year because of the 11111181141 situation confronted by the Reserve Banks, he did not believe the •Procedure should be changed. •m tL.c,r1 8 All of the members of the Board present, with the exception Vardaman, felt that the situation was such that the recommenda°I' the directors of the Federal Reserve Banks with respect to 1/25/51 -8- salaries of officers other than the president and first vice president miOlt well be considered now. Mr. Vardaman felt that the Federal ReBerve Banks which had submitted recommendations to the Board should be illformed that officers' salaries would be considered at the usual times in March, April, and May. At the conclusion of a discussion, during which Mr. Vardaman withdrew from the meeting to keep another appointment, upon motion by Mr. Norton, it was agreed unanimously that Mr. Hilkert should telephone the Chairmen of the Federal Reserve Banks and advise them that because of the substantial increases that had taken place in the cost of living and in salary scales throughout the country during the recent period and the unfavorable position in which this development had placed the Federal Reserve Banks from the standpoint of attracting and maintaining adequate official staffs, the Board would be willing to make an exception to its existing procedure aith respect to the consideration of officers salaries and to consider at this time any recommendations that the boards of directors might wish to submit for changes in salaries of officers other than presidents and first vice presidents. This action was taken with the understanding that Mr. Vardaman would want to be recorded as Opposing it. Mr. Riefler came into the meeting during the consideration of the abeIre matter and stated that he had been invited to attend a meettna at the Treasury at which consideration would be given to the ' rnendations to be made to the Congress with respect to further tax 4,4 that it was exnected that at the meeting he would be in a , Powta.°n to express the general position of the Board on the matter, 192 1/25/51 and that it would be helpful if the Board would state in general terms that its vievs were. All of the members present expressed concurrence in the view that the Government should follox a npay as you go" policy to the fullest extent possible, that the additional taxes should be in such ferin as would be most effective in absorbing purchasing power as an altd-inflationary measure, and that legislation should be enacted a3 Promptly as possible. Thereupon Mr. Riefler withdrew from the meeting. After some further discussion of Federal Reserve Bank salaries Ohad l'marl McCabe withdrew to keep another appointment and Mr. Vardaman rstlirned to the meeting. Reference was made to earlier informal discussions of the proPosal of the directors of the Federal Reserve Bank of Chicago that, efrective April 1, Mr. Mitchell be appointed a Vice President of the Feder°1 Reserve Bank of Chicago and put in charge of the Bank's Research tPartment to succeed Mr. Langum who is leaving the service of the Bank. Ike -omment had been made during the informal discussions that while was outstanding in the tax field there was a question 'Itheth er he was sufficiently well grounded in the monetary field to e rye aS head of the Bank's Research Department. earne in the ensuing discussion Mr. Powell stated that the matter and was discussed with him while he was in Chicago recently, that 1/25/51 -10- What the Bank needed was a well-rounded economist who could operate the Department effectively, and that it WAS felt that Mr. Mitchell Was Well qualified to fillthat need. It was also Mr. Powell's view that Mr. Mitchell would meet the primary need of the Bank for a wellrounded economist, that he would not be unfamiliar with the monetary field, and that, if necessary, his qualifications in that field could be supplemented by an assistant as had been done at the Federal Re"I've Banks in other fields such as agriculture. In these circum8tances, Mr. Powell said, it would be his recommendation that the c'ard indicate its willingness to approve the appointment of Mr. Upon motion by Mr. Powelll'his recommendation was approved unanimously. At this point Mr. Hilkert 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 Reserve System on January 24, 1951, were approved unanimously. Letter to Mr. Sproul President of the Federal Reserve Bank of 4'4 York, reading as follows: "The Board of Governors approves the payment of alary to the following officers at the rates indicated according to your letter of January 5, 1951, are 1/25/51 -11- "the rates which were approved by your board of directors, for the period beginning January 1, 1951, through March 31, 1951: Annual Salary Name Title J. J. Carroll 01,000 Assistant Vice President Edward G. Guy Assistant Counsel and 10,000 Assistant Secretary A. A. MacInnes, Jr. Manager 9,500 II. A. Muether 11,000 Manager A. H. Noa 9,500 Manager Gustav Osterhus 10,000 Manager A. C. Walton 3,000 Manager 11,000 Harding Cowan Assistant Counsel . "The Board notes that changes have been made in the assignments of several of the officers and that the directors have now reappointed all of the officers at the Head Office and the Buffalo Branch for the period extending to the first meeting of the board of directors in January 1952 with the exception of the President, First Vice President, and Assistant Vice President Ten Eyck, who has been reappointed for the five-month period ending May 31, 1951." • Approved, Mr. Vardaman voting "no". Letter to Mr. Weigel, Secretary of the Federal Reserve Bank of St* Louis, reading as follows: "The Beard of Governors approves: (1) The payment of salary to George W. Hirshman .?Oeneral Auditor at the rate of $7,200 per annum for ' 11- period beginning January 1, 1951, through May 31, 1951. (2) The payment of salaries to the following offic ers at the rates indicated for the period beginning January 1, 1951, through May 31., 1951: .11 ame Annual Salary Title M. Lewis 49,000 President Assistant Vice R. Billen President 8,000 Assistant Vice rt ° J. Christ President 8,000 Assistant Vice O. Hold ocher 8,000 Assistant Vice President N. Hall 8,000 Assistant Vico President L (3) The payment of salary to j. J. Bryan as AssistIlanager of the Little Rock Branch at the rate of 16° per annum beginning January 1, 1951, or such later ' e as the Bank may determine, through May 31, 1951. 9,1 1/25/51 -12- "The above rates approved by the Board are the rates Which) according to your letter of January 12, 1951, were fixed by your board of directors. "The Board of Governors in its telegram of January 12, 1951, approved the appointments of and the payment of salaries to Delos C. Johns as President and Olin M. Attebery as First Vice President for the periods and at the rates fixed by your board of directors. "It is noted from your letter that all the other officers at the Head Office and Branches were reelected for the calendar year ending December 311 1951." Approved, Mr. Vardaman voting "no". Letter to Mr. Hodgkinson) Chairman of the Federal Reserve Bank °f Boston, reading as follows: "The Board of Governors approves the reappointments of Messrs. Carl P. Dennett, Paul A. Draper, Edward M. Graham, J. Colby Lewis and Ralph E. Thompson as members of the Industrial Advisory Committee for the -First Federal ?serve District to serve for terms of one year each, beinning March 1, 19511 in accordance with the action taken 2Y the Board of Directors of the Federal Reserve Bank of Itston, as reported in your letter of January 22) 1951." Approved unanimously. Letter to Mr. Peyton) President of the Federal Reserve Bank of 111-11/leapolis, reading as follows: "This refers to Mr. Strothman's letter of January 8, 1951, and previous correspondence, relating to certain f rubbor stamp legends proposed by Northwest Bancorporation sZr use by its affiliates as a means of complying with the atoment of the Borrower requirements of Regulation X. whic 'Mr. Strothman referred to the rubber stamp legend h read This is not a residential real estate conilLu*J-Ildcredit'l which would be signed by the borrower, that some of Northwest Bancorporation's affilin," wished to know whether its use was definitely disap,,,oved by the Board. 1/25/51 -13- "Section 4(c) of Regulation X provides that, in ascertaining the nature of credit, a Registrant is not required to obtain a signed statement from every borrower. If, however, a Registrant desires to obtain, and accepts in good faith, a signed statement substantially the same as the Statement of the Borrower described in the last sentence of section 4(c), the acceptance of such a statement is one means of ascertaining the nature of the credit and thereby complying with section 4(c). "lb are of the opinion that the statement 'This is not a residential real estate construction credit' does not substantially conform with the last sentence of section 4 (c), because such a statement does not point out the special meaning under Regulation X of the phrase 'real estate construction credit', and you may advise Northwest Bancorporation to this effect. However, you maY wish to emphasize that a Registrant is not required to obtain a signed statement from each borrower in order ,t00 1, tmtain the nature of the credit, and if the Regis: satisfied that the credit is not real estate co nstruction credit, other kinds of records may be used to demons trate this fact. For example, such a rubber stamp legend as that proposed by the Northwest Bancorporation's affiliates, if placed upon the credit instrument c) upon other papers in connection with the credit and !lgned by the Registrant or a responsible officer of the !Feistrant, would be a sufficient record to demonstrate fact that the Registrant was satisfied that the credit 'xtended was not real estate construction credit. In viea of the fact that Northwest Bancorporation has Rosesubsidiary banks in the Seventh and Tenth Federal , rvo Districts, we are sending copies of Mr. Strothman's ilietter of January 6, 1951, and this reply, to the Federal c'Grvo Banks of Chicago and Kansas City." Approved unanimously. Letter to Mr. Samuel E. Neel, Esq., Mortgage Bankers AssociatOrt Ruat Building, 1001 - 15th Street, N. W., Washington 5, D. C., 1411ing as follows: 1/25/51 -14- "This refers to your letter of January 15, 1951, with enclosures, addressed to Mr. 1. A. Clarke, relating to the maximum maturity of extensions of credit subject to Regulation X. "The maturity provision in the Supplement to Regulation X provides for a maximum maturity of 20 years (or 25 years, in some cases) 'from the date suchcredit is extended'. In trade practice, provision often is made for the payment of the first instalment of an amortized loan on the first day of the second calendar month after the month in which the credit is extended. In order to permit this practice, the Board, in a telegram to the Presidents df all Federal Reserve Banks on November 3, 1950, stated: t * in calculating the maximum maturity of credit subject to the regulation, a Registrant may, at his option, use any date not more than 32 days subsequent to the date such credit is extended.' "Regulation X, as amended effective January 12, 1951, provides in section 6(n) that 'In calculating the maximum maturity of credit subject to this regulation, a Regisrant may use, at his option, as "te date such credit is extended", any date not more than 32 days subsequent to the actual date such credit is extended.' "Neither the interpretation of November 3, 1950, nor section 6(n) of the regulation means that the first instalmentoin an amortized loan must be paid within 32 days ..r-tier the date the credit is extended. They do mean, in „e ,frect, that the mamimum maturity of credit subject to ' ce I gulation X may be 20 years and 32 days (or, in some a8", 2 )years and 32 days) from the actual date such credit, is extended. el "For example, if a 20-year loan payable monthly were ° : 3°d on January 1, 1951, and the first payment is made .1arch 1, 1951, the last payment irould be made on Febru] gill 1971. Here the Registrant aould be using February 1, 6hich is 31 days subsequent to the actual date such ane '” l is extended, as 'the date such credit, is extended', in ' ,he loan would mature 23 years from such date. The loan, jaleffecL, would have a maturity of 20 years and 31 days from " 111 1, 1951, the actual date such credit vas extended. '110 Principles of the interpretation of November 3, 1950, and of , . .oction 6(n) of the regulation are not limited to Payment loans. The amortization provision in the su , ' 440ment to Regulation X permits repayment through substantially 1/25/51 -15- "equal monthly, quarterly, semiannual, or annual payments. As a further illustration, in the case of a 20-year loan Payable annually in 20 instalments, where the loan is Closed on February 1, 1951, the first payment could be made on March 1, 1952, because the last payment would be made and the loan would mature on March 1, 1971. Here the Registrant would be using March 1, 1951, which is 23 days subsequent to the actual date such credit is extended, as 'the date such credit is extended', and the loan would mature 20 years from such date." Approved unanimously. Letter to Mr. Erickson, President of the Federal Reserve Bank Of Boston, reading as follows: , "Phis refers to Mr. Schlaikjer's letter of January 17, 1-9 1, concerning the request of Mr. A. G. Helmund, Assistant Cashier of the Middlesex County National Bank, Somerille, Massachusetts, for an interpretation of Regulation X. Helmund asked whether a Registrant, who already had exended credit up to the maximum loan value with respect to a major Improvement to a two-family residence, may make an additionnl loan with respect to that property up to an amount _epi.:Isenting that portion of the proceeds of the original loan with which the borrower's contractor absconded. "Mr. Schlaikjer stated his opinion was 'that if the ! .Iogistirant is satisfied that a portion of: the proceeds of 1e original loan was in fact stolen by the contractor, ' he Registrant may consistent with Regulation X extend additional credit which when added to the proceeds of the eriginal loan actually used for the major improvement will net exceed the maximum loan value thereof.' "The Board concurs in the opinion of Mr. Schlaikjer, and You may advise Mr. Helmund to this effect." Approved unanimously. Letter to the Presidents of all Federal Reserve Banks and Na0.4s: vfficers of all Federal Reserve Bank Branches, reading as 99 1/25/51 —16— "A Statement of Borrower with respect to Residential Real Estate Construction Credit, and a Statement of Borrower with respect to Credit Nhich Is Not Real Estate Construction Credit, revised pursuant to the amended Regulation X, Residential Real Estate Credit, has now been approved and mimeographed copies are enclosed." Approved unanimously. Letter to Mr. Armistead, Vice President of the Federal Reserve Bank of Richmond, reading as follows: "Reference is made to your letter of January 13, 1951, submitting the request of The Fidelity Bank, Durham, North Carolina, for approval under the provisions of Section 24A of the Federal Reserve Act, of an additional investment of $200,000 in bank premises, for the purpose of enlarging and renovating the banking quarters at its main office and its 'Nest Durham branch. "In view of your recommendation, the Board of Governors approves the investment of not more than $200,000, as proposed, provided the prior approval of State authorities is obtained if required." Approved unanimously. Memorandum dated January 23, 1951, from Mr. Carpenter, Secretar'Y of the Board, recommending that the Board authorize the purchase an additional safe for storage of the bound volumes of the minutes °r the Board and the Federal Open Market Committee and that the 1951 1°13t of the Office of the Secretary be increased to cover the cost, eltimated at $668.20. Approved unanimously. Sc2oretary.
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