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140 A meeting of the Board of Governors of the Federal Reserve Sys— Was held in Washington on Thursday, January 31, 1946, at 10:30 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak (latter part of meeting) McKee Draper Evans Mr. Carpenter, Secretary Mr. Hammond, Assistant Secretary Mr. Connell, General Assistant, Office of the Secretary Mr. Morrill, Special Adviser Mr. Thurston, Assistant to the Chairman Mr. Parry, Director of the Division of Security Loans Mr. Vest, General Attorney Mr. Brown, Assistant Director of the Division of Security Loans Mr. Horbett, Assistant Director of the Division of Bank Operations Mr. Townsend, Assistant General Attorney Mr. Chase, Attorney Mr. Ransom stated that in accordance with the suggestion made at the hearing before the Board on January 25, 1946, in the matter of vie'lati°n of Regulation Wr, Consumer Credit, by the Motor City Credit jewelrY C°mPatly of Van Dyke, Michigan, Mn. Hodge, General Counsel for the p, eueral Reserve Bank of Chicago acting for the Board in this case, had re c°mmended the following proposed settlement of the case: 1. A- order by the Board suspending, for a period of !IxtY 4 days to be determined by the Board, the regis— ' rant's license to extend credit but not affecting anY business that it might do on a cash basis. The Board would also issue a statement to the press an— nouncing the disposition of the case. 2. A 41 consent injunction which would enjoin the company d the principals from further violation of the Regu— 141 1/31/46 -2- 3. David Fink who owned 45 per cent of the stock would transfer 15 per cent to Nathan Fink; David Fink would resign as president of the registrant; Sol. Fink would be elected president; Sol. and Nathan Fink would be authorized by resolution to manage the affairs of the company; and after the expiration of the 60-day period Nathan Fink would be charged with the responsibility of passing on all credits. Mr. Ransom stated that he understood that the proposal was acce ptable to Mr. Allin, Counsel for the registrant, that Messrs. Parry, Vest/ and Townsend concurred in the recommendation, and that he (Mr. Ranse,\ L) - would recommend that it be accepted by the Board. Mr. Townsend said that he thought it would be desirable to he the order of the Board issued concurrently with the consent in" h 4-on of the court so that the press release issued by the Board wolad cover all steps taken in disposing of the case. At the conclusion of a discussion, Mr. Ransom moved that the Board indicate its approval of the above reconimendations With the understanding that Messrs. Townsend and Hodge would go to Detroit as soon as possible to work out the details of the matter, and that the order of the Board and its press release would be issued at the same time as the issuance of the consent injunction by the court. This motion was put by the chair and carried unanimously. Mr. Szymczak and Mr. Thomas entered the meeting at this point, arid uessr8. Parry, Brown, and Chase withdrew. Mr. McKee stated that while he and Mr. Vest were in Chicago letweek they conferred with Messrs. Young, President; Dunn, First Ikee Pr esident; and Harris, Vice President in charge of the Detroit 11'''Llich, of the Federal Reserve Bank of Chicago, with respect to the 142 1/31/46 —3— 13°8it10n taken by Mr. Stoddard, President of the Michigan National Bank of Lansing, Michigan, that the Board was without authority under the la— w to adopt the amendment to Regulation D which was approved, trective August 5, 1945, requiring member banks with branches in a reserve city to maintain the same reserves as banks with head offices located in such cities, and that he proposed to test the authority of the Boa rd in the courts. Mr. McKee also said it appeared that the banks in Grand Rapids would not join in a request that the reserve city des— ignation of Grand Rapids be terminated and that in considering other P°ssible actions it had been suggested that the Board might again give co nsideration to the termination of the designation as reserve eitR ie „ - /14". all cities which were not located in a Federal Reserve Bank or Branch citr. He added that such action would reduce required re— of member banks in such cities by less than $200,000,000, that there no longer appeared to be justification for continuing the pres ellt des ignation of these cities, and that it would be his suggestion that the Board address a letter to the Presidents of the Federal Re N've Banks asking for their views. He made the further comment that, while the Board's counsel felt that the courts would decide in the toardte favor in any action brought to test the Board's legal author— It3r, it was felt that the unfavorable situation that would be created blY. 41 adverse decision mould not justify the risk involved if there another course that the Board might take to meet the situation. 143 1/31/46 -4A draft of letter to the Presidents of the Federal Reserve Banks asking for their views was read and after discussion, upon motion by Mr. McKee, was approved unanimously in the following form, it being agreed that the Board should give consideration to the discontinuance of the reserve city designation of the cities referred to regardless of the outcome of the matter affecting the Michigan National Bank: "It will be recalled that in 1938 at the request of the Board a survey was made as to the advisability of terlating the reserve city status of reserve cities other t4lan those in which Federal Reserve Banks and Branches were located. This survey indicated that the great mapritY of the member banks in such reserve cities were nen opposed to the suggested termination. In the circumstances, and since the whole question of member bank r?serve requirements was under general study, it was decided to take no action at that time to terminate the reserve city status of these cities. the"In view, however, of the time which has elapsed and changes which have occurred in conditions since that 81.11TeY was made, the Board is now giving favorable consid!ration to the desirability of terminating the reserve city _le ,.signation of reserve cities other than those in which an ice of a Federal Reserve Bank is located. As you know, Tember banks located in reserve cities in which there are Federal Reserve Banks or Branches do not, as a practical Tatter, have the same services or facilities as member banks Federal Reserve Bank and Branch cities. This applies, example, to the check collection facilities and the r°vision for supplying vault cash requirements. Moreover, 4f r e of the reserve cities are quite small from the standboth of population and volume of deposits, and in cases the volume of deposits due to other banks also ei+?mall- There is enclosed a table listing all reserve 4-'1es other than Federal Reserve Bank and Branch cities, g?ther with their population and the amounts of total deand interbank deposits of member banks located thereof„1011 will observe that the cities are situated in seven Lale twelve Federal Reserve districts. n t p ; g 144 -5"It will be appreciated if you will give consideration to the desirability of terminating the reserve city status of these cities and will submit to the Board such comments and views as you may have in this connection. Pending consideration by the Board of the replies to this letter, the Board prefers that this matter not be taken 1113 with member banks or others, unless in some particular case you feel it especially important to do so and the matter can be handled informally and on a confidential basis. "Itis realized, of course, as indicated in the Board's letter of November 8, 1945, that a permanent solution of ILhe problem of reserve requirements of member banks is one which probably needs legislation. Pending the working out °f legislative proposals and enactment of legislation, howeYer' the Board feels that the termination of the reserve ejtY status of the cities referred to should again be conldered. It is hoped, therefore, that we may have your ear comments on this proposal." In connection with the above matter reference was made to the ces rab of action by the Board to increase reserve requirements or Ilielliber banks in New York and Chicago and it was suggested that such 4ctio , - mlght be taken concurrently with any action to discontinue the reserv . e city designation of all cities other than Federal Reserve Bank 441d Branch cities. It was agreed that Mr. Thomas should have this proposal analyzed for the reason that, irrespective of action by the Board With respect to reserve city designations, It might be found necessary to increase reserve requirements of member banks in central reserve cities as a part of the System's postwar credit policy. At• Draper's request, there was read a memorandum addressed to the 130ard by the Personnel Committee under date of January 29, 1946, 145 1/31/46 —6— inwhich it was stated that formal advice had been received from the Federal Reserve Banks of Boston, Cleveland, Chicago, St. Louis, Minneap045, Dallas, and San Francisco of appointments, subject to approval bY the Board, of Presidents and First Vice Presidents of the Federal Res erve Banks for the term of five years beginning March 1, 1946, and that the Personnel Committee recommended that these Banks be advised °f the Board's approval of the appointments but that action on salaries of the appointees was being deferred until the Presidents and First \rice Presidents of sJ1 the Federal Reserve Banks could be reviewed at the sa4e time. The memorandum also stated that, on the assumption 'W. J. Davis would be appointed First Vice President of the that lir Pederal Reserve Bank of Philadelphia, and that the remaining Presi_ dents and First Vice Presidents would be reappointed for the new term, the p ersonnel Committee recommended that, subject to receipt of advice °t --e"appointments, the Board approve the appointment of Mr. Davis, the r eaPpointment of the President of the Federal Reserve Bank of elPhia, and the reappointment of the Presidents and First Vice Presicl ents of the Federal Reserve Banks of New York, Richmond, Atlanta, kw 4 tisas City, each for a term of five years beginning March 1, 1946. After discussion, upon motion by Mr. Draper, actions were taken by unanimous vote as follows: 1. The following telegram to Mr. Creighton, Chairman of the Federal Reserve Bank of Boston, was approved: 146 1/31/46 -7-- "Board approves appointment by your Board of Directors of Mr. Laurence F. Whittemore as President and reappointment of Mr. tilliam Willett as First Vice President of the Federal Reserve Bank of Boston, both for 5-year terms commencing March 1, 1946. "Board also approves payment of salary to Mr. Whittem,ore at the rate of $25,000 per annum for the period March 1, 1946 through April 30, 1947, the rate fixed by Your directors as reported in your letter of January 28. President will be given •"Consideration of salary of First Vice later." 2. Approval was given to the following appointments, each for a term of five years beginning March 1, 1946, it being understood that the Banks involved would be advised that the Board was deferring action on the salaries of the appointees until the salaries of the Presidents and First Vice Presidents of all of the Federal Reserve Banks could be reviewed at the same time: l'ederal Reserve Bank Cl eveland Chicago St. Louis neapoli s Dallas $an Francisco President Ray M. Gidney C. S. Young Chester C. Davis J. N. Peyton R. R. Gilbert Ira Clerk First Vice President Wm. H. Fletcher Charles B. Dunn F. Guy Hitt 0. S. Powell W. D. Gentry C. E. Earhart 3. It was agreed that, upon receipt of advice of appointments for the new term of the Presidents and First Vice Presidents of the Federal Reserve Banks of New York, Philadelphia, Richmond, Atlanta, and Kansas City, as indicated above, they would be approved by the Board with the same advice to the Banks that action on the salaries of the appointees was being deferred until the salaries of the Presidents and First Vice Presidents of all of the Banks could be considered together. 147 1/31/46 Under date of January 23, 1946, a letter was received from the W ashington office of the National Association for the Advancement of Colored People alleging discrimination against colored people in the employ of the Board with respect to the use of toilet and cafeteria facilities in the Board's building and with respect to advancement to better positions. Following informal discussion by members of the Board, the matter was referred to the Personnel Committee for considellation and at this meeting Mr. Evans, speaking for the Personnel Cornstated that a similar letter had been received from some of the employees of the Board, and that after considering both communications it was proposed that the Division of Personnel Administration meet with the Board's employees who had presented the matter and go irlt° the situation with the utmost care and that the National Associa- ti°4 for the Advancement of Colored People be advised directly or t4°11gh the Board's own employees that the matter was being taken up ilith the em ployees. When the matter was ready for further considerby the Board, Mr. Evans said, it would be presented to the Board IV the Personnel Committee and in the meantime the members of the .taff who were interested would be asked to submit any suggestions that they might have in connection with the matter to the Division Pel'eonnel Administration for consideration. The procedure proposed by the Personnel Committee was approved unanimously. 148 1/31/46 —9--. Mr. Townsend referred to the discussion at the meeting of the Board on January 28, 1946, of the suit brought against the in— clildAllal members of the Board in the District Court of the United States for the District of Columbia by the Peoples Bank of Lakewood Village, California, and stated that he had just been served with (3rders addressed to the members of the Board ordering them, through Townsend, Assistant General Attorney, or such other officers of the Board as may have custody and control of the papers referred to in the order, to appear before a notary public in the office of Hr. Townsend on February 6, at 10:30 a.m., to testify and give evidence in the suit and to bring with them and produce the records listed in . the order Mr. Townsend explained the legal basis upon which the or— der we`e issued and stated that it was proposed, for the reasons out— lined at the meeting of the Board on January 28, 1946, to file a no— tion to dismiss the case and at the same time a motion to postpone the proceedings under the orders referred to above until the court had acted on the order to dismiss, since, if the case were dismissed, there w°111d be no need for the testimony contemplated by the orders. The members of the Board indicated approval of Mr. Townsend's proceeding in the manner which he had outlined. At this point Messrs. Vest, Horbett, Townsend, and Thomas ew from the meeting. 149 1/31/46 -10The action stated with respect to each of the matters herein- after referred to was then taken by the Board: The minutes of the meeting of the Board of Governors of the Pederal Reserve System held on January 30, 1946, were approved unaniMously. Letter to Mr. Turman, Secretary pro tern of the Federal Reserve Bank of Atlanta, reading as follows: "The Board of Governors approves the reappointments of Messrs. John E. Sanford, W. W. French, I. C. Milner, George Winship, and Luther H. Randall as members of the Industrial Advisory Committee for the Sixth Federal Resee District to serve for terms of one year each, beTinning March 1, 1946, in accordance with the action taken by the Board of Directors of the Federal Reserve nk of Atlanta as reported in your letter of January <8' 1946.n Approved unanimously. Letter to Mr. John Burr Williams, Wellesley Hills, Massachusetts, ream -4-ng as follows: latjn"This is in reply to your letter of January 19, re' - 41I t0 the status of arbitrage accounts. .LOU will have noticed, we assume, that the Board's Reg T recognizes the nature of arbitrage transac_ bY defining them and providing that as so defined sj,F , mAY be carried in a 'Special Arbitrage Account.' coe:Laccounts, although they must conform to certain are not subject to the Board's standard marput requirements and would presumably not have to be n a cash basis in case margin accounts, in the gencu. sense, were required to be closed out. 1_50 1/31/46 -11- "For your information, a copy of Regulation T is enclosed. The principal provisions relating to arbitrage t ransactions are in section 3(a) as amended, section 4(a), and section 4(d). If you should have any further questions cn the regulation, you may find it convenient to refer them to the Federal Reserve Bank of Boston which has Charge of the administration of Regulation T in your territory." Approved unanimously. Letter to Mr. Fred S. McDonald, McConnelsville, Ohio, reading as fclims: "This is in reply to your letter of January 25, relating to the Board's recent action in requiring new purchases of securities to be on a cash basis and to the ef_ rsct of this requirement on an account which was previously °n what might be called an 'overmargined' basis. "In case securities are sold in such an account, the regulations provide that the proceeds must be devoted to Paying off the customer's indebtedness and may not be Used, to by securities. This does not seem to us to be fair, because it merely puts the customer who happens 0 have an old account on the same basis as a new cus,?rner. If the new customer is required to pay cash, so "150 the old customer. The situation you outline is in principle the same as that involved when the Board issued new rules last j1.14 applying to accounts undermargined by the 75 per .lent standard. Some of our correspondence since then as indicated, like your own letter, that many a customer Legards his 'equity' in a margin account in just the same 17,aY that he would regard an equivalent value represented securities held in safe deposit. This view does not em to us to be warranted, in view of the provisions of Securities Exchange Act of 1934, which charges the with a responsibility for preventing the excessive Use cf credit for carrying securities as well as for purwa ! eing securities. It would seem to be especially untrITanted at a time when, as you know, there is such a elflendous volume of cash in the hands of the public as Z j 151 1/31/46 -12- "to bring Into question whether it is in the public Interest for any credit whatever to be used for either purchasing or carrying securities." Approved unanimously. Thereupon the meting adjourned. Chairman.
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