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22 Minutes of actions taken by the Board of Governors of the cs Federal Reserve System on raturday, January 5, 1)),. PRE2EN91: Mr. Mr. Mr. Mr. Martin, Chairman Szymczak Evans Powell Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Minutes of actions taken by the Board of Governors of the Federal Reserve System on January 4, 1952, were approved unanimously. . 1952, from Mr. Bethea, Director, Memorandum dated January 2) Division of Administrative Services, reconmending that the resignation of Miss Etta Maxine Bailey, Page in that Division, be accepted to be effective, in accordance with her request, at the close of business J.J.nuary 11, 1952. :Approved unanimously.. Memorandum 'dated January 2, 1952, from Mr, Bethea, Director, Division of AdMinUtrative ervices, recommending :that Miss Martha Jane Fink, Page in that Division, be transferred to the position of Operator (Key Punch) in that Division, with an increase in her basic salary from $2,500 to $2,750 per annum effective as of the date upon Which she commences the performance of her new duties. Approved unanimously. 23 1/5/52 -2Letter to Mr. Latham, Vice President, Federal Reserve Bank of Boston, reading as follows: "In accordance with the request contained in your letter of January 2, 1952, the Board approves the appointments of Archie Campbell ;miles and William Clifford Gittins, at present assistant examiners, as examiners for the Federal Reserve Bank of Boston. "Please advise us of the dates upon which the appointments are made effective." Approved unanimously. Letter to Mr. Mangels, First Vice President, Federal Reserve B...112: of an Francisco, reading as follows: "In accordance with the request contained in your letter of January 2, 1952, the Board approves the designation of the following as special assistant examiners for the Federal Reserve Bank of Can Francisco: Los Angeles Head Office D. B. Drinkall N. Andersen S. S. Lowe, Jr. D. Anderton C. P. O'Neill R. A. Burke J. B. Williams C. O. Clark D. C. Goodrich Seattle W. A. Hammond P. T. Schwedler P. R. Smith R. E. Heydenretch B. Lange E. A. R. Thomas H. V. Marlatt H. C. Oakley "Appropriate notations have been made in our records of the names to be deleted from the list of special assistant examiners." Approved unanimously. Telegrams to the Presidents of all Federal Reserve Ranks, prepared Pursuant to action taken at the meeting of the Board on December 28, 1951, readinE as follows: 24 lbb2 -.3- "In view of the sharp overall increase in business loans at banks in December, the Board would aopreciate it if your staff would interview a selected group of wellinformed bankers in your District to get some qualitative impressions about the character of recent borrowing and its implications for the future course of bank loans. Amon -, the questions you may want to ask are the following: 1. Why are loans to commodity dealers and food, liquor and tobacco manufacturers continuing to increase? un what commodities are these loans being made? How ion! is this type of lending likely to increase? 2. To what extent is current lending due to backedup inventories? In what lines? 3. are loan repayments coming in on schedule, or is the refinancing of outstanding or maturing debt increasing in volume? If the latter is so, what are the reasons for it? To whAt extent are involuntary inventory accumulations a source of delay in loan repayments? 4. Available figures for four districts indicate a significant volume of new lending to metal and metal product manuracturers to finance nondefense activities. 14hat types of nondefense activities are being financed and when can the volume of such lending be expected to taper off? 5. On the basis of your information on present and prospective defense contract financing when are defense loans likely to reach their peak? Is a significant proportion of defense loans to finance inventory accumulation due to inability to make final deliveries of practically finished items because of shortages of individual key components? 6. Are outstanding loans originally made to finance new plant construction and equipment purchases likely to be repaid from security sales or other long-term sources. If so, when? 7. Are many loans being made to obtain funds for tax Payments? If so, when are they lkely to be paid off? Is borrowing for tax purposes likely to be large in the first quarter of 1952? 8. Is there any evidence that a considerable number. of business enterprises are borrowing to Increase their capital base for the computation or excess profits taxes? 25 "9. Has the working capital position of a substantial number of business enterprises become significantly less liquid in recent months? Are a sizable number of other business concerns accumulating an unusual amount of cash or other liquid resources at this tine? Is there much anticipatory borrowing in expectation of a future s,lortat;e of credit or for other reasons? "Theae questions should be considered only as guides to your study of current loan trends. Any comments you would care to make on related questions would be welcome, for the purpose of the inquiry is to add qualitative information to the loan statistics now being collected. We would appreciate it if you would limit your interviews so that you could reply to this telegram by January 15." Approved unanimously. Letter to Mr. Armistead, Woe President, Federal Reserve Bank of Richmond, readin!: as follows: "Reference is made to your letter of December 19, 1951, submIttinr the request of The Fidelity Dank, Durham, North Carolina, for op,roval, under the provisions of Section 24A of the Federal Reserve Act, of an additional investment of YL25,000 in bank premises for the construction of a proposed branch bank building at the corner of Vicl:ers Avenue and Jackson street in Durham, North Carolina. "The Board, in ito letter dated January 25, 1951, authorized an additional investment of $200,000 in bank premises for the purpose of enlarginu, and renovating the banking quarters at its ma!n office and its West Durham branch, which the management estimated would cost $150,000 and $50,00) re.,rectively. It is understood that, due to a change in plans, the expenditures at the main office will total approximately $65,000 and at the West Durham branch the total will be approximately 05,000, leaving an unexpended balance of $50,000 of the amount authorized for the two projects. "In view of your recommendation the Board hereby amends its authorization of January 25, 1951, and approves an investment by The Fidelity BEnk, Durham, North Carolina, of $275,000 26 1/5b2 -5- "in bank premises, of which M),00n and V15,000 are for the purposes of enlarr,ing and renovat:tng. the banking quarters at its main office and its West Durham branch, respectvely, and '1_25,000 is for the purpose of constructing a branch banking house at the corner of Vickers Avenue and Jackson ,treet in Durham, North Carolina." Approved unanimously. Letter to Mr. T. J. O'Brien, Vice President, The Second National %nil: or Houston, Houston, Texas, reading as follows: "This refers to your letter of December 24, 19')1, to the Federal Reserve Bank of Dallas, requesting a determination as to the status of Second National Corporation, Houston, Texas, as a holding company affiliate. "From the information supplied, the Board understands that Second National Corporation was organized and is primarily operated for the purpose of handling certain types of oil financing; that the Corporation is a holding company affiliate of The Freel)ort National Bank, Freeport, Texas,bj reason of the fact that it owns 258 of the 500 outstanding shares of stock of that bank; that the Corporation also owns 348 of the 1,000 outstanding shares of stock of The Texas City rational Bank, Texas City, Texas, and 292 shares of the 2r0,000 outstanding shares of stock of The Second National Bank of Houston, Houston, Texas, but does not own or control, directly or indirectly, any other bank stock; that the Corporation's investments in the stock of The Freeport National Bank and The Texas City National Dank were made on a temporary basis with a view toward resale to local interests after accomplishment of certain measures for the rehabilitation of the respective banks; that the Corporation was not organized and is not operated for the purpose of making permanent investments in the control of 1-,ankins, institutions; and that the Corporation does not manacp or control, directly or indirectly, any banking, institution other then The Freeport National Bank. "It is understood also that all of the stock of Second Notional Corporation is held by three trustees under a declaration of trust for the benefit of the stockholders of The Second 27 1/5/2 11 -6- 1;ational Bank of Ilouston, and from the available information It appears that The Second National Bank of Houston may also be a holding company affiliate of The Freeport National Bank. However, it appears that, ecept for the fact that The econd National Bank of Houston may hold some bank stock in fiduciary capacities in the normal course nf its trust business, it does not own or control, directly or indirectly, any bank stock other than that owned by Second National Corporation, and does not hanaLQ or control, directly or indirectly, any banking institution other than The Freeport National Bank. In view of these facts, the Board has determined that Second National Corporation and The Second National Bank of Houston are not engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies, within tae meaning of section 2(c) of the Bunking ,ct of 1933, as amended; and, accordingly, these organizations are not holdin, company affiliates for any purposes other than those of section 23.1. of the Federal Reserve Act. "If, however, the facts should at any time differ from those set out above to an e:cLent which would indicate that Second Notional Corporation or The Second. National Bank of Houston might be deemed to be so engaged, this matter should again be submitted to the Board. The Bcard reserves the right to make a further determination at any time on the basio of the then existing facto." Approved unanimously, for transmittal through the Federal Reserve Bank of Dallas. Letter to Mr. Peyton, President, Federal Reserve Bank of MinneaoliL, reading as follows: "This is to confirm our understanding, based on informal conversations with your staff, that the Minneapolis Bank would be willing to be host at the Regional Conference on Regulations W and 7 scheduled for January 23, 24, and 25, to be attended also by representatives of the Federal Reserve Banks of Richmond and San Francisco. As you know this series of Lank conferences was originally scheduled for last June and then again 28 lbb2 -7- "for last September but was deferred until early in 1952 as indicated in the Board's letter dated October 31, 1921. appreciate your cooperation and hope that the Conference will be of benefit to your Bank as well as to the other participating Banks." Approved unanimously, with similar letters to the Presidents of the Federal Reserve Banks of DAlas, Atlanta, and Cleveland, together with the following letter to Mr. Leach, President, Federal Reserve Rank Of Richmond, with similar letters to the ?residents of the Federal Reserve Banks of Booton, New York, Philadelphia, Chicago, St. Louis, Kansas City, and San Francisco: "This will confirm our understanding, based on informal conversation with your staff, that the Richmond Bank will send representatives to the Regional Conference on Regulations and 7; scheduled for January 23, A, and 25 at Minneapolis. As you know, this series of Bank conferences was originally scheduled for last June and then again for last September but was deferred until early in 1952 as indicated in the Board's letter dated October 31, 1951. It is planned that the Conference will consider Regulation Y matters on January 23 and the morning of January 24, and Regulation W matters on the afternoon of January 24 and on JJ.nuary 25. Ive suggest that each Bank's representation include a member of its legal staff and one investigator from each of its offices, as well as such other representatives as you may feel it desirable to send. "The Federal Reserve Bank of Minneapolis will write to YOU Inviting suggestions for the program and requesting a list of those who will attend from your Bank." Letter to Mr. Paul W. Denton, xttorney at Law, Exchange Building, Memphis, Tennessee, reading as follows: "This refers to your letter of December 17, 1951, concerning Refflation W - Consumer Credit - and the proposed arrangements of your client, a dealer in used automobiles, to deliver used automobiles to his salesmen. abb2 -8- "Briefly, you indicate that in the case of a particular transaction of the kinds proposed there would be no sale or contemplated sale of the automobile to the salesman; that each salesman would pay to the dealer each month specified charge to cover depreciation in value of the automobile while in the salesman's possession; and that while the salesman would be entitled to use the automobile for all purposes, he would be expected to encourage its sale at a price suitable to the dealer and to otherwise use the car in furtherance of the dealer's business. It appears also that under none of the arrangements in question would the salesman's possession be for a specified period but rather for a period of indefinite duration. As h practical matter, it would appear further that the arrangements would afford to the salesman the continuous use of an automobile, although not of the same particular automobile. "INhile you apparently are familiar with the regulation itself, you may not know of the Board's interpretation concerning leasing arrangements which was published in the March 15, 1951 issue of the Federal Register (16 F.R. 2439, Int. 33) and in the 1951 Federal Reserve Bulletin, page 270. This interpretation, a copy of which is enclosed herewith, indicates leasing or rental arrangements that are exempt from the regulation and explains the , :l.plication of the regulation to other types of rentals or leases of listed articles, e.g., automobiles, that should be considered subject to the regulation. In connection with the enclosed interpretation and also your reference to the language of the regulation, it may be noted that the very broad definition made a part of section 8(j)(3) specifically includes, among other things, number of situations not involving any passage of title or the particular amount of consideration that may move between the pa/ties. Among them, for example, are 'any loan or mortgage'. There can, of course, be a loan (i.e., 9. lease) of property as well as a loan of money. This fact is a relevant consideration, particularly with respect to the comprehensive coverage of the last clause of the definition specifying 'any transaction or series of transactIons having a similar purpose or effect.' "In view of the foreboing and on the basis of the facts no presented, it would not appear that the arrangements 30 ibb2 -9- proposed by your client would fall within a class entitled to exemption from the regulation in its present form. However, the Board always welcomes the opportunity for developing further information in connection with the regulation and its administration and, therefore, would be glad to consider any further facts or other relevant matter in this regard which you might wish to bring to its attention either directly or through the Memphis, Tennessee, Branch of the Federal Reserve Bank of St. Louis, which is concerned with the administration of the regulation in your area." Approved unanimously, with a copy to Messrs. Lewis, Vice President, Federal Reserve Bank of St. Louis,and Schroeder, Vice President, Memphis Branch. Letter to the Presidents of all Federal Reserve Banks, reading as follows: "A question has been presented as to whether frozen food is subject to Regulation W where sold on an Instalment basis and delivered by the Registrant at the time of the instalment sale by him of a food freezer of the kind listed in Group B of the Supplement to the regulation. It is understood that the frozen food, at dealer's cost and in an amount determined by the capacity of the freezer, is offered as an inducement to the sale of the freezer at the Registrant's Prevailing prIce. "In the usual case, the Board Is of the view that the Principles stated in S-1381 (14-162) would appear to be applicable. Accordingly, it would seem unobjectionable in such a case for the Registrant to treat as subject to regulation only that part of the combined credit arising from the sale of the food freezer. "However, in addition to the limitations indicated in 11-162, the foregoing is in no way intended as any departure from the principles stated in S-1343 (4-1)0) and considered in the letter to all Reserve Banks of June 11, 191)1, concerning 'free gifts', rebates, or discounts." Approved unanimously. 31 ]b/)2 -10Telegram to the President of all Federal Reserve Banks, reOing as follows: -A Registrant under Regulation has inquired through a Federal Reserve Bank os to the maximum permissible maturity of credit extended to a purchaser of residential property which Is being resold. For example, If the propert3, was orlEinally purchased in November 1950 and is beine resold in January 1952, may credit extended to the purchaser in the re ale have a maturity of twenty years? "It is the opinion of the Board that credit extended to the purchaser in such a case may have a maturity of twenty years even if the purchaser refinances, assumes, or takes the property subject to, existinG indebtedness. For purposes of Regulation Y, there is in such cases an extension of credit at the time of the resale, and, accordingly, the maximum permissible maturity of credit extended . to the purchaser should be calculated from such time." Approved unanimously. Secretor
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