The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Minutes of actions taken by the Board of Governors of the
Neral Reserve System on Tuesday, July 31, 1951.
The Board met in the
lIclardRoom at 10:35 a.m.
PRESENT:
Mr. Szymczak, Chairman pro tern
Mr. Evans
Mr.
Mr.
Mr.
Mr.
Mr.
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
Young, Director, Division of Research and
Statistics
Noyes, Director, Division of Selective Credit
Regulation
Chase, Assistant Solicitor
Fauver, Assistant Director, Division of Selective
Credit Regulation
Shay, Assistant Counsel, Legal Division
Youngdahl, Chief, Government Finance Section,
Division of Research and Statistics
Leach, Economist, Division of Research and
Statistics
Mr. Thomas presented a report on developments in the Government
4eIll'ities
market.
During the
course of the foregoing report Mr. Vardaman joined
t4 Meeting, and at
its conclusion Messrs. Youngdahl and Leach withdrew.
Ilefore the
meeting there were distributed to the members of the
of a
memorandum dated July 30, 1951 from Mr. Evans outlining
tr4e4414elit
10
br
8 t- “egbiatiOn WI
Consumer Credit, which would be necessary to
14 the im
--°visions of the regulation into conformity with the terms of
---8
7/31/51
-2-
the Defense Production Act Amendments of 1951, upon approval by the Presiof the legislation. The memorandum stated that, in addition to these
Nuired amendments, certain minor changes would be desirable in order to
Xailltain a balance within a given segment of credit controlled by the regu14
, and that this would appear to be an appropriate time to provide
eXem".44
"
1 -Lons for certain types of instalment credit where the use of such
17edit had
been made necessary in order to comply with Governmental regulatiob.„
—a relating to health and sanitation. To accomplish this, it was
11114°86(1.) after having checked with the Federal Reserve Banks, all of which
Qz'ed the amendment) to provide an exemption in Section 7 of the Regulation
to such
credit required to finance the installation of sewerage and
othe,
raelated necessary facilities, including plumbing and plumbing fixt‘kres.
14r. Leonard, Director, Division of Bank Operations, joined the
at this Point.
Mz. Vardaman called attention to the absence of a quorum and
tate t
hat he did not believe the Board should act on amendments to RegulEttiola w
the.the /4thout a quorum even though the action were ratified later,
felt the members
of the Board should arrange their time so that
4 (111114
c't the Board would always be present, and that if action were
to.
t° approve the proposed amendments he would not participate
he actio4.
mAen
7/31/51
-3Mr. Evans referred to the discussion at the meeting on July 17,
151, during which he had pointed out that it could not then be determined
Mat
amendments would be required to bring Regulation W into conformity
"Ilegislation extending and amending the Defense Production Act of
350, but
that if limitations were placed on terms for only certain
Parts of
the regulation it would be necessary to consider what other
chazge
8
might be desirable in order to have a properly balanced regula-
ticlivhich would provide substantially equitable treatment for the various
elasees of registrants.
At the time, Mr. Evans said, he also stated that
hewould bring
the nature of such changes to the attention of the Board
1111the type of legislation to be passed by the Congress was determined,
the other
members of the Board present had concurred in this as a
484able
approach.
He added that the proposed amendments had been pre-
acc° lace with this understanding and that he recommended that
‘rlen)e adopted
to become effective as soon as the President signed the
bere4se ?roduction Act Amendments of 1951, which he was expected to do
4terto%.
141's Riefler stated that the nature of the proposed amendments to
Reglatttio,, „
w had been discussed with Chairman Martin by telephone and that
at Chalr118.4 wished to be recorded as voting to approve them. Mr. Carpenter
yeZthat the
matter had been brought to the attention of Mr. Norton
"
414 that he (Mr. Norton) also wished to be recorded as in favor
ableilcinients.
II47= ,r7
t`
713a/51
It Was the view of Messrs. Szymczak and Evans that it was important
Aecessary that the amendments to Regulation W become effective as soon
48 Pc881b1e after the President signed the Defense Production Act Amendits
Of 1951 and
that inasmuch as it was clear that a majority of the
Board
P
.avored the amendments they should be made effective as soon as
the rre
sident signed the new legislation.
Mr. Vardaman stated that be did
hot
hAve anY objection to the amendments but that he did object to the
Proced
ure under which they would be put into effect when a quorum was not
Preeett.
Thereupon, upon motion by Mr.
Evans, Amendment No. 4 to Regulation W,
Consumer Credit, was approved, Mr.
Vardaman "not voting". This action was
taken with the understanding that it would
become effective as soon as the President
signed the Defense Production Act Amendments
of 1951. The text of the Amendment was as
follows:
rectinRagulation W is hereby amended in the following respects, efve July 31) 1951:
Act (
.01) BY inserting in section 1 following 'Defense Production
(14
, 1950,' the language 'as amended'.
amending subsection (c) of section 3 to read as follows:
at 00, 11ne of Down Pa ent. - The down payment shall be obtained
thethe time of delivery of the listed article; except
that
of an article listed in Group D, neither this
P
,case
1
!
section
to re
Jko), section 6(b), nor section 6(f) shall be deemed
40r1 rire
compliance in advance of completion of the agreed
alterations, or improvements.'
(b) oi'l BY inserting In the first sentence of subsection
by ch2ecti°n 3 the word 'and' before the figure '(2)')
clau llEing the comma after the word 'month' at the end of
silch
senten oa period, and by deleting the remainder of
‘,IBY
7/31/51
-5-
"(4) By inserting in the first sentence of subsection (c) of section 4 the word 'and' before the figure
(
t 2)', by changing the comma after the word 'month' at the
end of clause (2) to a period, and by deleting the remainder
of such
sentence.
, (5) By deleting the last sentence of paragraph (2) of
subsection (a) of
section 5.
(6) By deleting the last sentence of the first paragraph
°f S
Ubsection (b) of section 5.
(7) By amending item (3) in subsection (c) of section
K
`'to read as follows:
'(3) The amount of the purchaser's down
Payment (i) in cash and (ii) in property accepted
as trade-in, together with a brief description
identifying such property and stating the mone,arY value assigned thereto in good faith;'.
) BY amending the last two sentences of subsection
(01 0
/ of section 6 to read as follows:
'The record need not include a description of
the article if it is purchased by means of a coupon
1 22h or similar medium of instalment credit upon
2
Which there has been made a down payment at least
a8 great as the down payment required by this regulation on the article sold by the Registrant. The
record need not include the information called for
bY items (2) and (4) if the Registrant is one who,
vith respect to the article, customarily quotes
the public a time price only which includes the
_inance or other charges if any, provided he sets
Forth such time price in such record, and provided
he obtains a down payment which is at least as large
Would be required if the percentage specified
tors the article in the Supplement were applicable
(;
)tZ time price.'
r
ollows:
amending subsection (j) of section 6 to read as
r
10) Trade-in. Any property which the seller of a
listed artilys
or receives in exchange, or arranges
to
have bought or so received, from the purchaser at
or about
the time of the purchase of the listed article
sball
be regarded as a trade-in for the purposes of
his
-6"(10) By adding at the end of section 7 a new subsection
(m) reading as follows:
'(11) Credit for Sewerage Installations. - Any credit
for the purpose of financing the installation of sewerage
and necessary related facilities (including plumbing and
Plumbing fixtures), required in order to comply with a
statute, ordinance, or regulation of the United States, a
State or political subdivision thereof, pertaining to
health and sanitation, where the Registrant accepts in
good faith a written statement signed by the obligor
certifying that such credit is for the above purpose.'
, (11) By inserting at the end of subsection (a) of Section 8
the
footnote reference '221/, and by adding the following footnote
‘0 s
ubsection (a) of section 8:
All reporting and record-keeping requirements of this
ation have been approved by the Bureau of the Budget in accord'With the Federal Reports Act of 1942.'
changing '25 per cent' and '75 per cent' in Part 1,
Grou (12)
B ofBY
the Supplement to read, respectively, '15 per cent'
13 BY, changing the maximum maturity stated in Part 2 of
QuPplement for articles listed in Group A, Group B, Group C
:4:14!? Unclassified Instalment Loans, respectively, from '15
'30h8,to '18
months', and for articles listed in Group D from
months
to '36 months'.
(14)
PI,.
, -.I
changing the figure '18' to '21' in Part 3 of the
Sup
Plement.
sa.a ,(15) By deleting from the last sentence in the first paratcoLtIV of the Supplement the language 'in the case of
the
Z
meat(
,_16)By amending the first paragraph of Part 5 of the Suppleuo read as
follows:
Grim, 'Part 5. Calculation of Down Pvments for Articles in
GrW' s B C and D. - In the case of any article listed in
B, Group C, or Group D, the required down payment and
theuP
the maximum loan
value shall be the specified percentage of
cash price of the article. Such required down payment
4'V be
obtained in the form of cash, trade-in, or both'."
Approval also was given to a
press release In the following form,
with the understanding that it would
be sent by telegram, together with the
text of the amendment, to the Presidents
50
7/31/51
-7of all Federal Reserve Banks and
the officers in charge of all Federal
Reserve Bank branches and that the Reserve Banks would be requested, upon
receipt of advice that the President
had signed the Defense Production Act
Amendment of 1951, to print Amendment
No. 4 and distribute it to reach all
registrants as promptly as possible.
In taking this action it was also
understood that the Reserve Banks
would be requested to reprint Regulation W as amended to July 31, 1951,
inclusive, and distribute copies to
all registrants in their districts:
"The Board of Governors today amended the terms of
W - Consumer Credit - in accordance with the
:
m fense Production Act as revised and extended. The amend":11t, which is effective immediately, lengthens the maxi;;,
1141 maturity applicable to instalment credit for automo.;
sles, household appliances, radio and television sets,
furniture from 15 to 18 months, and for home repair
and
improvements from 30 to 36 months. Longer maximum
urities are also provided for consumer instalment
Oasis to other
purposes.
me
"In accordance with the new legislation, down payela t requirements for household appliances and for radio
'
to t:elevision sets have been reduced from 25 per cent
5 Per cent. The down payments required by the Regulaj
maY be made in cash, trade-in, or a combination
of
cluifirade-in and cash. The 10 per cent down payment refor home repair and improvements now need not be
"€tried prior to completion of the work.
The following table summarizes the revised terms of
the Re
gulation:
Maximum
Required
of Instalment
Maturity
Payment
Credit
Down
Aut
omobiles
lB months
33-1/3k
Rousehold appliances, radio, and
, te
18 months
levision sets
,
41.1rzlitttre
18 months
15%
'''eeidential repairs and improve, Ments
36 months
10%
ullelassified instalment loans
18 months
,
Re
7/31/51
-8-
"In addition, the Board exempted from the provisions
Of Regulation W any instalment credit required for the installation of
sewerage and other related facilities, includPlumbing and plumbing fixtures, where the householder is
required to make such installation by local State or Federal
health and sanitary regulations."
Approval also was given to a
statement for publication in the
Federal Register reading in part
as follows:
, "The purposes of the amendment are to bring the regulaion into conformity with the provisions of the 'Defense
Iroduction
Act Amendments of 1951' and to make certain related and additional changes
The above amendment was adopted by the Board after con.deration
of all relevant matter. Special circumstances
tendered impracticable consultation with industry represenittives, including trade association representatives, in
formulation of the amendment, especially in view of
the
as Taxing and technical nature thereof; and, therefore,
of aUalorized by section 709 of the Defense Production Act
°' as amended, the amendment to the regulation has
been
Bei' issued without such consultation. Section 709 of the
theea85 Production Act of 1950, as amended, provides that
rro functions exercised under such Act shall be excluded
(60%!h6 Operation of the Administrative Procedure Act
. 37), except as to the requirements of section
3 tlie;:;
V
141'• Evans said that yesterday afternoon, at the request of Mr.
?°14) Admtaistrator of the Housing and Home Finance Agency, and in Mr.
17°/tob
- 8 (lbsence) he and Messrs. Riefler, Vest, Noyes, and Benner attended
Etrileet
1'
4 it
1414 11e
Mr. Foley's office to discuss the defense housing bill which
1)"8"- by the Senate and currently was pending before the House
CurrencY CommIttee.
He went on to say that Mt. Foley thought
7/31/51
_9_
that the House bill would contain limitations on down payments that
d. be
required under real estate credit controls authorized by the
hterles Production Act, and that these limitations would make necessary
substaztial relaxation of Regulation Xy Real Estate Credit, and companion
tees
,
44-68 of the Federal Housing Administration and Veterans Administration.
that Mr. Foley expressed the view that if the Board and the Housing
44111°1116 Finance Agency decided voluntarily to make certain reductions in
t*Illirsd down
Payments promptly, such provisions might not be incorporated
ill the
legislation.
Mr. Evans made the further statement that Mr. Foley then presented
a
x 'Posed revised
schedule of terms that might be adopted for Regulation
"'jell as Federal Housing Administration insured and Veterans Administratio4
"
444ranteed mortgages, and asked that he (Mr. Evans) study and comment
°II the
tatter as soon as possible. Mr. Evans said that following the
4aetitte
'With Mr. Foley, he
and members of the staff reviewed the matter
141 the
ste4dPoint of whether any relaxation in real estate credit controls
*4s ceale
d for at this time by economic developments and, if so, whether
the
1„ schedule suggested by Mr. Foley would be suitable, but that the review
tot pro
the 130411. gressed far enough to enable him to make a recommendation to
Re said that he also asked Mr. Riefler to discuss the matter
Vith che4
Ilne-4 Martin on the
telephone and that the Chairman said that the
13Y the Staff
should proceed, that Mr. Foley should be advised that
(-*
Ok).,
7/31/51
the
-la-
tatter was being reviewed, and that until this review was completed
he (Chairman Martin)
would not be prepared to say whether any change
Qlotild be made
in the terms of Regulation X.
Mr. Evans said that he had
Mr. Foley this information over the telephone before this meeting
andthat Mr. Foley
said that he understood the position of the Board but
11°Pea that the
study by the staff would proceed as rapidly as possible
as,
111418 °Pinion, action must be taken within the next week if legislation
148`1*Ig mandatory
relaxation were to be avoided.
Mr. Evans stated further
that Mr. Noyes also discussed the matter by telephone with Mr. Norton,
1111"treed that the study by the staff should be made as rapidly as possible.
shotaa
In answer to a question by Mr. Evans, Mr. Noyes said that ft
be Possible to complete the study and submit a recommendation at the
nlestinz
Of the
Board on Tuesday, August 7, and it was understood that this
ilr°cedure
would be followed.
In response to a question by Mr. Vardaman concerning the administrevti
ve hear
ing under Regulation W involving H. Bartels, Inc., Philadelphia,
ni
pursuant to Orders issued by the Board on
ey 28 a--a) being conducted
.4 and julY 19) 1951, following action at the meeting on May 10, 1951,
4
'alle stated
that the Federal Reserve Bank of Philadelphia had employed
Ntsiae c
c/Iilleel to present the case at the hearing but that due to an
4c
"
dent l i
to the lawyer concerned Mr. Townsend, Solicitor for the
.141, anUllrY
14'eeented the case on behalf of the Board.
Mr. Evans said that the
7/31/51
-11which was being held before a hearing examiner, Mr. Teegarden,
°1)tained from the Securities and Exchange Commission pursuant to the
P"stons of the Administrative Procedures Act, was now being concluded
with 41.,
'Ike presentation by counsel on behalf of the registrant, and that
fl°141-ne completion of the hearing, the hearing examiner would present
his secommended decision to the Board, which would decide on the basis
or that
recommendation whether or not the license of the registrant to
ertelad
consumer instalment credit should be suspended. Mr. Evans stated
%/therhat
in accordance with the agreement at the meeting on Ally 17,
1951, he
registrant had been given an option of a public hearing but
Drererred
hat the hearing be private.
Regarding the general enforcement program under Regulation WI Mr.
4'43 8att that the
work was being taken over increasingly by the Federal
44111e 13anks
and in this connection he referred particularly to the
t'ter ilavolving
the Personal Finance Company, of Yonkers, New York, in
1141ell "4111801 for the Federal Reserve Bank had prepared the file on
111.q1 the orrice of the United States District Attorney proceeded to
1116t1tlite criminal
action, after the case was referred to the Department
or allrlettee Pursuant to
the action of the Board on June 19, 1951.
Mr
Elrana pointed out that the objective of the entire enforcement
Droer4
4 e
14" t0
make sure that the law was administered fairly in all Federal
re AJ
‘'Istricts, that the Federal Reserve Banks were being encouraged
7/31/51
O
-12-
take full responsibility for the program in their respective districts,
41d that the Solicitor and Assistant Solicitor for the Board had visited
the Banks to assist them in initial cases with the expectation that the
411ace would be able to take responsibility for the handling of future
443es. This, he felt, provided the most efficient means of carrying out
tile
'
l esPonsibilities of the Board.
He added that the number of violations
l'ecorded had been small in relation to the total number of registrants,
litthillezY of the violations haying occurred inadvertently but that the
eto
loan companies represented an exception. Many of these companies,
he "-, had been violating the regulation extensively, and since they
114(1 a,
-cess to competent legal advice and had received cooperation from
the lin.
-,rkt
and the Reserve Banks over the years in becoming familiar with
the,
'
4 /I1Wees and provisions of the regulation, he felt that continued
.ticaati-cms
were inexcusable and that the companies concerned must be
trope.
t'ed to face the penalties involved as a result of their actions.
Mr. Evans also said that while he felt the enforcement program
l'n-r
D.
'"qPIlatiOn
W was being handled very satisfactorily, he would be glad
to rec
eive any suggestions for improvement.
Ake_
There were presented letters to the Honorable Raymond M. Foley,
8trator, Housing and Home Finance Agency, 1626 K Street, N. W.,
4t°11, D. C., as follows:
1, 3,56
7/31/51
-13on Sam
Air Force Base (near Ithaca), New York area.
"In response to your letter of July 271 19511 this
IS to advise you that the Board of Governors concurs in
Your designation of the Sampson Air Force Base (near Ithaca),
New York, area as an area for the application of special
credit terms under section 6(p) of Regulation X, Real Estate Credit, for purposes of defense construction. Your
letter states that there is a need for approximately 450
housing units to be located within reasonable commuting
distance of the defense establishments, and we understand
that 300 are to be rental units ranging from $55 to $75
Per month each, and 150 are to be sale units at $8,000
and $9,000 each. Under the terms of the exemption, the
entire 450 units will be controlled by your agency through
the issuance of specific certificates.
"In accordance with your suggestion, the relaxation
Of terms prescribed by Regulation X will be similar to
that previously announced for other designated defense
areas"
Letter on Norfolk-Portsmouth, Vluinia area.
"In response to your letter of July 27, 1951, this
te to advise you that the Board of Governors concurs in
Your designation of the Norfolk-Portsmouth, Virginia, area
48 an area for the application of special credit terms
Under section (p) of Regulation X1 Real Estate Credit,
or purposes of defense construction. Your letter states
1.hat there is a need for approximately 3,000 housing units
0 be located within reasonable commuting distance of the
Ilefense establishments, and we understand that 2,500 are
‘0 be rental units ranging from $60 to $70 per month each,
,14 500 are to be sale units at $101000 and $11,000 each.
4
:
ullder the terms of the exemption, the entire 3,000 units
ill be controlled by your agency through the issuance
Or specific certificates.
"In accordance with your suggestion, the relaxation of
erme prescribed by Regulation X will be similar to that
14leviously announced for other designated defense areas."
f
Letter on Wright-Patterson Air Force Base (Dayton) Ohio area.
"In response to your letter of July 27, 1951, this
-14-
ih1/51
"is to advise you that the Board of Governors concurs in
Your designation of the Wright-Patterson Air Force Base
(Dayton), Ohio,area as an area for the application of
special credit terms under section 6(p) of Regulation
1, Real Estate Credit, for purposes of defense construction. Your letter states that there is a need for apProximately 1500 housing units to be located within
reasonable commuting distance of the defense establishMeats, and we understand that 1,000 are to be rental
units ranging from $67.50 to $85 per month each, and
500 are to be sale units at $9,500 and $10,500 each.
Under the terms of the exemption, the entire 1500 units
vill be controlled by your agency through the issuance
Of specific certificates.
"In accordance with your suggestion, the relaxation
Of terms prescribed by Regulation X will be similar to
that previously announced. for other designated defense
areas."
)Washington area.
Letter on Othello
"In response to your letter of July 27, 1951, this
to advise you that the Board of Governors concurs in
Your designation of the Othello, Washington, area as an
area for the application of special credit terms under
section 6(p) of Regulation X, Real Estate Credit, for
PUrPoses of defense construction. Your letter states
that there is a need for approximately 60 housing units
to be located within reasonable commuting distance of
the defense establishments, and we understand that 4o
Etre to be rental units ranging from $65 to $75 per month
each, and 20 are to be sale units at $9,000 and $10,250
each. Under the terms of the exemption, the entire 60
441ts will be controlled by your agency through the
issuance of specific certificates.
"In accordance with your suggestion, the relaxation
terms prescribed by Regulation X will be similar to
that previously announced for other designated defense
t8
areas.”
Approved unanimously.
7/3115.1
At this point all of the members of the staff with the exof Messrs. Carpenter and Young withdrew from the meeting.
Reference was made by Mr. Vardaman to a memorandum dated
'114 11, 1951) from Mr. Young recommending the appointment on a nonanent basis of Dorothy South Projector as an economist in the
1)1.9181°11 of Research and Statistics with salary at the rate of 01400
annum,
to fili
The memorandum stated that Mrs. Projector would be assigned
a new position which is needed because the money flows unit
"he Division of Research and Statistics was insufficiently staffed
to eiiie
adequate attention and study to its assigned research tasks.
The
'
l acommendation had been approved by Mr. Powell as the Member of
the
ixerd having among his assignments the research programs of the
BYEum.
Mr. Vardaman urged that the proposed appointment be referred
to ch
ainllan Martin for consideration and that it be suggested that he
with the Director of the Division of Personnel Administration
414 Mr. r°11ng regarding it. Mr. Vardaman also said that he was opposed
toe4Y aPPointment to the Board's staff that was not essential and
Net and
he questioned whether the appointment of Mrs. Projector
11°U-14 fall in that category.
Mr. Young stated that the matter had been discussed at some
1Nth
'with Mr. Powell.
He also outlined the reasons for the recommended
I F.51,4
7/31/51
-16-
NRxintment and the matter was discussed.
At the conclusion of the
di
scussion it was understood that the recommendation would be taken
UP with
Chairman Martin upon his return to the city.
At this point Mr. Young withdrew from the meeting, and the
action stated with respect to each of the matters hereinafter referred
to
waS taken by
the Board:
Memorandum dated July 27, 1951) from Mr. Bethea, Director,
Dillision of Administrative Services, recommending that the resignation
"Rovard W. Kushne
Telegraph Operator in that Division, be accepted
to be effective, in accordance with his request, at the close of business
4116118t 17, 1951.
Approved unanimously.
1)44
Memorandum dated July 16, 1951, from Mr. Young, Director,
ion Of
Research and Statistics, recommending an increase in the
beteic
sa1817 of John M. Culbertson, Economist in that Division, from
4, 2
o $5,400
per annum, effective August 5, 1951.
Approved Iminimously.
Memorandum dated July 26, 1951, from Mr. Sloan, Director,
si
4411
1951:
Of Examinations, recommending increases in the basic annual
of the following employees in that Division, effective August
7/31/51
-17-
W. B. Lassen
J. V. Fisler
IC. P. Wendt
Title
Assistant Federal Reserve Examiner
Assistant Federal Reserve Examiner
Assistant Federal Reserve Examiner
Salary Increase
To
From
$4,67
$VTT,
4,325
3,825
Approved unanimously.
Memorandum dated July 261 1951, from Mr. Sloan, Director,
'Ion of Examinations, recommending that Robert W. Cooke, Assistant
Reserve Examiner in that Division, be designated Federal Ree Examiner, with an increase in his basic salary from t5,875 to
$6,Onn
Per annum, effective August 5) 1951.
Approved unanimously.
Letter to Mr. Diercks, Vice President of the Federal Reserve
Of Chicago,
reading as follows:
"In accordance with the request contained in your
of July 241 1951, the Board approves the appointofr
Elbert O. Fults as an examiner for the Federal
Reserve Bank of Chicago. Please advise us of the date
uPon which the appointment becomes effective.
,"It is understocd that Mr. Fults will make arrangeto dispose of his bank stock. Accordingly the
2.
!
f rd's approval of his application is given with the
:..41.4aerstanding that he will dispose of the stock in The
Genesee
County Savings Bank, Flint, Michigan, within a
reasonable time."
lettere
Approved unanimously.
at sari
Letter to Mr. Earhart, President of the Federal Reserve Bank
Prancisco,
reading as follows:
4145o
41 2oo
A ('`
7/31/51
-18-
"This is to acknowledge with thanks your letter of
July 6, 1951, in which you have brought the Board up to
date regarding the status of the contract with and fees
Paid or payable to the architect for the Los Angeles
Branch building addition and alteration project. It
is noted that the contract, which calls for progress
PaYments on the basis of an estimated cost of $2,700,000
for the building until actual cost has been determined,
has been mcdified to provide that if the project is
not commenced by June 19, 1956, an additional payment
Of $24,171
would be made in 1956, and the contract would
be extended for another five-year period.
"The urgency for enlarged quarters at the Los Angeles
,
13ranch is not
being overlooked, and we hope that it will
Tit possible for your Bank to undertake construction of
-ale addition before expiration of the terms of the agreeof modification."
Approved unanimously.
Letter to Mr. Mangels, First Vice President of the Federal ReI*1Te
Bank of Sun Francisco, reading as follows:
a
"This refers to your letter of June 25, 1951j
,Pasting a determination by the Board as to whether
Purchase by the Bank of Laguna Beach, Laguna Beach,
.
1 lIcrIltia, of the note of an affiliated corporation,
1:
0 'uaguna Beach Securities Corporation, amount3 to a
;
11 or extension of credit to or an investment in the
010
of an affiliate within the meaning of section
234 of the Federal Reserve Act.
"YouT letter states that the affiliate borrowed from
4„
t -4Lional bank, giving as security therefor a deed of
1.
1 on the building occupied by the Bank of Laguna Beach,
the allat, subsequently, the latter, with the approval of
"
n erintendent of Banks of California, purchased the
totA
'O the national bank.
olle "Ordinarily, the purchase of negotiable paper 1.11 the
to .1 111erket does not amount to a loan or extension of credit
p- 13 °riginal borrower. However, the facts and circumstances
Of '
P"ticular case would alter this conclusion. As you
L
4
4
7/31/51
-19-
"know, one of the purposes of section 23A was to limit loans
or extensions of credit tn affiliates of member banks and
this purpose could be easily defeated by a purely technical
interpretation of the statute. Thus, an affiliate could
arrange for credit from a third party with a side agreeMent, written or oral, that the member bank would purchase
the affilTate's note. Because of the ease with which the
tatute could be evaded, and the difficulty of distinguish!
'
flg the cases, the Board believes it advisable to class all
purchases by member tanks of notes of their affiliates as
lcalas or extensions of credit to affiliated organizations.
With respect to the security for such loans and extelas.Lons
of credit, the Board agrees with the opinion of
Your Counsel that the Board's 1933 ruling (F.R.L.S. 56720)
to the effect that real estate mortgages ordinarily do not
Itteet the 'market value' test prescribed by section 23A for
st°cks, bonds, debentures, or other such obligations', is
ecluallY applicable to a deed of trust."
Approved unanimously, with the
understanding that the Presidents of
all Federal Reserve Banks would be
advised of this action by letter.
Letter to Mr. J. L. Robertson, Deputy Comptroller of the Currency,
14shinet
°11, D. C., reading as follows:
i
"Since receipt of your letter of April 25, 19)1, and
accordance with your suggestion, the use of armored
ks by the Puerto Rican branch of the National City
of New York has been the subject of two conferences
::
4
13
4/een representativ,as of the Office of the Comptroller
•
w the Currency, the Federal Deposit Insurance Corporation
the Board of Governors. The second of these conferences
•
-e aeld July 25, 1951.
pe , The discussions have covered the technical and legal ase of the matter, including the distinction between the
o'
13.tion of branches in an insular dependency and the mainthe conditions peculiar to Puerto Rico and the extent
granted to the National
effect
0,
.Lty, Bank. of the use of the authority
the
The Board of Governors has recently been requested by
4nsular Government to send a delegation to Puerto Rico
7/31/51
-20-
t1
Primarily for the purpose of exploring the possibility for
improvement of the system of check clearing and exchanges
both within the island and with the mainland. It will also
make some inquiry into the credit needs and facilities of
the island. Present plans are for the delegation to go to
Puerto Rico in September. It was suggested at the recent
conference that the delegation might develop at first hand
further information with regard to the matter of the use
Of armored
trucks.
"It is felt that the Board would want and should have
a8 complete information as possible on which to base pny
e°11siderat1on of rescinding the authority granted to the
ational City Bank and, therefore, it is suggested that
rurther consideration of the matter be deferred until
sUch information can be obtained."
Approved unanimously.
Letter to the Honorable Jess Larson, Administrator, General
Sev—,
"lceE
Admlnistration„ Washington, D. C., written pursuant to action
telte4
at the meeting of June 281 1951, reading as follows:
"This refers further to your letter of June 21, 1951,
essed to Governor Vardaman, in which you suggested con‘eration of a separate schedule of guarantee fees on V°alls,made to finance the construction of industrial facilities.
1,0
'Before expressing our views with respect to this pro:_aal, it appeared desirable to consult with the other
ranteeing
agencies; and, as you were previously advised,
8.46 Board addressed identical letters to the guaranteeing
lIcies on June 29 requesting their comments regarding the
te,T)sal. We are now in receipt of letters from the Departth:"8 of Defense, Commerce, Agriculture, and Interior, and
Omit Energy Commission, copies of which are enclosed,
lt aPpears that these agencies are not inclined to favor
thi,
rejPl'oPosal. As you will observe, some of the agencies
till
;that V-loan guarantees should not be used for the
ileing of facilities expansion.
itell After thorough consideration of this matter and in the
the Lor the comments made by the other guaranteeing agencies,
zeh.7ard is of the opinion that the adoption of the proposed
-'ule of fees would not be desirable.
r
r
X
1/31/51
-21-
"As indicated in the Board's letter of June 29
to the guaranteeing agencies, we feel that the suggested
schedule would not be entirely realistic and would proVide a more favorable treatment for guarantees of facilities
1°alas than for guarantees of working capital loans which
would be difficult to justify. Application of the plan
would also involve serious administrative problems. Moreover, as indicated in the letters received from the DePartments of Defense and Agriculture, the proposal would
aPPear to be inconsistent with the memorandum submitted
tO the
President on June 8, 1951, by the Director of the
1B3ureau of
the Budget, the Chairman of the Council of
,e°11°mic Advisers, and the Director of Defense Mobilization,
41 which it was recommended that the present interest
?eiling and schedule of fees with respect to V-loans
De
retained.
10, "We shall, of course, be glad to discuss the matter
_"h you further in consultation with the other guaranteeing
t'ncies
ge
if you should feel that further discussion is
des
treble."
Approved. unanimously.
Telegram to the Presidents of all Federal Reserve Banks, reading
f°110Ws.
"Section 5(k) of Regulation X provides that the regula_7.1°11 does not apply to real estate construction credit extended
ic)r to 32 days after certain new construction is completed.
extended after the 32-day period is exempt, however,
bv ..ases -where the extension of credit is necessarily delayed
tie difficulties, pending litigation with respect to
the
Property., or comparable circumstances."
4,
g
Approved unanimously.
Secretary.
@FedFRASER