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Minutes for
To:
Members of the Board
From:
Office of the Secretary
July 6, 1961
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
With respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial
below. If you were present at the meeting, your
initials will indicate approval of the minutes. If
you were not present, your initials will indicate
only that you have seen the minutes.
Chin. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Minutes of the Board of Governors of the Federal Reserve System
on Thursday, July
PRESENT:
6,
1961.
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 10:00 a.m.
Martin, Chairman
Balderston Vice Chairman
Robertson
Shepardson
King
Mr. Sherman, Secretary
Mr. Kenyon, Assistant Secretary
Mr. Young, Adviser to the Board and Director,
Division of International Finance
Mr. Shay, Legislative Counsel
Mr. Molony, Assistant to the Board
Mr. Fauver, Assistant to the Board
Mr. Masters, Associate Director, Division of
Examinations
Mr. Hexter, Assistant General Counsel
Mr. Hooff, Assistant General Counsel
Mr. Koch, Adviser, Division of Research and
Statistics
Mr. Furth, Adviser, Division of International
Finance
Mr. Sammons, Adviser, Division of International
Finance
Mr. Goodman, Assistant Director, Division of
Examinations
Mr. Benner, Assistant Director, Division of
Examinations
Mr. Leavitt, Assistant Director, Division of
Examinations
Miss Dingle, Chief, Consumer Credit and Finances
Section, Division of Research and Statistics
Mr. Pawley, Economist, Division of Research and
Statistics
Discount rates.
The establishment without change by the Federal
Reserve Bank of Minneapolis on July
5,
1961, of the rates on discounts
and advances in its
existing schedule was approved unanimously, with
the understanding
that appropriate advice would be sent to that Bank.
7/6/61
-2Items circulated to the Board.
The following items, which had
been circulated to the members of the Board and copies of which are
attached to these minutes under the respective item numbers indicated,
were approved unanimously:
Item No.
Letter to The Brooks Bank and Trust Company,
Torrington, Connecticut, approving the establishment of a branch at 1313 East Main Street.
1
Letter to The Bank of Orange County, Goshen, New
York, granting the application to exercise
fiduciary powers submitted by it on behalf of
The National Bank of Orange and Ulster Counties.
2
Letter to Chemung Canal Trust Company, Elmira,
New York, approving the establishment of a branch
at 602 South Main Street, Village of Horseheads,
Chemung County.
3
Letter
Green,
branch
at the
4
to The Bank of Wood County Company, Bowling
Ohio, approving the establishment of a
between East Court and East Wooster Streets
New York Central Railway.
Letter to The Central Trust Company, Cincinnati,
Ohio, approving the establishment of a branch in
the Eastern Hills Plaza shopping center on Paxton
Avenue.
5
Letter to Ormond Beach National Bank, Ormond Beach,
Florida, approving its application for fiduciary
Powers.
6
Letter to The First National Bank in Owenton,
Owenton, Kentucky, approving its application for
fiduciary powers.
7
Letter to The Juniata Valley National Bank of
Mifflintown, Mifflintown, Pennsylvania, approving
its application for fiduciary powers, effective upon
an increase in the bank's capital stock to not less
than 4;150,000.
8
7/6/61
-3Item No.
Letter to The Farmers and Merchants Bank, Boswell,
Indiana, granting its request for permission to
exercise fiduciary powers.
In connection with Items
8
and
9,
9
Mr. Masters reviewed, at the
request of Governor Robertson, the reasons that had influenced the
Division of Examinations toward a favorable recommendation in each
instance.
Among other things, he mentioned satisfactory management,
adequate capitalization, and the availability of reputable legal counsel.
Also, there was evidence of some need for trust services in the communities
concerned, even though trust powers, if available, might not attract any
significant volume of business.
In summary, unless the Board wanted to
take a generally restrictive position in respect to applications for
fiduciary powers filed by banks of small size, he felt that a judgment
on such applications would have to rest primarily on the demonstrated
capacity of the management in the field of commercial banking.
Rarely
was there a case where a small applicant bank had personnel with
substantial experience in the field of trust administration, but in his
Opinion that would be asking too much.
If the applicant could show
evidence of ability to run a sound bank over a period of years, and if
satisfactory legal counsel was available, it might reasonably be assumed,
he thought, that
the limited volume of trust business likely to be
received would be given proper attention.
7/6/61
-4Governor Robertson expressed the opinion that these two cases
fell squarely within the category of applications where it was at best
a guess as to whether the applicant bsnks would have the competence to
handle satisfactorily the trust business they might generate, particularly
if estates of any degree of complexity were involved.
In the absence of
a showing of real need, he considered it a mistake to grant the right to
exercise fiduciary powers under such circumstances, either to national
banks or to State member banks.
In a number of instances, he noted,
the right to exercise trust powers was sought primarily for advertising
Purposes and for competitive reasons rather than because of any actual
need for such services.
Since these two applications were not dissimilar
in character from others that the Board had approved from time to time
over a period of years, he would not oppose them, but for the reasons
indicated he questioned the advisability of granting such applications.
In reply to a question by Governor Shepardson, Mr. Masters
stated that the record of smaller banks in exercising trust powers had
been quite good.
He could not recs11 a case where such a bank had been
found derelict in the
aministration of trust business.
course, generated little, if any, such business.
Some banks, of
Governor Shepardson
then expressed the view that the favorable record cited by Mr. Masters
constituted a rather persuasive argument.
Application of First National Bank of Thompsonville.
There had
been circulated to the Board a file relating to the application of the
7/6/61
-5-
First National Bank of Thompsonville, Thompsonville, Connecticut, for
authority to exercise fiduciary powers.
The Federal Reserve Bank of
Boston had recommended favorably, but the Division of Examinations
recommended adversely.
At the Board's request, Mr. Masters recited the reasons that
had led the Division of Examinations
to recommend denial of the application.
These included the advanced age of the chief executive officer,
the absence of
strong supporting personnel, certain tendencies in the
administration of the bank noted at recent examinations, and the
availability of fiduciary services in the nearby city of Hartford.
It was then agreed that a check should be made with the Federal
Reserve Bank of Boston before a final decision was reached in order to
determine whether that Bank wished to submit any additional information
or views in
support of its recommendation.
Report on competitive factors (Cambridge, Ohio).
A draft of
report to the Comptroller of the Currency on the competitive factors
involved in the proposed purchase of assets and assumption of liabilities
of The Citizens Savings
Bank Company, Cambridge, Ohio, by The Central
National Bank at Cambridge, Cambridge, Ohio, had been distributed under
date of June 30, 1961.
As drafted, the conclusion of the report included reference to
the
acquisition of control of the selling bank early in 1961 by the
President
of the purchasing bank, which circumstance had eliminated
r%.4.7,( 1p-",-/
7/6/61
-6-
effective competition between the two institutions.
It was noted that
this elimination of competition was not necessarily permanent as the
controlling interest might conceivably be sold.
However, consummation
of the proposed merger would eliminate whatever potential competition
might exist between the two banks.
In reply to a question, Mr. Leavitt commented that the situation
with respect to common ownership
of the two banks had been stressed in
the conclusion, in
addition to being mentioned in the body of the report,
because the acquisition of controlling interest in the selling bank had
occurred subsequent to the enactment of the Bank Merger Act.
Such
acquisition having been accomplished, a proposal to merge the two banks
might appear more favorable
when viewed from the standpoint of the
competitive factor.
Therefore, this could be regarded as a method of
circumventing the bank merger legislation.
Ensuing discussion of this point resulted in a suggestion by
Governor Robertson that the conclusion be changed to read as follows:
The proposed purchase of assets and assumption of liabilities of The Citizens Savings Bank Company, Cambridge, Ohio, by
The Central National Bank at Cambridge, Cambridge, Ohio, would
appear to have little effect on competition outside the immediate
Cambridge area. There is now little competition between these
two banks; however, consummation of the proposed transaction will
eliminate whatever potential competition might exist between
them.
There being agreement with this suggestion, the report was
aPproved unanimously in such form for transmittal to the Comptroller
of the
Currency.
2298
7/6/61
-7Messrs. Hooff and Leavitt then withdrew from the meeting.
Request of First National Bank of Atlanta
(Item No. 10).
There
had been distributed
to the Board copies of a memorandum from the Division
of Examinations relating to the request of The First National Bank of
Atlanta, Atlanta, Georgia, for permission to accept drafts or bills of
exchange drawn for the purpose of furnishing dollar exchange.
The
recommendations of the Atlanta Reserve Bank and the Division of Examinations (Review Examiner Foundstone) were favorable.
For various reasons,
however, Assistant Director Goodman expressed reluctance to recommend
that any further
authorizations of this kind be granted, except in the
event of a demonstrated need, pending completion of the current review
and revision of
Regulation C, Acceptance by Member Banks of Drafts and
Bills of Exchange.
Accordingly, alternative drafts of letter to the
applicant bank were submitted, one of which would grant the application
and the other of which would indicate that the Board had deferred action
Pending completion of the review of Regulation C.
At the request of the Board, Mr. Goodman summarized the reasons
for the
reservations he had expressed in the memorandum, following which
Mr. Hexter and Governor Shepardson commented further on problems involved
in the study of
Regulation C and the underlying law.
Agreement then was
expressed with a suggestion that the current application be acted upon
favorably, on the basis that such action would be consistent with actions
taken on similar applications in the past, subject to the understanding
00t
."10
.
T.
7/6/61
-8-
that staff work would continue on the current study of Regulation C
with a view to bringing the matter to a conclusion as expeditiously as
possible.
Accordingly, the request of The First National Bank of Atlanta
was approved unanimously
.
A copy of the letter sent to the bank pursuant
to this action is
attached as Item No. 10.
Messrs. Furth, Sammons, Benner, and Goodman then withdrew from
the meeting.
Report on S. 1740 (Item No. 11).
Pursuant to the understanding
at the meeting
yesterday, there had been distributed to the Board a
revised draft of letter to Chairman Robertson of the Senate Banking and
Currency Committee reporting on S. 1740, a bill to require the
disclosure of finance charges in connection with extensions of credit.
Mr. Hexter reported a telephone conversation this morning with
a representat
ive of the Budget Bureau who indicated that the Bureau was
Preparing a
report to the Committee concerning the position of the
Administrati
on with respect to the proposed legislation.
It appeared
Possible, according to the informant, that the report would be favorable
to enactment
of the legislation, but with the recommendation that the
Federal Trade Commission, rather than the Board of Governors, be named
as the
administering agency.
It was indicated that before the Bureau
informed the Committee of the Administration's position, it would be.
interested in having advice as to the nature of the report made by the
Board.
)
7/6/61
-9Discussion then turned to the revised draft of letter to the
Banking and Currency Committee, and it developed that the reaction of the
members of the Board was favorable.
Accordingly, after certain minor
changes had been agreed upon, unanimous approval was given to a letter
in the form attache
d as Item No. 11, with the understanding that advice
concerning the content of the letter would be given by telephone to the
Bureau of the Budget and
that, in accordance with the usual procedure,
a copy of the
letter would be sent to the Bureau.
Messrs. Shay, Masters, and Pawley then withdrew from the meeting,
as did Miss
Dingle.
Reports on recent trips.
Mr. Young commented informally on his
recent trip to Paris to
attend a meeting of a working group of the
Economic Policy Committee of the Organization for European Economic
Cooperation, following which Governor King, who had attended the annual
meeting of the Bank for International Settlements and visited a number
of the
European central banks, related various impressions that he had
gained during the course
of his trip.
The meeting then adjourned.
Secreigry
23{'i.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, O. C.
Item No. I
7/6/61
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 6, 1961
Board of Directors,
The Brooks Bank and Trust Company,
Torrington, Connecticut.
Gentlemen:
Pursuant to your request submitted through the
Federal Reserve Bank of Boston, the Board of Governors
of the Federal Reserve System approves the establishment
of an in-town branch at 1313 East Nair: Street, by The
Brooks Bank and Trust Company, Torrington, Connecticut,
Provided the branch is established within six months
from the date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael.,.
Assistant Secretary.
23
'
BOARD OF GOVERNORS
OF THE
Item No. 2
7/6/61
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July
6, 1961
Board of Directors,
The Bank of Orange
County,
Goshen, New York.
Gentlemen:
The Board of Governors of the Federal Reserve System
has given
consideration to the application for permission to exercise fiduciary
powers made by The Bank of Orange County on behalf of The National
Bank of Orange and Ulster Counties, Goshen,
New York, the
national bank into which it is to be converted, and
grants such national bank authority, effective if and when the
Proposed conversion is consummated, to act, when not in contravention of State or local law, as trustee, executor, administrator,
registrar of stocks and bonds, guardian of estates, assignee,
receiver, committee of estates of lunatics) or in any other fiduciary capacity in
which State banks, trust companies) or other
corporations which come into competition with national banks are
permitted to act under the laws of the State of New York. The
exercise of such rights shall be subject to the provisions of
Section 11(k) of the Federal Reserve Act and Regulation F of
the Board of
Governors of the Federal Reserve System.
After the conversion becomes effective and the Comptroller
Of the Currency
authorizes the national bank to commence business,
rou are requested
to have the board of directors of The National
lank of Orange and
Ulster Counties adopt a resolution ratifying
Your application for
permission to exercise fiduciary powers, and
certified copy of the resolution so adopted should be forwarded
to the
Federal Reserve Bank of New York for transmittal to the
Board for its records.
When a copy of such resolution has been
received by the Board, a formal certificate indicating the fiduciary powers
that the national bank is authorized to exercise will
be
forwarded.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
23
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item No. 3
7/6/61
ADDRESS OFFICIAL CORRESPONOCHCE
TO THE BOARD
July 6, 1961
Board of Directors,
Chemung Canal Trust Company,
Elmira, New York.
Gentlemen:
Pursuant to your request submitted through
the Federal Reserve Bank of New York, the Board of
Governors of the Federal Reserve System approves the
establishment of a branch at 602 South Main Street,
Village of Horseheads, Chemung County, New York, by
Chemung Canal Trust Company, provided the branch is
established within one year from the date of this
letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
*
Item No.
FEDERAL RESERVE SYSTEM
4
7/6/61
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
tr
44***
July
6, 1961
Board of Directors,
The Bank of Wood County Company,
Bowling Green, Ohio.
Gentlemen:
Pursuant to your request submitted through the
Federal Reserve Bank of Cleveland, the Board of Governors
of the Federal Reserve System approves the establishment
of an in-tawn branch between East Court and East Wooster
Streets at the New York Central Railway, by The Bank
of Wood County Company, provided the branch is established
Within one year from the date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No.
5
7/6/61
WASHINGTON 25. D. C.
ADORERS OrflCIAL CORRESPONDENCE
TO THC SCIARO
July
6, 1961
Board of Directors,
The Central Trust
Company,
Cincinnati, Ohio.
Gentlemen:
Pursuant to your request submitted through the
Federal Reserve Bank of Cleveland,
the Board of Governors
of the Federal
Reserve System approves the establishment
of a branch in
the Eastern Hills Plaza shopping center
on Paxton Avenue
, south of Oakley Park and Athletic Playfield, Cincinnati, Ohio, by The Central Trust Compan
y,
Provided the branch is established within one year from
the date of this
letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
c: fle COpirpio
se*
0'
4
'
4
'
1641%
*
*
0
0,..
FEDERAL RESERVE SYSTEM
Item No.
6
7/6/61
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
*lb.
***N M0
,6
TO THE BOARD
4'
July 6, 1961
Board of Directors,
Ormond Beach National
Bank,
Ormond Beach, Florida.
Gentlemen:
The Board of Governors of the Federal Reserve System
has given
consideration to your application for fiduciary powers
and grants
Ormond Beach National Bank authority to act, when not
in
?ontraventIon of State or local law, as trustee, executor,
administrator, registrar of stocks and bonds, guardian of estates,
assignee, receiver, comnitte
e of estates of lunatics, or in any
Other fiduciary
capacity in which State banks, trust companies, or
Other corporat
ions which come into competition with national banks
are
permitted to act under the laws of the State of Flori.da. The
exercise of such
rights shall be subject to the provisions of
Section 11(k) of
the Federal Reserve Act and Regulation F of the
Board of Governor
s of the Federal Reserve System.
A formal certificate indicating the fiduciary powers
that your
bank is now authorized to exercise will be forwarded
in due
course.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARi) OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 7
7/6/61
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 6, 1961
Board of Directors,
The First National
Bank in Owenton,
Owenton, Kentucky.
Gentlemen:
The Board of Governors of the Federal Reserve
System has given consideration to your application for
fiduciary powers and grants The First National Bank in
Owenton authority to act, when not in contravention of
State or local law, as
trustee for cemetery perpetual
care funds, executor,
and administrator. The exercise
Of such rights
shall be subject to the provisions of
Section 11(k) of the Federal Reserve Act and Regulation
F of the Board of
Governors of the Federal Reserve .
System.
A certificate covering such authorization is
enclosed.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
Enclosure
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No.
8
7/6/61
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July
6, 1961
Board of Directors,
The Juniata Valley
National
Bank of Mifflintown,
Mifflintown, Pennsylvania.
Gentlemen:
The Board of Governors of the Federal Reserve System has
given consideration to your application for fiduciary powers and,
effective upon an increase in the bank's capital stock to not less
than $150,000,
grants The Juniata Valley National Bank of Mifflintown
authority to act, when not in contravention of State or local law,
as trustee,
executor, administrator, registrar of stocks and bonds,
guardian of estates, assignee, receiver, committee of estates of
lunatics, or in any other fiduciary capacity in which State banks,
trust companies, or
other corporations which come into competition
With national banks
are permitted to act under the laws of the
State of Pennsylva
nia. The exercise of such rights shall be sub—
ject to the
provisions of Section 11(k) of the Federal Reserve Act
and Regulatio
n F of the Board of Governors of the Federal Reserve
SYstem.
When advice is received from the Office of the Comptroller
of the Currency
that the capital stock of The Juniata Valley National
Bank of Mifflintown
has been increased to not less than $150,000,
the minimum capital
required by the laws of Pennsylvania for the
exercise of trust powers by a bank and trust company located in a
borough or township with a population not exceeding 6,000 persons,
he Board of
Governors will issue and forward a formal certificate
evidencing the bankls authority to exercise fiduciary powers.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No, 9
7/6/61
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONOENCE
TO THE BOARD
July 6, 1961
Board of Directors,
The Farmers and Merch
ants Bank,
Boswell, Indiana.
Gentlemen:
This refers to your request for permission,
under applicable provisions of your condi
tion of membership numbered 1,
to exercise fiduciary powers.
Following consideration of the information
submitted, the Board of Governors of the Federal Reserve
. ystem grants
permission to The Farmers and Merchants
ank to exercise
the fiduciary powers now or hereafter
authorized by its charter and the laws of the State of
Indiana.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
4
.BOARD OF GOVERNORS
OF THE.
FEDERAL RESERVE SYSTEM
Item No. 10
7/6/61
WASHINGTON 25, D. C.
ADDRESS OFFICIAL. CORRESPONDENCE
TO THE BOARD
July 6, 1961.
The First National
Bank of Atlanta,
Atlanta 2, Georgia.
Gentlemen:
The Board of Governors of the Federal Reserve System
authorizes your Bank, pursuant to the provisions of Section 13
of the Federal
Reserve Act, to accept drafts or bills of exchange
for the purpose of
furnishing dollar exchange as required by the
usages of trade in such countri
es, dependencies, or insular
possessions of the United States as may have been designated by
the Board of
Governors, subject to the provisions of the Federal
Reserve Act and the Board's Regulation C issued pursuant thereto.
Section 13 of the
Federal Reserve Act provides that no member
bank shall accept
such drafts or bills in an amount exceeding at
any
.- one time
the aggregate of one-half of its paid-up and
unimPaired capital and surplus.
The right is reserved to terminate this authorization
Upon 90 days'
notice to your Bank as provided in the Regulation.
Enclosed is a list of the countries with respect to
which the Board
of Governors has found that the usages of trade
require the
furnish
ing of dollar exchange. The Board of Governors
may at any
time, after 90 days' published notice, remove from such
list the name
of any country, dependency, or insular possession
contained therein.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
Enclosures.
BOARD OF GOVERNORS
OF THE
Item No. 11
7/6/61
FEDERAL RESERVE SYSTEM
WASHINGTON
OFFICE OF THE CHAIRMAN
July 6,1961
The Honorable A. Willis Robertson,
Chairman,
Committee on Banking and Currency,
United States Senate,
Washington 25, D. C.
Dear Mr. Chairman:
This is in response to your request of April 28, 1961,
for a report on
S. 1740, a bill "To assist in the promotion of
economic stabilization by requiring the disclosure of finance
charges in connection with extensions of credit."
The bill would require a person engaged in the extension of credit to furnish to the person to whom credit is extended,
Prior to the consummation of the transaction, a statement in writing
setting forth, to the extent applicable and in accordance with rules
:_and regulations prescribed by the Board of Governors of :the Federal
1.ieserve System, among other items, (1) the finance charge expressed
dollars and cents, and (2) the percentage that the finance charge
pears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation.
As stated in our report on S. 2755, a similar bill introduced in the Congress last year, the Board is in full accord with
the Objective of requiring lenders and vene3rs to tell the truth
about interest rates and finance charges. The regulation of trade
practices in stating credit charges, where necessary to prevent
deception
of borrowers, surely is a desirable social objective.
We also pointed out, in our report last year, that extension of
the Board's duties into the field of trade practices as
contemplated by the bill would be foreign to the Board's present
responsibilities, which are principally in the field of monetary
and credit regulation through the banking system. We reaffirm the
p?sition we took last year that the administration of such legislaTa.on would not constitute an appropriate activity for the Federal
Reserve System.
Regarding the effect of disclosure of finance charges in
Preventing excessive and untimely use of credit by Consumers, the
Board's studies indicate that moderation of the cyclical expansion and
t A 4)
•
The Honorable A. Willis Robertson
-2..
contraction of consumer instalment credit reflects in large part
changes in the availability of credit to consumer lenders. Such
changes in availability are responsive to general monetary policy
and are reflected
primarily in the application of more or less
restrictive standards or terms rather than in higher or lower
finance charges.
Finance charges on consumer credit have not changed
eatly over the course of recent business cycles, and consumer
borrowers have not appeared particularly responsive to such variations as have taken place. This is not to say that greater consumer
awareness of interest rates may not influence the over-all pattern
Of their
spending, but this effect would seem to be more in the
nature of a long-run rather than a cyclical change. Greater consumer awareness of interest rates charged by various lenders may
so, of course, enable
them to make a more rational choice among
lenders.
F
In sum, the Board endorses the objective of requiring
adequate disclosure of finance charges,. but it feels that it would
not be aloPropriate
for the monetary authority to administer what
would be, essentially, a trade practices statute.
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr0
@FedFRASER