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Minutes for To: Members of the Board From: Office of the Secretary July 9, 1959 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 sectioa 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, if you were present at the meeting, please initial in column A below to indicate that you approve the minutes. If you were not present, please initial in column B below to indicate that you have seen the minutes. Chm. Martin Gov. Szymczak Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King Minutes of the Board of Governors of the Federal Reserve System on Thursday, July 9, 1959. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. The Board met in the Board Room at 10:00 a.m. Martin, Chairman Balderston, Vice Chairman Szymczak Mills Shepardson King Sherman, Secretary Kenyon, Assistant Secretary Riefler, Assistant to the Chairman Thomas, Economic Adviser to the Board Hackley, General Counsel Farrell, Director, Division of Bank Operations Molony, Special Assistant to the Board Smith, Assistant Director, Division of Examinations Miss Hart, Assistant Counsel Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. 212222ELEE122. The establishment without change by the Federal Reserve Banks of Kansas City and San Francisco on July 8, 1959, of the rates on discounts and advances in their existing scheduleswas approved unan* liar:may, with the understanding that appropriate advice would be sent to those Banks. Definition of "carrying" (Item No. 11. Unanimous approval was given to a letter to The National City Bank of Evansville, Evansville, relating to the definition of the term "carryingr as used in the Board's Regulation U. A copy of the letter, a draft of which had been c irculated to the members of the Board prior to the meeting, is attach—. QL as Item No. 1 Miss Hart then withdrew from the meeting and Mr. Noyes, Adviser, DiviAi —4°11 of Research and Statistics, entered the room. 7/9/59 -2Government securities market study (Item No. 2). Attached as Item N2....2 is a memorsnaum dated July 7, 1959, from Mt. Young, Director, Division of Research and Statistics, recommending arrangements for publishing the Treasury-Federal Reserve study of the Government securities morket at a cost not to exceed $121000. Copies of the memorandum had been distributed to the members of the Board prior to this meeting. Following comments by Governor Shepardson in support of the ree -ommendations contained in the memorandum, question was raised re garding the response that might be given if it should be noted that the entire cost of publishing the joint study was being borne by the Federal Reserve. The suggestion by the Chairman, with which there was agreement, was that the response to any such inquiry should be in terms that the Federal Reserve would have wanted to make the studY even if the Treasury had not desired to join in it. The Federal Reserve welcomed snd needed the help of the Treasury, but it would have undertaken the study in any event. Thereupon, the recommendations contained in Mt. Young's memowere a roved unanimously. Use of Federal Records Center. the There had been circulated to members of the Board a memorandum from Mt. Sherman dated June 251 1959/ re commending that the Board authorize arrangements with National Archives for use of the Federal Records Center in Alexandria, Virginia, 7/9/59 -3- for keeping such noncurrent records of the Board as in the judgment Of the Secretary of the Board and the head of the interested division could appropriately be stored outside the Board's building. This recomm endation, the memorandum noted, had the concurrence of both the Division and the Board's Controller. Commenting in support of the recommendation, Governor Shepardson noted that the use of a Federal Records Center for storage of certain classes of Board records had been considered at times in the Past, and that attention again had been drawn to the availability of this service in connection with the recent study by National Archives of the Board's recordkeeping procedures. In the past, he commented, there apparently had been some feeling of uncertainty as to whether the Board should avail itself of these facilities, offered on a cost-free basis ,_ uY General Services Administration to Federal agencies. However, Records Center services were available to all agencies of the Governillent/ and he was not inclined to feel that there would be any inadvisable illvolvement in the use of them. Governor Shepardson also pointed out that question had been raised bY the staff whether certain machine tabulating cards now stored in leased space outside the Board's building could not be placed in the Federal Records Center and that representatives of National Archives had ,iluicated willingness to accept such cards for safekeeping. r 7/9/59 Accordingly he planned to authorize the making of arrangements to store such cards at the Federal Records Center in Alexandria if the Board approved the recommendation contained in Mr. Sherman's memorandum ' He added that other phases of the report submitted by National Archives at the conclusion of its study of the Board's recordkeeping procedures were under review in the Secretary's Office and that re commendations would be made by that Office. Further discussion brought out that the Federal eserve Banks had been using Federal Records Centers throughout the country for some time for the storage of fiscal agency records and that records of the B°ara sent to the Federal Records Center in Alexandria would be placed there under appropriate destruction schedules agreed upon between the Boa,rd and National Archives. Thereupon, the recommendation contained in Mr. Sherman's memor-1 'uiLlum was approved unanimously. Secretary's Note: Pursuant to this action, Governor Shepardson approved later in the day the request contained in a memorandum from the Division of Administrative Services dated March 17, 1959, that it be authorized to make the necessary arrangements for storage of machine tabulating cards at the Federal Records Center in Alexandria. This memorandum contemplated that liaison would be maintained With National Archives by the Board's Records Section, a unit of the Secretary's Office. 7/9/59 -5Examination of Federal Reserve Bank of Atlanta. There had been circulated to the members of the Board the report and related memoranda having to do with the examination of the Federal Reserve Bank of Atlanta made as of April 27, 1959. At the request of the Board, Mr. Smith commented on various aspects of the examination and the report thereon. His initial remarks related to changes in the form of examination report, such changes having been made particularly for the convenience of readers aM to eliminate nonessential material from the text of the report. He then proceeded to summarize a number of matters relating to the management, operations, and premises of the Reserve Bank. The ensuing discussion was devoted principally to two items covered in the report of examination. The first of these involved the aPParent disposition along with waste paper of unissued stock of Series E United States Savings Bonds having a face value of $27,150, said to have been returned to the Reserve Bank's head office by an issuing agent in boxes thought by the Reserve Bank to contain only the i, Qsuing agent's stationery and supplies. It was noted that a claim had been filed by the Reserve Bank with the Treasury Department for 111,1 —ssued stock credit, that the danger of having unissued savings bonds put to fraudulent use was minimized by absence of an issuing agent's validating stamp, but that it was not known with certainty 7/9/59 -6- Whether the unissued bonds actually had been included in the shipment of material sent to the Reserve Bank by the issuing agent or what the final disposition of the unissued bonds had been. The second matter that was the subject of discussion related to the Check institution by the Reserve Bank of a "twilight" shift in its collection department under an agreement with banks in Atlanta Whereby checks drawn on country banks in the Atlanta zone were to be accepted until 7:00 p.m. Monday through Friday, credit being given °n a one-day deferred basis. While the operation of the twilight Shift on its present basis had had little effect on Reserve Bank CO ta 'aleuYsis by the examining staff indicated that it had resulted in An increase in float of approximately $3 million per day during APril 1959. In order that full information might be available for the Boardss co nsideration, and in view-of precedent aspects of the °Peration of the twilight shift in the check collection department, G(Ivernor Mills was requested to review the matters in question with ?I 'esident —r5ran of the Federal Reserve Bank of Atlanta and report back to the Board. Further discussion of the report of examination of the Atlanta Bank included a brief reference, in light of the contemplated New Orleans Branch building program, to the funds remaining available for such 7/9/59 Programs under the current statutory limitation. It appeared that sufficient leeway was available to take care of the addition to the Ok1ahDim, City Branch building, but it was not certain whether the statutory limitation would have to be increased to permit completion Of the No funds had been allocated contemplated program in New Orleans. to the Denver Branch in view of the dormant status of that building Pr°gram at this time, and the Division of Bank Operations had been informed that at some point plans were likely to be submitted for the B0-3, c".la s consideration with respect to a building program in Little Rock. Governor Balderston reported having had a discussion recently with re presentatives of the Division of Examinations concerning certain aspects of the form of examination report. It was his understanding that the Division would give further thought to the matter and set forth its views in memorandum form and the comment was made that it would be desirable to have such a memorandum presented for the Board's cons ideration. accounts of the Federal Reserve Banks. At the request of the chairman, Mr. Farrell si Arized the history and current status Of the caPital accounts of the Federal Reserve Banks. His report was based on a memorandum being completed for distribution to the members of the 10 ..Joard within the next few days. 7/9/59 -8Chairman Martin asked that each Board member study the memorandum carefully prior to further consideration of the subject matter by the Board. He noted that there had been on file with the Bureau of the Budget for some time a proposed bill that would compel the Federal Reserve Banks to pay 100 per cent of their current net earning s to the Treasury, and he had advised the Director of the Iluresu that the Board would take the matter under study. Bill to eliminate interest rate ceilings. Following a meeting in executive session yesterday which was attended by Chairman Martin, the House Ways and Means Committee had agreed to report a bill that would give the President authority to suspend for a two-year period the current maximum rate of interest on Treasury bonds and would permit increasing the rates of interest on United States Savings 13°148 ' According to the action taken by the Committee, the bill would be reported with an amendment which, although the exact Wording Was not yet available, would in effect express the sense or the Congress that the Federal Reserve System, while pursuing a scnnd monetary policy, should to the maximum extent consistent therewith assist in the efficient and economical management of the public debt bv vurehaaing,when feasible, Government securities with varying maturities. 7/9/59 Chairman Martin related to the Board some of the developments leading up to the decision to report out the bill with the aforementioned amendment and then discussed the construction that might be Placed upon such an amendment from the standpoint of the formulation of Federal Reserve policy. He added that he had made no comment publicly regarding his position with regard to the action taken by the Committee, and it vas from agreed that it would be appropriate for the Board to refrain comment. The Chairman observed that the bill, in the form.reported by the . ConlmIttee, would now go to the floor of the House of Representatives 414 that in about two weeks there would be hearings before the Senate Finance Committee. He suggested, therefore, that the members of the Board begia to consider what type of statement would be most appropriate for pre sentation to the Finance Committee. In this connection, Mr. Noyes pointed out that one possibility would be a statement of a general nature with respect to interest rates, while another possibilitY would be to direct the testimony particularly to the bill Passed by the House of Representatives. Mr. Noyes also brought out that the Board's staff was likely to be -Ln receipt of requests from the offices of members of the House tor -.081stance in the preparation of statements to be made when the bill ,4'qported by the Ways and Means Committee came up on the floor of 7/9/59 -10- the House for debate. After discussion, it was agreed that the staff, in the event of receipt of such requests, should guard against supplying 4, ' 111-ormation of such a nature that it might be charged that the Federal Reserve, which had been given an opportunity to present its views before the Ways and Means Committee and would be given the same opportunity before the Senate Finance Committee, was injecting itself into the legislative proceedings in an improper manner. Some distinction, it waS suggested, might be made between requests from members of the Ways cl Means Committee and other members of the Congress. The meeting then adjourned. Secretary's Note: At the meeting on July 6, 1959, the Board agreed that if the directors of the Chicago Reserve Bank, at their meeting today, should act to approve appointments and salaries within the Reserve Bank as set forth in a draft letter transmitted by President Allen under date of June 29, 1959, and if Mr. Allen advised the Board's offices that he was sending the draft letter in final form, there would be sent to Mr. Allen a reply in the form of the draft that was before the Board at the July 6 meeting. Mr. Allen today informed the Board's Secretary that the Chicago directors had taken the contemplated actions and that he was therefore forwarding in final form the letter transmitted in draft on June 29. Accordingly, a reply was sent to Mr. Allen in the form attached as Item No. 3. Secretary BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 1 7/9/59 WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD Mr. Kenneth 0. Henke, Vice-President, The National City Bank of Evansville, Third and Main Streets, Lvansville 1, Indiana. Dear Mr. Henke: the term "In your letter of June 16, 1959, you ask for a definition of 8" as used in the answer to question (1) (and elsewhere)fl carryinuRe Questions and Answers Illustrating Application of Regudicti" u issued by the Board of Governors on June 15, 1959. In the tion onarY sense, of course, "purchasing" would refer to the acquisithe r°1* stock, and "carrying" to its continued ownership. As used in CtlOfl, however, the term is somewhat technical and your ques-Lien '" be answered most accurately by referring to illustrations. ti, ,,arryin The previous regulation defined a loan for the purpose of g stock as one "to enable the borrower to reduce or retire indebt or ,_A"edness which was originally incurred to purchase such a stock, " An,'made to "a b __ broker or dealer, to carry such stocks for customers." falliag within this definition would, of course, continue to ea 1,5;.regulated loan under the amended regulation issued on June 15, determ4 Tbe amendments provide certain tests which are intended to help €, ,ener"f aine whether a loan is for the purpose of carrying stock. In 3 where stock to be pledged as collateral for a loan has beercl held f loan ii,?, less thnn a of year, the loan should be treated as a regulated 0 -.:'ess the lending the 12 purpose the officer can be satisfied that regist n is net to replenish funds used to make the purchase of the red stock offered as collateral. held for Conversely, where the stock offered as collateral has been the 10 more than a year, this fact would create a presumption that that not for the purpose of carrying the stock, and the fact ac the Which which he borrower has a prior history of borrowing for the purpose for e cr:Eent loan, or that the expenses he intends to d yh ; str of the loan are of an unforeseen nature, would Illeete:tilleini BOARD OF DOVE . Kenneth O. Henke NORS OF THE FEDERAL RESERVE SYSTEM t) .1„.. 1_ -2- AD of these tests are, of course, implicit in section 221.3(b)(1) Of Regulation U and reference should be made to the wording of that section allin aPplying them. It is expected that lending officers will take levant circumstances into consideration in determining whether a ular loan is for the purpose of carrying registered stocks. However parjec ,s,11E,54si t4 i abank should have questions as to any specific cases, it is might with to take them up with the Federal Reserve tiPnk of St. LouYir Very truly yours (Signed) Merritt Sherman Merritt Sherman, Secretdrv BOARD OF GC1VERNORS OF THE Item NO. 2 FEDERAL RESERVE SYSTEM )81ce Correspondence L'----Enaz d_clf_Governorz „ 7/9/59 Dee July 7, 1959 Subject: Pahl i anti on--Treasury-FeciAral Resf.rvp Gmrprnmpnt Rpalmitip- w. . It is recommended: (1) That the Division of Research and Statistics and the of Administrative Services be authorized by the Board to lit_ibhie necessary arrangements for publishing the Treasury-Federal Government Securities Market Study at a cost not to exceed "c gi,fve,u00 (2) That the usual policy of complimentary distribution followed t°r sir'liar • the, publications be adopted. This would provide for furnishing "arious parts or volumes on a complimentary basis to Federal Reserve cloTne‘-s; Government departments, agencies and establishments (foreign and teatio) ihcluding central banks; educational institution libraries and into"ere; public libraries; the press; persons who cooperated by supplying spe2:Tation for use in the study; and a limited number of addressees "-lied by the Division of Research and Statistics. be a (3) That each part be sold for $1.00 per copy and that there sPecial price of $2.50 for a set of the initial three books. be • (4) That, in view of the very limited tine allowed, authorization okitglven 0, 1,.to have the printing work done by Judd and Detweiler, Inc., withthat,'Llng for bids from other printing firms, but with the understanding based. after completion, we would be able to negotiate for any cost savings upon a cost plus 12 per cent gross profit agreement. Parts , According to present plans, 2,500 copies of each of three Pamphi: -1 volumes of the Study would be published initially. The first copie'" or volume would consist of about 125 pages of text; printed abolits 11-°uld be delivered by July 17. A second part would consist of Pages; printed copies of this pamphlet would be available by Allglast2°O Printed4-7* A third part would consist of approximately 125 pages; coPies would be available by early September. We have been advised by Judd and Detweiler, Inc., that the Printing the three books, as now planned, would be approximately nowevc,' Cost of printing the first part has been estimated at $2,325. 111arnber-r, in view of the very tentative nature of the estimates of the and bec°f parts to be published and the number of pages of each part, 6111r*ant4,cialfise we may require reprints, we suggest that authorization be or spending up to $12,000 for the entire project. 23-t To: Board of Governors the All printing and publication costs would be charged against rLoytecial Project - Treasury-Federal Reserve Government Securities lia"' Study No regular budgetary provision was made for this study. BOARD OF GOVERNORS 2 OF THE Item No. 3 FEDERAL RESERVE 'SYSTEM 7/9/59 WASHINGTON 25. D. C. ADOREUR OFFICiAL CORRESPONOCNCE TO Tkik: OOARO July 9, 1959 COPIFIDENTIAL FR/ 4, Carl E. Allen, President, Federal aeserve Bank of Chicago, Chicago 90, Illinois. Dear Mr. Allen: The Board of Governors approves the following actions of Your B . edrd of Directors, as requested in your letter of July 9, 1959: effecti The appointment of Charles J. Scanlon a s First Vice President kSeptember 1, 1959, to succeed Mr. Harris for the unexpired Portion of „ the five-year term which began March 1, 1956, and the r pa3triment to Mr. Scanlon at the rate of $22,500 per annum or the PerioAo'rve" ' 3alarY ,4 September 1 through December 31, 1959. The payment of salaries to the following officers of the Federal ert:T5tnk of Chicago for the period September 1 through Name Leland M. R05S Harry S. Schultz Carl E. Bierbauer John J. Cap e h Title Chief Examiner Vice President Assistant Vice President Assistant Cashier Annual Salary $14,000 14,000 11,500 9,500 in conne The appointment of Vice President Hugh J. Helmer as an Examiner with official duties in your Bank Examination Department, effect& ve etiell 6eptember 1, 1959. in char Lhe arranr;ement whereby Vice President Wilford R. Diercks, officer 1959,! a e r, °I Your Bank Examination Department, will retire October 1, t, " then be reenloyed m in his present position to October 1, 1960 beyo„"e title of year ho remains eala; retirement Vice President, at a salary rate for the based unon the difference between his present annual rate and the pen;lion portion of his retirement allowance. Very truly yours, (Signed) Merritt Sherman :1erritt Sherman, L3ecretrlry.
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