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Minutes of actions taken by the Board of Governors of the 44eral Reserve System on Friday, June 11, 1948. the The Board met in Board Room at 10:30 a.m. PRESENT: Mr. McCabe, Chairman Mr. Eccles Mr. Draper Mr. Mt. Mt. Mt. Mt. Mr. Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Thurston, Assistant to the Board Riefler, Assistant to the Chairman Vest, General Counsel There were presented telegrams to the Federal Reserve Banks °r177 York, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Mmis, Kansas City,and Dallas stating that the Board approves the e -, slIment without change by the Federal Reserve Bank of St. Louis 0114 114e 8, by the Federal Reserve Bank of Atlanta on June 9, and by the ecleral Reserve Banks of New York, Cleveland, Richmond, Chicago, °lite, Minneapolis, Kansas City, and Dallas on June 10, 1948, of of discount and purchase in their existing schedules. Approved unanimously. There was presented a telegram to Mr. Volberg, Vice President Pederal Reserve Bank of San Francisco, reading as follows: Retel June 8, Board approves effective June 11, elimination of special maximum commitment rate ,171 loans In-der Section 13b guaranteed under Regulation Otherwise Board of Governors of Federal Reserve 'cistern approves establishment by your Bank, without e&ge, of rates of discount and purchase in Bank's Sting schedule, advice of which was contained in ' °11r telegram dated June 8." 8, Approved unanimously. There was presented a memorandum dated June 10, 1948, re- 6/11/48• -2- l'erring to bill H.R. 6570, a bill to permit a national bank to con7ext into or consolidate with a State brInk. that the The memorandum stated Board had indicated that it had no objection to the bill, blItthat at a hearing before the House Banking and Currency Corntee on June 9, 1948, an amendment was proposed which, among °tIler things, would permit retention by a national bank of all --Liles of predecessor banks in the event of conversion, conkaiA ' - ation, or purchase of assets of another bank without reto State law governing branches of State banks. The memo- " r' 111 outlined the possible effects of the amendment and stated that while the bill had been reported out without the amendment, the „ 'Ilairman of the House Banking and Currency Committee, with the thought that the amendment might be offered on the floor, 44d r„, -quested the Comptroller of the Currency and the Federal N)osi+ Insurance 8 Corporation to submit reports as to their concerning such an amendment. The memorandum also stated tIlat a lthough the Board had not been asked for a report the questio4 1/4e presented whether the Board should submit a report in °1)P0 18-+4 --Lon to the amendment, but that in view of the fact that the. elias little chance that it would be adopted in the face of Se reports from the Comptroller of the Currency and the Deposit Insurance Corporation and probably opposition the American Bankers Association, it was recommended that el43rt be submitted. There was a discussion of the proposed amendment, and it was agreed unanimously that the Board should not submit a report on the amendment. 6/11/48 .3.. Chairman McCabe stated that Mr. William Clarke Mason, an 4tterneY in Philadelphia, recently sent him a draft of a Comer1 41 Code being prepared by a committee of the American Law Intitlite of which Mr. Mason was a member. He also said that the C(4'e contained provisions relating to bank collections, the uni' negotiable instruments law, and other subjects in which the hae ral Reserve System is interested, that Mr. Mason, whom he Personally, had indicated that he would be glad to have the bexler, -Lt of any suggestions which the Board or the Federal Reserve 8 inight wish to make in connection with the preparation of the Coae 'and that he (Chairman McCabe) had sent Mr. Mason a letter clEttea June 6, 1948 reading as follows: "I have talked with the Board's General Counsel Narding the draft of the Commercial Code prepared °Y the committee of the American Law Institute of /Illich you are a member. "It is our feeling that certain portions of this Ode, particularly the chapter on Bank Collections and ' l er4ps the chapter on the Negotiable Instruments Law, matters with which the Federal Reserve Banks are Particularly concerned. Counsel for the Reserve Banks ere furnished informally with an earlier draft of the ehaPter of the Code relating to Bank Collections. Ac.et°11ingly, it would be very desirable for Counsel for .u.ese Banks or possibly a committee of them to have an °PPortunity to go over the latest draft of the parts °r the Code with which they are especially concerned :14d to make comments and suggestions to you or to the II)DroPriate Committee of the American Law Institute. 0 assume there would be no Objection on your part or 4 the Part of the Law Institute to this procedure 6/11/48 -4- "but I will be glad if you will advise me as to this. 1 will appreciate it also if you will let me know what IS the deadline for submission of comments regarding the Code. "In this connection, while I do not wish to put You to any trouble in the matter, would you be good enough also to inform me where we might secure fifteen or twenty copies of the latest drafts of the various Parts of the Code with the notes and comments thereon. "I hope that this suggested procedure will be agreeable to you. I am sure that it will be helpful for the Federal Reserve Banks to have a chance, through their lawyers, to look this Code over." Mr. Vest stated that the preparation of the Code was a °(113licated and technical subject, that it required considerable %,and that it was a matter in which the Reserve Banks had Special interest. Be pointed out that the American Law In- 8t1 tilte, which was drafting the Code in collaboration with the -011al Conference of Commissioners on Uniform State Laws, ex1ted as soon as the Code was approved by each of these bodies to 1)1'esent it to Congress for enactment and thereafter to preit 60 individual State legislatures for adoption. 440 Mr. Vest stated that he felt that Counsel for each Federal Reserve Elzat have an opportunity to examine the draft and to sub1t e°41ments thereon, and that it would be desirable for a Comklttee of Counsel of the Presidents' Conference to review the Qoizulle Ilts submitted by the individual Counsel and to submit di"0 Mx. Mason or to the appropriate officials of the 6/11/ -7Law Institute any comments or suggestions that such a e°110tittee might feel were advisable; and that in order to work 4 Practical procedure for a review of the matter by Reserve 334111t Counsel the matter should be taken up with Mr. Davis, ChairOf the Presidents' Conference. Before this meeting there had been sent to each member of the B °ard a copy of a memorandum addressed to Mr. McCabe by Mr. lieSt ---""er date of June 9, 1948, and the matter was discussed in the ht of the information contained in the memorandum. Mr. Eccles stated that he felt that it would be undesirEke ror the Board or the Reserve Banks to take official action cozie erning the provisions of the Code but that he would be in Nror of having the Code reviewed informally by the Board's 0 1 and a Committee of Counsel of the Presidents' Conference, so that their views could be given or transmitted to Mr. Mason or t1143.1/ Institute for consideration. It was agreed unanimously that Mr. Vest should take the matter up with Mr. Davis, Chairman of the Presidents' Conference, and that, if he was agreeable, the Code should be reviewed by Reserve Bank Counsel and the Board's Counsel and comments transmitted to the Law Institute, in accordance with the procedure suggested by Mr. Vest or such other practical procedure as might be deemed advisable, without the necessity for action by the Reserve Banks or by the Board with respect to any such comments. 6/11/48 -6Chairman McCabe stated that the Personnel Committee, at its Meeting on June 9 and 10, 1948, had considered the matter of relri -Lew of salaries in, and organization of, the International 4-et1401a of the Board, that it had invited Mt,. Thomas, Director or Division of Research and Statistics, into the meeting r0r he purpose of expressing his views, and that the question ra. review of the International Section had been further dis- Ilssecl with Messrs. Thomas, Riefler, and Nelson at a meeting Oh 1111e l0. Chairman McCabe went on to say that there appeared to b e a difference of view between Mr. Thomas and the Division c)1. rsbrinel Administration concerning salary administration in theT Jalternational Section Find in the Research. Division generally, 6111 t1,.. he felt it would be desirable for Mr. Johns, Vice Presi- Of the Federal Reserve Bank of Kansas City, who is tempora14et the Board's offices in accordance with the arrangement 413r°11ecl on April 29, 1948, to make a survey of the International eeti°11.1 working in close collaboration with Messrs. Thomas, Nel°11 '4114- Riefler. He stated that Mr. Johns, who was General Coun- "the Kansas City Bank, was also the personnel officer of that that he had a sympathetic view of research work, and til4t1le appeared to be a person who could make an objective study 41a 811bIzit results which might be helpful to the Personnel Corn- -7I:41th -e* in arriving at a conclusion as how best to proceed. Be went "0 saY that Mr. Draper and Messrs. Thomas and Nelson were agree812 '' 1 e to the proposal, that Mr. Vardaman, as the other member of the ?erm_ cm.nel Committee, and Mr. Evans, the member of the Board whose a884Mments of matters for initial consideration included the Resea-lbell Division, were agreeable to it, and that Mr. Szymczak, who had 8.11 interest in international matters, also had indicated he eit such a survey by Mr. Johns would be desirable. In response to a question by Mr. Eccles as to Mr. Johns eq/11) eencY to make suggestions on a personnel problem in the field or ill-tisTnational research, Chairman McCabe said that Mr. Johns °1114 14(3rk closely with 14±. Riefler who did have competency in thTt rield Mr. Eccles suggested that Mr. Morrill be asked to collab- ot4t,, - on the study. Following a discussion, it was agreed unanimously that Mr. Johns should be asked to undertake the survey proposed by Chairman McCabe, With the understanding that he would work closely with Messrs. Thomas and Nelson and would collaborate with Messrs. Morrill and Riefler in the conduct of the study. At this point Messrs. Riefler and Vest withdrew and the ElqiO4 stated with respect to each of the matters hereinafter 4rorth was taken by the Board: -8Letter prepared for Chairman McCabe's signature to the 11°110rable Burnet R. Maybank, United States Senate, reading as "I regret very much that my illness has delayed a more prompt reply to your letter of May 28 in which you request copies of three letters to which reference was made at the hearing before the Banking and Currency Committee in connection with my nomination to the Board of Governors of the Federal Reserve System. "Copies of the three letters listed in your letter are enclosed, but inasmuch as these com1411101ications were not included in the printed recOrd of the hearing and have not been otherwise released, the Board is forwarding them to you for Yc)ur personal and confidential information." Approved unanimously. Memorandum dated June 10, 1948, from Mr. Carpenter recom4eMillg that the resignation of Miss Martha H. Searcy, a file clerk Ilithe Office of the Secretary, be accepted to be effective, in acce With her request, at the close of business June 30, 1948, ith the understanding that a lump sum payment would be made for 6.13111141 leave remaining to her credit as of that date. Approved unanimously. Memorandum dated June 9, 1948, from Mt. Bethea, Director t4 e ivision of Administrative Services, recommending that the /.eal le 'tion. of Mrs. Enid W. Staley, a printing clerk in that DiO &1o1 be accepted to be effective, in accordance with her re- 6/11/48 -9- at the close of business June 25, 1948, with the understand1n hat a lump sum payment would be made for annual leave remainto her credit as of that date. Approved unanimously. Letter to the Honorable Maple T. Han, Chairman, Federal bebr, " alt Insurance Corporation, reading as follows: "In accordance with the request contained in your letter of June 10, 1948, the Board of Governors of the Psderal Reserve System hereby grants written consent, PUrsuant to the provisions of subsection (k)(2) of Section 12B of the Federal Reserve Act, for examiners fO' the Federal Deposit Insurance Corporation to make an examination of the Community State Bank, Grandville, Michigan, in connection with its application fOr continuance of insurance after withdrawal from Ismbership in the Federal Reserve System. "There are no unfulfilled conditions or incomPiste corrective programs with respect to the member bank in connection with which the Board would suggest incorporation of conditions for continuing its status 48 an insured bank. "For some time the Reserve Bank has felt that the eaPital position of the bank was unsatisfactory and has been urging that its capital be increased. Recently all increase has been effected, the sufficiency of which TaY be open to question. However, it is understood that present plans of the bank contemplate a merger with another institution and it is assumed that the matter °f sufficiency of capital will be considered in the reOf the entire transaction. Nevertheless, it is elt that you may be interested in the opinion of the ssrve Bank that one of the principal reasons for the i llure of the bsnk's net earnings to keep pace with : 0 8 growth in asset volume has been excessive salaries officers and fees to directors." 7 Approved unanimously. 6111/48 -10Letter to the Presidents of all Federal Reserve BFInks read- 1r, as follows: "In accordance with the program for revision of conditions of membership which was discussed at the recent Presidents' Conference, the Board is prepared to amend Regulation H to: (1) Eliminate from Section 6 standard condition of membership numbered 3, the three trust conditions, and the related footnotes numbered 10, 11, 12, 13, and 14; (2) Add the following paragraph to footnote numbered 6: 'For many years, the Board prescribed, as standard conditions of membership, a condition which, in general, prohibited banks from engaging as a business in the sale of real estate loans to the public and certain conditions relating to the exercise of trust powers, including one which prohibited self-dealing in the investment of trust funds. The elimination of these conditions as standard conditions of membership does not reflect any change in the Board's position as to the undesirability of the practices formerly prohibited by such conditions; and attention is called to the fact that engaging as a business in the sale of real estate loans to the public or failing to conduct trust business in accordance with the applicable State laws and sound principles of trust administration may constitute unsafe or unsound practices and violate condition numbered 1.' (3) Renumber in serial order footnote numbered 15 and those following. "The amendment to the regulation will become effective at some future date to be determined by the Board, which : 111 permit the issuance of the amended regulation to be lachronized with the cancellation of certain conditions 1.4. , membership now applicable to State member banks, which Part of the program for revision of conditions of memuership. "Effective this date standard condition of membership 1111 * s _ered 3 and the three trust conditions will not be pre'rlbed in the case of current applications. j 6/11/48 -11"The program contemplates that, in the interest of uniformity, the conditions of membership applicable to each State member bank will be reviewed with a view to cancelling conditions of a kind which would not be prescribed were the bank applying for membership at the Present time and those conditions which required certain action be taken by the member bank and have been complied with. It is expected that this program of review and cancellation will result generally in the retention of those conditions similar to standard conditions numbered 1 and 2, and of such special conditions as would be prescribed were the bank applying for membership now. "The Reserve Banks are requested, therefore, to rorward to the Board as promptly as practicable their recommendations as to which conditions should be cancelled and which conditions be retained for each State Zember bank. It is requested that the recommendation be submitted in schedule form in duplicate, with the schedule showing in columnar form: (1) Name and location of bank (2) Numbers of the conditions recommended for cancellation (3) Numbers of the conditions recommended for retention "The Board will review the recommendations, advise the Reserve Banks as to the conditions which have been cancelled, and authorize the Reserve Banks to advise the 3ember banks of the cancellation of the conditions and O furnish them with clean drafts of the conditions which ellain in force. A copy of the form of letter to be used ; or this purpose will be furnished later. "The program involves a considerable volume of work both — on the part of the Reserve Banks and the Board, but :"e Board hopes that the program can be completed by Sep',ember 1, if not August 1. If it appears that your Bank calanot submit its recommendation with respect to all State eMber bRnks in its district by June 28, it is requested rhat it submit as many recommendations as possible to meach us not later than that date, in order that the work aY Proceed without delay. ' "Some banks are subject to conditions which are coinin substance but not identical in form with standard 1 T 6/4/48 -12- conditions numbered 1 and 2. These original conditions would be continued under the program of revision. In 1936, for example, two standard conditions were consolidated into present standard condition numbered 1, and two other standard conditions were consolidated into Present condition numbered 2. "Because of these minor variations there may be some banks which would like to accept the new standard conditions in lieu of the comparable original conditions. If/ after receipt of the advice of cancellation, any member bank should express a desire to do so, it will be Permitted by formal action of its board to accept in lieu of its original conditions of membership the revised standard conditions with any of the other original conditions that should be retained. Such requests will, C/f course, require approval by the Board of Governors In each instance. In this connection, the Board feels that no State member bai3k should be asked to accept new conditions to which it is not already subject and that alaY request for the substitution of standard conditions lieu of other conditions should be solely upon the initiative of the member bank. "No public announcement will be made of the amendment of Regulation H or of the program for revision of , c_onditions of membership until about the time it is to 1Qe made effective. "If you have any questions as to the program, the Board and its staff shall be glad to try to answer them." Approved unanimously. Letter to the Presidents of all Federal Reserve Banks read4e f011aWS: "The revisions being made in the condition report which were described in the Board's letter of Y 13, also require a change in the weekly condition 'oePort form. The changes in the weekly report affect 44 '1Y the loan items, which are to be reported gross ?stead of net as at present, followed by a deduction If the total amount of valuation reserves allocated to e°ells. A copy of the revised form (F. R. 416) is en-°sed. In submitting the data to the Board, whether fo)-Th -13"by mail or by telegraph, it is not necessary to use the two new sub-totals, items 1(g) and 1(i); a column or code word PEAL for the new deduction item 1(h) will suffice. "It will be appreciated if your Bank will obtain weekly reports on the new basis beginning with Wednesday, June 30. Inasmuch as weekly reporting member banks hold aPProximately 70 per cent of loans of all member banks and 60 per cent of all commercial banks, it is suggested that the reporting banks be asked to show in their rePorts as of June 23, 1948, the amount of reserves for bad debts, unallocated charge-offs, and other valuation reserves allocated to and deducted from each of the loan items, 1(a) to l(f), on that date. The amounts allocated MaY be shown on the member bank's report as a memorandum item against the net amount of each class of loans. It is further requested that, if the total amount of such reserves as reported on June 30 against new item 1(h) is sUbstantially larger than the total amounts allocated °II June 23, the reporting banks be requested to advise Ilhether the addition cane from capital accounts or merely bY way of transfer of reserves previously included else'where, for example, in all other liabilities. "The additional information should be included in the summary and transcript of weekly reports which you send to the Board. If your Bank telegraphs weekly conion figures, please report the additional information "of June 23 as follows: PRAL breakdown: Code Words Amount (in thousands rather PADA, etc. than usual millions) Your report for June 30 please show the increase, if in the reserves reported according to the accounts ' rem which transferred. "The supplementary information on reserves as of ? 3 and 30, if the reported amounts prove to be -4-1.1Y substantial, will be made available to users ' 4 loan series to assist them in adjusting the break the series on a comparable basis." Approved unanimously, with the understanding that the letter would be sent when the forms referred to therein are printed and ready for distribution. -14Letter to the Honorable Tom C. Clark, The Attorney General, l'ea4i4g as follows: "The Board of Governors has asked me to reply to Your letter of May 12, 1948, in which you request that the Board appoint a director to head a voluntary solicitation of funds for The Children's Crusade from the employees of the Board. "In the past it has been the policy of the Board to restrict the solicitation of donations of this kind tO national campaigns such as the Community Chest, the Araerican Red Cross, and the 'Mile 0' Dimes'. The reason for this has been that to undertake a wider activity would constantly raise questions as to where the line should be drawn. Therefore, it would not be consistent With our policy actively to solicit employees for contributions to the Children's Crusade. "While our organization is comparatively small, some of the members of the staff are interested in the Work of aiding the distressed peoples in Europe and Asia, and if you will have forwarded to Mr. Herbert uohnson, Personnel Officer, approximately 50 pledge cards, we will be glad to see that the employees are Itavised that they may contribute to the campaign through his office if they so desire." Approved unanimously, together with the following letter to Mrs. Clarence A. Aspinwall, Chairman of the Civil Relations Committee, The Board of Lady Visitors, The Children's Hospital, Washington, D. C. This action was taken with the understanding that the Secretary would make appropriate similar replies to letters received in the future requesting solicitation of funds, without referring them to the Board: "The Board of Governors has asked me to reply to your letter of May 17, 1948, suggesting that a collective gift the employees of the Board be sent to the Children's 40ePital Building Fund. "In the past it has been the policy of the Board to ' 4 estrict the solicitation of donations of this kind to 94- a 6/4/48 -15- "national campaigns such as the Community Chest, the American Red Cross, and the 'Mile 0' Dimes'. The reason for this has been that to undertake a wider activity would constantly raise questions as to where the line should be drawn. Therefore, it would not be consistent with our policy actively to solicit emPloyees for contributions to the Building Fund of the Children's Hospital. "While our organization is comparatively small, some of the members of the staff are interested in the work of the Children's Hospital and, if you will have forwarded to Mr. Herbert Johnson, Personnel Officer, approximately 50 pledge cards, we will be glad to see that the employees are advised that they may contribute to the Fund through his office if they so desire." Memorandum dated June 9, 1948, from Mr. Leonard, Director of ttle ivision of Examinations, recommending reimbursement to the FedReserve Bank of Minneapolis for an expense voucher and receipted 4411-dual expense accounts in the amount of $947.30, covering exell8ss incurred by the four employees of the Federal Reserve Bank (11)1411111eapolis who assisted in the recent examination of the Seattle Portland Branches of the Federal Reserve Bank of San Francisco. Approved unanimously.
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