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Minutes of actions taken by the Board of Governors of the Nleral Reserve System on Monday, June 11, 1951. PRESENT: Mr. Mr. Mr. Mr. Martin, Chairman Vardaman Norton Powell Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Minutes of actions taken by the Board of Governors of the Iledel'el Reserve System on June 6, 19511 were approved unanimously. Minutes of actions taken by the Board of Governors of the Neral Reserve System on June 71 1951, were approved and the actions tec°rcisd therein were ratified unanimously. Telegrams dated June 8, 1951, to the Federal Reserve Banks of 1°11t) Philadelphia, Cleveland, Richmond, Chicago, St. Louis, Minneapolis, 1848 °JAY, Dallas, and San Francisco stating that the Board approves : est4b1is1ment without change by the Federal Reserve Bank of San Francisco 4'1111" 5) by the Federal Reserve Bank of St. Louis on June 6, and by the e cietell Reserve Banks of New York, Philadelphia, Cleveland, Richmond, Minneapolis, Kansas City, and Dallas on June 71 1951, of the 41441 or discount and purchase in their existing schedules. Approved unanimously. kenlorandum dated June isbn 5, 19511 from Mr. Noyes, Director of the (:)f Selective Credit Regulation, recommending that the resignation 18/1/Betty Jean Plaugher, Stenographer in that Division, be accepted 6h1/51 -2- to be effective, in accordance with her request, at the close of business allrm 22) 1951. Approved unanimously. Memorandum dated June 7, 1951, from Mr. Bethea, Director of the 131'1181°n Of Administrative Services, recommending the appointment of Miss *4111a Idamay Chism) as a Page in that Division) on a temporary indefinite 4818) with basic salary at the rate of $2,200 per annum, effective as of the date upon which she enters upon the performance of her duties after hos, Passed the usual physical examination, and subject to the cornOf a satisfactory employment investigation. Approved unanimously. Letter dated June 8, 1951 to the Honorable Maple T. Hari, Chair'l'ederal Deposit Insurance Corporation, Washington) D. C.) reading rollove, re, "Reference is made to your letter of May 15, 1951, eamating that appropriate members of the Board's staff 130 : 4the Proper persons at the Federal Reserve Banks in 13,;(411, Richmond and San Francisco be advised of your to continue your program of auditing the Certi71 Statements submitted for assessment purposes by 4 ,.4eure d banks and that you were scheduling such audits 41,11111mber of the larger banks in the First, Fifth Trlfth Federal Reserve Districts. selat, C°Pies of your letter and this reply have been or,'do the Presidents of the Federal Reserve Banks °n, Richmond and San Francisco together with c2! ilai 1eti:44t10n as to the provisions of your previous or 4::_ y to which you refer, with regard to the scope t8 "le audits) the personnel engaged therein, etc. "It is assumed that audits in the States of New York, New Jersey and Delaware, which was the subject Of your letter of March 22, 1949, have been wholly or substantially completed and, since no significant discrepancies have been reported to the Board that none have been found. "In the Board's letter of May 6, 1949, it was xoted that, in your opinion, completion of the audits in the States of New York, New Jersey, and Delaware would provide a sufficiently representative coverage to develop the information desired at the time the Program was initiated. In the circumstances, it was assumed that, thereafter, it might be practicable to develop a procedure, to be followed as a part of the regular examination of banks, which would provide the information or verification considered necessary with respect to statements submitted for assessment purPoses• "It would appear that the need for audit of the ce rtified statements submitted arises primarily with :ssPect to those submitted prior to the recent simpliiication of the computation of the assessment base. m4 view of this simplification it is suggested that ; ! e surss be taken to determine the extent of verifi2'1011 and information required with respect to the orts for assessment purposes submitted under the 1414 Procedure and a satisfactory means be devised, at„IP°ssible, for verification of such reports currently as a part of regular examination procedure." 1 Approved unanimously. Ets tol Letter to the Presidents of all Federal Reserve Banks, reading love: Conference Or 10 "This refers to the action taken by the th:rssidents at its meeting on May 16, 1951, approving reP°rt of the Subcommittee of Counsel on Collections to-, mavt.he Committee on Collections and Accounting, dated '1951, together with the documents accompanying th43 report, relating to the handling of United States 1 6/11/51 -4- Postal money orders on and after July 1, 1951, but with the understanding that the proposed form of agreement between the Federal Reserve Banks and the United States would be referred to the Committee on Collections and Accounting for the purpose of obtaining agreement with representatives of the Post Office Department as to the rewording of certain Provisions making the Reserve Banks responsible for errors vith respect to which objections had been raised at the meeting of the Presidents. "As you were advised by letter dated June 5, 1951, 'written by Mr. Walter S. Logan, Chairman of the Subcommittee °f Counsel on Collections, on behalf and at the request of Mr. Hugh Leach, Chairman of the Committee on Collections and Accounting, agreement was reached at a meeting with : .1ePreaentatives of the Post Office Department on June 1, 4951) as to the rewording of the provisions of the form c/f agreement in conformity with the action of the Conference of Presidents; and Mr. Logan's letter enclosed ; °Pies of the revised form of agreement, dated June 5, 1951, r execution in counterparts by the Federal Reserve 4nks to become effective July 1, 1951. Upon receipt by office of copies of the agreement executed by the efderal Reserve Banks, we shall deliver them to the Post Off ' Department for execution by the Postmaster General ; - .1 behalf of the United States in accordance with the r°°edure outlined in Mr. Logan's letter. The Board concurs in the action taken by the ConInrerice re of Presidents with respect to this matter and .t c,„he amendments to the uniform provisions of the cash s'erction circulars and the amendments to the time tiles of the Federal Reserve Banks, as submitted 1t . the 04.1 report of the Subcommittee of Counsel on or ,!ctions, dated May 3, 1951, but with the elimination la,re words 'or error' in the new uniform section reto postal money orders as suggested in the last is !graPh of Mr. Logan's letter. With this change, it nderstood that the amendments to the uniform prov181°48 of the cash collection circulars are as follows: 1. In the uniform section with the headi-Alt 'Items which will be accepted as cash tems' of the check collection circulars (bethe present subdivisions (2) and (3) of he first paragraph) insert a new uniform subas follows: e Z l I 279 -5''(3) United States postal money orders' and change the numbering of present paragraph (3) to (4). 2. After the uniform paragraphs which appear under the heading 'Government Checks' of the check collection circulars, insert a new uniform heading and section reading as follows: 'United States postal money orders. . United States postal money orders will be handled in accordance with an agreement made by the Postmaster General, in behalf of the United States, and the Federal Reserve Banks as depositaries and fiscal agents of the United States pursuant to authorization of the Secretary of the Treasury; and with respect to matters not covered by such agreement, the provisions of Regulation J, this circular and our time schedules shall be deemed applicable to all postal money orders. Immediate credit will be given to member banks and nonmember clearing banks for postal money orders as provided in our time schedules and simultaneously with such credit we will debit the amount of such money orders against the general account of the Treasurer of the United States under such symbol numbers as may be assigned by the Treasurer of the United States. Said agreement further provides in effect that no claim for refund or otherwise with respect to any money order debited against the general account of the Treasurer of the United States and delivered to the representative of the Post Office Department as provided in said agreement (other than a claim based on the negligence of a Federal Reserve Bank) will be made against or through any Federal Reserve Bank; that if the Post Office Department makes any such claim with respect to any such money order, such money order will not be returned or sent to a Federal Reserve Bank, but the Post Office Department will deal directly with the bank or the party against which such claim is made; and that -6"the Federal Reserve Banks will assist the Post Office Department in making such dem, including making their records and any relevant evidence in their possession available to the Post Office Department.' 3. In order to indicate that the direct sending Privilege does not apply to Government checks or postal money orders, amend the first uniform paragraph under the heading 'Direct sending of cash items to other Federal reserve banks' of the check collection circulars by inserting after 'Cash Items' where these Words are first used the following: '(exclusive of Government checks and postal money orders)' "In accordance with Mr. Leach's suggestion,. as stated in Mr. Logan's letter, it is understood that these endments to the cash collection circulars will be mailed tY the Federal Reserve Banks on, or as near as practicable 4.2) June 20, 1951, so that all member banks will receive 'llem at substantially the same time prior to July 1, 1951." r Approved unanimously. Letter to the Chairmen of all Federal Reserve Benks, prepared illIrsUant to the action taken at the meeting of the Board on May 31, 1951, l'ead'illg as follows: "Attached is a copy of a resolution adopted b the 4114ePendent Bankers Association at its meeting in Mobile, renula, in April of this year. You will note that the Aci°1on recommends an amendment to the Federal Reserve be 40 provide that members of the Federal Advisory Council lie elected in the same manner as Directors of the Federal userve Banks and that they not be permitted to serve ,.Elniembers of the Council for more than three consecutive oZe. The resolution contemplates not only rotation of :" .1 membership but also that in carrying out a system or-°t #4tion the members of the Council shall be drawn froit he small and medium sized banks as well as the ' -ge 'b -ank 8. 1281 6/11/51 -7- "The resolution was brought informally to the attention of the Board of Governors, but no request has been made that any action be taken with respect to it. As you know, consideration has been given by the Chairman's Conference to the desirability of a system of rotation of the members of the Federal Advisory Council, and the Boards of Directors of some of the Banks have adopted such a policy. The Board of Governors would appreciate it if you would Present the resolution at the next meeting of your Directors and advise the Board of Governors of their views with respect to the suggestion that the Association has made. "A copy of this letter is being sent to the resident of your Bank for his information." Approved unanimously. Letter to Mr. R. J. Saulnier, National Bureau of Economic Research, / New York, New York, reading as follows: r "This refers to your letter of March 13, 1951, equesting certain data on industrial advances and epic)mmitments under Section 13b of the Federal Reserve et ' It is noted that the data will be used in the Piro Paration of an over-all account of Governmental ending and financing activities. re "There are enclosed tables showing the information eted, which the Board is agreeable to supplying for the h Purpose mentioned. Inasmuch as some of the figures are not been published, it will be appreciated if they e regarded as confidential." Approved unanimously. 441rve B Letter to Mr. Crosse, Assistant Vice President of the Federal allk of New York, reading as follows: 144y ;This is to acknowledge receipt of your letter of °) 1951, with its enclosures, regarding a question "raised by the Chairman of the Committee on Foreign Banking (of the New York City Banks) as to an apparent inconsistency in the Board's Regulation Q resulting from the fact that the definitions of the various types of time deposits use the words 'not less than 30 days' whereas the regulation in another section prohibits payment of interest on any amount which a member bank may be required to pay 'within 30 days.' "We agree with you that the point raised is somewhat technical. However, we appreciate having the matter called to our attention, and it will, of course, be given consideration if and when occasion arises for revision of Regulation Q." Approved unanimously. Letter to Mr. Rouse, Vice President of the Federal Reserve Bmnk °rNe York, reading as follows: "This is in reference to your letter of May 16, 1951, th which you enclosed a copy of a letter dated May 4, 1951, IroM the Grace National Bank of New York, requesting an in' s1/Tretation of section 3(p) of Regulation U. The requested interpretation embodies the issue of whether a borrower purchasing common stock of the American 11a8 and Electric Company under the authorization granted ,! the additional subscription privilege contained in the ;1° 88Pectus of that Company, dated March 31, 1951, is 'exerse Ine a right' to acquire stock within the meaning of c'4°11 3(P). 11.0 "According to the provisions of the above mentioned ii,spectus, the American Gas and Electric Company offered stockholders: (1) The right to subscribe for a certain limiteci " number of additional shares of its common stock, rate of one share for each fifteen held; and (2) the leeetrivilege to subscribe (additional subscription privi40t fc)r anY number of shares of additional common stock 81111_ 611bscribed for through the exercise of the right to stustscillbe) provided that if such available shares are not c ent to satisfy such subscriptions, the shares would be allotted pro rata, not to the number of shares requested, r 1.283 6/11/51 -9- "but to the rights exercised. The prospectus further provided that the rights and the additional subscription Privilege were to be evidenced by a single subscription warrant; and the additional subscriptions could be made °TAY if the rights were exercised at the same time. "As you mentioned in your letter, section 3(p) nich provides for a more liberal loan value treatment Ghan the current Supplement to the regulation) is an exception to a general rule and as such should be construed with restraint and caution. On the other hand, the qualifications surrounding the present additional subscription privilege closely relate it to the other features of the right to subscribe. Furthermore, it is understood informally that a rule 'which was issued by the Securities and Exchange Com1118510n under section 11(d) of the Securities and Exellenge Act of 1934 (Rule X-11d1-1(d); 17 C.F.R. 240.11d1-1 and which is similar to section 3(p) of Regulation 'has been construed to include additional subscription Privileges as well as rights. Although the Securities Exchange rule under section 11(d) is limited to the ;xercising of subscription rights by the original holder the rights while section 3(p) is applicable whether ; Uch rights are exercised by the original holder or by „PUrchaser of the rights, it is felt in this case " t the problem is similar. 5, 0 "Under these circumstances the Board concurs in View that a borrower purchasing common stock of the ti; American Gas and Electric Company through the iselicising of the additional subscription privilege the exercising a right to acquire such stock' within apo QcoPe and meaning of section 3(p) of Regulation U 17,', accordingly, is entitled to the special loan benefits 'tiersin provided." na Approved unanimously. Letter to Mr. H. R. Harnish, Executive Officer, Governor's h Cklito °- Small Business, 827 South Figueroa Street, Los Angeles) rilta, reading as follows: -10"This refers to your letter of May 251 19511 regarding the resolution adopted by the Commission on Small Business for California at its meeting on May 21 recommending 'that the Twelfth District Federal Reserve Bank officials be given authority to approve Regulation V loans in any amount, under a limit to be set by the Board of Governors.' "As you probably know, during the somewhat similar loan program of World War II, because of the great volume of applications for guarantees, the Department of the Army and the Maritime Commission delegated to the t"lve Federal Reserve Banks authority to approve V-loan gUarantees not exceeding certain specified amounts provided there was no objection raised by the field representative of the guaranteeing agency. The Board's present Regulation V governing operations under the current V-loan Program contains a provision under which the guaranteeing agencies of the Government might, if they should see fit, !!legate to the Federal Reserve Banks authority to approve ' 6 48.ra/1-tees. However, in view of the relatively small volume ?! glmrantees under the present program, as compared with re wartime program, the various guaranteeing agencies re not felt that such a delegation of authority to the °serve Banks would be warranted. ti "Moreover, it may be doubted whether such a delega: c a of authority would necessarily expedite the processing 84,gUarantees to any substantial degree, since it would 1-11 be necessary to obtain, either from field represenves of the guaranteeing agencies or from the offices cel,:he guaranteeing agencies in Washington, appropriate eho ificates by the procurement officers necessary to 10 /I that the contracts to be financed by guaranteed 1048 are related to the procurement of materials or crrnance of services under contracts for the national a@tease. 0.44,Ne are glad to have the views of your Commission to Zie matter and we are furnishing a copy of your letter othe 6 DePartment of Defense. That Department and the Govel Lguaranteeing agencies, as well as the Board of are, of course, interested in expediting to the or dratest extent possible the processing of guarantees tryf illie Production loans under the V-loan program and roa(c,4 effort is being made by the interested agencies to t!::. ag in the handling of applications for 11et tnit 64: Approved manimously. 6/11/51 -11Telegram to Mr. Everson, Assistant Vice President of the ede Iral Reserve Bnnk of in Francisco, reading as follows: "Reurtel June 6 and letter May 21 and enclosures regarding proposal of Registrant television dealer to sell $100 certificate redeemable at some grocery store for groceries in combination with sale of a Ow television set. Registrant proposed to handle transaction under mixed-credit provisions of section 6(d) of Regulet1011 W, with $100 grocery portion repayable either concurrently with the $300 balance on the television or . 1:eginning . the 16th month. Because of the absence of -Luformation how the arrangement may be offered to the Public and carried out as a practical matter, Board cannot say that transaction pursuant to the proposal would fail to constitute evasive practice or rebate °f required down payment on television set. On basis °f limited information supplied by Registrant, it seems 3.robable that principles stated in Board's letter s-1343 04-150) of June 6, 19')1 concerning 'free gifts', rebates °tr discounts would be applicable in this case and that 01 " 3acti011 would be of type covered by sections 6(h) r ).(1) of the regulation." Approved unanimously with the understanding that the Presidents of all Federal Reserve Banks would be advised of this action by letter. Letter for the signature of the Chairman to the Honorable Ernest House of Representatives, Washington, D. C., reading as follows: err "Thank' you for your letter of May 24 regarding the on the elect of Regulation W -- consumer credit -pl,Ob rical appliance business and particularly the Of one of your constituents, Mr. David Plesser, er the regulation. mark "The Board has been watching developments in the et8 for regulated articles closely both through withc°4n statistical sources and through consultations industry representatives. We recognize that there 12S6 6/11/51 -12- "has been a considerable softening of demand in durable goods markets in recent months compared with the heavy buying wave in last December and January. It is also evident that production in meny lines including appliances has been exceeding demand for some time and that substantial inventories have accumulated. Many dealers ordered substantial supplies in anticipation of production shortages which have been slow to develop. The restrictions of Regulation W) among other factors, Probably have had some effect in restricting demand. It is doubtful, however, whether the peaks of scare buYing that have occurred since the Korean invasion 10111d have continued for long even without Regulation "The Board has felt that relatively tight terms for instalment credit are required at present in order to restrain the strong inflationary pressures that are tending to raise prices of all goods and services. .1.8 you know, the major purpose of the regulation is ; 0 curb the increased purchasing power that results from i the expansion of instalment credit, particularly in this emergency period. The Board's primary concern 8 to integrity of the dollar. We arepreserve the soundness and reluctant to take any action which would add to he s ubstantial loss in its purchasing power during the Past year. We feel that the Congress agrees with this "delliental objective. to "While a relaxing of the terms has not appeared or appropriate at this time) the flexible nature tithe regulation will allow the Board to relax or tl,nten the terms When such action is necessary in '"'v interest of the national defense. ‘"We appreciate this opportunity to outline our ct,, --Lent views on Regulation W." Approved unanimously. Letter dated June 8, 19,1, to Mr. Melnicoff, Head of the 1,154411414t of Selective Credit Regulation of the Federal Reserve Bank hiladelPhie., reading as follows: 1287 6/11/51 -13- "Thank you for your letter of May 16, 1951, with Which you enclosed a copy of the Statement of Borrower Form (Number 907 UXW) printed by S. C. Toof and Company, of Memphis, Tennessee. "As you point out, the form does not fully comply With the requirements of section 4(d) of Regulation W. Inasmuch as the publisher of the form is located in the territory served by the Federal Reserve Bank of St. Louis we are calling the attention of that Bank to the fact that Toof is offering the forms for sale to banks. "As you may recall, the earlier versions of Regulation W during World War II required the use by Registrants of a prescribed form of Statement of the Borrower. As of APril 3, 1944, the use of a prescribed form was discontinued large, because of the assertions by Registrants that it Placed an unnecessary burden upon them. A return to this P28ition, or for the Board to issue only a suggested form °I Statement, would very probably be received in the same by Registrants. Furthermore, whether either ap.""Ilaeh would improve compliance with the regulation would seem to be open to considerable doubt. The matter of inir°ving compliance in this regard is one which might well '..aqUire something more severe. We appreciate having your ; 11ggestion, however, and we will keep this in mind for ,ulther consideration, perhaps at the Regional Conferences 11 Se ptember." Approved unanimously. Letter dated June 8, 1951, to Pearson Motor Sales, Columbus, No, r "dias follows: ask "This is in reply to your telegram of May 31 „1_4g whether any change in Regulation W as it affects a cuirobile sales can be expected in the Immediate future "ully the sale of jewelry is not controlled by Qv. al regulation. sa "Chairman Martin in his recent testimony before the tire and House Banking and Currency Committees indicated tiler; 40 change in terms -- either to relax or to tighten Ifae contemplated by the Board at this time. The -4LI recognizes that there has been BOMB reduction in 1 288 6/11/51 _114_ ' I for consumer durable goods from the substantially large volume of December and January. The records established at that time reflected a considerable amount of 'scare buying' but it is not without significance that Such sales volumes were achieved even though the terms under Regulation W then in effect were the same as those at the present time. "Jewelry is not included in the present list of regulated articles primarily because the instalment credit arising from its sale is generally 'short term' credit as contrasted to the longer terms usually available for automobile and other major cost hard line durables. Further, there is no doubt that the present monthly Payment and down payment requirements for items that are covered by the regulation have an indirect effect °I1 Jewelry credit in that people who buy listed articles °11 such terms have less of their current income available for the purchase of jewelry and other 'non-regulated' ir°18• In other words the Board believes that Regulap.lon W has widespread effect in holding down most types consumer spending. "The Board of Governors is primarily concerned -IbT °n1Y in the matter of administering Regulation W ,also in carrying out all monetary and credit powers t:lch have been delegated to it -- in preserving the inii'ritY of the dollar and preventing further declines in iPurchasing Purc power. Long before the outbreak of hose,-ties in Korea the Board clearly indicated its grave mvolleern over the inflationary forces which were on the ye throu ghout the economy. The underlying threat of 1;"L1ation has not been eliminated. The pressures inherent 1ing defense program are still being exerted. Let me:= you) however, that the Board is watching elVtione in the consumer durable goods markets very Rit-elY in the light of the general economic and credit creili°n. It is prepared either to tighten or relax voz-L terms under Regulation W whenever such action be consistent with the objectives of the De . ' Aense Production Act." til Approved unanimously. 1289 6/11/51 -15Letter dated June 8, 1951, to Mr. M. Robert Deo, Managing Director, National Automobile Dealers Association, 1026 - 17th Street, 1. W., Washington, D. C., reading as follows: "The Board of Governors has given careful consideration to your letter of May 24 requesting on behalf of the members of the National Automobile Dealers Association a relaxation of the maturity terms of Regulation W. The Board 18 appreciative of the continuing contacts with the officers ()f Your Association and of their assistance in the Board's review of the market situation for new and used automobiles. After a thorough review of all the factors involved -- not °IllY in the market for automobiles but in the general monoand credit situation as well -- the Board has concluded a relaxation of terms at this time would not be consistent with the objectives of the Defense Production Act. As you know, the Board's primary responsibility is T3ncerned with preserving the integrity and soundness of the a_cicalar, Every action it takes must be measured against the .tb .ackground of developments in the field of money and Ir 'Zicil It must meet a test indicating whether such action ! rc'uld add to the inflationary potential already existent in swollen money supply. u "Today the national income is at an all-time record level. triuPloyment is at its lowest point in our peacetime history. expenditures, which now account for less than 10 Per al.;cent of total output, are scheduled to rise sharply well account for as much as twice that percentage in the next twelve months. , 'In the light of these facts the Board has carefully c e4sidered the potential effect of a relaxation of its whi°rts to restrain the expansion of instalment credit, acbrell would be the practical result of the suggestion by your Association. I am sure your members the- agree that credit dollars once they are added to 404111°40Y stream are indistinguishable from any other The axs and add directly to total purchasing power. creclei!Pansion of consumer instalment credit -- that hes.r1 "now controlled by Regulation W VAS equal to -Y °ne-half of the increase in consumer disposable 290 6/11/51 -16- 114 ncome in the six months preceding the reissuance of the regulation. Additional instalment credit for the Purchase of automobiles was responsible for more of the total increase in instalment credit than all other types of commodities and personal loans combined. To encourage an expansion of credit in this important field, therefore, would require substantial evidence that the threat of inflation and of a further decline in the value of the dollar was no longer imminent. "The Board is acutely conscious that current activity Iii the automobile markets is substantially below the abnormal peak of last summer which was duplicated to a considerable degree in a second buying wave which hit consumer markets in mid-winter. The large volume of sales last December and January occurred despite the fact that the Present terms of Regulation W were in effect at that time. The Board is also aware that inventories of both new and 118e1 cars are above average levels prevailing during the Post-war period. The long waiting period imposed on new car Purchasers in recent years indicates that inventories Were substantially below the normal pre-war levels. Current Inventories do not appear to be excessive by comparison with 4: , 11ose prewar levels, particularly after taking into account the high level of sales during the postwar period. "Considerable progress has been made in the past few ftAth 431418-;!! in stemming the tide of inflation. However, the antial pressures on our economy resulting from the e41544dille defense program are still present. It is hoped that in the light of this background reasons are clear for the Board's decision to deny time.request for a relaxation of the regulation at this tor yo Again may I express the appreciation of the Board to k ur assistance and the hope that you will continue b, eeP it apprised of the effect of Regulation W on your -Ilinese s u the Approved unanimously. Meraoraladum dated June 7, 19,11 from Mr. Chase, Assistant Solicitor, it4t111€ t t h4 Judgments were entered by consent on June 1, 1951, against kott 'L it.b• v Stare8/ Inc., and Atlas Sew-Vac Stores, Inc., both of Houston, 6/11/51 -17- Texas, restraining them from further violations of Regulation W, Nisumer Credit, and recommending that the files of these two cases he closed. Approved unanimously. Letter dated June 8, 1951, to the Honorable Thomas C. Hennings, Jr., 114ited States Senate, Washington, D. C., reading as follows: "Thank you for your referral slip dated May 27, ;taking for a report on Mr. W. H. Bunn's letter of May 14, J-951, concerning registration under Regulation X, Real Estate Credit. , "As you know, the regulation was authorized by Congress 44 the Defense Production Act of 1950 for the purpose of confving materials and labor for the defense effort and com4 4ting inflationary pressures. Sections 602(b) and (c) of 4ns Act state, in part: (b) . . Any person who extends or maintains any such credit, or renews, revises, consolidates, refinances, purchases, sells, discounts, Or lends or borrows on, any obligation arising out of any such credit, or arranges for any of the foregoing, shall make, keep, and preserve for such periods, such accounts, correspondence, memoranda, papers, books, and other records, and make such reports, under oath or otherwise, as the President may by regulation require as necessary or appropriate in order to effectuate the Purposes of this section; and such accounts, corresPondence, memoranda, papers, books, and other records "all be subject at any time to such reasonable Pelliodic, special, or other examinations by examiners t2r other representatives of the President as the resident may deem necessary or appropriate . . thi (c) To assist in carrying out the purposes of s section, the President by regulation may require ' l ansactions or persons or classes thereof subject ! 60 this section to be registered; and, after notice V I'29° 6/11/51 -18"and opportunity for hearing, the President by order may suspend any such registration for violation of this section or any regulation prescribed by the President pursuant to this section. . . . . . In carrying out this section, the President may act through and may utilize the services of the Board of Governors of the Federal Reserve System, the Federal Reserve Banks, and any other agencies, Federal or State, which are available and appropriate. "This is the authority by which the Board is requiring registration of those in the business of extending real estate credit, and is making inspections of their records. Registration will be extremely helpful in .? .errying out our responsibility for enforcing the regula'ion and in supplying certain basic information essential 14 gauging the effects of the restrictions. "In order to minimize the burden of registering, we are asking for statements only from those who extend or Itlave extended real estate credit more than three different cilnes during the current calendar year or during the preceding calendar year, or those who extend or have extended in ch real estate credit in an amount or amounts aggregating than $50,000 during the current calendar year or dure, 'he preceding calendar year. The statement requires IZY the name and address of the registrant and a few vasic figures on mortgage loans. This simplified form rc,8 02-eveloped after extensive consultation with industry ti-4-esentatives, including those of major trade associaons Z But "As you know, the Federal Reserve System is selfea'rrting, and, in fact, turns over to the Treasury ; -" Year approximately 90 per cent of its net earnings. 011 Ntactivities under Regulation X, designed to aid in :4g inflationary pressures by regulating credit, ' tore ll the enforcement of the regulation, do not, there',reclAiire the 'use of tax money'. We hope this the will explain to Mr. Bunn's satisfaction totavt:"'hority for and the objectives of the registration Nt. iment under Regulation X. An identical letter from 11114 was transmitted to us by Representative Armstrong, 1 .#1 el.,(Ae) 6/11/51 -19- and we have replied to him substantially as we have to you. As you requested, Mr. Bunn's letter is being returned to you. If we can be of further service, Please do not hesitate to call upon us." Approved unanimously. Letter dated June 8, 1951, to the Honorable Raymond M. Foley, 444inistrator, Housing and Home Finance Agency, 1626 K Street, N. W. lEtethington, D. C., reading as follows: "In response to your letter of June 6, 1951, this i8 to advise you that the Board of Governors concurs in Y°ur designation of the Camp Pendleton area, California, tacluding Oceanside, Vista, and Carlsbad, as an area for 6 the aPplication of special credit terms under section ‘P) of Regulation X, Real Estate Credit, for purposes ?r defense construction. Your letter states that there 't8 a need for 500 housing units, 400 to be rental units : (Tging from $55 to $75 per month each, and 100 to be :ale units at $8500 and $9500 each, to be located within 1?aeotable commuting distance of Camp Pendleton. Under 13x_ie terms of the exemption, the entire 500 units will _e controlled by your agency through the isswince of 6Peeific certificates. In accordance with your suggestion, the relaxation of term "prescrfbed by Regulation X will be similar to that Previ ously announced for other designated defense areas. Approved unanimously. . Letter dated June 8, 1951, to the Honorable Raymond M. Foley, 4414listr 14Fteht at°r) Housing and Home Finance Agency, 1626 K Street, N. W., Attlori, A) C., reading as follows: ig tn"Ill response to your letter of June 6, 1951, this 'civise you that the Board of Governors concurs in Your-aa esignation of the Tullahoma, Tennessee, area as an Etree.: Be 4or6(_ the application of special credit terms under " i°n P) of Regulation X, Real Estate Credit, for 6/11/51 -20- “purposes of defense construction. Your letter states that there is a need for approximately 220 housing units, 150 to be rental units ranging from $60 to $80 per month each, and 70 to be sale units at $81000 and $9,000 each, to be located within reasonable commuting distance of the Tullahoma area. Under the terms of the exemption, the entire 220 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.” Approved unanimously. Letter dated June 8, 1951, to the Honorable Raymond M. Foley, itd4linistrator, Housing and Home Finance Agency, 1626 K Street, N. W., " 11 41Kton, D C., reading as follows: L "In response to your letter of June 6, 1951, to advise you that the Board of Governors ;:°11cur8 in your designation of the Miramar-Escondido °1113-erea, California, as an area for the application () ,tr ePscial credit terms under section 6(p) of Regulaci°11 X) Real Estate Credit, for purposes of defense rfts truction. Your letter states that there is a need 41C13 aPProximately 200 units to be located within reasonec 12O omting distance of the Miramar-Escondido area, to to be rental units ranging from $55 to $75 per : s t , i 11 each, and 80 to be sale units at $8500 and $9500 20c ,"• Under the terms of the exemption, the entire tC 45 units will be controlled by your agency through ! i ellancs of specific certificates. of In accordance with your suggestion, the relaxation ter thttt 8 Prescribed by Regulation X will be similar to Pre a eaiwas. t, viously announced for other designated defense ' 1418 iS Approved unanimously. Letter dated June 8, 1951, to the Honorable Raymond M. Foley, Or) Rousing and Home Finance Agency, 1626 K Street, N. W., -g"°131 13. C., reading as follows: S 6/11/51 -21- “In response to your letter of June 61 19511 this is to advise you that the Board of Governors concurs in your designation of the Valdosta, Georgia, area as an area for the application of special credit terms under section 6(p) of Regulation X1 Real Estate Credit, for purposes of defense construction. Your letter states that there is a need for approximately 300 rental units, ranging from $60 to $75 per month each) to be located within reasonable commuting distance of Valdosta. Under the terms of the exemption, the entire 300 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 hat Previously announced for other designated defense areas.” Approved unanimously. Letter to Mr. Strothman, Vice President of the Federal Reserve tEttat of. Ininneapolis, reading as follows: "This refers to your letter of May 29, 1951, conthe financing of certain proposed nonresidential ! cnstruction in Missoula, Montana. We understand that hre-story store building was destroyed by fire, and it t a new two-story building will be constructed in 5(:N Place. You asked about the applicability of section "I Of Regulation X. ext "Section 5(e) provides for the exemption of certain It:11810ns of real estate construction credit which are re- oe used solely for the replacement, reconstruction or a * * * nonresidential structure destroyed * * * fire or other similar casualty.' The intent and to -tivee of the section is to allow persons to regain their atIlLer Position when their property is destroyed or sUballt4al1y damaged by casualties. zot It appears to us that the proposed building will biliabriej 'Solely for the replacement' of the destroyed Or : I 411g, but will be a substantially different building our ;creased value and size. With this in mind, it is 'that section 5(e) does not apply in this specific cEige lel Z Approved unanimously. or; 6/11/51 -22Letter to Mr. Scheffer, Manager of the Real Estate and Consumer 4edit Department of the Federal Reserve Bank of New York, reading as "This refers to your letter of May 29, 1951, and enclosure, concerning certain leasing arrangements to be entered into by the United States Plywood Corporation aM the Prudential Insurance Company of America. "We have reviewed the enclosure carefully and concur in your conclusion that the proposed leasing agreements ' 1 111 be subject to Regulation X. We believe the lease vill be within the definition of 'credit' in section 602(d)(2) of the Defense Production Act, as incorporated into section 2(c) of Regulation X, and that the lease , .1/euld not be exempt under the proposed exemption for sues which, as you know from our telegrams of April 17 and April 30, 1951, is being considered by the Board. Y°11 may advise the interested parties of our views." Approved unanimously. Letter to Mr. William R. Meeks, Jr., Vice President and General Little Rock Builders, Inc., 212 Spring Street, Little Rock, bas, reading as follows: "We acknowledge your letter of May 22, 1951, conthe effect of real estate credit restrictions on ing in Little Rock, Arkansas. c_ The purpose of the restrictions, as you know, is to t)rleerve materials and labor for the defense effort, and curb these objectives, the Pe inflationary pressures. To achieve homes who buying gulations prevent some persons from erl4iee would have been able to do so. This is an unfortut'';°Bbut necessary result of any credit restrictions which s at all effective. "The Beard and other agencies concerned have taken consicia, or i'aule Pains, however, to establish an equitable schedule : gro in-Payment requirements as among the various income 10 vs. As a result, down-payment requirements start at Per cent for houses valued at $5,000 and less, and rise ce 97 6/11/51 -23- "gradually to 50 per cent for houses valued at more than $24,250. It is true, of course, that credit restrictions cannot affect those individuals with large incomes who are able to continue purchases as credit restrictions become tighter, even to the extent of buying with 100 per cent cash. "In order to make the real estate credit restrictions effective, it is necessary to prohibit secondary borrowing which would bring the total amount of credit to a level in excess of the maximum loan value. (An exception to this is credit fully secured by the loan value of a life insurance policy, which exception is not for the purpose of easing the down-payment requirement, but is related to the special nature of life insurance policy loans.) If it appears desirable to ease the requirements at any place in the downPayment schedule, we would prefer to do so directly rather than to permit secondary borrowing which exceeds the maximum loan amount. "We hope this will explain the Board's position 04 the questions which you raise." Approved unanimously.
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