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IOW Minutes of actions taken by the Board of Governors of the al Reserve System on Wednesday, June 11, 192. The Board met in eleelltive session in the Board Room at 10:00 a.m. PRESENT: Mt. Mt. Mr. Mr. Mr. Martin, Chairman Szymczak Evans Vardaman Powell Following the executive session, Messrs. Carpenter, Secretary, Ittd \reel t: General Counsel, were called into the meeting. The Chairman informed the Secretary that during the executive session the Board approved for publication in the Annual Report for the year 1951/ in the form attached to the Secretary's memorandum to the individual members of the Board under date of May 27, 1952, the record required by the last paragraph of Section 10 of the Federal Reserve Act to be prepared by the Board covering actions taken by the Federal Open Market Committee on questions of policy during that year. Prior to the meeting there had been distributed to the members "tale b aioard copies of a memorandum dated June 9, 1952, from Mr. Vest, vith r espeot to a telephone inquiry which Chairman Martin received from m of the 11111Y, Economist on the staff of the Patman Subcommittee 41at 1 / onaMittee on the Economic Report, regarding a suggestion by ConNee 11841 Patman that the law be amended so that the Federal Reserve would 4 Riv etl the supervision of Federal credit unions. The memorandum stated 'that Et,„ 4-varently the reason for the suggestion was that the Federal credit 142:liota were placed 11°1g Pay fees for their examinations and if supervision 067 6/11/52 -2- illthe Federal Reserve System, the examinations might be made by the Reserve without cost. The memorandum set forth in detail the e°11versations with Mr. Murphy on the subject, some facts regarding Fedcredit unions, and comments on the law and regulations with respect to wgeral credit unions. At Chairman Martin's request, Mr. Vest stated that he had dis%seed the matter with Mr. Shearer, Assistant to the Chief of the Examina.404„ Division of the Federal Deposit Insurance Corporation, which orEani- 4ftion — was charged with the responsibility of supervising Federal credit t 0121 April 1942 until June 1948, and that Mr. Shearer stated that the e erie it vete of the Corporation had not been very satisfactory, and that 4is opinion that the supervision of Federal credit unions was not a Draper "tivity to be lodged in a Federal bank supervisory agency. Mr. Vest said that he had also discussed the matter with Governor 11°13ert 0„ who expressed the view that if Congress felt that examinations or ? era]. credit unions should be made without cost, they should cover the e 1Pense by appropriations mde for the purpose and not provide a stibsidy through the medium of free examinations. At the conclusion of a brief discussion, it was understood that the Chairman would call Mr. Murphy this afternoon and inform him that it was the view of the Board that it should not be given the responsibility of supervising or examining 1;8 6/11/52 -3Federal credit unions and that it was hoped that the question would not be raised so that the Board would not be put in the position of having to present reasons why the suggestion should not be adopted. At this point Messrs. Kenyon, Assistant Secretary; Thurston, A681stant to the Board; Young, Director, Division of Research and Statistics., ASSiStant '°loan, Director, Division of Examinations; Solomon, le/leral Counsel; Williams, Assistant Director, Division of Research and Statisti Markets --es; and Schmidt, Chief, Business Finance and Capital 4ct4 311, Division of Research and Statistics, joined the meeting. the Before this meeting there had been sent to each meMber of a copy of a memorandum dated June 5, l9.)2, from the Division of tzezi Corporation, Spokane, xlations relating to the request of Old National to purchase a bank holding company affiliate, for permission Co., also of 811/58t ti Etrt--8-1--LY all of the stock of Murphey Favre. Mortgage S 411.1B real estate / a company engaged in the business of loaning money on tor e companies, banks, ages, which mortgages are then sold to life insurance /t41.8 itzgla.r lending organizations. The mortgage company was reported to derive its income principally from fees and commissions on mortgage loans, r l'era the servicing of loans, and dividends from twelve subsidiaries, engaged in the construction and sale of residential properties on 5. r elatiVely small scale and the other engaged in the writing of insurance 4. Op 0 1 1, 4 6/11/52 or 'various kinds. Under the terms of the agreement of sale to the h°1cling COmpany affiliate, eight of the twelve subsidiaries would be 11(1111dated down to their nominal capital stock, the reason for not d188°111ing them being to save taxes and to have the companies available r°1‘ rilture use if the occasion should arise. The memorandum stated that on December 30, 1_946, the Board issued a cro,— ' -umral voting permit to Old National Corporation pursuant to section 5:144,, Aevised Statutes, entitling it to vote the stock which it owned or colltr (L.-Led of the Old National Bank in Spokane, Spokane, 1;ashington, and tbe D4 ,Lrat National Bank in Spokane, Spokane, Washington, and the Corporao agreed, among other things, that without the permission of the Board ut-LCL not cause or permit any change to be made in the general character or i ts business or investments. In a letter dated May 13, 1952, the Federal Reserve Bank of San ?1 , the holding co recommended that the Board approve the application of Palm? -v affiliate for permission to acquire the controlling interest in 14141P4y. D '''11.Vre Mortgage recomCo. and its subsidiaries, and it was the , 411(latio -- of the Division of Examinations that in view of the character of 1411.4ela subsidiaries, the conent of the holding company affiliate and its aer ti ve Policies pursued, and the probable financial benefit to the 110 to the acquisi444 eQmPany affiliate, the Board interpose no dbjecticn tick, a'°Diect to the conditions (1) that, as soon as practicable, and in eya -lit not later than December 31, 1957, Old National Corporation should IWO 6/11/52 -5- clillest itself of any interest in the real estate and construction companies Naeia or controlled by Murphey Favre Mortgage Co., (2) that, meanwhile, 811°1 ecIMPanies should not engage in large-scale subdivision developments fivould continue as in the past, with possible minor exceptions, to °444t11.1ct residential or other properties only under firm commitments with .1'c381)ective owner-occupants, and (3) that Murphey Fevre Hortgage Co. should 4°.t "quire any additional subsidiary without the consent of the Board. advised that, T4Divis1on also recommended that the Federal Reserve Bank be 8.411°ugh it would not be necessary for the mortgage company or its saE144.'les to amend their charters to eliminate authority to deal in securitie e, Old National Corporation should execute promptly a resolution stating tilet th he mortgage company and its subsidiaries were not engaged, and would 11°t be Permitted to engage, in the securities business. The memorandum stated that although the Division's recommendatioh, voUld permit Old National Corporation to acquire temporarily the 144— "let control of businesses wholly unrelated to banking, might seem to be contradictory to the Board's position in favor of requiring bank .141.1no. tlqor. the following comPanies to divest themselves of such interests, aad been taken into consideration: (1) That Congress had not yet enacted into law a prohibition holding on the holding of nonbanking interests by bank companies; 1071 6/11/52 -6- (2) That the Spence Bank Holding Company Bill, now pending in the House of Representatives, would allow a period Of two years from its effective date for divestment of nonbanking interests, which period could be extended to five years if, in the Board's judgment, such an extension would not be detrimental to the public interest; (3) That the request of Old National Corporation was necessitated only by the provisions of the standard general voting permit agreement requiring the Board's permission before making any Change in the general character of its business or investments; and (4) That this provision was included in the form of agreement when the Board adopted it in December 1935, not for the Purpose Of preventing acquisition of nonbanking enterprises, but rather With a view to preventing a holding company affiliate which had been granted a general voting permit from changing its business or investments in a way which might have an adverse effect on the condition of the holding company affiliate or its relationships with its subsidiary banks. the r_ After reviewing the circumstances of the case and the reasons for "orable reconeeendation of the Division of Examinations, Mr. Sloan litmaa that at the instance of Governor Robertson, he had called Mr. A. W. 81°°11) President of Old National Corporation, by telephone to inquire r 4, e- uue imposition of a condition that the corporation shotild divest I:41qt or the real estate and construction subsidiaries within a period Of 8ix liacuths to two years would render the proposed purchase entirely 1114Atrte,4, --'eeve or otherwise impractical. He said Mr. Witherspoon stated Nt hi 8 interest in acquiring the mortgage company was to increase the 14004 or the holding company, which had paid no dividends from its or411Zie. et -A in 1933 to about 1946 and only nominal dividends since then, 11171 6/11/52 -7- that he did not feel the earnings of the two banks controlled by the 11°14111g, company should be expended in dividends although some stock-48, Particularly a few corporations, had been pressing for better 111111rns, and that he felt the mortgage company, which had an excellent NAAatio", would produce satisfactory income and that the operation °t the - construction subsidiaries on the modest basis proposed was e88ellt1a.1 to the Profitable operation of the mortgage company. Mr. Bloa4 said that, although Mr. Witherspoon was aware of the fact that rlitIlre legislation might require the divestment of the interest in the c clastruction companies at a somewhat earlier date, he asked that thelloard consider approval of the purchase on the condition that the 111114:recmPany would divest itself of the construction companies by the 64110f 1957 and with the understanding that the construction corn11es vould not undertake the construction of more than 25 or 30 houses Upon property now under option and, almost without exception, 44et4 firm commitment from prospective owner-mortgagors. Mr. Sloan said that Governor Robertson, after reviewing the case, cotc, 44cled that in all the circumstances, the Board should approve the h St Slibieet to the conditions proposed in the memorandum from the °II Of Examinations. In reply to a question by Governor Vardaman whether any commitMr. Witherspoon to the effect that the holding company would divest 1073 6/3452 -8- Itself of its interest in the construction companies by the end of 1957 1°1441 be ' binding on a different management, Mr. Sloan said that in the "exit of violatiOn of the commitment the Board could move to cancel the °Irt8t8LIIIing general voting permit, which would involve a hearing. He (tacled that there was some doubt whether the holding company was actually &IL'eli to request the permission of the Board to purchase the mortgage because it might be construed that no substantial change in the e°411 elletre ter of its business or investments was involved, since the invest°.. kett represent only 1 the mortgage company, if it were purchased, would 3.3 Per cent of the total assets of the holding company at book value. At the request of the Chairman, Mr. Vest commented that the Board, ii r Etatutes, allting voting permits under section 5144 of the Revised agreements but that 118.8 not given specific power to require conditions or agreement on the part nlatter of practice the Board had required an "the condition to the agree11°1ding company when granting a permit, one ent be ing that there would be no change in the general character of the permission of the Board. 88 or investments of the company without the lie thou ght that the Board's power in that respect would be upheld if chalIn this particular case, Mr. Vest said, it was not entirely clear tether Board's permission 144 ata the holding company was obliged to seek the with the question ce it had done so, the Board was confronted 1/11ethe to ePProve and, if so, whether to require agreement to certain O74 6/11/52 --9- conditions. impose In his opinion, the Board would have the power to cWations if accepted it chose to do so, and if the holding company ti'lch conditions, they would be legally binding although in practice the E could only revoke the voting permit if the construction companies not divested at the end of the stipulated period or if the suba. contrary to the ' I lee expanded their operations during that period 4reelnent. Mr. Vest stated further that, since the Board's permission had be *4 requested, it must, like any administrative agency, state some recteo factors in 418 if it declined the application and, inasmuch as the - Particular case seemed to point in the direction of favorable conbasis of a 1°12, refusal apparently would have to rest on the gezeral nonbanking interests by bank P°11-oY against the acquisition of 6 the acquisition had been made 46 c°41Panie . He pointed out that if Ilith°Ut -card later in the course of permission and had been discovered 044411a seemed possible that, tion of the holding company affiliate, it no objection would have °I' the minor nature of the investment, 144/4 r tipti substantial change in on the gro d that there had been no 441racter of the holding company's business or assets. %rite impressed with the Chairman Martin said that he was favorably he felt an injustice might be °11 this particular situation, that 14)4 , it ignored and the application the special factors involved were th75 6/11/52 -10- cistlied, and that he would favor granting the request on that basis. Gov- el71(31 'Evans stated that he likewise would favor approving the request on thel— 'Ells of the applicant's operating record and the high character of the 4 .5 4101Aviduals concerned, that he felt consideration should be given to '; factors in the banking business, and that he had no strong opinion th'ether conditions should be attached to the approval. had other nonGovernor Szymczak noted that the holding company 4g not substantiinterests and that this proposed acquisition would foal elle nge the character of its business. concerned about the Governor Van-Temkin said that he was seriously tikrd in accord with the takirig an action in this instance which was not had expressed against acquisition of nonbanking interests which it tillection with bank holding company legislation and that he could vote to nt PrOVe the proposed the request only on the basis that the amount of 111 the holding ' 11 13taieh+ --v Was nominal in relation to the total assets of eN)8.4r affiliate. Governor Powell likewise expressed concern over the fact that 4Drov policy against al would be generally contradictory to the Board's -004°1 :4 holdings by bank holding companies. He said that despite the Ezpitia 0ettli the 412e of the proposed investment, approval of the acquisition might cases coming before ish 4 Precedent which would be cited in other ".and that he would vote favorably only on the basis that the CP, 6/11b2 -11- e°1168 to date had given no directive in this field and therefore the 13°e'rd was free to act in individual cases in the light of the particular circumstances Thereupon, for the reasons stated by the individual members, unanimous approval was given to a telegram to Mr. Slade, Vice President of the Federal Reserve Bank of San Francisco, reading as follows, with the understanding that before it was sent, the Secretary of the Board would ascertain from Governor Mills, who was in Cincinnati, whether he would have any objection: "Board will interpose no objection to acquisition of t?heY Favre Mortgage Co., Spokane, Washington, by Old accordance /11.4.rual Corporation, Spokane, Washington, in and 1952, 13, it1/4.4 Plan set forth in your letter of flay as soon that, (1) ass enclosures, subject to the conditions December than 31 Practicable, and in any event not later itself of 1957, Old National Corporation shall divest companies construction ! • Y 0: interest in the real estate and (2) that, Co.; try4lecl or controlled by Murphey Favre Mortgage enwhile, such companies shall not alter their present tYPe subdivision ib einess and shall not engage in large-scale del' with possible past, e-LoPnlente, and will continue as in the , rai properties other 0,;?r exceptions, to construct residential or :tY under firm agreements with prospective owner-occupants; , (3) that Murphey Favre Mortgage Co. shall not acquire any 4daitional subsidiary without the consent of the Board of -- vernors. Mortgage Co. will not be necessary for Murphey Favre aueliminate to th• clte subsidiaries to amend their charters Corporation National to deal in securities, but Old s;vUld execute promptly a resolution similar to form, with 1.4Triate revisions where necessary, enclosed with Board's 43;er to Wlberg of September 24, 1946, with respect to coilte Bancorporation, stating that Murphey Favre Mortgage its subsidiaries are not engaged and will not be per• '''. to engage in the securities business." 4 -11„377 6/11/52 -12Secretary's Note: The Secretary communicated with Governor Mills by telephone subsequent to this meeting and was informed that he concurred in the action taken. There was a discussion of the question whether any action should be tak en by the Board at this time to reduce the current 75 per cent margin recitlir enlent prescribed in Regulations T, Extension and Maintenance of ebarlit by Brokers, Dealers, and Members of National Securities Exchange tj Carrying Stocks 14ane by Banks for the Purpose of Purchasing or Rei ''"ered on a National Securities Exchange, for the purchase and carry14601, registered securities. Governor Szymczak reviewed recent developments in the stock market, Darticularly the amount of credit currently involved, stating that customers' debit ba lances stood at about $1,315 million as compared with approximately $1,400 million when the margin requirement was raised from 50 to 75 per cent 111 k4 amount of stock IlarY 1951, that according to available figures the tar. 4st credit or three months, had been rising somewhat during the last two that 'while the volume of trading remained relatively small, it had shown a "icier) —ce of increasing recently, and that prices had advanced somewhat tbe they had been 134at few days although they were not quite as high as 44 Ire dividend yields, re still low if measured by book values and current eNeraged about 5.7 per cent. If the credit structure of the current market were taken solely CrF:, 6/11/52 -13- itself, Governor Szymczak felt that some case could be made for a reduction in the present margin requirements; however, upon reference to the relationship of this credit to the over-all economic situation, the 4 r°ePective demands of the Treasury incident to its deficit financ' trig th -e recent indications of increased credit demands in the privete 8ector of the economy, and the delicacy of the international situation, , he —3 Inclined to feel that no action should be taken for the present. Re toteri 4 -- 41 this connection that the Board did not tighten the with- 4''and substitution privilege when it raised the margin requirement to 75 Per cent and that if the requirement were lowered this might be c°4dlletve to additional credit going into the market. Governor Ezymczak ejle°61aggested that the factors which had to be taken into account by tile consumer credit r cl in considering whether to relax or suspend the ' ' 13°e case of margin 4241'641 estate credit regulations were not involved in the 41111reizelits. Mr. Young said that he felt that, in view of the prospective Treas111 I/1. on margin rer---alcing, the Board would want to consider smy action (111treitiellte in the light of its effect on that financing even though the IP°1111116 In stock market credit admittedly was not large. He thought there lkil klIch t0 be said for feeling one's way until it became known to what tta. 'llttu ge Treasury would have to borrow through the banking system and hou - lalich the brought out money supply would be increased thereby. He 1A" 4 6/11/52 -14- that the money supply rose in the month of May, that the recent decrease it bu 8inee8 loans by banks was tapering off, and that other factors seemed to be working in favor of credit expansion although there was no way of 41°/ling how strongly the pressures now becoming apparent would develop. 111% -' 44:6 said it would be difficult to predict whether a reduction in 4*gill requirements to in any substantial 50 or 60 Per cent wculd result 'else in stock market credit. in the course of discussion, Governor Vardaman questioned etetv the ''oillty of basing a decision on the reduction of margin requirements ot factors other than the level of credit involved in the stock market, "el that if the current requirements could not le justified on that he considered it inequitable not to reduce them in the light of the recellat stispension or relaxation of other selective credit controls. unanimous agreement At the conclusion of a discussion, there was s uggestion by Chairman Martin that no action to reduce margin re- litth lIztreze late be taken at this time. with the exception At this point all of the members of the staff Of meser 8 'Carpenter eDect to tottrci: stated with reand Kenyon withdrew, and the action each of the matters hereinafter referred to was taken by the llinutes of actions taken by the Board of Governors of the rEQ 4,eaerve System on June 10, 1952, were approved unanimously. 1080 Le er to Mr. Geo. L Porter, President, The First TrustCompany, 114 Missouri, re ding as follows: "In response to the request contained in your letter 0 extends to July 15, Tune ! 1 ' tu3, 1952, the Board of Governors Company, St. Trust -Lie time within which The First 4 membership." to Joseph,e admission Missouri, may accomplish Approved unanimously, for transmittal through the Federal Reserve Bank of Kansas City.
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