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Minutes of actions taken by the Board of Governors of the Peerai Reserve System on Wednesday, June PRESENT: Mr. Mr. Mr. Mr. Mr. 6, 1951. Martin, Chairman Szymczak 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 1.111 Reserve System on June 5, 1951, were approved upanimously. Memorandum dated May 31, 1951, from Mr. Marget, Director of the 11i°4 of International Finance, recommending that Miss Noreen R. Hanlon, a Ne in the Division of Administrative Services, be transferred to the °4 of International Finance as a Clerk, with an increase in her 1)4E1.0 8elarY from $2,200 per annum to $2,450 per annum, effective as of thea -ate on which she enters upon the performance of her duties in the 411.840 1- 11 of International Finance. Approved unanimously. Letter to tan Mr. Morrison, Vice President of the Federal Reserve leveland, reading as follows: reclue Aer rence is made to your letter of May 29, 1951, the, etikg the approval of the Board of Governors for zialtZ:ztteosf. salaries to certain employees at below tl, Board feels that one of the basic principles at 17 Personnel classification plan is the payment of Derre Zt the minimum salary established for the job being iricia—"Qtha and is, therefore, reluctant to approve for an ki tikite period the payment of salaries below grade ILItuns Or 6/6/)1 -2"Accordingly, the Board of Governors approves the continuation of the payment of salaries to the following named employees of the Cincinnati Branch for the period ending September 1, 19)1, at the annual rates indicated which are below the minimums established for the grades in which their positions are classified: Name Walter H. Bonus Ralph Hein James Kelley Annual Salary $ 2,300 4,350 3,500 "In view of the circumstances described in your letter, the Board of Governors also approves the pay; ent of salary to Charles A. Powell, Pittsburgh Branch, ,°!. an indefinite period at the rate of $4,050 per annum, "ich is $50 below the minimum established for the grade 1114hich his position is classified." 7 Approved unanimously. Letter to Mr. Bilby, Vice President of the Federal Reserve Bank Of Rev Y°rk, reading as follows: let "In view of the circumstances described in your thiater of June 1, 1951, the Board of Governors approves rai2aYment of salary to Mr. William J. Leonard at the of $8,503 per annum, which is in excess of the maxi?stablished for the position of Chief, Country Colion Division, Collection Department, the position he -" Occupies Approved unanimously. 41„ mmrea Letter to Mr. Wilbur, Chairman and Federal Reserve Agent of the Ileserve Bank of San Francisco, reading as follows: t144e "In accordance with the request contained in Mr. aplIrels's letter of June 1, 1951, the Board of Governors - ves, effective June 1, 1951, the payment of salaries to J stat? following named members of the Federal Reserve Agent's at the rates indicated: 1259 6/6/51 -3"Office San Francisco Name P. M. Stone San Francisco F. R. Claxton L05 Angeles L. R. Steffer Portland E. V. Risberg Salt Lake City J. B. Anderson Seattle F. K. Grimm Title Assistant Federal Reserve Agent Alternate Assistant Federal Reserve Agent Federal Reserve Agent's Representative Federal Reserve Agent's Representative Federal Reserve Agent's Representative Federal Reserve Agent's Representative Annual Salary '.),220 ),)20 6,240 )760 6,120 6,o6o" Approved unanimously. Letter to the Honorable A. W. Hall, Director, Bureau of Engraving azd Printing, INashington, D. C., reading as follows: "Thank you for your letter of May 25, 1951, enclosIna „- copy of the report, dated May 16, 19)1, of the .:`411Mittee designated to transfer certain vital material ; 1"om the Bureau of Engraving and Printing to the U. S. ullion Depository at Fort Knox, Kentucky. tat. 'The Board notes with pleasure that its represenit °Ire) Mr. Charles H. Bartz, ably assisted the committee ti,the special project, and your expression of apprecia-n will be conveyed to him. to Your letter states that it is considered advisable notila.ve the committee retain its status until further so that it will be available to discharge any Acc ' equent duties which may be required in this connection. ice°rdinglY, Mr. Bartz will be available for further servOn the committee.” Approved unanimously. tor Ree Letter to Mr. Morton M. Mendels, Secretary, International Bank °Iletruction and Development, 1818 H Street, N. W., Washington, D. (IN as follows: tEict C., r..,;(-30 6/6/51 "Last year, as you will recall, we had the directors and principal officers of the International Bank as our guests for a review by members of the Board's staff of current economic conditions in the United States, and I understand that conversations with representatives of Your organization have indicated that Friday, June 15, would be a mutually convenient date for another informal meeting of this same general nature. Accordingly, I am most happy to extend to you on behalf of the Board an invitation to join us at that time, and I would apprecillte your courtesy in transmitting this invitation to Your directors and officers. "Our plans call for the group to gather in the EOarA Room of this building at 11:00 o'clock for a v-Isual-auditory presentation by members of the staff tf c) our Division of Research and Statistics. Represen' ,j tives of the Division of International Finance also _11 Participate in the program. Time will be provided wiereafter for a general discussion of the material covered, sii".r the program will conclude with luncheon in the Board's --oaing rooms. of "We are looking forward eagerly to the opportunity again with you and your associates, and we will be a,-- touch with you before the date of the meeting to 'Tange the necessary details." 'fleeting Approved unanimously, together with a letter to Mr. Frank Coe, Secretary of the International Monetary Fund, extending a similar invitation to the directors and principal officers of that organization for Monday, June 18, 1951. 14111 Letter for the signature of the Chairman to the Honorable is R 1,011014s:obertson, United States Senate, Washington, D. C., reading ask "This is in response to your letter of May 22, 1951, that I send you an amendment to cover the suggesofc is ontained in the third paragraph of my letter to 14ethna 144Y 21, 1951. That paragraph outlined briefly a Sy"-- Of Utilizing the services of the Federal Reserve El ziem more effectively in the extension of financial stance to small business in normal times. 6/6/51 -5- "As stated in my letter to you of May 21, a variety Of measures are now being taken, especially by the Federal Reserve System, to discourage any extensions of credit that are not essential for defense, and, consequently, we feel that there is a serious question as to the advisability of, and the Board would not be prepared at this time to sponsor, any changes in the law which would provide additional authority for the expansion of the use of credit, even by small businesses, for any purposes that are not closely related to defense needs. "If, however, Congress should consider it desirable to utilize the Federal Reserve Banks to provide financial 1.esistance to small business through guarantees of loans ,31. financing institutions, as suggested in my letter of ay 21, I believe that the enclosed draft of bill would °s adequate for this purpose. As you will observe, this ;71raft is substantially the same as the bill S. 408, which _as favorably reported by the Senate Banking and Currency (plemittee on April 28, 1947. 0 , "Please do not hesitate to call upon us if we can be ally assistance in this matter." Approved unanimously. Letter to Mr. Roger W. Jones, Assistant Director, Legislative -erene e) Bureau of the Budget, Washington, D. C., reading as follows: "This is in response to your communication of 1951 requesting a report on S. 684 'To amend "' oankhead-Jones Farm Tenant Act so as to provide a more effeCtiVe distribution of mortgage loans insured ,:'sr title I, to give holders of such mortgage loans erence in the refinancing of loans on a noninsured 1/818/ to adjust the loan limitations governing title Drr2ans so as to provide more effective assistance to and subsistence loan borrowers, and for other vurpose May t7 011 s By letter of the same date you requested our comments Telialif.994 'To amend section 21 of the Bankhead-Jones Farm sztotul Act) as amended, so as to increase the maximum SeQ.t, 8 and terms for which loans may be made under such 1.0/1. 1 as th"The Provisions of S. 994 are substantially the same ; °86 contained in section 3 of s. 684. Likewise, the Drovby 1;:!°118 of S. 614 on which the Board expressed its views for ,wer dated March 26, 1951, copies of which are enclosed Ree.t:;01.1r ready reference, proposes a similar amendment to -°4 21 of the Bankhead-Jonos Farm Tenant Act. 6/6/51 -6- "These comments are therefore confined to sections 1 and 2 of S. 684 which proposes a change in the mortgage insurance authority of the Secretary of Agriculture by increasing the present authorization of $100 million to $200 million. Of the increase, 1/2 would be allotted without regard to the statutory requirements now in effect for the current authority. It is stated in the report of the Department of Agriculture, which was enclosed with your letter, that eliminating such statutory requirements for a part of the authorization would allow more effective utilization of the insuring provision. Presumably, a larger part the authorization would actually be used if this were Ole case. "However, as is stated in the Agriculture report, inthe 1950 fiscal year, about 2,300 loans were insured about $17 million. If the average size of loan -- prevails in the current fiscal year and the 70er 1 of loans made reaches the budget estimate of )500 about $34 million of the $100 million authorization eacruld be used in the 1951 fiscal year. For 1952, if loans h the estimated number of 7,500, the total volume of 4 ;1?lared loans might approximate $55 million, again subTrntially less than the present authority would allow. 28e figures appear to indicate that the increased ' 4°.uzilorization at this time is unnecessary. On the other hand, if fully utilized, the proposed ease would represent considerable liberalization of Go 13e ernment credit in the agricultural field. It would ejTit 27,000 loans to be made or 6 times as many as the esZimate for the current fiscal year and 3 1/2 times the inlate for 1952. 14,0 "Proper restraint of credit is a vital part of the azagraln to control inflation and further the defense effort eio vigorous efforts are now under way to curb the extencf credit by private lender groups. It is the view or authhe Beard that the proposed large increase in insuring of i°11-tY would not conform to the Government's program Ilflation at this control and therefore should not be granted time." Approved unanimously. the Tel egram to the Presidents of all Federal Reserve Banks and to Vice? resident of the Detroit Branch, reading as follows: A43i ,we have received request from N. P. Cassidy, Vherls'ellt Comptroller of the Navy, that in future aPPlication for a Navy guarantee is received -41 c'eir'fri 1.etsOt 6/6/51 -7- "IDY a Reserve Bank two copies of application rather than one be forwarded immediately to Board to be transmitted to Navy. Third copy of the application Should be forwarded to Board with report and recommendation your Bank. Also, it is requested you forward to Board three copies of your report and recommendation instead of two as at present. "The additional copies of application and report are required incident to change in the procedure for Processing V-loan cases in Department of the Navy." Approved unanimously. Letter to Mr. Roger W. Jones, Assistant Director, Legislative Reference, Bureau of the Budget, Washington, D. C., reading as follows: "This is in response to your letter of May 29, 1951 re guesting an expression of the Board's views on a proPosed Executive Order entitled 'Executive Order Delegating ertain Functions of the President Under the Defense ProAct of 1950.' The purpose of the Order is to assure the fullest Utilization of independent small business in defense and etssential civilian production and authorizes the Secreaaq of Commerce to establish within his Department an ProPriate organization in order to carry out the various 1114ctions provided in the Order relating to small business. " tar, Theproposed Order in section 3(d) authorizes the Secreul," among other things, to review guarantees proposed section 302 of Executive Order 10161 and to make toe°mmendations to the guaranteeing agencies with respect of the action to be taken thereon, presumably in the case txeeach individual application. Section 302 of that prorclutive Order implements section 301 of the Defense V.1:uction Act of 1950 which is the basis of the present suID'an Program under which the Federal Reserve Banks, actiect to the supervision of the Board of Governors, Of as fiscal agents of the United States in the making coAtracts of guaranty. 8.8 ve"Tha Board of Governors of the Federal Reserve System, as the guaranteeing agencies, in carrying out their rasp eTilities with respect to the V-loan Program have 71c11,8r it to be of prime importance that the various :" act with the utmost speed in passing on applicritic Ths 118 for guarantees of loans made to defense contractors. The Zesent Procedures were developed with this in mind. --ard is fearful that section 3(d) of the proposed J Z: 6/6/51 -8- "Executive Order would result in delay in the consideration of applications and thus impede the defense Program. Indeed, while one of the important purposes Of the proposed order appears to be to facilitate defense loans to small business concerns, it is believed that this provision would tend in the opposite direction. "For these reasons the Board feels that it is imPortant to the V-loan Program and to the interests Of small business that the provisions of section 3(d) 141i-eh require a prior review of the guarantees be deleted from the proposed Executive Order. If, however, YoU do not concur in these views, we would appreciate an oPPortunity to discuss the problem more fully with You before the final draft of the proposed Order is clecided upon. "As regards the broader question of small business ParticiPation in defense production, the Board concurs nth the objectives of the proposed Executive Order, questions the desirability of a program as elaborate :that provided for by the Order. It may be noted that t711 concerns in the manufacturing and mining indusLee, which are the ones principally involved in de118e Production, represent only a small proportion of ; 1: 14st Roall business concerns, the great majority of ' Tl!lch are engaged in trade and service activities. 4(e additional steps in the review and approval of iletting and financing of defense contracts, and the theti°nal reporting burden on defense departments of quirGrernment and business concerns that would be reby the proposed Executive Order, might well reit7 . 4 rather than expedite, small business participation fellee itseir production as well as the defense program e t, k Z Approved unanimously. Letter to the Presidents of all Federal Reserve Banks, reading ..„40108: balder"The subject of 'free' merchandise and rebates 4g 1,4 zlegUlatiOn W has been re-examined, especially . relates to paragraph (8) of the summaries published 265 6/6/51 -9- "at 222.118, 15 Federal Register 7827, November 17, 1950 and 1950 Federal Reserve Bulletin 1615. The Board has concluded that the summary in paragraph (8), while of course remaining subject to the qualifications indicated for such summaries, should be revised to read as follows: '(8) Free merchandise and rebates. An instalment vendor of a listed article is not prohibited by the regulation from giving a discount or rebate on the sales price of a listed article or from making a bona fide "free" gift of other merchandise to the buyer Of a listed article. However, in the case of a cash discount or rebate, and also in the case of a "free" gift which allows the customer to make a selection among a variety of merchandtse or which is otherwise similar or equivalent to cash, the down payment to be obtained on the article must be net of the amount received by the purchaser from the vendor. In the case Of other "free" gifts, the down payment must be obtained on the gross price of the listed article without any deduction for the "free" gift.'" Approved unanimously. Letter to the Presidents of all Federal Reserve Banks, reading e.g roliovs: (w, i, As indicated in the published summary interpretation l'e 49) being issued on the point today, the Board has giv ! risl ed the status under Regulation W of so-called 'free sal;sty rebates, or discounts offered by Registrants as while inducements in connection with listed articles. u s ch sales inducements or promotional arrange: rae4t maY take a variety of forms, the applicable exati:.,"- Principles, together with certain typical ' suzzi s8, are discussed below to amplify the published 'rren. These principles are applicable whether the ings-,h13i1 t'l rebate, or discount is given as cash, saygift certificates, or in other form. 6/6/51 -10- "Exaule of Cash Discount. - Suppose, for example, that a Registrant is selling a 3260 Group B article on 'which the present required down payment of 2) per cent would be *6-). Suppose further, that he decides to offer a $50 discount as a sales inducement. If the Registrant Obtains the $65 down payment, but at the same time gives the purchaser a check for $50 as the discount on the 4;260 price, the Registrant has for all practical purposes Obtained a down payment of only $1), which would be subs tantially less than that required under the regulation. "Section 8(j)(7) of the regulation states that 'cash price' is 'net of any rebate or sales discount'. ! iI ence, in the above example, the cash price of the Ift°111) B article would be $210 rather than $260, and required down payment need be only $52.50 instead °f $6). Consequently, on the facts assumed above, the : egistrant would have to get back from the customer more in cash n order to bring the down payment , 111) to the required minimum of $52.501 but he would not nave to get back $50 (the full amount of the rebate). "Tha_Eeneral principle, therefore, is that in such 8 Case botii:M the down payment and (2) the cash price le to be calculated on a net basis. The result is that clown payment requirement is reduced (as it should be) ti; eam- ro ortion as the cash price is reduced, but rer it is not reduced by the amount that the price is cl,, ed. To do the latter would thwart the down pay40: " t requirement. In other words, the regulation does Wh4Prevent the reduction in the price of an article, co::her such a reduction is in the form of a cash dis11,1 '4A or in some other form; but the regulation does t everlt other features of the arrangement from being h as Would render the requirements of the regulation effectiye. Vok "Princ-lealhere. - The same principle aPPly to a 'free gift' which would be similar or 14111vale11t to cash, although not necessarily identical the reesh. For example, if the discount were given in 1111 of a savings bond, this should be treated as tixrCii although in practice the bond is not redeemable the Passage of a certain period of time. or a "Similarly, if the discount is given in the form petrtgift certificate or similar right drawn on a deAt store, for example, entitling the customer to Zf Z 6/6/51 'flake his own choice or selection among a variety of merchandise, this discount also should be treated as equivalent to cash for these purposes. This same treatment would apply where the gift certificate or similar right is drawn on a food store or limited otherwise Only to food, or only to frozen food (as in connection with the sale of a food freezer), so long as the customer has a choice or selection. It is evident in such cases that since the customer is permitted to choose among articles that the average person must acquire regularly, he in effect is given a rebate that is equivalent to a cash rebate. "Gifts' not E_quivalent to Cash. - In those cases Where, under the above principles, the so-called, 'free € 1.fti l is not similar or equivalent to cash, the 'gift' maY Properly be treated as a part of the sale and not a rebate. This would be true in the case of a single s PeCifiC article, such as a phonograph, offered 'free' ylth the purchase of a television set, or in the case c) sr 'free' attachments with a suction cleaner. The !me would be true where a Registrant, for example, ers 'free' with a refrigerator, an order of groceries (?mPosed of items pre-selected by the Registrant. In ;7her Words, a primary consideration is the extent to ch the Registrant pre-selects the specific article or articles to be used as a 'gift' to the purchaser. Of course, in any case in which the 'gift' is to 1)., ti7letreated in accordance with the preceding paragraph, z ofr,:n i::::7 would be required on the full price he listed article without allowing any discount "In-view of the variety of circumstances that it arise in connection with questions of this kind, servseems especially desirable that replies by Re-to ! 4 Banks to inquiries on these questions be limited ther 'us facts of the particular case. It is assumed, hf!re, that this letter will be used as the basis for e to 4Qcil1ng individual cases rather than as material - used in full in replying to each inquiry. 111' ,he foregoing views of the Board supersede any Prio re: iat i.n it oe n." rpretations in this regard under the present Approved unanimously. ' C ' e 6/6/51 -32Letter to Mr. Charles G. Pyle, Executive Director, National Association of Electrical Distributors, 500 Fifth Avenue, New York, ll'Af York, reading as follows: "This refers to your letter of May 1, 1951, addressed to Chairman Martin, in which you comment on our letter to you of April 18, and also submit for the Board's consideration additional observations concerning the effects of Regulation W on the merchandising of electrical appliances. "Our letter of April 18 contains the statement that in many instances the trade-in allowance in connection with nil applinnce sale has the effect of a discount on the purchase price of the article rather than an allowance based on the re-sale value of the article accepted as a trade-in. We note that you are of the opinion that the foregoing statement ?plies essentially to cash sales and is, theree) not of primary importance in the matter of ti' sales. It is our view that if the : t atement is true concerning cash sales it is true in the case of instalment sales. if "Regulation W must be restrictive, of course, t is to accomplish its major purpose of helpto restrain general inflationary forces by curbreg consumer instalment credit. Although the Board ilic°gnizes that there has been a general softening th the markets for consumer durable goods following laae heavY buying wave of last December and January, cr : e rtheless, in the light of general economic and at ciT' . conditions, a relaxation of the regulation or :is time does not appear to be in the interest f17, national defense program. to th We appreciate your forwarding your comments Q04tie Board and you may be certain the Board will the .°11-le to study the regulation in the light of all 11,-cts which come to its attention. tit We should be glad, of course, to have you subPerson to members of the Board's staff such ation as you may wish with respect to any phase or t°f Re Approved unanimously. F4 A • 6N51 -13Letter to Mr. Olson, Vice President of the Federal Reserve 4t'k of Chicago, reading as follows: "With reference to your telephone discussion of the treatment of fiduciaries for registration Purposes under Regulation X, we would make the following suggestions: "The paragraph on fiduciaries in the instructions for the registration statement should be interpreted to Permit and encourage each fiduciary to file only One registration statement covering all its fiduciary r141 agency accounts and showing consolidated figures ! for all accounts in item III. The trust department cf a commercial bank, for example, should file one statement showing in item III all the mortgage assets Of all its fiduciary and agency accounts. "Any individual (including an officer of a bank Or a trust company) who administers fiduciary accounts in his individual capacity should file a registration st atftent if he meets the necessary test of a registrant. 'Any individual or individuals who administer fiduc..ary accounts jointly with a corporate fiduciary 41-11d also file if they meet the registration test. °Nrever to prevent duplication in the statistics, an 114ividual should re.ort onl those loans which are u4der his sersonal administration excludin those in \glitch he is co-fiduciar with a co •orate trustee. AnY individual who administers fiduciary accounts joi 11 ' 11Y With other individuals should register, if he ete the test of registration, as in the above case co an individual or individuals acting jointly with a pr2°rate fiduciary. In such cases where possible to ord'ent duplication of statistics, it is suggested that , °ne individual co-fiduciary list real estate 10,! e0:;! Wned on account of the trust, and the other bi cluoiaries merely register but leave the figures ,' referring to the form filed by the co-fiduciary vheillk eg includes the statistics. "In those rare cases where two trust companies may be c, the--"t•rustee for the same trust, it is suggested that it, One Which manages the assets report the statistics. as 8.180 occasionally happens, each corporate trustee Z ALf).„--7 6/6/51 _14_ manages a part of the assets, then it would be desirable to have each report only the part he manages. "We recognize that there will probably be some duPlication of figures in connection with co-trustee accounts. This results from the publication of an extremely simplified form of registration statement. }ad we issued a more complex form giving lengthy and complicated instructions, it probably would have resulted in some confusion on the part of many registrants, 1,11d might also have resulted in an unfavorable response. We think, however, that the possible duplication which maY occur will not attain significant proportions or greatly influence the totals." Approved unanimously. Letter to Mr. Denmark, Vice President of the Federal Reserve Bank °r Ati allta, reading as follows: "This refers to your letter of May 17, 1951, and enclosures, concerning a request from the Air Conditioning APPliance Corporation, Alexandria, Louisiana, for a ruling t° whether the installation in a cafe of two air conUnits will be a major improvement to a nonesidential structure within the meaning of section 2(g) Qr Regulation X. Ile The inquiry refers to two units known as a Carrier pretthermaker 50 K 8 and a Carrier Cooling Tower 22 E61 8. : I Your letter, it is our understanding that the Weather"Can be installed separately, or that the two units 44 b! installed together. the. , We understand from your independent investigation co, l'hen the two units are installed together they are th;:ected with pipe to the water system in the structure, : th a- water pump also is installed, and that ordinarily Must be certain changes in the electrical system lfl volhe structure in order to take care of the higher illstafe. Based upon this understanding, we believe the vhinN on of the two units will be an 'improvement the eccnve *** physically attached to and a part of 48 tiStrIleture ***I within the meaning of that phrase a I mEld in section 2(g) of the regulation and will be r improvement' to a nonresidential structure if ° 6/6/51 "the cost tests are met. In this particular case, it Will be a major improvement if the structure in which it is to be installed does not have an appraised value of more than $26,333.34. "We do not fully understand from your letter the factual situation if the Weathermaker is installed and used separately from the Cooling Tower. However, if the degree of attachment to the structure and the necessary changes in the electrical and plumbing systems are comparable, its separate installation also will be a 'major improvement' if the cost tests in the regulation are met." Approved un nimously.
@FedFRASER