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10, Minutes of actions taken by the Board of Governors of the Federal Reserve System on Tuesday, June 9, 1953. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Martin, Chairman Evans Vardaman Mills Robertson Carpenter, Secretary Sherman, Assistant Secretary Kenyon, Assistant Secretary Thurston, Assistant to the Board Riefler, Assistant to the Chairman Thomas, Economic Adviser to the Board Leonard, Director, Division of Bank Operations Mr. Vest, General Counsel Mr. Young, Director, Division of Research and Statistics Mr. Sloan, Director, Division of Examinations Mr. Myrick, Assistant Director, Division of Bank Operations , Assistant Director, Division Youngdahl Mr. of Research and Statistics Mr. Leach, Chief, Government Finance Section, Division of Research and Statistics Mr. Mr. Mr. Mr. Mr. Mr. Mr. At the request of Chairman Martin, Mr. Leonard reviewed developments related to the request of the Treasury Department that the Federal Reserve Banks undertake the verification and destruction of unfit silver certificates and United States notes beginning July 1, 1953, as fiscal agents of, and in accordance with regulations to be iasued by, the Treasury Department. The substance of Mr. Leonard's l'eltarks was included in his memorandum to Chairman Martin dated June 8 6/9/53 -2- 1953, a copy of which has been placed in the Board's files. Mr. Leonard also said that the Presidents' Conference Subcommittee on Cash, Leased Wire, and Sundry Operations, which met in Washington June 3-5 and consulted with representatives of the Treasury Department, had submitted a report to the Presidents' Conference which he understood was considered at the meeting of the Conference yesterday morning. He went on to say that he understood there was Some difference of opinion among the Presidents on the question of the basis of reimbursement although there was general agreement that the Reserve Banks would have to undertake the function. Governor Vardaman referred to Governor Robertson's suggestion at the meeting of the Board on June 2 that it might be possible to work out some feasible method whereby the function would be performed under the supervision of representatives of the Treasury Department, and Mr. Leonard commented that this was discussed briefly during the meeting of the Subcommittee last week, as was the suggestion of Govern°r Vardaman that the facilities of the Reserve Banks be placed at the disPosal of the Treasury, whose representatives would assume responsibilitY for the verification and destruction of the currency. Mr. Leonard said that the Treasury Department representatives who met with the Subcommittee displayed no interest in these suggestions and 6/9/53 -3- that he was informed later by Mr. Laning that earlier in its discussions the Subcommittee had considered those possibilities but did not favor them. Governor Robertson inquired as to what safeguards were intended to be placed on the operation by the Federal Reserve Banks, and Mr. Leonard discussed the procedures -which the Reserve Banks contemplated putting into effect, including audits at least once each quarter by the respective Reserve Bank auditors, reports of which would be furnished to the Treasury. Governor Vardaman expressed the opinion that the General Accounting Office might not accept the certificates of verification and destruction furnished by the Reserve Banks under the contemplated Procedure without periodic audits of the verification and destruction Operations. been folGovernor Robertson reviewed the procedures which had lowed in the past in the verification and destruction of Treasury curlelloY and Federal Reserve notes and said that he continued to feel ' out that it would be preferable if an arrangement could be worked whereby members of the Secret Service would make at least periodic checks of the operations at the Reserve Banks concerning the verification and destruction of Treasury currency. If the Treasury would " 4 agree to this procedure, Governor Robertson said, he would suggest 6/9/53 that audits of the operations be made at frequent intervals by the Board's examining staff. At the request of Chairman Martin, Mr. Vest quoted the provision of section 15 of the Federal Reserve Act which states that Federal Reserve Banks when required by the Secretary of the Treasury shall act as fiscal agents of the United States. Standing by itself, he said, this language would seem to clearly indicate that the Reserve Banks could be required by the Treasury to perform fiscal agency funcation tions. However, he felt that in reaching a conclusion consider also should be given to the other provisions of the Act. Mr. Vest recalled that the question of the extent of the Board's authority to suPervise fiscal agency activities of the Reserve Banks had come up °n several different occasions in the past and that, although the quesBoard that tion had never been finally resolved, it was the view of the it had the power of supervision over these functions. Mr. Vest also said that the question of whether the Reserve Banks could be compelled to perform fiscal agency functions regardless of the wishes of the Board had never been raised before so far as he knew and that this question was perhaps more difficult than the question of the right of the Board to supervise the Reserve Banks' operations as fiscal agents. ift 6/9/53 -5Governor Mills made a statement to the effect that with the more numerous audits by the Board's examining staff which were suggested by Governor Robertson and the safeguards which would be Placed on the operations by the Reserve Banks themselves, the risk exposure of the Banks would not be much greater than that involved in certain of their other operations as fiscal agents. In the circumstances he felt that it would not be objectionable for the Reserve Banks to accept the risk and undertake to perform the operations. Governor Evans stated that he agreed with the position taken by Governor Mills. Following a further discussion, it was understood that the whole matter, particularly the safeguards which might be provided in connection with the performance of the function, would be discussed at the joint meeting of the Board with the Reserve Bank Presidents on June 11, 1953. n The Secretary referred to the suggestion by Governor Vardama at the sent to the Federal meeting on April 27, 1953, that a letter be Reserve iteeerve Banks on the matter of their leasing space in Federal Buildings to outside tenants and read a draft of letter to the Presidents of all Federal Reserve Banks which had been prepared pursuant to that suggestion. 1058 6/9/53 -6Following a discussion, it was agreed that the matter should be discussed at the next joint meeting of the Board with the Reserve Bank Presidents, with the understanding that in the absence of suggestions by the Presidents which would make a revision of the letter desirable,it would be sent to the Reserve Banks. At this point Messrs. Leonard and Myrick withdrew from the meeting. reexamination Governor Mills referred to the comprehensive Of the Systemts discount and discount rate mechanism which had been fltiated pursuant to the Board's action on April 21 1_953, and to the studies which were sent to the Reserve Banks on May 29, 1953, as operations. He the basis for further discussions of System discount uggested that the study, which might result in a rewriting of RegulaFederal Reserve ti°n Al Discounts For and Advances To Member Banks by Banks, be and a revision of the Reserve Banks' discount practices, carried forward through the creation of a special committee consistOf a Chairman of a Federal Reserve Bank, a President, and a memof Research ber of the Board, with Mr. Young, Director of the Division alld Statistics, continuing to direct the research studies. Governor Milis procedure be sugProposed that, if approved by the Board, this gested to the Reserve Bank Presidents at the forthcoming joint meeting ( 6/9/53 -7- of the Board with the Presidents. There was unanimous agreethe procedure suggested with ment by Governor Mills, with the understanding that the Presidents would be asked to select one President to serve on the special committee, that the Chairmen of the Reserve Banks would be asked to select one Chairman to serve on the committee, and that Governor Mills would represent the Board on the committee and serve as Chairman. the meeting. Messrs. Sloan and Youngdahl then withdrew from There was a general informal discussion of recent developments in the money market, following which all of the members of the Staff withdrew from the meeting and the Board went into executive Session. reported a During the executive session, Governor Vardaman regarding a letter telephone call from Senator Eastland of Mississippi Which the Senator had received from a constituent banker concerning certain operations of the Memphis Branch of the Federal Reserve Bank of St* Louis. The meeting then adjourned. During the day the following additional actions were taken by the Board with all of the members Present: 1061) -8- 6/9/53 Minutes of actions taken by the Board of Governors of the Federal Reserve System on June 81 1953, were approved unanimously. Director, Memorandum dated June 8, 1953, from Mr. Marget, Division of International Finance, recommending that the resignation of Myrtle B. Caldwell, Clerk-Stenographer in that Division, be accepted effective June 31 1953. Approved unanimously. Bank of Letter to Mr. Leach, President, Federal Reserve Richmond, reading as follows: May 29, "Reference is made to your letter of 1953. "The Board approves the payment by your Bank of whatever amount is required to cover the cost of the benefits provided Messrs. Flagg and March under the special Bank Plan coverage allowed by the application of Section 9 of the Rules and Regulations. "It is understood that this payment by Bank to the Retirement System will be deferred Until the death in active service or retirement of each of these men." Approved unanimously. Federal Reserve Letter to Mr. Coleman, Federal Reserve Agent, Bank of Chicago, reading as follows: "In accordance with the request contained in Mr. Meyer's letter of June 4, 1953 1 the Board of Governors approves the payment of salary to Mr. Carl Schelling, Assistant Federal Reserve Agent, at the rate of $7,725 per annum, effective July 13, 1953." Approved unanimously. 6/9/53 -9Letter to Mr. Meyer, Vice President, Federal Reserve Bank of Chicago, reading as follows: "In your letter of April 29, 1953, you request a ruling on whether the President of the Board of Trustees of the village of Dixmoor, Illinois, is an office which properly could be held by an employee of the Federal Reserve Bank of Chicago. "It is stated in your letter that the election of the President of the Board of Trustees has nothing to do with national politics, but it is our understanding that the village trustees are elected at a general election following a primary conducted on the basis of political party affiliation. The Board of Governors' policy has consistently been interpreted to apply to the holding of political office not only at the national level but also at State and local levels. "The President of the Board of Trustees of the Village of Dixmoor, Illinois, has many of the same characteristics politically as a Mayor of a city. Because of this, and the fact that the office is filled through both a primary and general election, it appears that the office would be one which an officer or employee of a Federal Reserve Bank should not hold." Approved unanimously. Telegram to Mr. Hall, Chairman and Federal Reserve Agent, Federal Reserve Bank of Kansas City, reading as follows: "Retel 5th. Board approves appointment of William N. Deramus as Member of Industrial Advisory Committee for remaining portion of term beginning March 1, 1953, in accordance with action of Board of Directors." Approved unanimously. Letter to Mr. Gilbert, President, Federal Reserve Bank of Dallas, reading as follows: 1062 6/9/53 -10- "You will recall that, during the meeting of the menConference of Presidents last September, it was have to tioned that the Board had in mind arranging new members of its field staff of examiners observe d so operations at a Federal Reserve Bank for a perio their rm perfo to red prepa that they might be better recent duties with the examining staff. During the Banks, ve Reser al Feder Conference of Auditors of the artive tenta made Lang ner Chief Federal Reserve Exami the ding regar Murff r rangements with General Audito indoctrisending of two of our new men to Dallas for has cleared Murff Mr. nation, and it is understood that of this se purpo The the matter informally with you. artive tenta the rm letter is to formalize and confi rangements. your "It is our plan to send these new men to period a for tment Depar Bank to work in the Auditing work the that mind in of about three months, having ht insig an them give of the Auditing Department will departments into the activities of various operating as to the Within a comparatively short time. Details are being dates on which the men will report in Dallas Division of worked out with Mr. Murff by the Board's Examinations. al Reserve "The men, although working at the Feder of the yees emplo be Bank of Dallas, will nevertheless all and ies salar Board, and the Board will pay their lieu in diem per related expenses, together with their exthe ding inclu of subsistence and travel expenses, with ction conne penses of their travel performed in should be audits at the branches of your Bank. It Murff is at distinctly understood, however, that Mr. same the in liberty to make use of their services ve Bank. Reser the manner as if they were employees of men while these It is, of course, understood also that dance with accor in your bank will conduct themselves in and of bank your the rules, regulations, and customs of the department in which they are working. not satisfac"If these arrangements are in any way adjustver whate tory to you, we shall be glad to make ments are necessary. 1_0G 6/9/53 -11- "je greatly appreciate the cooperative attitude of yourself and Mr. Murff in this matter, and we are sure that the program aill be of great benefit to us in building up the quality of performance of the new members of our field staff." Approved unanimously. Letter to 7,1r. Earhart, President, Federal Reserve Bank of San Francisco, reading as follows: "Reference is made to Vice President Millard's letters of May 21 and 27, 1953, submitting the application of The Southwest Bank, Inglewood, California, for membership in the Federal Reserve System. "The Board of Governors is required under the provisions of Section h(b) of the Federal Deposit Insurance Act to consider certain factors in determining the acceptability for membership of a noninsured State bank, and in this case it is not believed that all of the such factors are satisfactorily resolved. While can information submitted indicates that Ingleaood be may there unit, support an independent banking some question as to whether the community actually proneeds additional banking services and whether the it since ctory satisfa posed bank's earnings would be would be located in a section of the city now served by branches of larger banks. Of primary concern is the apparent lack of arrangements for satisfactory proposed management and the general consensus that the all the is on situati This management would be weak. in a ng operati be will more important since the bank highly competitive area. "In the circumstances, the Board does not feel that favorable consideration could be given to the and bank's application for membership at this time, its that bank the to it is requested that you suggest -12- 6/9/53 "application for membership be withdrawn. -;;hen the management has demonstrated its ability to operate the institution satisfactorily or other management of known competence is provided, the Board will be glad to consider an application for membership in the Federal Reserve System." Approved, Governor Vardaman voting "no". Letter for the signature of the Chairman to The Honorable, The Secretary of State, reading as follows: "This will acknowledge your communication of May 6 regarding the invitation extended by the Government of Italy to the United States Government to Participate in the 28th Session of the International Statistical Institute which is scheduled to be held at Rome during the period September 6-12, 1953. "The Board of Governors generally believes that participation by the United States in international meetings for the purpose of furthering the interchange of technical information is desirable, but is not in a position to evaluate the relative importance of the various invitations to this end that your Department may be called upon to consider. In this instance, if it is decided to send a delegation and the agenda for the meeting should include the topics listed in the preliminary program, a copy of which was enclosed With your communication of May 6, we would suggest including in the delegation a member of the staff of the Board familiar with the measurement of industrial production in the United States. This is an area of statistical work for which the Board has had primary responsibility since the early 1920's." Approved unanimously. Statement for publication in the Federal Register relating to Amendment No. 12 to Regulation U, Loans by Banks for the Purpose 6/9/53 -13- of Purchasing or Carrying Stocks Registered on a National Securities Exchange, prepared pursuant to action taken by the Board on May 28, 1953, and reading as follows: "2. a. This amendment is issued pursuant to the Securities Exchange Act of 1934, particularly section 7 thereof. Its purpose is to make clear that Part 221 applies to loans for the purpose of purchasing or carrying certain shares issued by open-end investment companies whose assets customarily include registered stocks. The shares affected give the purchaser a proportionate interest in the issuing company's assets, and carry the right to convert his interest into the company's underlying assets or their cash equivalent. Such shares are technically called 'redeemable securities'. (The amendment does not affect Part 220.) A list of the 'redeemable securities' subject to the amendment will be available at any Federal Reserve Bank or Branch prior to the effective date of the amendment. "b. In the formulation and adoption of this amendment the Board gave consideration to all relevant information, including the data, views, and arguments received from Interested persons pursuant to the notice of proposed amendment published in the Federal Register (18 F.R. 1172)." Approved unanimollsly.
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