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Minutes of actions taken by the Board of Governors of the Pederal Reserve System on Friday, March 12, 1948. PRESENT: Mr. Mr. Mr. Mr. Szymczak, Chairman pro tem. Draper Evans Clayton Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Thurston, Assistant to the Board Minutes of actions taken by the Board of Governors of the Pecle 1 41 ' Reserve System on March 11, 1948, were approved unanimously. Mr. Szymczak was elected Chairman pro tempore to serve while Chairman Eccles was absent on vacation during the next two weeks. Telegrams to the Federal Reserve Banks of Boston, Richmond, Atialat EY Sala Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and p rancisco stating that the Board approves the establishment '" change by th. ,Federal Reserve Bank of San Francisco on 1%1'01 9, by the Federal Reserve Banks of Richmond, Atlanta, Chicago, gt. L °Ills, Minneapolis, Kansas City, and Dallas on March 11, 1948, 8.111 uY the Federal Reserve Bank of Boston today of the rates of ILsco and purchase in their existing schedules. Approved unanimously. Telegram to the Federal Reserve Bank of Cleveland reading 48 rollows: 15, "Retel March 11, Board approves effective March o rate of 1-1/4 per cent in connection with 4-94-o, 360 3/12/48 -2- Purchases of Government securities under resale agreement as authorized by Federal Open Market Committee. Otherwise Board approves establishment by your Bank, Without change, of rates of discount and purchase in Bank's existing schedule, advice of which was contained in your telegram dated March 11, 1948." Approved unanimously. Memorandum dated March 10, 1948, from Mr. Bethea, Director or tha Division of Administrative Services, recommending that the 81Ointment of Alton W. Cassidy, a laborer in that Division, be Itelacied on a temporary indefinite basis with no change in his lent basic salary of 1948. $1,690 per annum, effective March 19, The memorandum also stated that it was contemplated that c "slay would become a member of the Federal Reserve retireet sstem. Approved unanimously. Memorandum dated March 10, ()1) the 1948, from Mr. Bethea, Director Division of Administrative Services, recommending that the 11)01/1+ --nlent of Arthur P. HP,rdman, a general mechanic in that Di- , be extended on a temporary basis for a period of six 11104th with no change in his present basic salary of effective March 1114 $2,469.24 22, 1948. The memorandum also stated Herdman was a member of the Civil Service retirement Nteni. Approved unanimously. 361. 3/12/48 Letter to the board of directors of the "Union State Bank", Call'izo Springs, Texas, stating that, subject to conditions of membelishiP numbered 1 to 3 contained in the Board's Regulation HI the 11°Ellicl approved the bank's application for membership in the Federal erve System and for the appropriate amount of stock in the Federal Reserve Bank of Dallas. cial The letter also contained the following spe- comment: "It appears that the bank is authorized to exercise fiduciary powers but does not expect to exercise such powers and that it possesses certain Other powers which are not necessarily required in the conduct of a banking business, such as the power to issue and sell investment certificates. Attention is invited to the fact that if the bank should clesire to exercise fiduciary powers or any unusual Powers, it will be necessary under condition of membership numbered 1 to obtain the permission of the Board of Governors before exercising them." Approved unanimously, for transmission through the Federal Reserve Bank o Dallas. Letter to the Presidents of all Federal Reserve Banks read- 14 843 follows: "At its recent meeting, the Conference of Presidents of the Federal Reserve Banks recommended to the i081'd of Governors the adoption of amendments to tbe , Isoard's Regulation J for the purpose of authorizing a Pl'ocedure for the conditional payment of checks and the :eturn of unpaid items on the next succeeding business "ay after their receipt by drawee banks. "The Board understands that the subject of conditional payment of checks and delayed return of unpaid 362 3/12/48 -4- "items has been under consideration by the Presidents' Conference and Committees of the Conference at various times over several years past. Consideration of this stibject was prompted by the enactment of statutes in a nuMber of States and by the practices followed by many clearing houses which permit the return of unpaid items on the day following presentment. In November 1947, the members of the Committee on Collections and a Special Committee of Counsel discussed the matter with a subcommittee of the Bank Management Commission of the American. Bankers Association; and, in a letter dated Janu117 5, 1948, the Chairman of that subcommittee advised : ! Leach, Chairman of the Committee on Operations, that the American Bankers Association recommends to the Federal Reserve System that the Board's Regulation J and the circulars of the Federal Reserve Banks be amended to authorize such a procedure for the conditional payment of checks and delayed return of unpaid items. "In a joint report, dated January 30, 1948, the Committee on Collections and the Special Committee of Counsel, the membership of which Committees includes representatives of eight Federal Reserve Banks, recommended that the Board of Governors adopt two amendments to section 5 of Regulation J in the form set forth in Amendments No. 1 and No. 2 attached hereto, such amendments to be made effective at such time as the Board may determine, but not until the American Bankers Association (a) has distributed to its members a form 0r forms of buggested contracts which are adequate and satisfactory to authorize depositary and collecting banks to send checks to Federal Reserve Banks for collection in accordance with Regulation J and the operacirculars and letters of the Federal Reserve Banks, and (b) has drafted a model statute which is adequate and satisfactory to give drawee banks the right to make conditional payment of checks presented by Federal Reserve Banks subject to the right to return, and reclaim PaYment for, unpaid items on the next succeeding business day after their receipt by the drawee banks. It understood that representatives of the American 14ankers Association have been studying the matter of drafting a form of such a suggested contract to be 11stributed to banks and of such a model statute au!,. 'horizing conditional payment of checks. 363 3/12/48 -5- "The recommendations contained in this joint report were adopted by the Conference of Presidents at its meet'lag in February. "The joint report contemplates that, if Regulation J is amended in the manner suggested, the cash collection Circulars of the Federal Reserve Banks will be amended to incorporate therein the revised text of section 5 of the Regulation and to eliminate any provisions which may be inconsistent with the amendments to the Regulation, and also that the Federal Reserve Banks will incorporate in their cash letter forms or agreements with drawee banks a reference to the new provision of the Regulation regardConditional payment of checks. "The Presidents' Conference at its meeting in February a:lso approved a recommendation contained in a supplemental Joint report of the Committee on Collections and the Special Committee of Counsel that section 6 of Regulation J be revised to make it clear that certain substantive provisions contained in the Federal Reserve cash collection circulars are within the authority to promulgate rules which is granted to the Federal Reserve Banks by that section; and 1/1 this connection it was pointed out that since the cash collection circulars deal with other cash items as well as checks, it would be well to clarify the authority of the Federal Reserve Banks to treat all cash items on an equal basis in such circulars. Amendment No. 3 in the attached proposed amendments to Regulation J is intended to carry out this recommendation. "The Board of Governors, in accordance with the rec°MMendations contained in the above-mentioned joint rePorts and the action taken by the Presidents' Conference, 18 Prepared to adopt amendments to Regulation J in the . 1°rm herewith enclosed. However, before the Board pubin the Federal Register notice of its proposal t° adopt such amendments, it will be appreciated if you ill advise the Board as soon as possible, and in any event within the next two weeks, of any comments or suggestions which you may care to offer in this connection. "It is contemplated that when the amendments to Regu.1 , 1 Ittion J are finally adopted by the Board, they will not e made effective immediately but only after the American arlkers Association has taken the action indicated in the ! eoommendation made by the Committee on Collections and he Special Committee of Counsel and by the Presidents' Conference." Approved unanimously. 3/12/48 -6Letter to Mr. Young, President of the Federal Reserve Bank "hicago, reading as follows: "Reference is made to your letter of March 4, 1948, in which you ask the Board's approval for the construction of a vault at the Detroit Branch for the storage of coin. It is noted that the vault is considered to be necessary to carry on a coin wrapping service for the banks in the territory serviced by the Detroit Branch. "The Board will interpose no objection to construction of the vault as outlined in your letter at a cost of approximately $23,838." Approved unanimously. Letter to the Presidents of all Federal Reserve Banks readas follows: "Reference is made to the discussion at the recent Presidents' Conference of the topic 'Loans to rniployees', which was placed on the agenda at the request of the Board. "After considering the views of the Federal Reserve Banks with respect to the use of Bank funds for 'king loans to employees and the worthwhile purposes such employee loan plans serve, the Board has decided ° interpose no objection to their continuance. The 150ard is of the opinion, however, that loans to emPloyees by the Federal Reserve Banks should be kept within reasonably low limits. The limit for such °an3 at any Bank, including branches, should not be ' 11creased from the existing authorized limit to an Mount in excess of $15,000 without first submitting the matter to the Board for its consider 1 Approved unanimou Secretary. tem.
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