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C.:e"jel %) rice Minutes of actions taken by the Board of Governors of the Federal Reserve System on Tuesday, March 13, 1951. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. McCabe, Chairman Szymczak Evans 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 Federal Reserve System on March 12, 1951, were approved unanimously. Memorandum dated March 8, 1951, from Mr. Sloan, Assistant Director of the Division of Examinations, recommending that the official headquarters of Elmer W. Lyster, Assistant Federal Reserve E alliner, be changed from Philadelphia, Pennsylvania, to Washington, n° C., effective March 13, 1951. Approved unanimously. Letter to Mr. Walden, First Vice President of the Federal Reeerve Bank of Richmond, reading as follows: "In accordance with the request contained in your letter of March 7, 1951, the Board approves the appointment of Edgar F. Gardenhour as an examiner for the Federal Reserve Bank of Richmond, effective March 9, 19510. "It has been noted that Mr. Gardenhour is indebted to Virginia Trust Company, a nonmember bank, Richmond, Vlrginia, in the amount of $3,500 secured by 440 shares cr stock in Nicodemus National Bank, Hagerstown, Maryland. It is understood that Mr. Gardenhour will make arrangements to dispose of his bank stock. Accordingly, the Board's approval of his appointment is given with the understanding that he will dispose of his bank stock within 3/13/51 -2- Ifa reasonable time and liquidate his indebtedness to Virginia Trust Company." Approved unanimously. Letter to the Board of Directors of the "Houlton Trust CompaItt 3 Houlton, Maine, stating that, subject to conditions of membership huMbered 1 and 2 contained in the Board's Regulation H, the Board apProves the Bank's application for membership in the Federal Reserve 8Y8tem and for the appropriate amount of stock in the Federal Reserve tlank of Boston. Approved unanimously for transmittal through the Federal Reserve Bank of Boston. Letter to Mr. Dawes, Vice President of the Feder.al Reserve 13allk of Chicago, reading as follows: "lie regret that we have been delayed in replying to your letter of February 6, 1951, in which you state that Mr. R. M. Day, Vice President of the Midwest Stock Exchange, has inquired as to what reports would be required from a specialist of that Exchange in order for the Exchange to be designated by the Board under section 4(g) of Regulation T. "This question depends upon the nature of the specialists' operations on the particular exchange, including the rules and supervision to which he is subject, and the reports already required of him by his exchange. Accordingly, if the Midwest Stock Exchange Would like to request such a designation, we would suggest that the Exchange advise the Board fully as to all such phases of specialists' operations on the Exchangn, and the Board would then be glad to consider the question of what additional requirements, if any, Would be necessary before the granting of a designation by the Board." Approved unanimously. 3/13/51 -3Telegram to the Presidents of all Federal Reserve Banks, reading as follows: "Board is of the view that classification 'automobiles' under Regulation W does not include Crosley 'Farm 0 Road.'" Approved unanimously. Letter for the signature of the Chairman, to Mr. Frank Barrett, Sarrett Motors, 469 Elm Street, Biddeford, Maine, reading as follows: "Thank you for your letter of March 1 on the subject of Regulation W. I appreciate your constructive attitude toward the regulation of credit and your interest in writing to me. "One of the major problems involved in administering a regulation such as this is to make it restrictive enough so that it will be effective in accomplishing its overall Purposes but at the same time to keep the regulation from being an excessive burden on the people who are subject to it. The Board has felt that relatively tight terms for instalment credit are required at present in order to help restrain the very strong inflationary pressures that are tending to raise the prices of all goods and services. A major purpose of the regulation is to curb the increased Purchasing power that results from the expansion of instalment credit, particularly when the supply of goods is limited. A further purpose is to facilitate the diversion of critical materials and labor to military production. "It has seemed to us desirable at this time to provide the same maturity requirements for the higher priced oars as for the lower priced cars. More credit is generally involved when the price is higher and the people in position to buy higher priced cars are usually better able to meet the higher monthly payments required under the regulation. "We are always glad to receive the views of those who are affected by the regulation. You may be sure that your vlows will be considered in our continuing study of the terms of the regulation." Approved unanimously. e-y 3/13/51 -4Letter to Mr. Clarence L. Landen, President and Treasurer, Securities Acceptance Corporation, Securities Acceptance Building, Farnam at 18th Street, Omaha, Nebraska, reading as follows: 'The individual members of the Board of Governors have received your letters of March 2, 1951, in which you ask why we have Regulation WI especially since we now have price and wage control and allocations. "Consumer Credit—Regulation VII is presently designed to reduce the money demand in the area represented by consumer instalment credit, at a time when the supply of consumer durable goods is insufficient to meet the demand. The fact that expansion of consumer instalment credit has been halted since the imposition of RegulationlVwould'appear to indicate that the regulation has had a marked effect on consumer purchasing power. The reduction of demand in both the new and used automobile field has been reflected in the price of all automobiles. In the case of new automobiles this effect is noticeable in the reduction of the number of 'extras' involved in new car sales particularly in November and December of 1950. wile regulation is one part of the broad fiscal, monetary, and credit program designed to restrain the inflationary pressures that result in higher prices and to facilitate diversion of critical materials and manpower to military production. The Board is of the opinion that the regulation is presently making an important contribution to this program." Approved unanimously. Letter to the Presidents of all Federal Reserve Banks, readtrig as follows: "For the purpose of explaining in greater detail our telegram 3-1271 (X-32) concerning warehouses and Office buildings, it should be noted that this telegram was not intended to liberalize but solely to clarify the provisions of the Regulation. 4 3/13/51 -5- "Among the exclusions from the definition of nonresidential structure are the following: Section 2(r)(). A structure more than 80 per cent of the floor space of which is used or designed for use (i) in processing materials, goods, or articles into finished or partly finished manufactured products, (ii) in mining or otherwise extracting raw materials, or (iii) on farm property in the production shelter, or storage incidental thereto, of crops, livestock, or other agricultural commodities. In the processing of materials, goods, or articles into finished or partly finished manufactured products, a warehouse or an office building may be an integral part of and essential to the manufacturing process. We have in mind, for example, a large locomotive manufacturing company which utilizes warehouses for the storage of parts and machinery in the manufacture of its products, and which might also use an office building at the plant site to accommodate the engineering and production staffs, and other offices essential to the actual processing of fabricated products. Such buildings are a part of the manufacturing process and are used solely in connection therewith. "We did not intend to suggest that an office building to be constructed in a central business district and used to house general supervisory personnel or sales, advertising, and distribution offices, etc., is essential to the manufacturing process. Such a structure would be a 'nonresidential structure' within the meaning of Regulation X." Approved unanimously. Memorandum dated March 6, 1951, from Mr. Bethea, Director Or the Division of Administrative Services, recommending that the //c'ard authorize the installation of car washing facilities in the gal'age of the Board's building as described in the memorandum and that the appropriate classification in the budget of the Division of -6Administrative Services be increased to cover all necessary costs, estimated at approximately $1,200. Approved unanimously. Memorandum dated March 7, 1951, from the Division of Personnel Administration, reading as follows: "Title VIII, Section 801 B, General Compensation Rules, Classification Act of 1949, provides in part. lany officer or employee who is promoted or transferred to a position in a higher grade shall receive basic compensation at the lowest rate of such grade which exceeds his existing rate of basic compensation, but not less than one step increase of the grade from which he is promoted or transferredt. wIt is recommended that the Board adhere to this provision in the Act. "COMMENTS: The Civil Service Commission policy requires that an employee promoted, or whose position has been reclassified to a higher grade, automatically receive an increase in salary to the minimum of the higher grade and receive an increase of more than one step when it is necessary to bring his salary to the proper step in his new grade. Examples of how this works follow: 1. An employee in Grade 3 at the minimum of the grade, $2,650 per annum, is promoted to Grade 4. His salary is increased to $2,875, the minimum of Grade 4. 2. An employee in Grade 3 whose salary is at the third step of Grade 3, $2,810 per annum, is promoted to Grade 4, which has a minimum of $2,875. Because the difference between his salary of $2,810 and the minimum of the new position, $2,8750 is only $65 and inasmuch as $65 is not a full step ($80) in Grade 3, then the spiary of the employee is increased to the second step in the new grade of $2,955, representing an increase of S145. 3. An employee in Grade 11 who is at the maximum of his grade, $6,400, is promoted to Grade 12 which has a minimum of $6,400, is increased in salary to $6,600 regardless of the date of his last administrative increase, the rule being that he shall receive at least a one step increase upon being promoted. 3/13/51 -7- "The Board adopted a policy ahich follows generally the Classification Act of 1949. Hoaever, the Personnel Committee did not go along with this interpretation of the Act, but decided that salary increases on promotions and reclassifications would be considered individually. Since that time the Comptroller General rendered a decision ahich made increases under Section 801 B mandatory in other Federal Agencies. "This leaves the Board in the position of being the only agency not folloaing the Comptroller Generalts decie find that here at the Board ahen a position is sion. reclassified or an employee promoted, in some cases the employee receives a full one step increase, or an increase of less than one step, and in a few cases, no increase at all. This has resulted in confusion among the employees and has particularly alien they start comparing their salary adjustments aith friends created a morale problem vihich, in my judgment, should be corrected." Approved unanimously. Memorandum dated March 13, 1951, from Mr. Poxell, stating that Iter S. Robertson of Richmond, Virginia, and Orrin G. Vlood of Boston, 14aesachusett5, had been unable to accept appointments as members of the Voluntary Credit Restraint Committee, and recommending that Rudolf lltri,Y, Partner, Salomon Bros. & Hutzler, CO Xall Street, Nea York, Ile*4 York, be appointed to represent the Investment Bankers Association, arid . 411liam K. Barclay, Jr., Partner, Stein Brothers and Boyce, 123 8 h Broad Street, Philadelphia 9, Pennsylvania, be appointed to l'ePrasent the National Association of Securities Dealers. Approved unanimously. Memorandum dated March 13, 1951, from :dr. Toansend, Solicitor, tating that the Federal Reserve Bank of Richmond had reported under date .579 3/13/51 -8- March 1, 1951, that Michael Home Equipment Company, Inc., Washington, D. C., engaged primarily in the sale of television sets, had not obtained the required down payment called for by Regulation a Consumer Credit, and had maintained records designed to conceal the absence or down payments; and recommending that in accordance with the suggestion of the Reserve Bank the Board authorize the issuance of an °rder as follows for investigation of the concern mentioned with a ew' to obtaining an injunctive decree against the continuing violations of the Regulation: "UNITED STATES OF AMERICA BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM At a meeting of the Board of Governors of the Federal. Reserve System held at its offices in the City of Washington, D. C., on the 13th day of March, A. D., 1951. In the Matter of Michael Home Equipment Company, ORDER DIRECTING INVESTIGATION AND DESIGNATING OFFICERS TO TAKE TESTIMONY Members of the staff of the Federal Reserve Bank of Richmond reported information to that Bank, which that Bank has trans"'Led to the Board, which tends to show that: Michael Home Equipment Company, Inc., has made instalment sales of appliances and television sets subject to Regulation Wr: 1. Without obtaining the down payment required by Regulation Vi; 2. Without maintaining and preserving such books of account, records and other papers as are relevant to establishing whether or not credit extended by it is in conformity with the requirements of said Regulation. !1_, 3/13/51 -9- HII The Board, having considered the aforesaid report by members of the staff of the Federal Reserve Bank of Richmond, and for the Purpose of (1) determining whether Michael Home Equipment Company, Inc., has violated the provisions of Regulation 71 and (2) aiding in the enfc)rcement of said Regulation, deems it necessary and appropriate that an investigation be made to determine whether Michael Home Equipment C6nTanY, Inc., has engaged in the acts and practices set forth in paraD'aPh I hereof, or any acts and practices of similar purport or object. III IT IS ORDERED, pursuant to Section 604 of the Defense Production , 4et of 1950 that an investigation be made to determine the matters set 4)11th in paragraph II hereof. IT IS FURTHER ORDERED, pursuant to the provisions of Section 604 ()f the Defense Production Act of 1950, that for the purpose of such inh 8tigation, G. Howland Chase and Aubrey N. Heflin, and each of them, is oel'ebY designated an officer of the Board and empowered to administer tnhs and affirmations, subpoena witnesses, compel their attendance, evidence, and require the production of any books, papers, corresence, memoranda, or other records deemed relevant or material to ° inquiry, and to perform all other duties in connectipn therewith as qut horized by law. By the Board. (Signed) S. R. Carpenter, Secretary." V Approved unanimously. Secretary.
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