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Minutes of actions taken by the Board of Governors of the Nleral Reserve System on Monday, March 14, 1949. The Board met illtheBoard Room at 2:30 p.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. McCabe, Chairman Eccles Szymczak Draper Vardaman Clayton Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Thurston, Assistant to the Board Riefler, Assistant to the Chairman Thomas, Director of the Division of Research and Statistics Mr. Vest, General Counsel Mr. Leonard, Director of the Division of Bank Operations Mr. Mr. Mr. Mr. Mr. Mr. Reference was made to the discussion at the meeting on Fri°14Y, 414rch 11, 1949, of the reply to be made to the request received NEI senator Maybank, ChairmAn of the Senate Banking and Currency tee, for a report on S. 80, a bill to increase the insurance 1/liote k C-5111 of depositors in Federally insured banks from $,000 to '5 0 00, and to an informal discussion by members of the Board at 4 today with Chairman FArl of the Federal Deposit Insurance ' C'5N1. at "i°n, held in accordance with the understanding reached the ta eetine last Friday. 1)11ring a further discussion of the matter it was suggested the reply to Senator Maybank state that the problem involved 480 3/14/49 -2- Illesti'mas in addition to insurance coverage, such as the rate of 48e8ftieat against insured banks and the basis of such assessment, that the Board was completing a study of the whole matter, and that 1°Iell the study was completed the Board would be glad to respond to cli te for additional information if the Committee cared to have iltdo 80. The foregoing suggestion was approved unanimously, with the understanding that Messrs. Morrill, Carpenter, and Vest would prepare and present to the Board for consideration a draft of an appropriate letter to Senator Maybank. A memorandum from Mr. Thomas dated March 11, 1949, recomkehA ''4111g that the Board inform the Federal Reserve Bank of Chicago that It would approve the expenditure by that Bank of $500 to assist lhram. —414g a sample census of population in the Chicago area was then clisc 1.18el. The memorandum also proposed that a letter be sent to q1 1. , eaeral Reserve Banks advising that it is the opinion of the okrd. that there is no inherent objection to the financial support or 05thhile research projects, even though such projects may not , N341 the System's direct supervision. However, each such pro- 811°111d be very carefully reviewed by the officers and dlOf the Reserve Bank concerned and, unless the contribution Aro \rid t qi4 A for in the annual budget already approved by the Board erli°rs, it should be referred to the Board for approval -3mPanied by a full statement of the nature of the project and the l'ea's°48 it is regarded as appropriate for support out of Reserve Bank rutds s The memorandum had been circulated among the members of the and Mr. Clayton had indicated that he felt such an expenditure " ilf3 Irks " 4 appropriate. Mr. Clayton stated that he questioned the pro- of making a contribution of this nature, feeling that even t4lIgh the project was desirable and proper the Federal Reserve Systel " ras not in a position to make contributions of this type on a vide 1111Plad basis. 11r. Thomas stated that he felt the matter involved the ques- ti. vhether the Board was willing to approve expenditures by the Reserve Banks in connection with their regional research ' 448 which would assist in the development of additional re- int ormation in many cases at less expense and effort than it the hep eueral Reserve Bank undertook the task. He also said that Drop° sed population census would provide useful information h the Federal Reserve Bank of Chicago would like to have and vhich 41811Y other agencies in the area served by the Chicago Bank 'VI0144, UNuestionably be glad to have, and that at least one other /11 11 1 Ileserve Bank included in its research budget an amount °Ilid be disbursed for projects of this type. 1111,.4 --4-ng a discussion it was suggested that a study be made (Illeetion of making contributions for research projects to 482 3/14/49 -4- be undertaken by others than the Federal Reserve Banks before a 13o1 1e of approving or disapproving such contributions was decided and that in the meantime, because of the nominal amount in- Pol'"d, the Chicago Bank be informed that the Board would not object "46 Proposed contribution of $500 with the understanding that sUch action did not set a precedent and that the matter would be 8tildied further. The foregoing suggestion was approved unanimously, with the understanding that a letter would be sent to the Federal Reserve Bank of Chicago as follows: "In your letter of February 3, 1949 you asked for 46 Board's comments upon a recommendation by the Dii'ectors of the Federal Reserve Bank of Chicago that that alak make a contribution of $500 toward a special sample , 1°Pulation census of the Chicago area. str :Although the Board has some question as to the deEluility of making contributions of this type and exets to give further study to the matter, it will intertZ8e no objection to the proposed contribution of $500 4144rd the particular project referred to in your letter. sh°111d be understood that this action does not estab, th 'ish a precedent and is based on the assumption that ; s expenditure will have a value to the Federal Reserve "t as a part of its regional research program. " g MI% Vard.ainan referred to a telegram received from the Fedessrve Bank of Cleveland under date of March 11, 1949, re(itte8t1 aUthority to purchase 50 feet of land adjacent to the tIlt Pittsburgh Branch building at a cost of $400,000, for 1)14*11„ "se of enlarging and remodeling the building. He said 3/14/49 strongly recommend that the request be approved. Upon motion by Mr. Vardaman a telegram to Mr. Gidney, President of the Cleveland Bank, was approved as follows: "As requested in your telegram of March 11, Board aUthorizes purchase by your Bank of 50 feet adjoining Pittsburgh property at a price of Wo,000." Chairman McCabe referred to the letter received from Repretellt ative Patman dated March 9, 1949 urging that the Board reduce . " 1.girl requirements prescribed in Regulations T, Extension and 14444 h.„ e--,Ice of credit by Brokers, Dealers, and Members of National 44111 ties Exchanges, and U, Loans by BAnks for the Purpose of 8ing or Carrying Stocks Registered on a National Securities tZqazit He stated that in accordance with the discussion at the t1 :11€ 04 March 11 the following letter had been prepared for his itlEttlIre) and that he would suggest that it be approved. "This letter is in acknowledgment of yours of ch 9 expressing your views with reference to ;746in requirements and a further extension of time 441Yments on automobiles under Regulation W. ti "Both of these matters are receiving our conexTling study and we will not hesitate to change E07,'”ing margin requirements when it appears that /1;ert action would best serve the public interest. crnIdinE a further change in consumer instalment it terms, I assure you that, as stated in our trt uncement of the recent modification, the Board teatids ready 'at all times to tighten or relax the : th1 118 in accordAnce with the objectives of the an-ritY and with a view to sound credit conditions'." m._ Approved unAnimously. 484 V1A/49 -6Chairman McCabe referred to the discussion at the meeting °11 March 8, 1949, of a suggestion from Mr. Vernon L. Clark, Nati011a1 Director, United States Savings Bonds Division, Treasury DePartment, that the Board make a contribution of as much as 5400 toward the payment of the cost (estimated at $5,000 or 11418) of a dinner to be given by the President in Washington on 19, 1949, to national leaders in connection with the forth- '1I1g savings bond drive, and an additional amount of $12,000 to 11"he costs of luncheons and dinners given as a part of the seN4._ ' 4g8 bond program of the Treasury during fiscal year 1950. (Itetea He .hat he had discussed the matter with Secretary of the 'Nets /117 Snyder last Friday and that the latter indicated that the Tr easurY would appreciate any assistance the Federal Reserve Nht give. During a discussion of the proposal it was suggested that 444 the war years and since the Board and the Federal Reserve 'Paid certain expenditures connected with the sale of War 48 Bonds, serve that it was now understood that the Federal Re- 13a14ks were authorized to pay the cost of a dinner in each 1'41 br the .xeserve head office or branch territory, and that while SYst em was interested in a wide distribution of savings bonds there 11 as a real question whether the Board should go much beyond htlt,, "LIS already authorized. It this connection, Mr. Clayton stated that he had received 3/114)49 _7- telephone call from Mr. Young, President of the Federal Reserve 41k or Chicago, who stated that he had been requested to give a 4114Ler in each State in the Seventh Federal Reserve District rather th a dinner only in each Federal Reserve office territory. Mr. Carpenter stated that this suggestion had also been 1)418ellted to him by Mr. Rountree of the Treasury Department and th4t *. Rountree had mentioned that it was desired also to give 11*Idillners in North and South Dakota. There was a discussion of the policy that should be followed with respect to Payment of costs of such dinners, and it was agreed unanimously that Mr. Carpenter Should say to Mr. Rountree over the telephone that the Board felt that the payment of the cost of one savings bond dinner in each head office or branch territory in connection with the War Savings Bonds drive was as far as the Federal Reserve Banks should go at this time. With respect to the request from Mr. Clark for a contribu1441 to help pay the savings bond program costs in Washington, it Uggested that the Board authorize payment of an amount equal to 4 ' 144'l1 the cost of the dinner to be given by the President 44Dril 1„ j-Y, 1949 or $2,500, whichever was smaller, and that Mr. 01 '.1Mt be advised by telephone that the Board felt it should not " Ler than that at this time. Upon motion by Mr. Clayton, the foregoing suggestion was approved unanimously with the understanding that the action was a continuation of the policy followed during and since the war. 3/14/49 -8Chairman McCabe referred to the discussion at the meeting o January 25, 1949 concerning the appointment cfaClass C director to the existing vacancy at the Federal Reserve Bank of Phila44113hia and stated that he would recommend that Mr. Philip T. ShatIples, President and Chairman of the Board of the Sharpies C01`Poration, Philadelphia, be appointed for the unexpired portion otthe term ending December 31, 1951. He also recommended that Whittier, presently Deputy Chairman of the Philadelphia Bank, beA ' elsignated as Chairman and Federal Reserve Agent for the re1114111tiel 'of 1949 and that Mr. Balderston, presently a Class C dlbe designated as Deputy Chairman of the Bank for the rest this Te.a.r.. Upon motion by Mt. Draper, the foregoing recommendations were approved unanimously. Mr. Carpenter stated that the staff had been working on a Qt4tt - response to a request from the President dated March 1, 194n, 'that the Board submit its views to the Bureau of the Budget ' 1ot 1 t1114e4tt ' than March 17, 1949, with respect to proposed changes in Irst ceutive organization of the Government as outlined in the r°11r reports of the Commission for organization of the Ex11, vt4 t1 -11rauch of the Government. He stated that the draft was Itt4 rinal form as it would require some further revision in 4811t of the Commission's report on the regulatory agencies th4t 116141 Just been released, but that it would be ready shortly. 487 3/14/49 -9At Chairman McCabe's suggestion, it was understood that when ready the draft would be circulated among the members of the Board for approval. At this point all of the members of the staff withdrew with the eXception of Mr. Carpenter. Chairman McCabe referred to the action taken at the meeting 't the Board on January 18, 1949, in connection with the suggestion that, the President request the Board to undertake the responsibility l'Itting up and providing from the Federal Reserve System a mission Vith - suitable staff to consider and make recommendations with reeet t -0 general policies and means of execution in the credit, mouetekty 'and fiscal field in relation to the economic situation in Gert1414 Re reviewed further conversations which he had had with Secre- t Y. or the , Army Royall including the question of how the report of 11*.tri4 'Lesion. would be submitted. This latter point was discussed at this meeting of the Board bIlt 4 ° conclusions were reached. On the general question of the establishment of the mission 6 the unanimous view of the members of the Board that Chairman 1, eqey u sholad say informally to Secretary Royall that the Board had dt sqis 8" the questions covered in the Chairman's last conversation iti 8e eretarY Royall but had made no decision with respect to them, tis Att McCabe was leaving town for several days, and that the r -uld be taken up again at a later date. Lit 3/14/49 -10Chairman McCabe raised for consideration the factors enter- 14 into and the timing of action to reduce the margin requireniehts Prescribed in Regulations T, Extension and Maintenance of by Brokers, Dealers, and Members of National Securities Exchant,. -15es, and U, Loans by Banks for the Purpose of Purchasing or ettrryi --ng Stocks Registered on a National Securities Exchange. In the.. ' flBuing informal discussion it was agreed unanimously that the 1304„, should watch the matter closely and be prepared to take actio4 118 soon as conditions appeared to call for a reduction in ex4".46 requirements. There was also a discussion of the questions lillether there should be a liberalization of the existing rule with 481)ect to substitutions of securities in under-margined accounts €t4c1 whether the transactions of specialists should be exempted -the Regulations. It was agreed that these points should be t1j4tecl so that, when the Board acted to reduce margin requireChanges cotad be made at the same time in these provisions 4111t81 cIrthe Regulation if such action appeared to be desirable. Minutes of actions taken by the Board of Governors of the 1 Reserve System on March 11, 1949, were approved unanimously. Me morandum dated February 28, 1949, from Mr. Leonard, Dior the Division of Bank Operations recommending (1) that Persina, Chief of the Design Division, Office of the al, V1A/49 -11- 8.41Dervising Architect, Public Buildings Administration, be engaged ae architectural consultant, from time to time and for short peri(le) in connection with consideration of building projects coming before the Board, and that he be paid at the rate of $70 per day so engaged, (2) that when, at some later date, Mr. W. E. lir4olds, Commissioner of Public Buildings, serves as an architectural consultant to the Board in connection with similar 'tag projects, he be paid an honorarium at the rate of $75 13er d4Y) relating to the amount of his own time spent on Board (3) 454"ers, and that the budget of the Division of Bank Operations be increased by the amount necessary to cover the fees kci Llesers. Reynolds and Persina. Approved unanimously. Letter to Mr. Brainard, Federal Reserve Agent at the Fed.Reserve Bank of Cleveland, reading as follows: "In accordance with the request contained in your , -Letter of March 11, 1949, the Board of Governors apthe payment of salary tresvse, effective April 1, Mr. W. H. Marsh, Federal Reserve Agent's Representa4-ve, Cincinnati Branch, at the rate of $4,200 per annum." 1949, P Approved unanimously. Letter to the board of directors of "The First State BAnk", 4bzahe Texas, stating that, subject to conditions of membership d 1 and 2 contained in the Board's Regulation H and the 3/1A/49 -12- Naow4 Ing special condition the Board approved the bank's applicati0n. for membership in the Federal Reserve System and for the apt)I4qT1ate amount of stock in the Federal Reserve Bank of Dallas: 3. At the time of admission to membership, such bank shall have increased its common capital stock to not less than $50,000, through the sale of additional shares for cash." The letter also contained the following special comment: "It appears that the bank possesses certain powers which are not being exercised and which are not necessarily required in the conduct of a banking business, Such as the power to issue and sell investment certiftes. Attention is called to the fact that if the velak desires to exercise any powers not actually ex!rcised at the time of admission to membership, it will ?e necessary under condition of membership numbered 1, 0 obtain the permission of the Board of Governors before exercising them. In this connection, the Board underthat there has been no change in the scope of a e corporate powers exercised by the bank since the .u'te of its application for membership." Approved unanimously, for transmission through the Federal Reserve Bank of Dallas. Letter to Mr. Latham, Vice President of the Federal Reserve o aJoston, reading as follows: "In view of the recommendation contained in your 1 -,etter of March 4, 1949, the Board of Governors ex48 until March 23, 1950, the time within which : Industrial Trust Company, Providence, Rhode 11"4, may establish a branch in Central Falls, iii;ou-e Island, and an additional branch in Pawtucket, orOde Islnnd, as approved by the Board under date SePtember 23, 1948." 4 Approved unanimously. 491 3/14/49 -13Letter to Mr. Sheehan, Chief Examiner at the Federal Reserve Of New York, reading as follows: "Reference is made to your letter of March 1, 1949, submitting for the consideration of the Board of Governors the proposal of The County Trust Company, White Plains, New York, to move its head office from 169 Main Street to 235 Main Street in White Plains and to move the location of its branches in Yonkers, New York, and Rastings, New York, respectively, for short distances vithin the same cities. "It is understood that approval of the State bankauthorities has been requested and is to be received Prior to effecting any of the proposed removals. "On the basis of the facts submitted, the Board concurs in your opinion that the proposed change in the loof the branches does not constitute the establish!eat of a new branch within the meaning of section 9 of Lhe Federal Reserve Act and, therefore, the Board's apProval is not required." Approved unanimously. Letter to the Honorable Maple T. Han, Chairman of the FeduePosit Insurance Corporation, reading as follows: "In connection with the request contained in your , ;stter of March 4, 1949, the Board of Governors of the eral Reserve System hereby grants written consent, ; 41rsuant to the provisions of sub-section (k)(2) of re oction 12B of the Federal Reserve Act, for examiners the Federal Deposit Insurance Corporation to make i;bezamination of the Gordon State Bank, Gordon, ti2lleka, in connection with its application for conolance of insurance after withdrawal from membership the Federal Reserve System. have been no corrective programs urged upon the b EZbank or agreed to, which have not been fully con8"Izalated and in connection with which the Board would sItIggest incorporation of conditions for continuing its atlas as an insured bsnk." Approved unanimously. 492 3/14/49 -14Letter to Mr. Emil Schram, President of the New York Stock ft.18.4ge, reading as follows: "This is with further reference to your letter of December 14, 1948, addressed to Governor Clayton, suggesting that credit granted to specialists be exempted from Regulations T and U. In accordance with Governor Clayton's letter of December 16, 1948, your proposal haS been given careful consideration, including, among Other things, discussion of the matter by the staff of the Board with the staff of the Securities Exchange Cornmission in view of certain related responsibilities of that Commission. "The Board is, of course, interested in the orderly aid efficient operation of securities markets. It is also concerned with the fact that rules of general apPlication such as those relating to margin requirements Mould not provide special concessions for any individual or group unless such concessions are justified by approPriate considerations that are consistent with the general Poses of the regulation. or many years Regulations T and U have contained an "ezption for loans to odd-lot dealers acting in that caPaCity. Such activities follow relatively well-defined Patterns and it appeared to the Board that provision for sUch exemption would be helpful toward carrying out the °dd-lot function. It also appeared that this function • such that the provision would not be likely to re4:44A in undue use of credit or in an unfair advantage `io the odd-lot dealer. "On some exchanges the odd-lot function and the Bp ecialist function are combined in the same individual. That Ile Practice developed long before Regulations T and U e in effect, and it appeared that the combined operatj tions of the odd-lot dealer-specialists partook of many • the features which made an exemption justifiable for the oddseparation of the funclot function as such. A sepation tions olls would have required a substantial reorganization s;• ithose exchanges on which the combined operation concluded the;:ted* In the circumstances, the Board sit- it would be appropriate to recognize the practical 04 Uation involved in the dual function being exercised or such exchanges and to consider that the activities rorthe combined odd-lot dealer-specialist could qualify the odd-lot exemption. 493 3/14/49 -15- "Sections 4(g) of Regulation T and 3(o) of Regulation U, and the Supplement to the Regulations, make special provision for specialists who are not also oddlot dealers. They do not provide an exemption, but they provide a higher loan value and somewhat easier rules regarding withdrawals and substitutions of collateral. The present question, therefore, is whether those provisions are adequate or whether they should be amended. That comes down to the question whether Particular amendments to the provisions could reasonably be expected to offer advantages in the direction of imProved functioning of securities markets sufficient to °ffeet any probable disadvantages from the viewpoint Of the general purposes of the regulation. "You suggest that the provisions be changed to outexemptions in both Regulation T and Regulation U. °I) course, mathematical precision is not to be expected i4 matters of this kind. However, we believe you will Ilecognize that your reasons for favoring such amendente are stated in your letter in general terms and ! ,hat further information would be needed for deciding !ore definitely whether an amendment is desirable, and lf so, the most suitable form for it to take. "For example, and by way of illustration, it would appropriate to have information regarding such maters as the following: instances in which the present 1°visions have impaired the functions of specialists; ' ! Change regulations or other features of the specialists' etivities which could be depended upon to assure proper ,‘" of amended provisions; overall restraints, such as :aPital requirements of the exchange or the like, to ihich the total commitments of specialists would be sUb!ct; and examples of instances in which and methods by bgich it would be expected that amended provisions would t used. Other relevant facts will doubtless suggest ! emselves in the light of the considerations mentioned q.puove. Z t, "The Board would be glad to have its staff discuss matter of such information with your staff, and eh an informal discussion might be a desirable step , t -"ward clarifying the problems involved." Approved unanimously. 494 3/114/14.9 -i6-. Letter to the Presidents of all Federal Reserve Banks, read- 1150, -1-048 follows: "An inquiry has been received concerning the apPlication of Regulation W to certain television sets. Part 1, Group B, item 8 of the Supplement to RegulationW covers 'Radio or television receiving sets, phonographs or combinations', without any specific limitation concerning use or design. In any event, however, the case as presented to the Board does not disclose that the television sets in question are unIlitable for private or home use, even though they may pe especially desirable for use in taverns, bars, and the like. That such sets may have a viewing screen of °75 square inches in a cabinet 78 inches high, and may 'e equipped by the distributor with a coin-operating ! evice through which means he is to receive partial or , 414-1-1 payment for the sets under a rental-purchase ar'angement, does not mike them essentially different trom the more ordinary television receivers. . "The Board's view is that, in the light of the :°regoing and other relevant considerations, the sets III question are 'listed articles' of the kinds set rorth in item 8 above. This position follows the Principle applied in other but similar cases under the regulation." t ly.A Approved unanimous 411110 41115reNvljed: AO .4 1 /46 Secretary.
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