The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
372 A meeting of the Board of Governors of the Federal Reserve Sys— tea w held in Washington on Monday, March 15, 1943, at 3:30 p.m. PRESENT: Mr. Mr. Mr. Mr. Ransom, Vice Chairman Szymczak McKee Evans Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Dreibelbis, General Attorney Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Parry, Chief of the Division of Security Loans Mr. Viingfield, Assistant General Attorney Mr. Wyatt, General Counsel Mr. Thomas, Assistant Director of the Division of Research and Statistics Mr. Brown, Administrative Assistant to the Cnief of the Division of Security Loans Mr. Evans stnted that in the absence of Mr. Draper, to whom the allbiect or extension and maintenance of credit by brokers, dealers, banks, others for purchasing or carrying securities was assigned for primary Mr. Parry had raised with him (Mr. Evans), as alternate 1'01, to ehart* DraPer, the question whether action should be taken by the Board ge margin requirements established by Regulation T, Extension and liktiltenaxice of Credit by Brokers, Dealers, and Members of National Secu4xchanges, and Regulation U, Loans by Banks for the Purpose of 114 ,.. 0 eiri6 r Carrying Stocks Registered on a National Securities Ex11(14ge. 4.1) , d that a memorandum had been prepared on the subject by Mr. 114cler date of March 4, 1943, which had been circulated among the 373 3/15/43 -2rtiernbers of the Board. Mr. Evans also said that he had asked that the latter be considered at this meeting for the reason that, although he 11411(4Prepared to recommend that action be taken, he would like to have the Problem discussed so that the members of the Board would be L;r fami'liar with the situation and be prepared to take action when- the market situation called for action. At kr. Evans' request, Mr. Parry outlined the conditions in tht eciirit es markets which had impelled him to present the question, that connection said that since April 1942 the average for 90 et°eks had increased approximately 50 per cent, the price of some in- c4Nlkal at a.8 having increased as much as 100 per cent and others as 200 per cent; that the volume of trading during the last two or ee a that months had expanded considerably to approximately one million a d aY With an occasional daily volume of two million shares; and the aitee ea. ataount of round-lot margin trading by the public had increased rlY in December from about 30 per cent of the total to about 40 44t, the trading on balance being on the buying side by more than ne-half million shares. He pointed out, however, that the f additional credit involved in this movement was extremely small, el Of customers' debit balances and of loans by banks for the puro Puro— Ahe at - "..4sing or carrying securities being approximately $900,000,000 th 1411,0114 Pr eeent time, which included amounts loaned for the purpose of or carrying Government securities. Mr. Parry made the further 4t4tit 141,oived that, from the standpoint of the amount of additional credit 'action by the Board did not seem to be called for at this time, 374 3115/43 -3- t‘it that i n his own opinion the stage was being set for an inflationary 81141411 in the stock market, that when the market moved steadily upwas a generator of inflationary sentiment, that this was in4eated h .Y recent reports that current buying in the market was indis4t ate and without much relation to intrinsic values, and that for 80n he felt the Board should reach a determination of what action uld take for the purpose of preventing the development of an inarY situation in the security markets. co111,48 Mr- Parry added that there appeared to be three alternative action that might be taken by the Board: (1) the adoption a. Mie3r qttiN Itogti of deliberate inaction, (2) the increasing of margin re- ents gradually without reaching a decision as to how far the Board go in that direction, and (3) the adoption of a "crack-down" policy w4th torle (1111d contemplate a very substantial increase in margin requirements time, including possibly the establishment of maintenance margins Board " Which would require the deposit of additional funds in accounts Whi n ot have the required higher margin or the sale of securities 414i4 bYthe 811ch accounts. Parry's statement was followed by a general review of the or s_ veurity prices since the adoption of Regulation T and of the 114Latar, ces in which action had been taken by the Board in the past to requirements. Mr. Parry stated that any action by the '4at thkti 4.04 Present time would be preventive in character, and that if were taken it would not have to be as drastic as action at some 375 v15/43 —4— date when the prices of securities had advanced further and a e°48iderab1e volume of trading had been built up on the basis of pres- etlt rilaqin requirements. There was also a discussion of the limitations Placeci On market tracting by the Securities Act of 1933 and the SecuItties kotChange Act of 1934 and the extent to which these limitations 411ght llemove the need for action by the Board. Dllrin,g' the course of the discussion, in response to an inquiry, reibelbis stated that the authority of the Board to change margin recuir eniellts Was not related solely to the amount of credit being used fclr the tiurPose of purchasing or carrying securities but to all of the t4m. pu Involved which might lead to the excessive use of credit for ri3c> "of purchasing or carrying securities. It was the consensus of the members present that they should e°11tiritz e to watch the situation closely. There was then presented a memorandum dated March 8, 1943, 41°14 th,„ v1.044 ?1, uffice of the Secretary to which was attached (1) a copy of a iesUed by the Office of Price Administration with respect to the 8 request that each agency appoint a mileage administrator to tltr i the use of official automobiles owned by the agency in order to Nclile the mileage traveled, and (2) a statement of the mileage traveled blithe 80ard's cars each month during the years 1941 and 1942. Mr. 44'1 'h'cl. suggested that the Board consider at, a meeting whether any fur- t41' te.ips should be taken to curtail the use of the cars. The statetticite4ted that the mileage traveled during 1942 had been reduced by 376 3A5/43 appro_, Aulately Ilere —510 per cent from 1941, and it was stated that arrangements --g made to eliminate the use of the Board's cars for the purpose Of 4117ing documents relating to Regulation V matters to and from the Nth g°14 Bililding, and that this would reduce the mileage traveled by k 6444tional 10 per cent. At the conclusion of the discussion, it was voted unanimously to appoint Mr. Nelson, Assistant Secretary, as mileage administrator, with the understanding that he would contlnue to study the use to which the Board s cars were being put and reduce the mileage traveled wherever it was possible to do so without seriously inconveniencing the work of the Board. At this point, Messrs. Thurston, Dreibelbis, Goldenweiser, Parry, Notl 1748 —42 ViYatt, Thomas, and Brown withdrew from the meeting, and the Stated with respect to each of the matters hereinafter referred then taken by the Board: The tto minutes of the meeting of the Board of Governors of the FedReee„.. 've System held on March 12, 1943, were approved unanimously. Letter to Mr. Hill, Vice President of the Federal Reserve Bank el-Phia, reading as follows: ter "In accordance with the request contained in your letthe °r March 10, 1943, the Board approves the designation of -Lcll _owing as special assistant examiners for the Federal eeerv Bank of Philadelphia: Wm. J. Kelly Joseph A. Mulholland Edwin L. Haubenstein Frederick Eddocoes Percival Hallowell Melvin Heyworth” Approved unanimously. 377 3A5/43 -6Letter to the board of directors of "The People's Bank", Nen sbtirig, Kentucky, stating that, subject to conditions of membership Nrabered 1 to 3 contained in the Board's Regulation HI the Board approves the '41418 application for membership in the Federal Reserve System and 'PPropriate amount of stock in the Federal Reserve Bank of h, Louis. Approved unanimously, for transmission through the Federal Reserve Bank of St. Louis. ite Letter dated March 13, 1943, to the Presidents of all the Fed- 8erve Banks, reading as follows: to''The Board's letter of January 21, 1943 asked for inOn the extent to which the Reserve Banks have had hekr ' ,o21on to make findings pursuant to section 8(h)(2) of ai ion for the purpose of exempting from the provi18 of the regulation the financing of repairs or replaceoth:8 Of Prop e rty damaged or lost as a result of a flood or ' 1" similar' disaster. c1114.1,:A summary of the reports has been prepared and is inthe enclosed staff memorandum on the subject. whe One of the Reserve Banks has made the suggestion that secrt, l ver a Reserve Bank is called upon to act under this wotal°/1 it notify the rest of the Reserve Banks so that they to bci be in a position to answer inquiries. This would seem tlotiie,,a desirable practice and the Board would like to be tion 'ted at the same time. A list of the cases in which acas been taken prior to the present time is contained in auove-rnentioned memorandum." 4 Approved unanimously. Letter to Mr. Woolley, Vice President of the Federal Reserve Kan sas City, reading as follows: 1943_ 4This is with reference to your letter of February 27, k 3benclosing a copy of a letter which you received from ty,enver Branch together with a copy of your reply regardeffect of Regulation V0 upon the used car transaction -loed therein. 378 3115/43 -7- "Since the practice of rebuilding automobiles at the aacUry was new to us, we made some inquiries in order to ti_ a?ertain whether there was any widespread development of 4"e. lt kind. The Automobile Price Section of the CPA knew Irf lang of it, and when we consulted Moody's Manual of In,' .86111Emts we found no record of a Cord Motor Car Company. 6 4 48 Cord was formerly manufactured by the Auburn Automobile in?anY which had plants at Auburn, Indiana, Connersville, :4 (larla, and Los Angeles, California. In 1938 the plants 171- Auburn and at Los ' Angeles were sold. Later the company 4 reorganized and the name is now American Central Man4a ill cturing Corporation which appears to be engaged chiefly the Production of aircraft parts. ae "Since the little we have been able to learn would not ei!Mto confirm the reports made to your Denver Branch and te;"ee the transaction involved a clear over-valuation of the an'ale-in, we would hesitate to consider the possibility of cwing any down payment for the car less than that which pk.u4.be required if two-thirds of the value shown in the c Pralsal guide for the 1937 model was subtracted from the 48h price. rao "If the rebuilding process described actually is much bule than a high-grade reconditioning job, so that the recar is an entirely different automobile than the one aziZed in the aporaisal guide, we should be willing to exth e this question again. In the meantime, we think that dee matter must be handled with care inasmuch as a good Weal of evasion might be possible if so-called rebuilt cars ' 1 e not subject to the appraisal guide comparison." e Approved unanimously. Letter to Mr. Frank E. Breen, National Automobile Dealers Asso'Washington, D. C., reading as follows: tiotii,"This will acknowledge your letter of March 9, 1 943, oti":..Ying . the Board that you are changing the publication raohtr NADA Official Used Car Guide from a monthly to a bitor .1:11-Y basis, and that you are changing the effective dates 'he several districts. the :the change in publication will have no effect upon illat';e8ignation of the Guide for use in connection with Reg10/1 1V.11 Approved unanimously. 379 3115/43 -8Letter to Mr. Logan, Vice President arid General Counsel of the Peri 'w-l• Reserve Bank of New York, reading as follows: "In connection with the suit by the United States against Guaranty Trust Company which is now at trial in the United States District Court for the Southern District of New York, heDePment of Justice has forwarded to the Board for cerpo'n-?ation, photostatic copies of seventeen Declarations of vire.lgn Correspondents obtained from the records of the Diof Foreign Exchange of the Federal Reserve Board. yo "As you know, these records are being preserved in New rtc) and the Board has prepared the certifications and transthem herewith with the request that they be delivered to 4(41 Howard Meyer, Special Assistant to the Attorney General, ' carers1 Court House, New York City, after they have been t,efully compared with the originals and determined to be ad complete photostatic copies thereof. This procedure ha' 8 been requested by the Department of Justice in order to ci:Ieclite the matter." Approved unanimously. Letter to Mr. Sanford, Assistant Vice President of the Federal erve Bank of New York, reading as follows: 1913 "Receipt is acknowledged of your letter of March 4, e.1. ) with which you enclosed certain files from the °Mill i.,records of the Board's Division of Foreign Exchange ati'le custody of the New York bank, which the representof the Department of Justice wish to borrow in kitvene,tion with a suit by the Government against the Guarttre'Vrust Company. The files enclosed with your letter ' t ing returned herewith. e he Board approves the loan of the enclosed folder kid Por,,,e1„.scIPY of report of investigation of Zinunermann and staxi -, 1LV' 4, to the Department of Justice, with the same underas that set forth in the Board's telegram of Feb1 9 ' 1943 i e•1 that the files will be kept intact _ th• at they will be returned as soon as possible in the re er and arrangement in which they are released. rep,„") -Pt should be taken for the files from an authorized tt,:esentative of the Department, and when they are returned Is requested that you advise this office accordingly." Approved unanimously. 380 3/15/43 -9tiemorandum dated March 12, 1943, from Mr. Smead, Chief of the kviai -"1/1 of Bank Operations recommending, for the reasons stated in the nie.. m()Ir 'eluitmk, that the sum of $25.00 be added to the item of postage ' -4 ' essage in the 1943 non-personal budget of that Division. Approved unanimously. Thereupon the meeting adjourned. 6 ) 1 Ce. , a-td kdiALs".41 Chairman. 0-1/71:LX-P ' 'Secretary.
@FedFRASER