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Minutes for
To:
Members of the Board
From:
Office of the Secretary
March
19, 1556
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard
to the minutes, it will be appreciated if you will
advise the Secretary's Office. Otherwise, if you
were present at the meeting, please initial in column A below to indicate that you approve the minutes.
If you were not present, please initial in column B
below to indicate that you have seen the minutes.
A
Chin. Martin
Gov. Szymczak
Gov. Vardaman
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
575
Minutes of actions taken by the Board of Governors of the
Federal Reserve System on Monday, March 19, 1956.
The Board met in
the Board Room at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Vardaman
Mills
Robertson
Shepardson
Kenyon, Assistant Secretary
Fauver, Assistant Secretary
Riefler, Assistant to the ChaiIman
Thomas, Economic Adviser to the
Board
Mr. Vest, General Counsel
Mr.
Mr.
Mr.
Mr.
Messrs. Young, Noyes, Garfield, and
Williams, Miss Burr, and Messrs.
Koch, Dembitz, Brill, Eckert, Gehman,
Jones, Miller, Weiner, Trueblood,
Wernick, and Wood, of the Division of
Research and Statistics
Members of the Research Division presented a review of economic
developments at the conclusion of which Chairman Martin was called from
the meeting on other business.
Mr. Noyes then summarized reports from the Federal Reserve Banks
concerning a spot check of business developments which the Banks made in
their respective districts at the request of the Board's staff.
The re-
Ports from all of the districts except Richmond and Kansas City were
Characterized by a "bullish" tone.
In general, there appeared to be a
continuation of good conditions, a prevalance of optimism and an expectation
576
3/19/56
-2-
of a stable or gradually rising level of business, and a willingness to
go ahead with plans for expansion of plant and equipment.
Weakness in
the agricultural situation was emphasized by the Kansas City and Richmond Districts, whereas such emphasis was not found in the reports of
the other Banks.
Messrs. Thomas, Jones, and Miller then withdrew from the meeting.
Mr. Garfield distributed charts covering the so-called "leading"
series of business indicators (those which are said to anticipate changes
in the course of business conditions by a varying number of months), together with charts for four of the "roughly coincident" series (those
Which tend to move concurrently with changes in business conditions).
He described the interpretation given to the "leading" series by certain
business analysts, summarized the degree to which an analysis of this
kind had been accurate at times in the past, and commented on the diffivarious stages of
culties involved in making a forecast on this basis at
the business cycle.
Fauver,
All of the members of the staff except Messrs. Kenyon,
Mr. Hexter, AssisRiefler, and Vest then withdrew from the meeting, and
tant General Counsel, entered the room.
circulated to the members
The following matters, which had been
Of the Board, were presented for consideration and the action taken in
each instance was as stated:
577
3/19/56
-3-
Memoranda from appropriate individuals concerned recommending
actions with respect to the Board's staff as follows:
Appointment, effective upon
the date of assuming duties
Name and title
Division
Walter A. Walter,
Assistant Federal
Reserve Examiner
Salary increases
Examinations
effective March 25
Name and title
Basic annual salary
(':;4,930
1956
Division
Basic annual salary
From
To
Research and Statistics
Joan I. Darby,
Clerk
Ann M. Van Eckhardt,
Clerk-Typist
3,260
,1;3,345
3,26o
3,345
6,605
6,320
3,260
3,345
5,980
6,115
4,660
4,795
1,450
1,488
3,050
3,125
5,270
5,675
Bank Operations
Lee W. Langham,
Technical Assistant
Barbara Pessagno,
Statistical Clerk
Administrative Services
Harry E. Kern,
Supervisor,
Procurement Section
Donald B. Fitzhugh,
Tabulation Planner
Ruth E. Ellis,
Cafeteria Helper
Evelyn M. Lewis,
Elevator Operator
Charles D. Lindamood,
Principal Operating Engineer
57S
3/19/56
Transfer
Margaret N. Muehlhaus, from the position of Secretary to Mr. Thurston
to the position of Secretary to Chairman Martin, with an increase in her
basic annual salary from *5,485 to *6,560, effective upon approval by the
Board.
Approved unanimously.
Letter to Mr. Bilby, Vice President, Federal Reserve Bank of New
York, reading as follows:
The Board of Governors approves the increase in the
minimum of Grade 1 in the employee salary structure for
the Buffalo Branch effective March 1, 1956, in accordance
with the action taken by the Board of Directors as reported in your letter of March 8. The Board's records
are being amended to reflect this change in the grade
ranges as follows:
Buffalo Branch
Grade
Minimum Salary
Maximum Salary
1
*2,080
*2,700
Approved unanimously.
Letter to Mr. Fulton, President, Federal Reserve Bank of Clevereading as follows:
The Board of Governors approves the increase in the
minimums of Grade 1 in the employee salary structures for
the Federal Reserve Bank of Cleveland and its Cincinnati
and Pittsburgh Branches effective March 1, 1956, in accordance with the action taken by the Board of Directors as
reported in your letter of March 8. The Board's records
are being amended to reflect these changes in grade ranges
as follows:
ClevelandCincinnati Branch
Pittsburgh Branch
Grade
Minimum
Maximum
Maximum
Minimum
1
;2,08.
(4 2,571I
Approved unanimously.
*2,030
*2,574
579
3/19/56
-5-
Letter to Mr. Leach, President, Federal Reserve Bank of Richmond,
reading as follows:
The Board of Governors approves the increase in
the minimum of Grade 1 in the employee salary structure for the Federal Reserve Bank of Richmond and its
Baltimore and Charlotte Branches, effective March 8,
1956, in accordance with the action taken by the Board
of Directors as reported in your letter of March 8. The
Board's records are being amended to reflect this change
in the grade ranges as follows:
Minimum Salary
Grade
Maximum Salary
2,520
1
Approved unanimously.
Letter to Mr. Clark, First Vice President, Federal Reserve Bank
of Atlanta, reading as follows:
The Board of Governors approves the increase in the
minimums of Grade 1 in the employee salary structures
for the Federal Reserve Bank of Atlanta and its Branches
effective March 9, 1956, in accordance with the action
taken by the Board of Directors as reported in your letter of March 9. The Board's records are being amended
to reflect these changes in grade ranges as follows:
Grade
1
Atlanta - Birmingham, Nashville, and New Orleans Branches
Maximum
Minimum
,(:;2,100
$2,640
Jacksonville Branch
Maximum
Minimum
p2,lOO
Approved unanimously.
Letter to Mr. Powell, President, Federal Reserve Bank of MinneaPolls, reading as follows:
The Board of Governors approves the elimination of
Grade 1 and the increase to 2,080 in the minimums of
Grades 2 and 3 of the employee salary structure for the
Federal Reserve Bank of Minneapolis and the Helena Branch,
effective March 1, 1956, in accordance with the action
580
3/19/56
-6-
taken by the Board of Directors as reported in your letter of March 9. The Board's records are being amended
to reflect these changes in the grade ranges as follows:
Maximum Salary
Minimum Salary
Grade
1
2
None
$2,080
3
2,080
None
$2,240
2,590
Approved unanimously.
Letter to Mr. Leedy, President, Federal Reserve Bank of Kansas
City, reading as follows:
The Board of Governors approves the increase to
$2,080 in the minimums of the lower grades of the employee salary structures for the Federal Reserve Bank
of Kansas City and its Branches, effective March 1, 1956,
in accordance with the action taken by the Board of Directors as reported in your letter of March 9. The Board's
records are being amended to reflect these changes in the
grade ranges as follows:
Grade
1
2
Kansas City Denver Branch
Minimum Maximum
$2,080
i':;2,520
Oklahoma City Branch
Minimum Maximum
f 2,080
';
2,080
$2,400
2,640
Omaha Branch
Minimum Maximum
;')2,080 $2,400
2,700
2,080
Approved unanimously.
Letter to the Board of Directors, The Union and New Haven Trust
Company, New Haven, Connecticut, reading as follows:
Pursuant to your request submitted through the Federal
s hereby gives
Reserve Bank of Boston, the Board of Governor
18(c)
Section
of
ns
provisio
its written consent, under the
on
the
absorpti
to
of the Federal Deposit Insurance Act,
of
ies of
on
liabilit
assumpti
through purchase of assets and
Conord,
Wallingf
ord,
The First National Bank of Wallingf
necticut, by The Union and New Haven Trust Company, New Haven,
Connecticut, and approves the establishment by the latter
bank of a branch in Wallingford, Connecticut, in the present
quarters of The First National Bank of Wallingford, provided
581
3/19/56
-7-
(a) the absorption is effected substantially in accordance
With the Agreement submitted with your letter of February
29, 1956, (b) the banking quarters acquired from the national bank will not be placed on the books at an amount
in excess of the depreciated value computed for Federal
income tax purposes for the national bank, (c) securities
acquired from the national bank will not be placed on the
trust company's books at an amount in excess of the current
market value, (d) formal approval of the State authorities
is obtained, and (e) the absorption and establishment of
the branch are effected within six months from the date of
this letter.
It is understood that plans are under consideration to
increase the capital structure of The Union and New Haven
Trust Company through the sale of additional stock within one
year's time.
Approved unanimously, for
transmittal through the Federal
Reserve Bank of Boston.
Letter to The Citizens National Bank in Independence, Independence,
Kansas, reading as follows:
This refers to the resolution adopted on May 10, 1955, by
the board of directors of your bank, signifying its desire to
surrender the authority to exercise fiduciary powers heretofore
granted by the Board of Governors of the Federal Reserve System.
The Board, understanding that your bank has been discharged
or otherwise properly relieved in accordance with the law of all
of its duties as fiduciary, has issued a formal certificate to
the effect that The Citizens National Bank in Independence is no
longer authorized to exercise any of the fiduciary powers covered by the provisions of section 11(k) of the Federal Reserve
Act, as amended. This certificate is enclosed herewith.
In this connection, your attention is called to the fact
that, under the provisions of section 11(k) of the Federal
Reserve Act, as amended, when such a certificate has been issued by the Board of Governors of the Federal Reserve System
to a national bank, such bank (1) shall no longer be subject
to the provisions of section 11(k) or the regulations of the
Board of Governors of the Federal Reserve System made pursuant thereto, (2) shall be entitled to have returned to it
582
3/19/56
-8-
any securities which it may have deposited with the State
authorities for the protection of private or court trusts,
and (3) shall not exercise thereafter any of the powers
granted by the Board pursuant to the provisions of section
11(k) without first applying for andobtaining a new permit
to exercise such powers.
Approved unanimously, for
transmittal through the Federal
Reserve Bank of Kansas City.
Letter to Mr. Galvin, Chief Examiner, Federal Reserve Bank of
San Francisco, reading as follows:
Reference is made to your letter of February 8, 1956,
and its enclosures, concerning a proposal of the American
Trust Company, San Francisco, California, to move its
Napa office a distance of about three and one-half blocks
from its present location.
From the information submitted it appears that the
proposal,if effected under present conditions as to location of other banks, would constitute a mere relocation of
an existing branch in the immediate neighborhood without
affecting the nature of its business or customers served.
Accordingly, the Board concurs in your view that under
these circumstances its approval is not necessary.
Approved unanimously.
There had been circulated to the members of the Board a memoranda dated March 12, 1956, from Messrs. Leonard, Director, Division of
8al1k Operations, and Vest, General Counsel, discussing a suggestion in
the recent report of the Federal Open Market Subcommittee on Defense
Planning that the Board consider taking appropriate action in advance of
84 emergency to suspend reserve requirements of the Federal Reserve Banks,
effective in the event of an emergency, in order that the Banks might
580,
3/19/56
-9-
operate effectively under a resolution adopted by the Federal Open Market
Committee on March
6,
1956.
This resolution authorized each Bank in its
discretion to purchase Government securities for its own account in the
event that, because of a war emergency, such Bank was unable to be in
communication with the Open Market Committee or the Committee was unable
to function.
The memorandum indicated that in view of the specific lan-
guage of section 11(c) of the Federal Reserve Act, the Board, if it should
act in advance of an emergency, could not legally authorize a suspension
Of reserve requirements for more than 30 days.
Also, it would be neces-
sary for the Board to establish in advance a graduated tax on the amounts
by which the reserves fell below those specified in the law.
After sum-
marizing the reasons for and against advance action, the memorandum suggested that as an alternative the Board might refer to the matter in the
memorandum currently being Prepared for the use of the Federal Reserve
Banks as a general statement relating to the Banks' conduct in an emergency.
If this alternative were followed, the memorandum could include a specific
statement that in the event of a national emergency it would be expected
that a Federal Reserve Bank would make such purchases of Government obligations as would be appropriate and desirable in the circumstances, even
if such purchases would reduce the Bank's reserve ratio below 25 per cent.
It could also Provide assurance that, whenever necessary, the Board would
take appropriate action suspending reserve requirements at the first opPortunity.
584
-10-
3/19/56
In commenting on the matter, Mr. Vest first reviewed the memorandum which had been circulated.
He understood it to be Mr. Leonard's view
that no particularly useful purpose would be served by advance action
and said that consideration of the matter was suggested principally because the Federal Reserve Bank of New York had indicated that it would
tend to favor such action.
His own view was that very little would be
procedure would be just as
accomplished by it and that the alternative
satisfactory.
Leonard entered the
In a further discussion, during which Mr.
Shepardson by stating
room, Mr. Vest responded to an inquiry from Governor
that any advance action would have to be very broad in nature and that
the authorization to suspend reserve requirements would have to be limited
to 30 days.
At the conclusion of the discussion, it was agreed unanimously
not to take advance action at this
time to authorize the suspension
of reserve requirements of the Federal Reserve Banks in the event of
an emergency, but instead to follow
the alternative suggestion contained
in the memorandum from Messrs. Leonard
and Vest.
Counsel, entered the room.
At this point, Mr. Cherry, Legislative
the Board copies of a memoThere had been sent to the members of
ng a draft of letter
randum from Mr. Hexter dated March 16, 1956, submitti
to Representative Wolcott, of Michigan, prepared in response to Mr. Wolcott's request for comment on a recent circular letter from Professor
585
3/19/56
-11-
Walter Spahr concerning the current procedure by which most of the earnings of the Federal Reserve Banks are turned over to the Treasury.
Following comments by Mr. Hexter in which he said that the letter
would be along the same lines as letters sent recently to other persons
who had inquired on the same subject, Mr. Cherry said he understood that
Representative Wolcott was not interested in making a reply to Mr. Spahr's
Mr. Spahr's criticism
circular letter, but that a constituent had brought
t
to Mr. Wolcott's attention and the latter wished to be brough up to date
on the subject.
Following a suggestion by Governor Vardaman for one minor change
in the draft, unanimous approval
was given to a letter for the signature of Chairman Martin to Representative Wolcott reading as follows:
5, requesting
This is in response to your letter of March
Walter Spahr recomment on recent contentions of Professor
Reserve Banks
garding the procedure under which the Federal
interest on
make payments to the United States Treasury as
is the same subFederal Reserve notes. As you indicate, this
es in the
articl
ject matter that Professor Spahr discussed in
and
Septem1947
19,
Commercial and Financial Chronicle of June
ber 18, 1947.
Federal Reserve
These payments of interest on outstanding
of section 16 of the
notes are based on the fourth paragraph
that each Federal Reserve
Federal Reserve Act, which provides
Bank
st as may be established
"shall pay such rate of intere
the Federal Reserve Sysby the Board of Governors of
such notes which equals the
tem on only that amount of
Federal Reserve notes
nding
outsta
its
of
amount
total
held by the Fedless the amount of gold certificates
ty."
eral
securi
collat
as
agent
e
Reserv
eral
SSG
-12-
3/19/56
This provision of the law is explicit and appears to give
the Board full authority to impose an interest rate on outt of gold
standing Federal Reserve notes (less the amoun
it adders
consi
certificates securing them) whenever it
visable to do so.
1933, section
Prior to enactment of the Banking Act of
Reserve Banks
the
upon
7 of the Federal Reserve Act imposed
t of their net
amoun
a franchise tax that was measured by the
ed by the
delet
was
earnings. That provision of section 7
affect the
way
any
in
Banking Act of 1933, but this did not
rates of inlish
estab
authority of the Board of Governors to
a part of
been
has
terest under section 16, which authority
ised
exerc
not
ugh
altho
the Federal Reserve Act since 1913
until April 1947.
tax, while it was
It is to be noted that the franchise
tory provision of
manda
in effect, was payable by virtue of a
to impose inrity
autho
the Federal Reserve Act, whereas the
etion of
discr
the
terest charges is committed by the Act to
the reafter
years
the Board of Governors. For a number of
ve
Reser
the
peal of the franchise tax the net earnings of
ned
the
combi
er,
howev
Banks were relatively small. By 1947,
ded
lly
excee
antia
subst
surplus of the Federal Reserve Banks
circumstances the Board
their subscribed capital, and in these
charges under section
deemed it advisable to impose interest
Treasury the
16 that had the effect of turning over to the
ses of operexpen
for
greater part of earnings after providing
ation and the statutory dividend.
of interest rates purPrior to the initial establishment
on 16, the Chairsecti
of
suant to the above-quoted provision
hearings before
open
in
r
man of the Board presented the matte
e and the
Senat
the
of
the Banking and Currency Committees
ssion during
the
l
discu
may recal
House of Representatives. You
t
ases of Govdirec
purch
ngs on
the House Committee's 1947 heari
at
you pre,
which
Banks
Reserve
ernment securities by Federal
l
1933
in
the
repea
referred to
sided. Representative Patman
the
and
followReserve Banks,
of the franchise tax on Federal
, March
80th
2233,
Cong.
H.R.
on
ing
(Hear
ing discussion ensued
4, 1947, pp. 29-30):
view of the great earnings
"Mr. PAN. Well, in
banks, do you not think
ve
Reser
al
Feder
of these 12
red, Mr. Eccles, and that
be
resto
d
shoul
law
that that
al Reserve Act?
Feder
in
the
back
d
place
provision
587
-13-
3/19/56
"4r. ECCLES. I would like to acquaint the committee with a little of the history behind that, if I may.
It was repealed in 1933 at the time the Congress took
from the surplus of the Federal Reserve banks 139 million dollars for the purpose of providing part of the
capital for the Federal Deposit Insurance Corporation,
as it was set up. And, therefore, it was repealed.
"The idea, no doubt, being to permit the Reserve
banks to earn back, in their surplus account, the amount
that was taken away.
"For quite a number of years, in fact, up until the
time of the war, the earnings of the Federal Reserve
banks were negligible. They were just about making
enough for their expenses during the greater period
from 1935 to 1940, and it is only since the war, and
with the war financing, that they have greatly increased
their income, and have finally succeeded in building
back the surplus. Therefore, this problem of Federal
Reserve bank earnings only now -- certainly within the
year -- really becomes the problem that Congressman Patman has referred to. The earnings of the System are
such that they have recovered completely the a39,000,000,
and some in addition to that. The Federal Reserve Board
has discussed this question several times, and we have
felt that it was necessary to either ask the Congress to
ninereinstate the franchise tax, which provides that
exabove
tenths of the earnings of the Reserve System
ReFederal
pense be turned in to the Treasury, or the
ReFederal
serve Board could impose immediately on the
the
of
16
section
serve banks, under the provisions of
as a
Federal Reserve Act, paragraph (4), what is known
tax on Federal Reserve notes.
ECCLES. ...the law gives the Board authority to
impose an interest charge -- and the law refers to it
as an interest charge, not as a tax, so I want to correct myself in that regard -- the Federal Reserve notes,
which are not covered, that is, in excess of the amount
of the gold coverage.
588
3/19/56
"Now, there is a very large amount of Federal Reserve notes which are not secured by gold certificates
but are secured by Government bonds.
"Mr. PATMAN.
And would be subject to that tax?
"Mr. ECCLES. And under the law we can impose an
interest rate on that circulation which could immediately get into the Treasury without legislation, all
of the earnings of the Federal Reserve banks. Although
the authority in the original act to charge a rate of
by gold
interest on note circulation that was unsecured
s
lawyer
our
e,
purpos
ular
partic
was not meant for that
I
-advise us that the Board could use that authority
that
on
s
lawyer
our
of
one
have a memorandum here from
question.
n
"Mr. PATMAN. In other words, Mr. Eccles, to shorte
the
do
really
could
you
it, you have an alternative,
e
same thing under section 16 of the Federal Reserv Act?
"Mr. ECCLES.
Immediately.
wait for a
"Mr. PATMAN. And you would not have to
change in the law?
the Board
"Mr. ECCLES. Well, I was going to say that
the
with
week
last
this
-- in fact, we just discussed
the
with
ence,
confer
Reserve bank presidents at their
Conif
and
it,
impose
idea that we could immediately
ise tax
gress at any time wanted to substitute a franch
so."
do
could
for that, of course, they
s action are
The reasons for and the purpose of the Board'
which was re,
cement
announ
ed
enclos
more fully explained in the
in the Fedhed
publis
and
1947
24,
leased in the press on April
to the
Report
Annual
its
In
1947.
May
eral Reserve Bulletin of
the
of GovBoard
1947,
year
the
for
ions
Congress covering operat
and
tion
preconnec
this
in
taken
ernors described the action
purpose of the action. In
sented again the reasons for and the
Board has informed Conthe
time,
that
each Annual Report since
l Reserve Banks to
Federa
the
by
paid
s
gress as to the amount
e
notes.
Reserv
l
Federa
on
st
the Treasury as intere
Please let us know if you desire additional information on
any phase of this matter.
3/19/56
-15The meeting then adjourned.
Secretary's Note: Pursuant to the
recommendation contained in a memorandum from Mr. Kenyon, Assistant
Secretary, dated March 19, 1956,
Governor Balderston today approved
on behalf of the Board the appointment of Portia R. Agadjanian as
Records Clerk in the Office of the
Secretary, with basic salary at the
rate of 4531840 per annum, effective
as of the date she assumes her duties.
As istant Secreta
@FedFRASER