The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Minutes of actions taken by the Board of Governors of the Pecleral Reserve System on Wednesday, March 2, 1949. lii the The Board met Board Room at 11:35 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. McCabe, Chairman Eccles Szymczak Draper Vardaman Clayton Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. 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 Vest, General Covnsel Leonard, Director of the Division of Bank Operations Millard, Director of the Division of Examinations Yovng, Associate Director of the Division of Research and Statistics Solomon, Assistant General Counsel Lewis, Chief, Regulation W Section of the Division of Bank Operations Pawley, Economist, Division of Bank Operations Reference was made to the discussion at the meeting yesterItrte -rnoon concerning the proposed amendment of Regulation W, NItum ' Instalment Credit, and to the understanding that further el ere.tion would be given to the matter at this meeting. Mr. Vardaman moved that Regulation W be amended to provide for a maximum maturity of 21 months instead of 15 to 18 months on instalment sale credits and unclassified loans subject to the Regulation and for a minimum down payment on Group B articles of 15 per cent instead of 20 per cent. 3/2/49 -2Mr. Clayton moved that Mr. Vardaman's motion be amended to provide for a uniform maximum maturity of 18 months for instalment sales credits covering listed articles in Groups A and B and for unclassified instalment loans, and that the down payment for Group B articles be reduced from 20 per cent to 15 per cent. Following a discussion, Mr. Clayton's motion was put by the chair and lost, Mr. Clayton voting "aye" and Messrs. McCabe, Eccles, Szymczak, Draper, and Vardaman voting "no". Mr. Clayton stated that he would vote with reluctance to ap- Prove Mr. VardAman's motion, but that he would rather see the pro- ksed change providing for miximum maturities of 21 months on all Ileted time articles in effect than to have no action taken at this to l'elaz the Regulation on Group B articles. He added that he still rqt that action to relax materially the maturity provisions on auto- 14°11ie credits would retard the downward adjustment in prices that l'°111Y' was inevitable in any event. Mr. Eccles said that he had reached the conclusion that he 41t1111(1 vote against these motions bectuse he felt that the proposed 41844t1on at this time would be premature and inconsistent with 1/t111)ose of Congress as expressed in the report of the Senate 44:14 and Currency Committee recommending enactment of the pres- t114 °11.8tuzer credit legislation. In that report, the Committee °ut that only harm could result from inducing millions 409 3/2/49 -3- or American families to go heavily into debt on too easy terms at high prices. Excessive credit built up in that way would not only ilicreese inflationsry pressures but would have to be liquidated out °Is current income should a downswing occur. Mr. Eccles pointed out that this is the season of the year Irlien• ordinarily demand for listed articles is slack and that the re-ns in prices for some listed articles other than automobiles, tecelltly announced, are comparatively small. Certain important com- ti"ities such as steel are still in short supply. If the proposed cation were confined to Group B articles, however, and could be QnrPletely disassociated from Group A, Mr. Eccles felt that the Dtobo - Bed modification would be relatively minor and that he would 40.e 1es8 objection to that action alone than he would have with re- Net t° automobiles. Nevertheless, even in Group B, the slight ad- hatme 4t riele4 in prices and downturn in volume of sales has not been suf- t UP to this time to justify a decision in favor of the pro44,4 .telazation. List prices of new automobiles generally have not been reChi the contrary, manufacturers of cars making up more than 110.thit., 4,,Cfas 1 "of the msrket, instead of reducing prices, have raised Of current models materially or announced substantial inflew models. till Moreover, the proposed relaxation would be more liberal for most used cars than the trade believes °Urid or would use. In these circumstances, Mr. Eccles felt that it was too soon 3/2/49 -4- to form a satisfactory judgment as to the advisability of a relaxation of the terms of Regulation W and that it would be wiser to deter action until a better appraisal of the situation could be made. The anti-deflationary cushion of easier credit terms should not be /18ed Prematurely. i4 the he hkve The existing terms are more liberal than those regulation when it was terminated on November 1, 1947 and -c"4 only a moderate restraining effect on the expansion of °t4:41-1 which, until recently, has proceeded at a high rate. Easing orq'edit terms at this time would tend, through further expansion oretedit, to defer a needed and healthy adjustment in prices and 'efore to sustain inflationary conditions. It would have the et or encouraging the part of the public that can least afford it to 4 ' flcur additional obligations at high prices and to subject t4ellt t o greater hardships in case of a later adjustment in economic -4,t Ione, when prices as well as competitive conditions would be e° IkIte a4 "vantageous to people of small incomes. Mr. Eccles was also of the opinion that consideration of a 4(1 8 On -la of margin requirements urder Regulations T, Extension and tum e --" of Credit by Brokers, Dealers, and Members of National tilttei „ e 1-- zachanges, and Ur, Loans by Banks for the Purpose of Pur- 48 Qr Carrying Stocks Registered on a National Securities Ex1144ge A , should precede action to liberalize Regulation W, on the 001414. t 4t444450_" 111 a stronger case could be made at this time from a credit 141 for lowering margin requirements than can be made for the vroktied liberalization of Regulation W. Following a discussion, Mr. Vardanlan's motion was put by the chair and 411 3/2/49 -5carried, Messrs. McCabe, Szymczak, Draper, Vardaman, and Clayton voting "aye" and Mr. Eccles voting "no". To carry out Mr. Vardaman's motion; the following amendment to Regulation W was approved: "AMENDMENT NO. 3 TO REGULATION W -Lasued by the Board of Governors of the Federal Reserve System "Regulation W is hereby amended in the following respects, effective March 7, 1949: "1. By inserting the following immediately after the 'words 'structure or' and immediately before the number '(2)' In section 7(g) of the regulation: 'other entire unit designed for residential occupancy, or' , "2. By changing '20 per cent' and '80 per cent' in 1:art 1, Group B of the Supplement to read, respectively, 15 Per cent' and '85 per cent'. "3. By changing Part 2 of the Supplement to read aS follows: 'Part 2. Maturities. - The maximum maturity for all listed articles and for unclassified instalment loans is 21 months.' "4. By changing the figure '20' to '24' in Part 3 ur the Supplement." Approval was also given to the following statement for the Press for release in the morning papers of Thursday, March 3, 1949, it being understood that the amendment and press release would be sent by wire to the Federal Reserve Banks with the request that they print and make appropriate distribution of the amendment: or 10 "The Board of Governors announced today modification th 'legulation w, effective next Monday, March 7, making toe maximum maturity uniformly 21 months, instead of 15 cr,!-8 months, on all extensions of consumer instalment e01-41t, and reducing down payments on furniture, applitap/ etc., from 20 per cent to 15 per cent, while re111-8 the 33-1/3 down payment on automobiles. the 'This modification is based on continuous study of la„..°Perations of the Regulation since it was reinstated 1', September, and on the experience of Federal Reserve ge.; — °13 and their branches in its administration in the field. ' rei "In recommending last summer that Congress authorize th;l1statement of the Regulation, the Board stated that aUthority would be used flexibly and that the Board 412 3/2/49 -6- "would be ready at all times to tighten or relax the terms in accordance with the objectives of the authority and with a view to sound credit conditions. The amendalso contains two minor modifications of a technical nature. "The text of the amendment is attached." A statement for the Vederal Register reading in part as follows also was approved: "The notice, public participation, and deferred eff?ctive date described in section 4 of the Administra!lye Procedure Act are not followed in connection with `hie amendment for the reasons and good cause found, 8 stated in section 2(e) of the Board's Rules of Pro' 8 cedure 52 CFR 262.2(e)7, and especially because in !onnection with this permissive amendment such proceQu-res are unnecessary as they would not aid the persons 4tfected and would serve no other useful purpose." Secretary's Note: During the discussion, Mr. Carpenter talked by telephone with Mr. Evans, who was on his way to the West Coast in connection with the Transamerica hearing, and reported to the Board that Mr. Evans had no comment to make on the proposed amendment as approved by the Board. 141% Szymczak referred to the draft of letter to the Bank Or in -"lea N.T. & S.A. with respect to permission to establish branches as discussed at the meeting on February 24, 1949, 8 te.ted that he would like to suggest an alternative procedure '441-ch the Bank would be informed that the application to estecirk 1th, the Bangkok, Siam,branch was approved, and at a later date cl letter would be sent stating the reasons why the Board tOt Prepared to approve the applications for permission to 413 3/2/49 -7- establish the three branches in Germany. This suggestion was disclIssed but was not accepted. During the discussion, a draft of letter along the lines atIggested at the meeting on February 27, 1949 was presented by 141' ' ClaYton who stated that the letter was satisfactory to him. Mr. Eccles suggested that inasmuch as action authorizing the establishment of a branch in Bangkok, Siam, and denying per4118810 la to establish branches in Germany was approved by Messrs. kecab e) Evans, Vardaman, and Clayton, the letter informing the 15843k cf. the action of the Board be prepared in a form satisfactory to them. Upon motion by Mr. Clayton, this suggestion was approved, Messrs. Eccles, Szymczak, and Draper stating that when the letter was submitted to the Board they would ask to be recorded as not voting. At this point Messrs. Riefler, Thomas, Vest, LeonArd, Iciung, Solomon, Lewis, and Pawley withdrew and the acwith respect to each of the matters hereinafter re41'4 ' 1 to was taken by the Board: Minutes of actions taken by the Board of Governors of the 1'41 Reserve System on March l, 1949, were .pproved ImAnimously. Memorandum dated March 1, 1949, from Mr. Thomas, Director -Dion of Research and Statistics, recommending that the 3/2/49 -8- l'esignation of Mr. John H. Neill, Jr., an Administrative Assistant 11 that Division, be accepted to be effective, in accordance with his r equest, at the close of business on March 4, 1949. Approved unanimously. Letter to Mr. Gidney, President of the Federal Reserve Bank or 01 eVeland, reading as follows: "For the reasons outlined in your letter of Feb. 23, 1949, the Board of Governors approves the PaYment of salaries to the following employees at ' la.tee which are below the minimums of their respective ? „ 'ades with the understanding that the salaries will ue brought within range as soon as practicable or no later than October 1, 1949: Title Name tlwood V. Denton Personnel Manager Eliqn E. Kopp Secretary to Senior Officer Jeannette Marks Secretary to Junior Officer John E. Orin Manager of Fiscal Agency Dept. Allguetine A. Schmitz Manager of Credit, Loans & Investments Dept. George R. Hancox Consumer Credit Investigator Cincinnati Branch :1,8-Mee Kelly Consumer Credit Investigator wilbur Noelcke Consumer Credit Investigator 144rY Lee Smith Redemption Advice Typist Pittsburgh Branch Ilialter L. Bedel Head of Accounting Dept. ()Mae B. Crawford Head of Noncash Collection Dept. E. Hockenberger Chief Engineer , t,mee i L. IAWbOil Consumer Credit Investigator <toilette Bido Case Operator f‘ e,1..ifford Bonistall Check Sorter and Lister (P.T.) 74 M. Cogswell Redemption Clerk-Typist ;:eallae Elzer Redemption Clerk-Typist ziertha Frentzos Check Sorter and Lister ; 1114e Henderson Case Operator l'a.l.e°11e Marko Check Sorter and Lister : °r°tIlY Morris Check Sorter and Lister 44therine Ruyechan Redemption Clerk-Typist ;!erolte Telin Check Sorter and Lister (P.T.) 'xoland Williams Check Sorter and Lister (P.T.)" Approved unanimously. 3/2/49 -9Telegram to Mr. Peterson, Vice President of the Federal Re- Bent lank of St. Louis, reading as follows: "Reurlet February 23 regarding deposit of uninvested trust funds on time basis, action in this matter has been deferred pending receipt of views of Federal Reserve Banks and all such views were not received until FebruPry 24. Reserve Banks are not in accord and Matter will require some further study but a decision Vill be reached as promptly as possible. In the meantime; if a member bank inquires whether it may carry reasonable portion of uninvested trust funds as time dePosit in benking department, pending final decision °f this question, you may state that no penalty for reserve deficiency resulting from difference in classification will be imposed for period prior to Board's decision. It should be emphasized in any such case, howrer, that matter is unaer consideration and that what Jooard's determination may be is entirely problematical at this time. Believe such advice may be given both telzber banks mentioned in your letter." Approved unanimously. Letter to the Presidents of all Federal Reserve Banks read48 follows: ti "In reply to a recent inquiry concerning Regula°n 14; the Board issued the following interpretation. 8, When insurance relating to a listed article is b°14 or financed in connection with the listed article the Registrant who sells or finances the listed ele, the insurance cannot be treated as a separate ,:rzipted sale of an unlisted article, but must be inled in the 'time balance' as specified in section '011; ti c), and must be scheduled for repayment within the 3M-icable mximum maturity as specified in sections ci l) and 3(b). The same treatment is required in the se of instalment loans." Approved unanimously. V2/49 -10Letter prepared for Chairman McCabe's signature to the liclnorable Wright Patman, House of Representatives, reading as follows. "This refers to your letter of February 21, 1949, As I understand your inquiry, you wish confirmation of your view that veterans' loans guaranteed by the Veterans' Administration are exempted from the Board's Regulation W. , "In this regard, may I advise you that section kd)(5) of Regulation W exempts from coverage linder he regulation any extension of credit 'guaranteed or insured in whole or in part by the Administrator 5 Veterans' Affairs pursuant to the provisions of Title III of the Servicemen's Readjustment Act of l 1944., "We appreciate this opportunity to be of service to you:, Approved unanimously. Telegram to Mr. G. A. Leukhart, National Used Car Market t Inc., 900 South Wabash Avenue, Chicago, Illinois, reading ' 4 roiaolis: "In response to your telephone inquiry and conour advice the statement in our letter of 2 elluarY 7 that appraisal guide provisions of Regula' tive W will no longer apply to used 1938 models effecApril 1, 1949, may be incorporated in the staten 199bt ble 4 0Regulation W in your guides effective April 1, by changing the number 1938 to read 1939 in the BiZth line of h the fourth paragraph, and changing the r 1937 in the next line to read 1938." ' Approved unanimously. Letter to Mr. DeMoss, Vice President of the Federal ReOf Dallas, reading as follows: 3/2/49 -11- "This refers to your letter of February 17, 1949, concerning the application of the exemption in section 7(b) of Regulation W relating to demonstrators for automobile salesmen. You inquire whether this exemption covers an extension of instalment credit by a finance eomPany for the purchase of an automobile, in good raith, by the individual owner of an automobile dealerwhere such owner is also a salesman and will use the automobile principally as a demonstrator. "The Board agrees that such a case would be exempt Under section 7(b), so long as it otherwise qualifies exemption under the principles stated in W-29 (#710, Aegulation W Service)." Approved unanimously. Letter prepared for Chairman McCabe's signature to the Honor4151e r 41141-11 C. Johnson, Chairman, Committee on Interstate and Foreign ' Coratie rce, United States Senate, reading as follows: "This refers to your letters of February 18 and ifuarY 19, 1949 in which you advise that your Conme s 'cee will appreciate receiving comments regarding Et. 1008 and an Amendment to S. 236, both of which .138-1"ent1y relate to the legality under the anti11st laws of certain pricing practices in inter: 8tat commerce, a question which was recently con''-dered by the Supreme Court of the United States. s nce neither S. 1008 nor the Amendment to appears to affect the monetary and credit 36 .,24 tta er:.?''ions or other activities with which the FedBo'l Reserve System is directly concerned, the e-1'd has no comments to offer concerning them. We ha.vaPpreciate, however, the opportunity which you e afforded us to consider this matter." p Is J Approved unanimously. Letter prepared for Chairman McCabe's signature to the Honor- 1114t R. Maybank„ Chairman, Committee on. Banking and Currency, el States Senate, reading as follows: 418 3/2/49 -12- "This refers to Mr. McMurray's letter of January 28, 1949, requesting the Board's opinion regarding S. J. Res. 9) which would provide for the establishment of a NaMonetary Commission to inquire and report to Congress as to possible changes in the fiscal policy of the United States and the laws relating to money: banking and credit and also in the character of govertmental machinery now provided for the administration of such laws. "In this connection, the Board understands that the Co 4. Mission on OrgRnization of the Executive Branch of l'he Government, which is currently making its report r 1 Congress on the various aspects of its investigation, 8 expected to include in its report a consideration of !atters closely related to the subjects which would be 3-nvestigated by the proposed National Monetary Commiss m!°11. In the circumstances, the Board wishes to defer 74iug a report on S. J. Res. 9 until it has had an wPportunity to consider the report of the Commission o 111!, °rganization of the Executive Branch of the Govern: 13 11t on these matters. We hope that this procedure will agreeable to you." Approved unanimously. 11131,eatz Letter to the Honorable Frank Pace, Jr., Director of the Of the Budget, reading as follows: se,_"In compliance with a request received from the 4:4c1ce Committee on Banking and Currency, the Board 14111 Prepared the enclosed report on the Bill S. 729 me 211 would be known as the 'Veterans Economic Develop-. Corporation Act of 1949'. trn, 'Before transmitting this report, the Board will 15;Zreciate advice as to the relationship of the proecl legislation to the program of the President." Approved unanimously. %tall Letter prepared for Chairman McCabe's signature in ac- ce with action on February 24, 1949, to the Honorable telano, Comptroller of the Currency, reading as follows: 3/2/49 -13- "I am very grateful to you for your assistance with the meetings which I have been holding with representatives of bank holding companies, the American Bankers Association, the Reserve City Bankers Association, the two independent groups, and the Association Of State Supervisors, in connection with the proposed bank holding legislation. Since these meetings the Board has considered the many suggestions made by each of these groups and has now incorporated the principal suggestions in a tentative draft. , "Because of your vital interest in this legislation 4 am enclosing herewith three copies of the recently revised draft in the hope that you will consider this pro. Posed legislation and let me have the benefit of any suggestions or recommendations which you may have regarding it. Approved unanimously, with similar letters to Messrs. Snyder and Earl, Secretary of the Treasury and Chairman of the Federal Deposit Insurance Corporation, respectively. Ap1N, 4.COAred: Chairman.
@FedFRASER