The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
651 A Minutes of actions taken by the Board of Governors of the Federal Reserve System on Friday, March 232 1951. PRESENT: Mr. Mr. Mr. Mr. McCabe, Chairman Szymczak Evans Powell Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Minutes of actions taken by the Board of Governors of the Pederal Reserve System on March 212 19512 were approved unanimously. Minutes of actions taken by the Board of Governors of the Pederai Reserve System on March 222 1951, were approved and the actions l'rded therein were ratified unanimously. Telegrams to the Federal Reserve Banks of Boston, New York, Nam -elphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Dallas, and San Francisco stating that the Board approves the establishment without change by the Federal Reserve Bank of San c'eco on March 20, by the Federal Reserve Banks of Atlanta and at, L (4Lle on March 212 by the Federal Reserve Banks of New York, 111114 delPhia, Cleveland, Richmond, Chicago, Minneapolis, and Dallas 0/11, 'er(sh 22, 1951, and by the Federal Reserve Bank of Boston today, Ott. "e rates of discount and purchase in their existing schedules. Approved unanimously. Memorandum dated March 222 19510 from Mr. Marget, Director of the r 44"-Idaion of International Finance, recommending an increase in the 3/23/51 -2- salary of Dorothy V. Wright, a clerk in that Division, from 13,45 to $3,195 per annum, effective April 1, 1951. Approved unanimously. Memorandum dated March 15, 19510 from Mr. Young, Director qthe Division of Research and Statistics, recommending that the l'esIgnation of Miss Joyce Be Latham, a clerk in that Division, be accepted to be effective, in accordance with her request, at the close of business March 31, 1951. Approved unanimously. Memorandum dated March 21, 1951, from Mr. Marget, Director ot thG n -ivision of International Finance, recommending that the resign of Gerald M. Alter, an economist in that Division, be accepted to be effective, in accordance with his request, at the close of -ees March 30, 1951. Approved unanimously. Letter to Mr. Neely, Federal Reserve Agent of the Federal rife Bank of Atlanta, reading as follows: 1 _, "In accordance with the request contained in your tter of March 19, 1951, the Board of Governors approves, R featly° April 1, 19510 the payment of salary to Mr. J. Moser, Jr., Federal Reserve Agent's Representative, at ‘116 rate of $4,800 per annum." 4 Approved unanimously. Letter to Mr. Mangels, First Vice President of the Federal 0 Bank of San Francisco, reading as follows: -3"Reference is made to your letter of March 9, 1951, requesting the Board to approve the retention in service until July 1, 1952, of Mr. Leon C. Meyer, Assistant Manager of the Los Angeles Branch, who will attain age 65 on May 2, 19510 "For the reasons outlined in your letter the Board of Governors approves the payment of salary to Mr. Meyer at the rate of $8,000 per annum, or such other rate as may subsequently be fixed by the board of directors and approved by the Board of Governors, from May 1, 1951, through June 30, 1952." Approved unanimously. Letter to Mr. Mangels, First Vice President of the Federal 114srva Bank of San Francisco, reading as follows: "In accordance with the request contained in your letter of March 20, 1951, the Board approves the designation of Eliot J. Swan as a special assistant examiner for the Federal Reserve Bank of San Francisco." Approved unanimously. Letter to Mr. Denmark, Vice President of the Federal Reserve 44.1c 0 f Atlanta, reading as follows: "Reference is made to your letter of March 6, 19511 submitting the request of The Parker Bank and Trust Com1n4Y, Cullman, Alabama, for approval under Section 24A the Federal Reserve Act of an investment in bank premors in an amount not to exceed $135,000, for the purchase lot and the construction of. a new bank building. b "Although the condition of the bank's loans cannot 4! regarded as satisfactory, it is noted that you regard ;' 11:;8 fundamental condition as sound and the present managevs. "as entirely capable of improving the situation. In ," and in view of your recommeadation, the 13°ard approves the investment as proposed." Approved unanimously. 3/23/51 -4Letter to Mr. Strathy, Vice President of the Federal Reserve Bank of Richmond, reading as follows: "This refers to the copy of the letter from Mr. Gottschalk, Executive Secretary, Maryland Savings and Loan League, dated March 2, which you referred to us for information and consideration on March 7. "As you know, the Board has recognized that there Tight be cases of necessitous home repairs in which the Instalment credit restrictions under RegulationW re0 1.1ted in some hardship. This possibility was recograzed by the Board when it decided to provide a maximum maturity of 30 months for home improvements and repairs "against the maximum maturity of 15 months provided for other listed articles. Moreover, the down-payment requirement of 10 per cent for home repairs and improveants is of course substantially less than that provided for other articles. Because of these more liberal re_JA-11rements, home owners in many cases should be able 1 ' 0 finance necessary home repairs under the provisions ()f Regulation W when they would be unable to meet the regulated terms for the purchase of other articles. "The Board has also considered the desirability of adopting an amendment to the regulation which would !ase or eliminate the credit restrictions in certain 2ecific cases of necessitous home repairs. There are II-Lfficult problems connected with such a provision, " 3 eyer. The proposals so far advanced have all had the ! rious disadvantages of either tending to nullify the edlt restriction in the home improvement area or of acing an excessive administrative burden on the trade o on ,! the Federal Reserve System. Mr. GottschalkIs proSal, for example, would appear to permit exemptions on la ! ll general grounds as to permit Registrants to treat a +1,'0 4 proportion of all home improvements as exempt from ' regulation. pr :While the Board is very much interested that the itXlsions of Regulation W not be unduly restrictive in t04-1.dual cases, it must also consider that the regulait (T must strongly curb instalment credit as a whole if ' 8 to accomplish its purpose of helping to restrain thA is!rious inflationary forces in the present emergency pe; ' °u. The present terms of the regulation are, of course tar fr°In a prohibition of instalment credit. l 3/23/51 "It has occurred to us that Mr. Gottschalk may not be aware of the mixed credits provision in Regulation W. In the example he gives, for instance, payments of at least $10.50 per month would be sufficient to meet the requirements of Regulation W on the combined balance of $1515 after obtaining the $35.00 down payment. "The Board is continuing to study the need for a hardship exemption for home repairs and the possible ways that such a need might be provided for. We are glad to have Mr. Gottschalk's views in this connection and they Will be carefully considered in our continuing study of this subject." Approved unanimously. Letter to the Presidents of all Federal Reserve Banks, reading aa f011ows: "An inquiry has been received asking whether borrowing by a prospective tenant in a cooperative development is Subject to Regulation X if the loan is for the purpose of Purchasing a participating share in the cooperative development which will entitle the owner thereof to acquire or use a family unit in the cooperative development. "Cooperative developments ordinarily are built and operated by a nonprofit corporation organized for that sPecific purpose. Credit secured by a blanket mortgage overing the development is extended to the corporation. Lhe corporation's equity or capital investment is raised o'Y the sale of shares of capital stock to the individual cooperators. Ownership of a share carries with it the 4 1 1-ght to acquire a long term lease upon a family unit in e cooperative development. "It is the opinion of the Board that borrowing is subJect to Regulation X when it is for the purpose of purchasing l) a share in a cooperative development. The total amounts m°rrowed by the corporation and the individual shareholders ' cui'vq not exceed the maximum loan value of the cooperative evelopment o n Approved unanimously. 1.; 3/23isl -6Letter to the Presidents of all Federal Reserve Banks, reading as follows: "Several inquiries have been received by the Board concerning the applicability of Section 2(r)(5) Of Regulation X to structures used wholly or partly for the processing of food products. "It is the opinion of the Board that concerns engaged in the preparation of foodstuffs are engaged in the 'processing of materials, goods, or articles into finished or partly finished manufactured products if they change the form of the foodstuffs and add value to the product itself. Examples of such activities, as listed by the Standard Industrial Classification Manual, are: slaughtering, dressing, and Packing of poultry and meats; processing of dair—Y products; canning, preservingl and freezing of fruIts, vegetables, and sea foods; processing of flour and other grain products; baking; sugar refining; manufacture of confections; preparation and bottling of beverages. Operations limited to the sorting and packaging of food or other products are not regarded as processing; neither would operations which involve simply the breaking down of wholesale lots into smaller units, even though the combined value of the smaller units at retail exceeded the cost of the wholesale lots. "In determining whether structures used for stloh activities are exempt from Regulation X under Section 2(0(5)2 only that portion of the floor %pace thereof which is essential to and an integral Part of the operations involved in the processing °f foodstuffs should be considered. In other words, tora-e 6 space, beyond that which is essential to the Processing operations, should not be considered." Approved unanimously. Letter to the Presidents of all Federal Reserve Banks, reading tqlows. 659 3/23/51 -7.- "Questions have been raised regarding the application of Regulation X to a sale of residential property on which there is new construction begun after October 12, 1950, Where the vendee takes the property subject to indebtedness secured by a mortgage on the property. The questions have related particularly to sales where such indebtedness exceeds the maximum loan value of the property, but evidences credit extended after October 12, 1950, pursuant to a firm commitment made prior to October 12, 1950, which provided for an extension of credit to the builder-vendor in the form of a combination construction-permanent mortgage loan. , "One underlying purpose of the exemption in section 60) for credit extended pursuant to firm commitments waz to allow parties affected by the regulation to carry out in certain circumstances financing arrangements previously contemplated or arranged by them. An exemption for credit extended to a builder as a combination construction-permanent mortgage loan, where the builder is building for resale subject to such indebtedness, is, in effect, an indirect ?xemption to the vendee of such property, and for the regulation to prevent such a sale would defeat the purpose for which the exemption was provided. For this reason, it is he opinion of the Board that section 4(a)(6) of the regu' Lation, which deals specifically with sales by Registrants ef property subject to existing indebtedness, has no application to sales of real property by builders subject to existing indebtedness evidencing combination constructionPermanent credit extended to the builder pursuant to an exemption under section 6(b)." Approved unanimously. Letter to the Presidents of all Federal Reserve Banks, reading 48 Cello-Ns. i "The special arrangements for the investigation of , 11811rance companies for compliance with Regulation X were iovered in our letter of January 10, 1951, S-1246 (X-25). 011,quiries have been received as to whether branch offices st !alsurance companies having their head offices in other a?s should be investigated and, if so, which State Cornloner of Insurance should be notified of the investigation. th "It was contemplated when the arrangements were made for e investigation of insurance companies that the Federal 6f;(-) 3/23/51 "Reserve Banks would exercise a discretionary authority as to whom they would investigate. If for good business reasons it becomes necessary to investigate the branch office of an insurance company whose head office is located in another State, such investigation should be made. It is well known that some branch offices of insurance companies have a broad authority to make loans and even retain the assets in their custody. Under such circumatances„ it would seem that such branches should be investigated, and, moreover, any branches should be investigated if in the judgment of the Reserve Bank this is a Prudent and necessary thing to do. "It is probable that under the law of all States insurance commissioners have jurisdiction over branch Offices located in the States they supervise. In making investigations, therefore, of branch offices, it may prove to be desirable to notify the insurance commissioner having ,trisdiction over the branch. It would also seem expedient 0 notify the insurance commissioner having jurisdiction over the home office of the insurance company since in the making of an investigation any information that can be ceived about insurance companies or plans for their exami!lation by the insurance commissioner in the near future nld be of interest to the Reserve Bank proposing to make rs se investigation. Any procedure of this kind, however, eme to us to depend somewhat on experience, and if Reserve ;fnits believe that the notification of the investigation rls to the insurance commissioner having immediate juris' 84tetion over the branch is sufficient, then the arrangements 2,'?uld be concluded therewith. In discussing this matter 'both the Life Insurance Association of America and the fiTerican Life Convention, officers of each organization ated that they thought that the insurance commissioner 4/1-ng jurisdiction over the branch would not be particuul*'Y interested in an investigation of the branch but that commissioner having jurisdiction over the company in "4° State in which it is incorporated would be interested. ''With regard to notification of the N.A.I.C. Zone' 1 : 4 ' 1.121an, 4. the officials of the organizations mentioned above believe that the Chairman having jurisdiction over the -1‘nd office would be the one most interested in receiving '44ormation about an investigation. Z 3/23/51 -9- "In general, therefore, while WS believe that local Practice may to some extent alter the procedure, it would seem desirable that both the insurance commissioner and the N.A.I.C. Zone Chairman having jurisdiction over the home office be notified when it is deemed essential in the discretion of the Federal Reserve Bank to investigate the branch office of an insurance company." Approved unanimously. Letter to Mr. Schlaikjer, Vice President and General Counsel q the Federal Reserve Bank of Boston, reading as follows: "This refers to your letter of February 8, 1951, concerning questions relating to Regulation X. You asked four specific questions and also raised a related question Pertaining to a statement of facts filed by a Registrant pursuant to clause (2) of section 6(b) of the regulation. "As to question 1, we concur in your opinion that a Registrant may purchase a note evidencin nonconforming g real estate construct ion credit extended by another Registrant after October 12, 1950, pursuant to a firm commitment Illade prior to that date. "As to questions 2, 3, and 4, all of which relate to sale 4, 8 of property subject to a mortgage securing noncon; I (11111ing credit, an interpretation of the regulation is issued on these questions. You will note that the interpret ation ' nterPretati on refers only to section 6(b) cases, but if arlir should arise under section 5(g), the same principles would apply, "In the other question raised by you, you stated that 4 „Registrant who 'undertakes to procure the permanent financing for his short-term borrower (builder) or for any r'rehaser from the short-term borrower of the particular s if such purchaser has a credit standing satisfactory , :agistrant IP had filed with your Bank a statement 'refacts with respect to his undertaking to procure izmanent financing and with respect to the short-term da?"er's (builder's) action taken prior to the effective of the regulation.' 13111, "Clause (2) of section 6(b) exempts credit extended oer'ain!uant to 'any other agreement to extend credit' in circumstances if the necessary procedural steps -Au followed. However, in the case you referred to there Zn 3/23/51 -10- "does not appear to have been an 'agreement to extend credit' to the borrower but merely an agreement to undertake to procure credit for the borrower. For this reason, we do not believe that there was a firm commitment within the meaning Of clause (2) of section 6(b). "We hope that this will clarify our position in regard to the questions raised by you." Approved unanimously. Telegram to Mr. DeMoss, Vice President of the Federal Reserve 13ank of Dallas, reading as follows: "Reurtel March 17 about Section 5(k). Persons completing construction prior to March 21 would have 32 days from that date to complete permanent financing under amended Section 5(k), which would extend to April 22. If it is necessary, the Board would have no Objection if additional time to May 1 is permitted to complete financing arranged in good faith by Registrants in reliance on present Section 5(k)." Approved unanimously, together with an identical telegram to Mr. Scheffer, Manager, Real Estate and Consumer Credit Department of the Federal Reserve Bank of New York. Telegram to Mr. DeMoss„ Vice President of the Federal Reserve Of Dallas, reading as follows: "Reurtel March 15 re lessee paying leasehold improvement which will revert at expiration of ten-year lease. "on these facts, and assuming there is alitent, Regulation X does not apply." entire cost of to property Based solely no evasive Approved unanimously. Telegram to Mr. Millard, Vice President of the Federal Reserve 4tlit Of San Francisco, reading as follows: 3/23/51 -11-- "Based on facts in your telegram of March 12 regarding motel without kitchen facilities, it would seem that credit extended to this borrower would have to conform to Regulation X. The borrower does not appear to qualify under amended Section 5(g), and the Registrant appare ntly has not conformed to requirements of Section 6(b)." Approved unanimously0 Letter for the signature of the General Counsel, to Mr. Herbert A.Bergson, General Counsel, Office of Defense Mobilization, Room 179, State Building, Washington 25, D. C., reading as follows: "This refers to your memorandum of March 20, 1951, transmitting two copies of a second draft of a bill to amend the Defense Production Act, with an explanatory summarY of the draft, and also a draft of provisions on rant control which will be incorporated in the final draft bill. "We note that, while for the most part the second draft., bill to amend the Defense Production Act is substanlallY like the first draft bill submitted with your letter Of March , certain additions and changes have been. 2 made. "a should like to commen t on certain provisions of the second draft. re "The new language in section 7 of the draft bill, lating to extension of authority over real estate 'edit to cover existing as well as new construction, °Ur opinion is not desirable for two reasons: (1) it appears to exclude from regulatory control real property Which there is no construction; and (2) by specifically g uldiu major additions and major improvements it leaves ij doubt the questions as to whethe additions and improv er Which are not major would be subject to control. cre_, "Our experience with the regulation of real estate ti lit ' up to date has been such as to show that many ques.kons Aheth arise as to what is tconstr uctiont and therefore. Ahe, er there is constr property, and also uction real on we ..tier additi ons or improvements are major in character. r tosel that it is important to eliminate the necessity ate making fine-spun distinctions in these respects which ale c°nfusing to persons subject to the regulations and 0 difficu lt to administer. If there is merit in having 1 3/23/51 -12- authority to regulate all types of real estate credit, as we think there is, it seems that the principle involved Should apply broadly and the authority should extend to the coverage of all real property, regardless of the question whether there is 'construction' thereon. Moreover, since all construction is intended to be covered, the parenthetical language referring to major additions and major improvements seems superfluous and likely to give rise to difficult questions of interpretation. "For these reasons, we suggest that the language of section 7 be changed to conform to the language which was included in section 6 of the March 1 draft but with the omission of the parenthetical phrase. As so changed, this section would read as follows: 'SEC. 7. Paragraph (1) of subsection (d) of section 602 of such Act is amended by striking out the first two sentences and inserting in lieu thereof the following sentence: "'Real estate construction credit, means any credit which (i) is wholly or Partly..secured by, (ii) is for the purpose of purchasing or carrying, (iii) is for the purpose of financing, or (iv) involves a right to acquire or use, any real property or any construction thereon Whether existing or proposed."' "If after further consideration of this matter you should still be disposed to use the language suggested in Your second draft bill, we earnestly request that we be -Iren an opportunity to discuss the matter with you briefly, s we feel that the point is an important one. "Another provision of the second draft bill which we eel to be objectionable in its present form is the new r°viso which would be added to section 605 of the Defense j?duction Act by section 9 of the draft bill. Mr. B. T. :tzpatrick, Deputy Administrator and General Counsel of cr Housing and Home Finance Agency, furnished me with a thPY of his letter to you of March 8, 1951, recommending 1., inclusion of this proviso. Upon consideration of the Zyuage of the proviso, however, we felt considerable rePern ! as to its effect and broad scope, particularly in 1011ion to the provisions of Title V of Executive Order p4. 1. Accordingly, we discussed this proposal with Mr. ,TPatrick and, as a result, substitute language was sug' 61 ted. The proposed substitute, which Mr. Fitzpatrick has V V 3/23/51 -13- "advised us is satisfactory to him and which is also agreeable to us, is as follows: 'SEC. 9. Section 605 of such Act is amended by adding at the end thereof the following new sentence: 'The President may require lenders or borrowers and their successors and assigns to comply with reasonable conditions and requirements, in addition to those provided by other laws, in connection with any loan of a type which has been the subject of action by the President under this section. Such conditions and requirements may vary for classifications of persons or transactions as the President may prescribe, and failure to comply therewith shall constitute a violation of this section.' "In the circumstances, we earnestly hope that the language quoted above will be substituted for the proviso which would be added to section 605 of the Act by section 9 of the draft bill. "With regard to the provisions of section 4 of the bill, the Board believes, for the reasons stated in Chairman McCabe's letter to Mr. Wilson of March 92 1951, that it Should be the policy of the Government to avoid the creation additional Government instrumentalities for the purpose .Providing credit to business enterprises and that the P.Flvate credit and production facilities of the country tillould be utilized for such purposes to the fullest extent po ssible." Approved unanimously. Letter to Mr. Jack Leven, Legislative Reference Service, Of Congress, Washington, D. C., reading as follows: "In accordance with your request we are enclosing Zn'erial describing the Federal Reserve System's con-. lbution to Federal housing programs for inclusion in 6 Pamphlet entitled 'Federal Housing Programs.:" z Approved unanimously. 3/23/51 Memorandum dated March 221 1951, from Mr. Carpenter, Secretary q the Board, recommending the purchase of the Recordak equipment now use in the Files Section (one model C microfilmer with film unit, alultwo model 10 readers) at the quoted net price of 41,335, with the 1111derstanding that the 1951 budget of the Office of the Secretary tuld be increased by an amount sufficient to cover the cost in excess "he sum previously budgeted for rental of the machines. Approved unanimously. Memorandum dated March 221 19510 from Mr. Carpenter, Secretary the Board, recommending that the Board authorize the arranging of 4 ra v'eeption in the Board Room for Chairman McCabe on Thursday, March 290 1951 $ at an appropriate hour, to be attended by all members of the 4talar and other invited guests including the Presidents and Chairmen qthe Federal Reserve Banks, and to be followed by a buffet dinner 11the c afeteria. The memorandum also recommended that the Board tPro Ire the payment of the costs of the dinner and other expenses ttleid ent to the reception and that the appropriate classifications O the budget be increased to cover these costs. Approved, Mr. Vardaman voting "no" Memorandum dated March 23, 1951, from Mr. Carpentei, Secretary th 6 Board, recommending that,inconnection with Mr. Martints tkno„ he oath of office as a member of the Board at noon on Monday, tr17 ,'" .:11 I .1 3/23/51 -15- Apra 21 1951, the Board authorize the payment of the costs of 11111cheon, reception, and incidentals as outlined in said memorandum, arid that the appropriate item in the 1951 budget of the Division of ktri nistrative Services be increased to cover the costs. Approved, Mr. Vardaman voting "no".
@FedFRASER