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6715 Minutes of actions taken by the Board of Governors of the Nieral Reserve System on Tuesday, March 27, 1951. The Board met in the Board Room at 10:35 a.m. PRESENT: Mr. McCabe, Chairman Mr. Szymczak Mr. Evans Mr. Vardaman Mr. Powell Mr, Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Murff, Assistant Secretary Kenyon, Assistant Secretary Riefler, Assistant to the Chairman Thomas, Economic Adviser to the Board Leonard, Director, Division of Bank Operations Vest, General Counsel Young, Director, Division of Research and Statistics Hilkert, Acting Director, Division of Personnel Administration Williams, Assistant Director Division of Research and Statistics Leach, Economist, Division of Research and Statistics }dr. Thomas presented a review of recent developments in the Qo "Enent securities market which was followed by a general discussion, 41;the close of which Mr. Leach withdrew. There 1)14i SiOrk ktions WAS presented a memorandum dated March 15, 1951, from the Of Personnel Administration recommending that any reclassifi- and employments in Group M (salary range $32100 -A3,850) or 1 except professional positions (which would include such positions kt rese Cu assistants and assistant Federal Reserve examiners)l be -4111ted to the Board for approval in accordance with the established 67? 3/21/5l -2- PI'ocedure, except that prior clearance by the Board member whose a4ignment8 included the function affected would not be required. The memorandum noted that as a result of the Board's action of 41cember 22, 1950, which provided that any position vacated after that date by reason of death, resignation, retirement, or otherwise, 17°111d be eliminated, each new position must first be cleared with the 13°41'd member whose assignments include the activity involved and that *Ice, technically, a new position is created whenever there is a INIassification, these also must be presented to the Board member tola clearance. The memorandum stated further that, in the opinion qthe Division of Personnel Administration, elimination of the re- 144ement for clearance in the case of nonprofessional positions in M or below would be in the interest of efficient personnel ad4*48tration, particularly since a decision whether the work should be d°11e -"-Ixt already have been determined by decisions with respect to °11 a more responsible nature. The memorandum was in circulation for approval and Mr. Vardaman ' lecilbapt+ -ved that it be considered at a meeting. In response to a question by Mr. Vardaman, Mr. Hilkert said tIlat der the proposed procedure it would still be necessary for the ' 4.011 head concerned, the Director of Personnel Administration, the e°reta17 of the Board, and the Personnel Committee to approve the g of a position either with a new appointee or by reclassification, 678 3/27/51 _3_ 81110e no vacancies could exist in authorized positions since the action "ecember 22, 1950. He also expressed the opinion that with these apPl"als adequate safeguard would be afforded, and if the recommended changes /fere approved the Director of the Division of Personnel Administration would be able to cope more effectively with the problems of a tight labor market. After a discussion, upon motion by Mr. Evans, the recommendation was approved unanimously. Ur. Vardaman referred to action taken by the Board on December 22, 1950 )increasing the membership of the Personnel Committee to three, 111 4A wdition to the Chairman of the Board, who serves as chairman of the e°Iterlittee ex officio, and asked whether an appointment should not be t° fill 444 ' the vacancy on the committee created by the termination mr. SzYmczak ts appointment on February 28) 1.951. In the ensuing T4/1(/n it WAS suggested that no action be taken to fill the vacancy ettii such time as Mr. Martin, Chairman-designate of the Board, had 48811ned --e duties and had an opportunity to consider the matter. This suggestion was approved unanimously. There were presented two memoranda from Mr. Young, Director of tile pi vision of Research and Statistics, both dated March 14, 1951, N001414 ko ending that the salaries of Stanley J. Sigel and Irving Schweiger, ik_ 1174Liets in the Division of Research and Statistics, be increased ',corn $5 to $6,400 per annum, effective at the beginning of the Pay , "la period following approval by the Board. The memoranda, 3/27/51 *doh stated that the positions of Messrs. Sigel and Schmeiger had been 111c1assified from Group U to Group V as a result of expansion of duties and responsibilities of their positions due to competence of the employees, had been in circulation and Mr. Vardaman had asked that the matter be discussed at a meeting. Mr. Vardaman stated that while he did not object to the recom4iendations with respect to Messrs. Sigel and Schweiger, he was under the impression that the number of employments and promotions since the eirst of this year was greater than would be expected in the light of the Board's actions of December 22 and 29, 1950, and that he felt the tatt er should be discussed by the Board. It was pointed out that as the result of the Board's action on TL. 4-1 ember 29, 1950, all employments and promotions ere being made 04 n -nPermanent basis, that the work of the staff had increased sub- et +.4.,1 --4-qy over the past several months because of the Board's enlarged 815"8ibi1ities, and that the number of employments and promotions had hot be -n -Large in relation to the increase in the work load. Chairman McCabe suggested that in order to afford the members Otthe Board a clearer picture of the number of additions to the various 4N184'uns of the staff and the number of promotions approved since the 4113 t f ullis year in each division, the Division of Personnel Administio 11 Prepare a memorandum containing this information. e- Thereupon, it was voted unanimously to approve (1) Chairman McCabe's foregoing suggestion and (2) the recommendations with respect 680 3/27/51 -5to Messrs. Sigel and Schweiger contained in Mr. Youngs memorandum of March 14, 1951. At this point, Mr. Solomon, Assistant General Counsel, Mr. Koch, ker, Banking Section, Division of Research and Statistics, and Mr. Leach joined the meeting, and Messrs. Hilkert and Williams withdrew. Before this meeting, there had been sent to each member of the kIrd a memorandum from Mr. Powell to the Secretary dated March 20, 1951 44 "auln g as follows: "Will you kindly place on the docket for the next meeting of the Board of Governors the question of an appropriate way of handling the market depreciation in our Open market account? For the week ending March 14 I understand the depreciation in market value as against book value was over $1002000,000 of which $57,000,000 was in the bond classification. "The depreciation on the shorter maturity is probably significant for we can hold these securities_until they 'un off and take the depreciation from time to time on the ! scurities purchased above par. In the case of the bonds and longer notes, there is a real question whether we should ;late off any premiums as compared with par and set up re, eryse out of current earnings for the depreciation below ! ;ft , We have made a very significant and probably permanent ZInge in our policy and I would favor eliminating the "rockage left over from our old policy as soon as possible. th "If we exchange our longest ineligible securities for dbe new t issue, it would seem appropriate to write :r8s holdings down to par at the time of the exchange. The Zreciation in our other holdings of bonds and the longer to2s might be offset by quarterly additions to our reserve contingencies. botts "Mr. Gidney of Cleveland and Mr. Young of Chicago are " thinking along this line although not in these exact details." n In a discussion, during which Mr. Powell amplified the comments cltit4insd in his memorandum, he stated that in view of the recent de4iticie prices of Government securities, the market value of System 3/27/51 —6— holdings had declined approximately $109 million, whereas the Reserve Banks were carrying only about $98 million in reserves against this depreciation. Chairman McCabe suggested that a careful study be made of the questions presented by Mr. Powell. This suggestion was approved unanimously, with the understanding that Mr. Powell and Mr. Norton whose assignments include Reserve Bank expenses, reserves, and chargeoffs, would study the matter and that it would be considered again by the Board when that study had been completed. Mr. Evans outlined the reasons why he felt it was important that Prompt action be taken to recommend to the Congress legislation il laeing the authority of the Board with respect to reserve require- Ilts of member banks. Before this meeting there had been sent to the members of the toard copies of a proposed draft of a second report on supplementary rose I've requirements by the task force, of which Mr. Young was chairman, Itich had been requested by Mr. Wilson, Director of the Office of Defella e Mobilization, to study possible plans for increasing Federal Reauthority over bank reserve requirements and present a recom-01/1 together with a draft of proposed legislation. M. Young stated that, following the discussion at the meeting "th 6 Board on March 20, he decided to prepare this draft of report, 1471.1ehh he would present to the members of the task force at a meeting 3/27/51 -7_ this afternoon with the suggestion that they discuss it in their respective agencies and determine whether it would be acceptable. The draft stated that the task force had considered in greater detail the loan expansion reserve plan, the primary (securities feature) reserve plan, giving the option of holding additional requiremen ts in Federal Reserve balances or Government securities, and possible combinations of these two plans, that draft legislation in the form att4ehed had been prepared on the basis that any supplementary reserve authority would apply to all insured banks, that the task force suggested that the report be referred to the appropriate agencies for P°11cY opinion, and that the task force further suggested that the ecteral Reserve Board be requested to report on the views of the bank&1g 4 Jaldustry with respect to these alternativ reserve plans. Mr. Young e alse stated that he expected to arrange a meeting of representative 144/el've Bank economists later this week for the purpose of discussing the al ternative reserve plans with them and obtaining their opinions. In response to an inquiry by Mr. Evans as to the status of Other 'Legislation in which the Board was interested, particularly with Nen. "ct to bank holding companies and member bank capital requirements, 44(1 the desirability of legislation in these fields, it was stated that the se 44te Banking and Currency Committee did not appear to be in a &tiO tike _ n to hold hearings on a bank holding company bill at the present that there was a question whether it would be possible to get 683 3/27/51 —8- 4*gate consideration of bank holding company legislation at this sElsion of Congress. With respect to member bank capital requirementsy It% Powell said that he had presented draft legislation along lines he felt might be suitable to representatives of the Federal Deposit Illaurance Corporation and the Office of the Comptroller of the CurlerIcYllith the suggestion that attorneys for these agencies study the Proposed legislation, but that he had not yet received their views on til"e drafts. Mr. Vest reported that he had been advised by Mr. Bergson, ezerleral Counsel of the Office of Defense Mobilization, that legislation 17°11-1c1 be presented next month to amend the Defense Production Act of /950 so as to extend the Act until June 30, 1953, including the pro114d-Ons relating to the control of consumer credit and real estate credits He stated further that the authority to regulate real estate credit wohl, --4cLbe expanded in the amended Act so as to include Board authority to eglaate credit extended for the purchase of existing structures. At this point all of the members of the staff with the exception ot 38r8. Carpenter, Sherman, and Kenyon withdrew, and the actions tistto,, '`. J With respect to each of the matters hereinafter referred to was gY the Board: Minutes of actions taken by the Board of Governors of the Federal Ystem on March 26, 19512 were approved unanimously. C'Sei 3/27/51 -9Telegram to Mr. Clark, First Vice President of the Federal Ileserve Bank of Atlanta, reading as follows: "Referring your March 23 telegram, Board will interpose no objection to installation of air conditioning on first and second floors of Silvey Building at cost of approximately $17,000." Approved unanimously. Letter to Mr. Emanuel Nadlin, Suite 823 U. B. Building, N.E. Cor. Fourth and Main Streets, Dayton 2, Ohio, reading as follows: 'This refers to your letter of March 12 addressed to Chairman McCabe in which you proposed, briefly, that the Present restrictions on consumer credit be supplemented With an executive order directing the various Governmental agencies and the Armed Forces to cooperate with credit granting institutions in the liquidation of delinquent accounts of Government employees and military personnel. You indicate that such an order would assist in limiting commodity credit buying and consumer demand for hard-toget items. "In our view, your concern relates essentially to , he matter of credit risk. The present regulation of consumer credit--Regulation W--is, on the other hand, an instrument for restricting the use of consumer credit quite aPart from the question of credit risk. It is one part of broad fiscal, monetary and credit program designed to restrain inflationary pressures and to facilitate diverof critical material and manpower to military production. 'ffhether a particular person or class of persons is 4 sufficiently good risk to obtain the maximum terms prescribed by the regulation is a matter of creditor-consumer relations that have been left to the judgment of credit grantors. Quite aside from the regulation, the fact that matter certain recourse may or may not be availto the creditor in the event of borrower delinquency al!,°n1Y one of the many factors which the creditor presumY should want to consider in deciding whether or on what ' srms to grant the particular credit. 2a le legal 3/27/51 -10- "As you suggest, the question whether the income of all government employees should be subject to garnishment would appear to be one for decision by the Congress. The relationship of government agencies to creditors of delinquent government employees has not been the subject of study by the Board. Consequently, the Board does not feel that it is in a position at this time to express an opinion one way or another on the matter." Approved unanimously. Letter to Mr. Treiber, Vice President of the Federal Reserve 13ank of New York, reading as follows: "The Board has reviewed the request transmitted with Your letter of February 7, 19510 for exemption of metered taxicabs from the maximum maturity requirements of Regulation W. "This question has, as you know, received considerable Study in the past and although the League of Mutual Taxicab Owners introduced a somewhat new approach the Board believes that it would not be justified in granting the requested exemption. "It is recognized that the imposition of credit restrictions will necessarily make it more difficult in some instances to purchase taxicabs as well as other durable goods subject to Regulation W. The Board is also aware of the important part played by taxicabs in the City of New York and elsewhere, as well as the important function Planned for such vehicles under a bombing or other war emergency. It does not appear, however, that the present restrictions of Regulation Ar will contribute materially tO a reduction in the number of taxicabs available nor ,1?es it appear that it is impossible for the taxi drivers question to comply with the requirements of the regulaion. In many instances the owner-driver could accumulate 'Y. means of saving the amount of the monthly or weekly • 12: 1YMent he is able to make and this amount when added to ns trade-in of the old cab could so reduce the amount of , ,e unpaid balance as to enable the driver to purchase a " 4 car. V 3/27/51 -11- "Credit extended for the purchase of taxicabs does add to the expanded demand that is now generally in excess of the prospective supply of automobiles (including taxicabs) and therefore adds to the present serious threat of inflation. As you know, the Board feels that strong curbs on instalment credit are now required in the interest of national defense. "We shall appreciate your apprising the League of Mutual Taxi Owners, Inc. of the Board's views on the matter." Approved unanimously. Letter to Mr. Attebery, First Vice President of the Federal Bank of St. Louis, reading as follows: "Reference is made to your letter of March 2, 1951, enclosing a copy of a letter from Mr. Hubbard G. Buckner, Vice President of the First National Bank, Louisville, Kentucky, and a copy of Mr. Clark's reply, in which you ask that we furnish you with a copy of our reply to Mr. Buckner. "It occurs to us that you might prefer to handle this matter by having a representative of your Louisville Branch .iscuns it with Mr. Buckner personally, since he appears 40 be completely unfamiliar with the investigative procedure ?uPporting Regulation W. If you agree with this procedure, it_. would seem to us to be desirable to outline to Mr. Buckner 'Ile Provisions of the Defense Production Act of 1950 that "Iltherized the Board of Governors to exercise consumer credit ocr oritroi_ u in accordance with and to carry out the provisions w the Executive Order under which the original regulation aa !insued in 1941. The same statute gives the Board 6hority to make investigations to determine whether any m:son has violated the regulation, and, for the purpose of .such investigation, to subpoena witnesses and examine frill under oath. The statute also authorizes the Board to orl suit for an injunction to restrain further violations Itr4e gulationli and provides criminal penalties. The powers thoerred to in the two preceding sentences are the same as tor "which the Securities & Exchange Commission has had to a number of years, and similar powers are given by statute 4 number of other agencies of the Federal Government. g 3/27/51 -12- "In the case of A. Harris, the staff of the Federal Reserve Bank of Cleveland, in the course of their regular examinations of persons subject to Regulation WI were met With a refusal on the part of A. Harris to permit them to examine his books. A visit from counsel for the Reserve Bank and the Assistant Solicitor of the Board of Governors convinced him that he was in error in thus refusing, and an examination of his books was thereupon made. On the basis of the information developed by this investigation, the Federal Reserve Bank referred the case to the Board of Governors for action and the Board decided to institute an investigation. A number of witnesses were subpoenaed and examined under oath and as a result it was decided to file suit in the United States District Court against A. Harris. The complaint alleged that the defendant had violated the Regulation and asked that he be restrained from further Violations. Instead of letting the case go to trial, the defendant and his attorney consented to the entry of judgment, and on the basis of this consent the Court issued the injunction. No criminal proceedings were instituted. "All of the foregoing information except that relating to Mr. Harris' earlier refusal to permit an examination of the books of his company is in public records or could be derived from them, so that you may feel free to use as much of it as seems desirable in answering Mr. Buckner's request° If, after discussing the matter with him, he still has questions, we shall, of course, be glad to furnish you with additional information if you wish to have us do so." Approved unanimously. Letter to Mr. Millard, Vice President of the Federal Reserve tank of San Francisco, reading as follows: 4 "This refers to your letter of March 12, 1951, regardthe application of Regulation W to credit extended to an automobile leasing firm. 4._ "It is the view of the Board that extensions of credit r the lessor to finance the purchase of articles which are be subsequently leased and used by another party would u exempt under the first clause of section 7(c) of the regulation. "With regard to your second question, it would not be ' violation of the regulation for the lender to accept a I 688 3/27/51 -13- "nonconforming lease agreement as security for a loan to the lessor; but it would be a violation of the regulation for the lender to accept any payments directly out of the underlying obligation held as collateral. That this is true would seem to follow from the last sentence of section 8(e), section 8(j)(6) and the related summaryinterpretation 826 in the Regulation W Service." Approved unanimously. Telegram to Mr. Olson, Vice President of the Federal Reserve sank of Chicago, reading as follows: "Re Indianapolis Produce Terminal, Inc. After further exploration of policy questions involved, we have concluded that it is inadvisable at this time to amend Regulation X to exempt such a single project. Based on facts contained In your telegram of March 12, property appears to be subject to Regulation X unless a re-examination of the facts in relation to Section 5(g) discloses elements providing exemption under this Section. If you wish further consideration by us please advise." Approved unanimously.
@FedFRASER