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Minutes of actions taken by the Board of Governors of the Neral Reserve System on Tuesday, March 8, 1949. lathe The Board met Board Room at 10:30 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. McCabe, Chairman Eccles Szymczak Draper Vardaman Clayton Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Thurston, Assistant to the Board Riefler, Assistant to the Chairman Vest, General Counsel Leonard, Director of the Division of Bank Operations Mr. Nelson, Director of the Division of Personnel Administration Mr. Mr. Mr. Mr. Mr. Mr. Mr. Vard Nar n stated that he had asked that a memorandum by Mr. Leonard under date of February 19, 1949, with reet t, —Federal Reserve Bank and branch building projects, copies or 1, "eh had been sent to each member of the Board before this meethle)be c°Asidered with a view to reaching a decision whether the 8 110 forth in its letter of Februkl.y 7,11°111d continue the policy set 4,4 or 1948, (S-1015). The letter stated that, except in the eill"gencies, the Board did not believe that extensive tion or improvements to Federal Reserve Bank buildings oltiti undertaken or new Federal Reserve Bank buildings con.oteci in times of pronounced inflationary conditions or when 3/8/49 t4iere -2- were substantial shortages of labor and construction materials. At Mr. Vardaman's request, Mr. Leonard discussed the memo- r83111) stating that the question involved was whether conditions tathe - Past year had changed to such an extent as to justify per4ittth„. several Reserve Banks and branches to go ahead with highly 481a, able and urgently needed building projects even though they blight not be of an emergency character, and whether it might be Vell 401. other Reserve Banks to prepare plans for desirable future etruction in order that the plans would be available in case an 4" in construction were needed to help maintain business act11/4 Y* He also reviewed the authorizations that had been granted °Y the Board from the $10l000,000 authorized by Congress in 1947 tor struction of Federal Reserve branch buildings, stating that tr oth et substantial construction were contemplated at the branches It °1114 be necessary to request additional authority from the Con$10,000,000 was not al) Since only about $1,000,000 of the ° eLteci. - projects either approved or considered as having a prior 11P°4 the fund. He also referred to the action of the Board the leeting on February 23, 1949 at which time it agreed that th ecter€1 -Reserve Bank of Chicago should be informed that action -"Ile re cinest for authority to proceed with the construction of it 'the kik °4 to the Detroit Branch would be postponed for 6o days eta of which time the outlook as to inflationary conditions be elearer, 3/8/49 _3_ There was a discussion of the policy that should be fol- l0Wed in the light of present and prospective economic conditions, 44-IS which it was suggested that no change in existing policy be kelt) at this time but that the matter be considered again at a meet-. eerlY in May. This suggestion was approved unanimously. 14r. Clayton raised a question as to the authority of the ? -.111 Reserve Banks to mace expenditures to change, repair, or Ze their buildings to provide satisfactory working condittOr and it was agreed unanimously thatl if necessary, it should e taa e clear to the Banks that the Board would authorize such It was agreed unanimously to ask Mr. Leonard to check this matter and suggest what, if any, action needed to be taken, by the Board with respect to it. 141'. Thomas entered the meeting at this point. 1910 There was then presented a memorandum dated February 1, ') 144, —°111 the Committee on Staffing of Foreign Missions, prel'sualat to the action at the meeting on October 19, 1948. illet4(11'Etriclum h vtior had been circulated among the members of the Board t° this meeting. 8zYmczak discussed the memorandum, stating that it 446 3/8/49 -4- l'elleved the practices that were being followed and set forth a 14'°e•eclure which might be considered as a guide with respect to "41114 foreign missions and use of personnel from the Board's °Etllization, or elsewhere, for this purpose. Chairman McCabe stated that the memorandum covered the he had in mind at the time he raised a question concerning Ilclittlissions at the meeting on October 19, 1948. Mr. Szymczak stated that the report did not call for action by tile Board. Reference was made to the discussion at the meeting on 4/ 1949, of proposed changes in the Retirement System and t° illenlorandura from Mr. Nelson dated February 9, 1949, with re- %Atonal retirement before age 65 without full actuarial COt The memorandum was accompanied by a draft of letter to al L, Reserve Banks which would authorize them, under certain .,Ltation, tio4 aul) i to submit for the Board's consideration proposals to 1"lemeatal payments to the Retirement System in cases of i ermination of service of members after age -4 . 55 and con- or 25 years of service, in addition to the authority conmquati, t 4 the Board's letter S-741, dated March 17, 1944, to make e4ta1 Payments to the Retirement System in cases of invol411t a•ty ePare.tion after age 55 and completion of 25 years of servtt . ScIze of the Reserve Banks felt that the requirement that such 447 3/8/49 _5_ el4111°Yees be involuntarily separated was objectionable, and they sUggested that a means be provided for effecting earlier reti,ellt in cases of superannuated employees on a basis more adeous than is provided under the present rules of the Retire- 'lent -Ystem. Mr. Nelson stated that the Chairmen's Conference committee st144ing the Retirement System had looked into the possibility of 14'°vicling optional retirement after age 6o and 30 years of service V „ith, -46,actuarial discount, along lines similar to the provisions ."t4Board Plan and the Civil Service Retirement System, but tlbecause of the cost, it was not contemplated that such a 144e would be made in the Bank Plan. However, the proposed letter 'would Permit a bank to recommend to the Board that employees age 55 be retired with an actuarial discount of 2-1/2 per : t riti3er Year in their benefits which would be substantially less lithe actuarial discount that would be applied under the op,10114, retirement privileges provided in the Rules and Regulations tit he t tirement System. Following a discussion, the letter was approved unenimously in the followform, with the understanding that it would not be mailed until the proposed changes in the Retirement System, as discussed at the meeting on March 4, had been approved by the Board: 448 318/49 -6- "During the recent study by the Chairmen's Conference cf the benefits of the Retirement System of the Federal l'eserve Banks, consideration was given to optional service retirement before age 65 in cases of employees with 1,4.1)4g service. While the Retirement Committee recommended 'hat age 65 be retained as the normal retirement age it vas suggested that consideration be given to providing 8°me means for effecting earlier retirement, in particular " e es, on a more advantageous basis than the present rules Permit. "In the Board's letter of March 17, 1944 (S-741) the ,ederal Reserve Banks were authorized to make supplemental t41-Yments to the Retirement System in cases of involuntary ' 4111in8tion of service of members after age 55 and cometion of 25 years of service, in amounts necessary to ':'-cvide a retirement allowance consisting of (a) an ancuitY of equivalent actuarial value to the member's ac;1141-gated contributions plus (b) a pension equal to the 4!ion which the member would receive if he were age 65 the date of involuntary termination of employment, rebp.?"- by 24 per cent for each year the member lacks of age 65. rr It is understood that a few special cases arise , 14,:tinie to time involving employees with long service vh° me superannuated before reaching age 65. Alth- " "5 °-in many of these cases the Bank desires to rethese employees and make a supplemental payment to the ;tletirement System on their behalf, it hesitates to re n th:ftle d an involuntary separation, which is one of 614 ;requirements of S-741. In the event that you have he 8',Ich cases in the future it is suggested that they vi lltmitted to the Board for consideration, together the recommendation of your Board of Directors." p t 4 Mr. Nelson then referred to his memorandum of February 9, vith respect to supplemental retirement allowances for Presi- Ilts thtl_ First Vice Presidents of the Federal Reserve Banks having tt lee. tit He stated that this question had arisen several ill ' -' - 01anection with the appointment or proposed appointment at of Federal Reserve Banks of men relatively late in 449 3/8/49 -7- 114) and that while he recognized there was a problem involved, he not recomraend that the rules and regulations of the Retirement 8htetabe amended to provide for such cases, or that the Board estailltsh allY definite formula which would be applicable under such In this connection, he referred to a memorandum Di‘ePared by Mr. Baumann, Assistant General Counsel, under date of 1P41151114417 14, 1949, with respect to the tax aspects of any proposal t°€t "higher paid officers of the Federal Reserve Banks special benefits under the Federal Reserve Retirement System, which indi4ttecl that such provisions or practices might remove the present e41111)t status of the Retirement Fund within the meaning of See165 ' 4i of the Internal Revenue Code and that if such status IN4 1°st, it would probably result in a prohibitive tax on the Itet*enlent System. DUring a discussion of the matter, Chairman McCabe sugthat consideration be given to establishing a minimum pen11.04 13,„_ -uerit for employees retired from the Federal Reserve Banks 4) 1144 e°mPleted a minimum amount of service. In this connection to ested the possibility of a pension and normal annuity equal °8 than 25 per cent of average salary for all persons who °ceirtneted ten or more years of service. 41)D14. to Question was also -er, if such a proposal were made effective, it should ell1Ployees of the Board. 450 3/B/49 -8It was understood that Mr. Nelson would make a study of Chairman McCabe's Proposal and submit a memorandum for the consideration of the Board. Before this meeting there had been circulated a memorandum . Vest, prepared under date of February 23, 1949, in accord- 4th the understanding at the meeting on January 251 1949, re4g the ' application of Section 32 of the Banking Act of 1933 sPecial reference to the standards being used in determining Ilhethe B44 the a firm is "primarily engaged" in the securities business Possibility of some additional exemption being provided R, Relationships with Dealers in Securities under Eleett_ 32 of the Banking Act of 1933. the The memorandum reviewed eislation, the history of its administration by the Board 414 the viti Federal Reserve Banks and, without recommending that any 111141 exemption be provided, listed several ways in which the 1111.1tti°11 could be amended if that was considered desirable. 141'. Clayton suggested that the Board consider whether an iOz1a1 the eo 11*.e exemption should be provided in Regulation R along some lin es suggested in Mr. Vest's memorandum. He stated that had given the Board authority to make such exemptions, ritk had made only one such exemption which was applicable to business consisted solely of dealing in Government itt / and that he felt there might be some other basis for 3/8/49 -9- ezeniPtillg firms from the Regulation or perhaps for modifying the 8t41derds which the Board applied in screening situations for the --se of determining whether firms were primarily engaged in the 1114erwriting of securities within the meaning of the law. Consideration was given to the possible need for an additiotal '& exemption and to various suggestions as to the kind of exe Pti that might be provided and the way in which each would t3lerate-. At the conclusion of the discussion, it was the consensus that t he Regulation should not be changed at the present time since Ilcke 1 (If the suggested changes which might be permissible under the °I.1-1-d be made effective without opening the door to the pos41114, 'Ittv • of undesirable relationships between bank officers or di- r etor 4.118e Et ‘ 114te members of securities underwriting firms, and also beexemption that seemed practicable might result in re' 1• additional exemptions that should not be granted. kr. Clayton then referred to the request of Mr. Robert W. 444' t1,41 discussed at the meeting on January 25, 1949, that some ac411t taken which would permit him to continue to serve as Presiejad t irector of Livingston National Bank, Livingston, New 4:1'4Y) the fact that he is a partner in the firm of Kean, q,ylor 8,despite co., a New York City firm which the Board has tentatively 4trIlliziecl to be primarily engaged in the securities business withor Section 32 of the Banking Act of 1933, and sug- 3/V49 -10- gested that, inasmuch as Mr. Kean had called upon him concerning the 411tter, he write him a letter informing him of the Board's decision to Provide an additional exemptive provision in the Regulation, ellti that a letter be sent to the Federal Reserve Bank of New York the Secretary informing that Bpnk of the Board's decision in the zam er. Mr. Clayton's suggestion was approved menimously. §lattan's Note: Pursuant to the foregoing action a letter was sent to the Federal Reserve Bank of New York under date of March 14, 1949 reading as follows: 1 , L "This refers to the Board's letter of August 23, tY48 with regard to the service under section 32 of the ankine Act of 1933 of Mr. Robert W. Kean as president 11,:k director of Livingston National Bank, Livingston, & /1 Jersey, and as partner of the firm of Kean, Taylor CO., New York, New York. As you know, Mr. Kean came to Washington and dise ed this mRtter with one of the members of the Board : co- several members of the Board's staff. After further c,,I18ideration of this matter the Board has reached the elusion that the interlocking service referred to : "falls within the prohibition of section 32. It will be appreciated if your bank will advise kr th,..1Ceall regarding this matter. In this connection, C114::! is enclosed a copy of a letter which Governor -"4011 has written to Mt. Kean." The meeting then adjourned and reconvened at 2:40 p.m. the same attendance as at the close of the morning session, %)t. tb Mr. Millard was also present. Mr' Clayton stated that he received a telephone call this 171„,", '?••• 3/8/149 -11- kfternoon from Mr. Rountree of the Treasury Department Savings Bond 1)111-610 ;in which the latter stated that the suggestion had been 11Me in the Chicago District that dinners be given in each State illthe district in connection with the forthcoming Savings Bond 44Iaign, and that Mr. Young, President of the Federal Reserve Bank (4Chicago, had suggested that the matter be taken up with the Board Of C"rnors since it had informed him that it would interpose no Obje -on to payment of the costs of a Savings Bond dinner in each qtY -.4 which there was an office of a Federal Reserve Bank. In this connection, Chairman McCabe stated that Mr. Vernon ts 0 1110, National Director of the U. S. Savings Bond Division, e48141Y Department, had inquired of him whether the Board, for teEtao— 46 'which in Mr. Clark's opinion would justify the expendi, to '14/111d pay up to $5,000 of the costs of a Savings Bond dinner be 817en by the President to about 600 national leaders in rf643111. 4t°4 in April 1949, and whether it would also provide a NA1110, ealotment of $12,000 during the fiscal year 1950 to cover tik co St of luncheons and dinners in connection with the promotion t the "le of Savings Bonds during the year. bNlia It vas the view of the members of the Board present that, Qf the interest of the System in the sale of savings bonds, /1(110(1 _ _ alight make a nominal contribution toward payment of the tEitti the dinner to be given in Washington in April. 3/8/49 -12Chairman McCabe was authorized unanimously to discuss the matter with Secretary of the Treasury Snyder and to report back to the Board at a later meeting. Chairman McCabe referred to the recent hearing before the / 1 44t Committee on the Economic Report at which he appeared to on proposed legislation relating to increased supplemental " tea reeer vs requirements and consumer instalment credit. He said that e't that hearing, which was attended by the members of the Federal (11/18, -17 Council, Senator O'Mahoney suggested that the members of the c, -11acil might testify but that Mr. Brown, President of the Fed- etal a cillisorY Council, responded that the Council would wish first t° co nter with the Board. e‘t lnqUired Recently, Chairman McCabe said, Senator of him as to the views expressed by the Council Ilt itskeeting with the Board and that it had been ascertained from 1114ellt Brown that the Council would have no objection to the kette €UNTing. to Senator O'Mahoney for his information the state- increased reserve 4 IlreSellted by the Council with respect to hirer, -eats and consumer instalment credit. Chairman McCabe (1(1 ( ieci that if the Board would approve, he would like to send toiao g letter to Senator O'Mahoney: -Ln our recent conversation you indicated an vis,rest in the views expressed by the Federal Adres-rY Council at its last meeting with respect to erve requirements and consumer instalment credit, 3/8/49 -13- and I am pleased to enclose copies of the statements adopted by the Council on these subjects." Approved unanimously. Chairman McCabe presented the following draft of letter to aonorable Wright PatmAn, Chairman, Select Committee on Small "esa, House of Representatives, and recommended that it be 4111)1‘ckved by the Board: e "In accordance with my letter of March 1 acknowldging your request for certain information with reaPect to Regulation W, I am glad to send you herewith : 4 copies of a memorandum on the subject prepared by Staff, and accompanying charts and tables. Adtional copies are available if you should wish them. We appreciate the opportunity to supply this inev.emation, and hope that you will call upon us when//e can be of any assistance." Approved unanimously. At this point Messrs. Riefler, Vest, Thomas, Leonard, Nelson, ' 44-uL withdraw and the action stated with respect to each of the kittere. ° hereinafter referred to was taken by the Board: Minutes of actions taken by the Board of Governors of the Fede System on March 7, 1949, were approved unanimously. ()I, Memorandum dated March 7, 1949, from Mr. Nelson, Director t4titiviSion of Personnel Administration, recommending that a %1, 1) Paid to mrs. Edna Hardesty, a Registered Nurse employed 14 the absence of Miss M. Caine Wickline, the nurse in charge 456 3/8/149 -14- °lathe emergency room, at the rate of $11.60 per day for each day that She worked, and also recommending that $69.60 be charged to tile Mis cellaneous Expense Account of the 1949 Budget of the Di'?ialc)11 of Personnel Administration and that the appropriate item or tile 1949 budget of that Division be increased by the same amount. Approved ummimously. Letter to the Presidents of all Federal Reserve Banks read8.13 follows: e "In connection with your Bank's recurrent spot ;neYs of tendencies in durable goods and instalment 01 ,4egit in your District, as requested in the Board's Jitetter (re S-953) dated January 27, 1947, it would be irreciated if you would give prompt consideration at " is time to the following questions: (1) To what extent have lenders and retailers relaxed their maturity and downpayment terms in line with recent changes in Regulation W? (2) What evidence is there, if any, of marked .11811ge, other than seasonal, in sales and prices of :;egulated articles since the recent modification of liegulation W? (3) Have there been any marked changes in the inventory situation in automobiles, appliances, and fu rniture? possible diftic (4) Are there any indications of ulties or financial over-extension among proor distributors of consumer durable goods? We suggest that you send by telegram or telephone 44i : thus riking information relating to these questions IT .0 may obtain in the course of your inquiries, a4a t. tvolr't a summary of developments during the first the B:elle of the revised regulation be sent to reach Nr1,-ard by March 23. Telephone calls on this matter or bu_e to Mr. Ralph A. Young of the Division 'esearch and Statistics." Approved unanimously. 454 3/8/49 -15Letter to Mr. Sproul, Chairman of the Special Committee (4111etirement System and Social Security, Federal Reserve Bank of 146/r York, reading as follows: "This refers to your letter of March 31 1949, re , questing that someone be assigned to follow the tegislation regarding the proposed enlarged Social L,rcurity program and to keep you advised concerning 4t* Accordingly, the Board has requested Mr. Vest all i d• Mr. Cherry, who keeps in touch with legislation ;11 vhich the Board is interested, to furnish you any : .111tormat1on which they can obtain from time to time to developments regarding the Social Security 4-e81 slati0n." Approved unanimously. 4Dtoveci: a L-21t-t, Chairma
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