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Minutes of actions taken by the Board of Governors of the Federal Reserve System on Monday, May 19, 1952 . The Board met in the Special Library at 2:30 p.m. PRESENT: Mr. Mr. Mr. Mr. Evans, Chairman pro tern Powell Mills Robertson Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Thurston, Assistant to the Board Leonard, Director, Division of Bank Operations Mr. Vest, General Counsel Mr. Noyes, Director, Division of Selective Credit Regulation Mr. Sloan, Director, Division of Examinations Mr. Garfield, Adviser on Economic Research, Division of Research and Statistics Before this meeting there had been sent to each member of the 1110aN a memorandum relating to the topics to be discussed at the joint Of the Board and the Federal Advisory Council at 10:30 a.m. on l'il"daY, May 20 1952. The memorandum was reviewed and it was agreed that the topics would be discussed with the Council along substantially t4 lines recorded in the minutes of that meeting. At this point all of the members of the staff with the exception 14188rs• Carpenter and Sherman withdrew, and the action stated with re 1)c3cti t0 each of the matters hereinafter referred to was taken by the Board: Minutes of actions taken by the Board of Governors of the Federal olive oystem on May 16, 1952, were approved unaninously. 5/19/52 -2Memorandum dated May 71 1952, from Mr. Leonard, Director, Dildzion of Bank Operations, recommending that Mabel E. -Nike, File Clerk in the Office of the Secretary, be transferred to the Division of Bank Operations as Statistical Clerk, with no change in her present basic salarY of 31030 per annum, effective the date she assumes her new duties. The memorandum also stated that the Office of the Secretal7 was agreeable to this transfer° Approved unanimously. Memorandum dated May 131 19521 from Mr. Boothe, Assistant Director, Division of Selective Credit Regulation, recommending that .4raliam J. Powers, Analyst in that Division, be granted leave of absell without pay beginning June 31 19521 for the purpose of entering 11111 1 /r , service, that he be paid one monthts unearned salary, to- ether viith a lump sum payment for accrued annual leave remaining to his credit as of that date, and that he receive the other benefits '311111j-fled in the policy approved by the Board on August 11 1950, for °1111310 Yees entering military service. Approved unanimously. Letter to Mr. Denmark, Vice President, Federal Reserve Bank or Atlantal reading as follows: 5/19/52 -3- "In accordance with the request contained in your letter of May 13, 1952, the Board approves the appointment of W. S. Dennis, Jr. as an assistant examiner for the Federal Reserve Bank of Atlanta. If the appointment is not made effective June 1, as planned, please advise us. "It is noted that Mr. Dennis has made arrangements to eliminate his indebtedness to the Citizens and Southern Bank, Atlanta, Georgia. Please advise us when this has been done." Approved unanimously. Letter to Mr. Diercks, Vice President, Federal Reserve Bank of nh4 `n14-cago, reading as follows: "In accordance with the request contained in your letter of May 14, 1952, the Board approves the appointment of William Hugh Low as an assistant examiner for the Federal Reserve Bank of Chicago. "Please advise us of the date upon which the aPpointment becomes effective." Approved unanimously. Letter to Mr. William K. Kleitz„ President, Guaranty Trust Coln') anY of New York, 140 Broadway, New York, New York, reading as follows. "This refers to your letter of April 29, 1952, regardthe ruling made by the Board some months ago with respect the treatment of cash collateral accounts as deposits for reserve purposes and requesting the Board again to consider this matter. 'The ruling of the Board to which you refer, as published in the September 1951 issue of the Federal Reserve ; , 31111etin at page 1135, was made only after the most thorough 611c1Y- and discussion, over a period of many months, of all 4 5/19/52 aspects of this matter. In January 1951, the subject was discussed with counsel for the interested New York City member banks at a conference held in VVashington at their request and, subsequently, briefs prepared and submitted by counsel for such banks were carefully considered. Ne vertheless, in view of your request, consideration has again been given to the basis for the Board's position in this matter. "As we understand the facts of the typical case, when a member bank receives funds as collateral for an outstanding letter of credit, a separate 'cash collateral account' is set up on the books of the bank and the funds are mingled With the bank's other cash assets and used in the course of its business; when drafts drawn under the letter are presented to the bank for payment, the amounts of such drafts are charged to such account; and after cancellation of the letter of credit, any balance remaining in the account is 12 7 .141 or credited to the customer. As indicated in the n.ardts published nil ing, the bank remains liable to return to the customer such part of the cash collateral as may not be used for the purpose of reimbursing the bank for drafts by it. Moreover, in such a case, it is believed that e funds in the cash collateral account cannot properly regarded as a prepayment of the customer's liability Under the letter of credit, since the amount, if any, of urafts that may be drawn and presented to the bank for payment cannot be determined and the amount of the customer's 'lability therefore is not definitely known. "Among other things, we have considered the fact refA erred to in your letter that the Federal Deposit Insurance .rt 4 ) Passed in 1950, specifically permitted insured banks 'c exclude cash collateral accounts from their deposits for sessment purposes. As you know, however, the purposes of 811ranoe assessments and of reserve requirements of member banks are different and there are other respects, resulting iromm the law itself, in which there is lack of uniformity ,111 computing the assessment base of insured banks and the deposit liabilities of member banks for reserve purposes. "In all the circumstances, after careful revieli of the matter,the Board feels that funds held in such a cash collateral account should be treated as a deposit liability for r r 5/19/52 .) reserve purposes and that the Board would not be warr:anted in taking any position other than that set forth In the ruling published in the September 1951 Bulletin." Approved unanimously, with a copy to Mr. Sproul, President, Federal Reserve Bank of New York. Letter to Mr. Olson, Vice President, Federal Reserve Bank of 5') 111 regard to Willys Overland of South Bend, Inc., operating as K4 Motors, 1515 S. Michigan Street, South Bend, Indiana, a regis- trallt under Regulationv, Consumer Credit, reading as follows: . "Reference is made to your letter of May 7) 1952/ which you recommended that the Board seek an injunc1 by consent or otherwise, restraining this dealer 'em further violation of the Regulation. In view of the fact that Regulation has been i;!Pended it would not be Possible nor to obtain an lijunCticn; nor would it be possible to suspend the cen7.e of the registrant. customer contacts have not been made, and n"Moreover, on of 8 can now be made in view of the Board's telegram to 71, 'Y - 8) 1952. Accordingly, the case cannot be referred Den ' IT Department of Justice because, as you knoa, the 110 'nment will not proceed in a case in which there is -vi'dence except the registrant's own records. in 4.1_:In the circumstances the Board is closing its file ..eas case. ti Approved unanimously. L tter to to .wouis Mr. Lewis, Vice President, Federal Reserve Bank of ) in regard to Home Equipment Company, Incorporated, 2529 S11ler Ave flue, Memphis, Tennessee, a registrant under Regulation Consitn r Credit, reading as follows: rzgi 7.1=r 7+. 5/19/52 -6- 'Reference is made to your letter of May 2, 1952, in which you recommended that the Board seek an injunction, by consent or otherwise, restraining this registrant from further violations of the Regulation. "In view of the fact that Regulation W has been lispended it would not be possible noa to obtain an inJunction; nor would it be possible to suspend the license of the registrant. "Moreover, customer contacts have not been made, and 1(Ine can noa be made in view of the Board's telegram of :. ,Y" 8, 1952. Accordingly, the case cannot be referred to the Department of Justice because, as you know, the Department will not proceed in a case in which there is no evidence except the registrant's own records. 4 "In the circumstances the Board is closing its file 1 thiS case." Approved unanimously. Letter to the Honorable Preston Delano, Comptroller of the Cill'renCY, Washington, D. C., reading as follows: "As indicated in the enclosed press statement, the Board of ef Governors suspended Regulation W—Consumer Credit, fective May 7, 1952. We have appreciated the assistance your office has en 11, in the giv . ti administration and enforcement of Regalar 1. Although its suspension makes it unnecessary to e-- c3, drldnue investigation of Registrants for the purpose of termining whether there is compliance with the terms of ..t e consumer credit regulation, we want you to know that or Board has relied upon your office for the necessary 112Cking of national banks during the period while the JTulation was in effect, and that your cooperation in "Is respect has been sincerely appreciated." j Approved unanimously, together with Similar letters to Messrs. Maple T. Hari, Chairman, Federal Deposit Insurance Corporation, Washington, D. C.; William K. Divers, . 5/19/52 -7Chairman, Home Loan Bank Board, Washington, D. C.; I. W. Duggan, Governor, Farm Credit Administration, Department of Agriculture, Washington, D. C.; James J. Walsh, President, National Association of State Small Loan Supervisors, Springfield, Illinois; C. R. Orchard, Director, Bureau of Federal Credit Unions, Federal Security Agency, Washington, D. C.; and Alexander Chmielewski, President, National Association of Supervisors of State Banks, Providence, Rhode Island.
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