The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
To:
Members of the Board
From:
Office of the Secretary
Attached is a copy of the minutes of the meeting of the Board of Governors of the Federal Reserve System with the Federal Advisory Council held on May 22, 1956.
It is not proposed to include a statement with
respect to any of the entries in this set of minutes in
the record of policy actions required to be maintained pursuant to section 10 of the Federal Reserve Act.
Should you have any question with regard to the
minutes, it will be appreciated if you will advise the
the
Secretary's Office. Otherwise, if you were present at
that
meeting, please initial in column A below to indicate
you approve the minutes. If you were not present, please
initial in column B below to indicate that you have seen
the minutes.
Chm. Martin
Gov. Szymczak
Gov. Vardaman
Gov. Mills
Gov, Robertson
Gov. Balderston
Gov. Shepardson
1052
A meeting of the Board of Governors of the Federal Reserve
System with the Federal Advisory Council was held in the offices of
the Board on Tuesday, May 22, 1956, at 10:30 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Szymczak
Mills
Robertson
Shepardson
Mr. Carpenter, Secretary
Mr. Sherman, Assistant Secretary
Messrs. Ireland, Massie, Mitchell, Denton,
Fleming, Kimball, Livingston, Miller,
Baird, Kemper, Matkin, and King, members
of the Federal Advisory Council from the
First, Second, Third, Fourth, Fifth, Sixth,
Seventh, Eighth, Ninth, Tenth, Eleventh,
and Twelfth Districts, respectively
Mr. William J. Korsvik, Acting Secretary
of the Federal Advisory Council
President Fleming stated that, following a discussion which he
had had with
Chairman Martin at the time of the meeting of the Council
in February, the members of the Council hari indicated agreement with a
stIggestion that the minutes of the joint meetings of the Council and
the Board be written in the Office of the Secretary of the Board and
when in a form acceptable to Secretaries of both groups they be sent
to the members of
the Board and the Council, and when approved they become the
official minutes of the joint meeting.
Chairman Martin stated
that such an
arrangement would be acceptable to the Board.
1053
5/22/56
-2Before this meeting there had been sent to the members of the
Board a memorandum prepared by the Federal Advisory Council regarding
topics that had been placed on the agenda for the joint meeting.
The
memorandum also included a statement with respect to one topic not
Previously on the agenda.
The statements of the topics, the comments
by the Council, and the discussion of the respective topics are set
forth below:
(Non-agenda item) At the February meeting the Council,
considering certain bills that had been introduced concerning the subject of bank mergers and consolidations expressed
itself as follows:
The Council unanimously believes that the power to
deal with all bank mergers and consolidations, whether
accomplished by purchase of stock, acquisition of assets, or otherwise, should be vested solely in the appropriate bank supervisory agencies.
At its meeting on May 20, 1956, the Council was apprised
of a proposed bill on this subject presented by the Treasury
Department and shortly to be introduced. After consideration
of the provisions of such bills, the Council adopted the following resolution:
WHEREAS, the Council believes that the power to
deal with all bank mergers and consolidations, whether
accomplished by purchase of stock, acquisition of assets, or otherwise, should be vested solely in the appropriate bank supervisory agencies.
BE IT RESOLVED that the members of the Federal Advisory Council hereby unanimously. endorse the provisions of the bill presented by the Treasury Department
and that the appropriate Congressional Committees be
so informed.
1054
5/22/56
_3_
The Council understands that hearings on H.R. 9424,
S. 3424, and S. 3341 (to the enactment of which the Council
is opposed) will be held by Senator O'Mahoney's Antitrust
and Monopoly Subcommittee of the Senate Judiciary Committee on Wednesday, May 23, 1956. The Council would like to
discuss this matter with the Board of Governors.
President Fleming said that he had read a draft of the proposed
statement to be made by Chairman Martin when he appeared before a subcommittee of the Senate Judiciary Committee on Wednesday, May 23, 1956,
in response to Senator O'Mahoney's request that he testify on H.R. 9424,
S. 3424, and S. 3341.
He said that he had found no variance between the
views that Chairman Martin planned to express and those held by the members of the Council.
He also said that he understood a bill reflecting
the views expressed in Chairman Martin's statement regarding bank mergers
was to be introduced by Senator Fulbright, Chairman of the Senate Banking
and Currency Committee, at the request of the Treasury Department, perhaps this afternoon.
In this connection, he referred to a letter which
Senator Fulbright had sent under date of May 16, 1956, as Chairman of
the Senate Banking and Currency Committee, to Senator O'Mahoney calling
attention to the
jurisdiction, under the Senate Rules, of the Committee
On Banking and Currency over legislation relating to banking.
President
Fleming went on to say that he had offered to appear before Senator Fulbright,s
Committee to present the Council's views on the proposed legislation if that seemed desirable.
On the other hand, the views of the
5/22/56
-4-
Council could be made known to the Senate Banking and Currency Committee
through presentation of the resolution set forth above.
Chairman Martin stated that he would be glad to refer to the
Council's resolution at the time he appeared before Senator Fulbright's
Committee, and President Fleming responded that under these circumstances he would not appear before the Committee.
1.
What are the views of the Council with respect
to the prospective business situation from now
until late 1956? What is the current situation
with respect to inventory accumulations? To
what extent is there a gray market in steel?
All members of the Council report a highly satisfactory
level of business so far in 1956 despite some soft spots. Hawever, there are mixed views as to the business situation from
now until late 1956. Two members expect a modest increase in
business; six members anticipate a sidewise movement in the
economy; and four members believe business may decline. Members from districts with a concentration of heavy industry are
least optimistic. All members of the Council express concern
about inventory accumulation in automobiles, some types of
steel, farm equipment, consumer durables, furniture and agricultural commodities. The accumulation of steel reflects in
part the anticipation of a strike and also price increases
which may result from the approaching wage negotiations. There
is evidence in some districts of a gray market in certain steel
items, but this situation has not developed to any important
degree.
President Fleming commented that the bottom had dropped out of the
automobile market in April and the Studebaker-Packard Corporation was in
serious financial trouble, both of which were factors currently important
in the business outlook.
5/22/56
Chairman Martin stated that he would be interested in hearing
from any of the members of the Council who felt there would be a modest
increase in business between now and the latter part of 1956.
Mr. Ireland said that he was one of the two members of the
Council who felt that business might increase modestly later this year
for the country as a whole and that he supposed this view reflected to
some extent the conditions he was observing in the Boston District.
In
that District, conditions are as good as they ever have been, he said.
The situation as to automobiles and accumulations of steel inventories
is substantially the same as in other parts of the country, but he
thought these were not especially serious factors and that they would be
cleaned up within the next few months.
Some involuntary accumulation of
ilaventories in retail trade has taken place but that also did not seem
Particularly serious.
Mr. Ireland expressed the view that there was a
great impetus from industrial and other non-residential building with
4° important decline in the residential building picture in the immediate
outlook.
While he did not expect a large increase in business, he would
anticipate some strengthening in the last quarter of this year.
In
response to a
question from Chairman Martin, Mr. Ireland said that he
knew of no
rationing of credit in the First District.
There were, of
course, instances of borderline risks such as in the residential buildfield where applications for credit were being turned down, but these
1O?
5/22/56
-6-
refusals were not primarily because of a shortage of credit.
Mr. Ireland
reiterated the view that New England has never had an over-all situation
as good as it is now.
The textile industry is not in good condition,
Partly because it is suffering from foreign competition, but that is
more than offset by research and development in other fields such as
electronics.
Banks expect a continuous demand for money.
Consumer credit
IS leveling off and mortgage money is tight, although it is still available at somewhat higher rates than prevailed earlier.
Mr. Massie said that business in the Second District is at a high
level and he expects it to be at a high level for the rest of this year.
He expected some
decrease during the third quarter but the fourth quarter
Should, be quite strong.
He commented that at present there is an over-
emPloyment of productive resources and that any lessening of employment
vould simply be returning to a "full employment" situation.
Mr. Massie
cited the large volume of savings deposits at commercial and other banks
and expressed the
view that the public has money with which to make purchases even though it is now deferring some purchases of farm equipment,
automobiles,
and the like.
The softening in the automobile market has
been common knowledge since January, he said; the farm situation has
been well known for some time, and the slight drop in residential buildlag has not been surprising.
Mr. Massie thought there was a fair chrtnce
that some
increase in building might take place.
There is no question
but that
mortgage money is tight but good financing is going forward at
5/22/56
-7-
an increased rate of interest.
Demand for credit is strong, and a large
upsurge may be expected in June to take care of tax financing.
Mr.
Massie said that lip service was being paid to rationing of credit but
that he observed very little actually taking place, and he described the
conditions with which New York banks are confronted in receiving loan
applications which for the most part are good risks of the type they
wish to take care of.
Banks have been talking that they were out of
money and the sub-standard risks are simply not applying for loans to
anY great extent at this time.
Mr. Massie also commented in response to
a question from Governor Balderston that deposits of New York banks have
declined to approximately the 1948 levels and are still tending down.
Corporation treasuries have been taking advantage of improved money
Yields by placing funds in short-term paper.
The declining tendency in
dePosits has been an important factor in the credit squeeze New York
banks are experiencing.
Mr. Mitchell said that business activity in the Third District
Is still
at high levels although there has been a general felling off
in automobile and appliance sales and in residential building starts.
There has also been a reduction in textiles and in synthetic fiber proIn the Philadelphia District.
Steel, chemicals, paper, and
Petroleum
are all strong, and bituminous coal is still improving due to
the demand
from utilities.
The sharp decline in private residential
5/22/56
-8-
construction is being offset by the very strong industrial construction
Picture.
Mr. Mitchell said that he could not see any end of the high
level of economic activity this year.
He felt it fortunate that there
had been a drop off in the automobile industry since otherwise the inflationary pressureswould be very serious with the strong industrial
construction picture being added to the rest of the economy.
He also
thought that a drop in automobile sales from around 8,000,000 last year
to an estimated 5,500,000 this year would allow consumer credit to level
Off and allow the public to accumulate a position so that they could
come back in later this year.
Most businessmen in the Philadelphia
Dis-
trict are quite optimistic with respect to the rest of 1956, Mr. Mitchell
said, although some bankers are less optimistic.
There has been some ac-
cumulation of inventories at the retail level, but Mr. Mitchell did not
seem to think that particularly serious.
There has been a general accu-
mulation of steel inventories and that may result in some falling off of
Production in the third quarter.
But he did not think this a large fac-
tor and he felt the effects would disappear as soon as the price situation stabilizes in the steel industry.
Demand for loans has been large
and a further increase is anticipated through the rest of this year.
Credit is generally tight; the loan-deposit ratio of the banks in the
Philadelphia
District is around 62 per cent, the highest of any District
and. 'well
above the national average of 52 per cent.
Borrowings at the
Philadelphia Reserve Bank have been heavier for some weeks than at other
5/22/56
-9-
Reserve Banks excepting Chicago.
Mr. Mitchell commented on consumer
credit and a discussion among lenders in Philadelphia last week, the
net result of which was that lenders indicated with reluctance that
they might try to do something to tighten up terms, although they did
not wish to lose business if they could help it.
Mortgage demand is
Strong and construction money is very tight.
Mr. Denton said that the Fourth District picture was less optimistic than the comments thus far indicated for other Districts.
He
reviewed the growth in loans at banks stating that for 21 consecutive
months loans of reporting member banks in the Cleveland District have
increased each month and that the aggregate growth has been approximately 40 per cent.
During the same period deposits have increased only
3 per cent. Loans have continued to increase during 1956 at about the
same rate that they were increasing last year.
Mr. Denton said that
there had been no rationing of credit in the Fourth District and he
described the loan portfolio at his bank which he felt indicated that
small businesses were not being denied credit in favor of "large business".
He also commented on orders that bad been placed for steel, stating that
the over-ordering was done intentionally and that to some extent steel
inventories increased because
these orders had been placed in such large
volume.
Mr. Denton said that, on the whole, he anticipated that economic
activitY in the second half of the year would be a little lower than
1:01
5/22/56
-10-
most of the published forecasts indicated.
President Fleming said that economic activity in the Fifth
District was moderately below the peak reached in 1955.
He cited
several local measures of activity which showed significant changes,
noting Particularly that textile activity is down and that unemployment has increased somewhat.
Money is tight, he said, and this is
Particularly true of mortgage credit and construction loans in Maryland,
the District of Columbia, and Virginia. In the Carolinas, money is very
tight and the volume of loans is very high.
Mr. Kimball said that he believed that economic activity in the
Atlanta District during the last half of this year would be moderately
above that of the last half of 1955.
'would move sidewise.
He felt that nationally, activity
The Atlanta District is still predominantly agri-
cultural, he
noted, and he cited factors which he thought might result
in farm income this year equaling that of last year. The textile business is rather
poor and some of the marginal textile plants are closing
dovne
Retail sales of furniture have declined recently but, on the
retail sales of non-durable goods are holding up well; and, with
the exception of automobiles, sales of durable goods do not seem particUlarly soft.
Business planning and building is strong.
Mr. Kimball
,
tho
-46uLthat non-residential construction would keep over-s11 industrial
activity at a high level during the rest of this year.
Further, there
1062
5/22/56
-11-
15 some indication that residential building may be increasing.
There
has been no rationing of credit except in the case of speculative
builders or other speculative businesses, but there has been a refusal
Of credit requests received from New York banks which wanted to farm
out brokers' loans to banks in the Atlanta District.
thought that demand for credit would continue strong.
Mr. Kimball
He noted that
in the Atlanta District the loan-deposit ratio is only 40 per cent,
compared with 62 per cent in Philadelphia and the national average of
52 per cent.
In the city of Atlanta, however, the ratio is around
60
Per cent.
Mr. Livingston said that he believed that business in the last
half of this year would be somewhat under the first half of this year.
In Chicago and in the District generally the meat packing business has
been very good this year, the best in several years.
also done very
well.
Livingston said.
Railroads have
Retail sales are losing some of their tone, Mr.
He also referred to the automobile situation, express-
111€ the
view that while the steel, rubber, and glass industries are still
very active, there is always a lag between a decline in consumption by
the automobile
industry and a dropping off in production of these supPlier industries. He felt that the Seventh District was ia that situation
thea
present time. Mr. Livingston 'described farming conditions
"very
poor and he noted the shutdown of one of the J. I. Case Company
5/22/56
-12-
plants because of the reduced demand for farm implements.
in Chicago is no
problem.
Unemployment
A great deal of steel inventory had been
accumulated
in anticipation of price increases and a possible strike.
Mr. Livingston cited an instance in which a steel user normally carried
an inventory of $30 million but today had an inventory of $90 million.
He also noted that bank loans to metal manufacturers are very substantinlly
higher than a year ago.
Inevitably there would be a dropping off of
steel sales during the third quarter.
Credit is extremely tight in the
Chicago area, and Mr. Livingston commented on borrowings from the Federal
Reserve Bank which, in some cases, had been on an almost continuous basis
for some little time.
Demand for credit seems to be insatiable, he said,
but there is
no rationing of credit although there is increased selectivity-
He reported refusals of credit for building shopping centers and an
instance where a bank has declined to increase lines of credit to finance
c°mPanies or to take on new finance companies, even though the bank had
been seeking such accounts in the past.
Mr. Livingston also commented
that there was no gray market in steel of any consequence, so far as he
had been
able to determine.
In response to a question from Governor Shepardson, Mr. Livingsaid that the livestock situation currently is better than a few
m°11th5 ago, noting the sha
increase in hog prices from $11 a hundred
laSt December
to around $18 currently.
The outlook for cattle producers
1.064
5/22/56
-13-
also has improved, although they are not optimistic.
In response to
a question from Governor Balderston, Mr. Livingston said that one of
the reasons for a relatively small increase in sales of Sears, Roebuck
and Company in the first quarter of the current fiscal year appeared to
be failure of heavy goods sales to keep pace with sales of other types
Of goods.
He also said in response to a question from Governor Shepard-
6011 that extensions of mortgage credit on farms reflected to a considerable extent either enlargements of existing farms or purchases of farms
by or for members of families now in farming.
Mr. Miller said that business in the Eighth District appeared
to be
moving sidewise at a fairly high level.
Department store sales
and personal incomes have been maintaining a high level and showing some
increase.
He was not apprehensive as to activity during the latter part
Of 1956.
There was no evidence of a gray market in steel, although there
had been some buying against anticipated price rises and some accumulations of inventory.
Rationing of credit had taken place in the case of
sPeculative builders or other speculative enterprises, but there was
nothing that he would term "rationing" in the form of any refusal to lend
to regular customers for legitimate credit purposes.
Credit did not seem
to be as tight in the St. Louis District as in some other sections.
Mr.
Miller thought loan demand would increase sharply in June in connection
with tax
payments.
He noted that while housing starts were down, highway
5/22/56
-14-
and other heavy construction continues very high and is increasing,
and he expressed the view that any slackening in residential building
would be more than taken up by other types of construction.
Mr. Baird said that he anticipated a sidewise movement in business during the next few months, both in the Minneapolis District and
in the country as a whole.
boom as other Districts.
Minneapolis has not had the same degree of
Noting that the Ninth District is predominantly
agricultural, he said that weather conditions during the next
6o
days
vere critical in determining what farm income would be this year.
Farmers
fared better last year in the Ninth District than in most other Districts
and farm income was only
about 1 per cent below that of the year before.
The benefits of that
good farm income were still being felt.
The out-
look for other industries is good, Mr. Baird said, noting that iron ore
shipments are expected to be second only to the 1953 total and at least
as large as last year and perhaps larger.
and earnings are good.
very well indeed.
Meat packing is very active
Other industries such as electronics are doing
Housing starts have declined in the Ninth District,
but commercial and other building has increased enough to offset that
decline.
Steel inventories are still accumulating and there is a little
graY market activity, but not enough to be important price-wlse.
De-
Ipartment store inventories at the end of April were up more than 12 per
cent over last
year while sales were up only 2 per cent, indicating an
1:066
5/22/56
-15-
accumulation of inventories.
Country banks are not particularly hard
pressed at this time, but in the cities credit is very tight; and Mr.
Baird described in some detail the loan situation and demand for credit
in Minneapolis.
He noted that the pressure would be worse if it were
not for the fact that some large Minneapolis banks are connected with
holding companies and have been able to farm out some of their loans
to
participating banks in country areas.
Mr. Kemper said that he expected a downward movement in na-
tional
economic activity, feeling that there were more unfavorable fact°rs at this time than favorable, particularly since activity was currently at such a high level.
He cited the automobile and farm implement
industries, both
large steel users, as experiencing depressed conditions
at this
time.
14 difficulty.
The furniture, Clothing, and textile industries also are
As to credit, Mr. Kemper cited the restrictive policies
being followed at finance companies and banks which he felt would slow
Purchases of various appliances.
He also cited the possibility of
Strikes,
noting that industries and businesses have been very prosperous,
that labor knows of this,
and that this is likely to result in work stopPages if wage demands are not met.
All in all, Mr. Kemper thought that
the unfavorable
factors outweighed the favorable. The only factor which
he saw as a
sustaining force was public Works and public construction,
Plus some defense spending.
There is considerable unemployment in the
5/22/56
-16-
Tenth District, particularly in Kansas City and in other parts of
Kansas where the aircraft industry has diminished its production.
Mr.
Kemper suggested that there had been over-building, noting that many
Older houses are for sale and that builders of newer houses are having
difficulty in disposing of them.
The agricultural situation in the
Tenth District has been seriously affected by drought and in some areas
has not had a good rain for three years.
If this does not change, heavy
movement of cattle to market will take place later this year and cattle
Prices may be affected, although at the present time they are holding
fairly steady.
Credit is tight, deposits have contracted, and corre-
sPondent bank balances have decreased.
There is a large, constant de-
mand for credit at banks, but Mr. Kemper thought that legitimate requests
for credit were
being met.
There is no rationing of credit in the Tenth
District, although there has been a distinct tendency to cut down on
1c)ans for speculative building and not to increase lines of credit to
finance companies, which in turn has affected the volume of consumer
sales,
Mr. Matkin said that business in the Eleventh District has continued at
a high level even though farmers and cattlemen are not getting
along as well as they would like and dollar totals of their sales in the
first four
months of this year were less than a year earlier.
bile
New auto-
registrations in the four principal cities of the Dallas District
I016S
5/22/56
-17-
were 19 per cent lower during the first three months of this year than
last.
Department store sales have been about the same as last year but
inventories are up about 10 per cent.
Stocks of heating oils are down
but gasoline stocks are the highest in history.
Residential building,
in contrast with other parts of the country, increased in the Eleventh
District during the first three months of this year and other types of
contracts awarded also rose.
Mr. Matkin said he had heard of no gray
market in steel in the Dsllas District; he had been informed that there
might be a limited amount in structural steel, but not in the case of
Other products.
Demand for loans is very high, credit is tight, and
banks are short of money.
However, he had heard of no rationing of
1°ans anywhere in the Dallas District and was sure that this had not
taken place.
Mr. Matkin said he felt that the economy was moving in
a sidewise direction rather than either up or down.
Mr. King said that activity in the Twelfth District generally
haS followed the national pattern, but with some variations.
is full with shortages of engineers and skilled labor.
Employment
Residential
building is down 24 per cent but an increase in other building has more
than offset that decline.
New automobile sales have been down in the
Twelfth District more than nationally, and he cited instances of some
dealers whose sales have declined by as much as 50 per cent.
car
market is strong and prices of used cars are strong.
The used-
Airframe
1069
5/22/56
-18-
manufacture continues at a high level, motion picture producers are on
the plus side, and the oil business is active with supply and demand in
balance at a high level.
increased somewhat.
importance.
Retail sales are good but inventories have
The electronics industry continues to grow in
There is no rationing of commercial and industrial loans
in the Twelfth District, Mr. King said, but it is extremely difficult
to get mortgage credit and the situation there could be considered as
a
rationing of money.
He felt that the Twelfth District had made con-
siderable progress in improving the quality of consumer loans, particularly loans for automobile purchases.
There is no shortage of
consumer credit money if the quality of the applicant is satisfactory.
2. (a) What is the current situation with respect
to demand for commercial and industrial
loans?
All districts report a continued heavy demand for commercial and industrial loans.
2. (b) What is the outlook for such demands during
approximately the next six months? Is there
likely to be an increased demand around the
middle of June similar to that shown in
March?
Most districts expect these demands to continue in the next
six months. An increased demand for funds around the middle of
June, similar to that shown in March, is likely.
2. (c) Is demand for consumer credit increasing
or leveling off?
The Council believes that consumer credit is leveling off.
1070
5/22/56
-192. (d) What is the current and prospective
situation with respect to mortgage
loan demand, and are mortgage lenders
in a position to take care of credit
demands?
The Council believes that mortgage loan demand is outrunning the supply of savings available for investment in
mortgages and that there is little prospect for any early
change in this situation. Construction money is very tight
and rates on mortgages have increased. The Council does
not believe mortgage lenders are presently in a position
to take care of the demands made on them for mortgage credit.
There was no discussion of topics 2a, 2b, 2c, or 2d, other than
the comments that had been made in connection with topic 1.
3. What are the views of the members of the
Council with respect to the credit policies
that should be followed by the System over
the next six months?
The members of the Council approve the credit policies
Presently being pursued by the System. In view of the
mixed business outlook the current degree of restraint
Should be maintained but not increased. However, additional reserves may be required for the June tax needs, Federal fiscal requirements in the early summer months and
Other seasonal factors. Should indications of a general
Slowing down in the economy appear, the Council believes action to lessen credit restraints would be necessary. The
present situation underscores the necessity for keeping the
discount window continuously available.
President Fleming said that Chairman Martin's talk before the
Pennsylvania Bankers' Association on May
4
seemed to have gone as far as
the Chairman could go in attempting to give an atmosphere of confidence.
He commented on the prospective surplus of the Treasury.
He also said
1071
5/22/56
-20-
that the Council approved what the System was doing in the credit field,
and he indicated that the demand for credit in June in connection with
tax payments would be heavy.
There followed a brief discussion of the timing and volume of
the demand for loans for meeting tax payments during June, different
members of the Council indicating that demand for such loans would
start in some cases soon after June 1, continuing until around June 20,
with perhaps a peak around June 10.
In response to a question from Governor Mills as to what banks
Illight do to prepare themselves in advance to take care of the demand for
credit during the tax period, President Fleming said there was not much
Preparation that they could make.
Mr. Livingston said that one of the reasons for the anticipated
heavY demand for credit to meet taxes in June was that many corporations
had used funds to accumulate inventories this spring.
For this reason,
it would be necessary for the Federal Reserve to provide more money than
it did in March to take care of the demand.
Mr. Denton commented on mortgage commitments of insurance companies, stating that many banks now are carrying mortgage loans against
commitments of insurance companies which may not be taken up for some
time.
{072
5/22/56
-21-
4. Have rising interest rates seriously affected the demand for money?
Aside from some postponement of certain public projects, the Council believes the recent rise in interest
rates has not seriously affected the demand for money.
President Fleming said that none of the members of the Council
had
received any complaints regarding increased interest rates, nor had
the higher
rates retarded the demand for credit.
5. Does the recently released Standard Factors
analysis accord with the observations of the
members of the Council as to the incidence
by size of borrower of tighter credit availability? If a,differential effect has resulted,
how would you deal with it?
The analysis reported certainly does not accord with
the experience of the members of the Council in their respective institutions or in banks with which they are
familiar. Regardless of the condition of the money supply
at any time, credit is extended to borrowers upon the
basis of credit worthiness and not upon the basis of size.
President Fleming commented that complaints of this sort had been
gc/ing on ever since 1933.
Most of the complaints came from people who
wanted more capital in their businesses but who were not eligible for adbank credit.
Mr. Denton stated that he would be happy to have those who were
erlticizing banks for not making loans to small businesses visit his
bank for the purpose of reviewing the actual record of credits extended
to
small as well as large businesses, and President Fleming said he was
sUre all members of
the Council would be glad to follow a similar Droce-
5/22/56
-22Chairman Martin remarked that the question was placed on the
agenda partly because of its public relations aspects and because he
felt it well for all of us to realize that the subject is getting attention.
Part of the problem, he said, is that augood big man is pre-
ferred to a good little man".
President Fleming stated that the American Bankers Association
is alive to this
problem.
6. At the meeting of the Council with the Board
in February, reference was made to the study
of consumer credit requested by the President. The Board has undertaken a study of
this subject and, if desired, would be glad
to discuss the study with the Council.
. The Council will be most interested to discuss the study
With the Board.
At Chairman Martin's request, Governor Mills commented on the
consumer credit study, stating that the origin of the study was a request from the
President of the United States through the Council of
Ec°11°mic Advisers.
It was to be a comprehensive study of the field of
c°nsumer credit and it was hoped that it might be completed around the
end of this
year.
Governor Mills referred to the four sectors of the
stud,
J, noting the agencies or individuals who had been selected to make
these parts of the study in
terms of preparation of a final report which
'
/1°uld be an
unbiased and expertly prepared document.
President Fleming suggested that the Council would be glad to
ye copies
of the study well in advance of a meeting at which it
;
5/22/56
-23-
1l1ght be discussed, and Governor Mills responded that the report would,
of course, have to be submitted by the Board to the Council of Economic
Advisers, and at this stage it was not possible to state just when or
haw the report
would be distributed.
7. The Board would appreciate having the views
of the Council on the draft revision of the
Board's Regulation K, "Corporations Doing
Foreign Banking Or Other Foreign Financing
Under the Federal Reserve Act."
Some members of the Council have discussed the draft
revision of Regulation K with a few of the principal institutions affected by the Regulation. It is the Council's
understanding that these institutions have presented their
views to the Board. If the Board desires comments in addition to those already presented, the Council will be
Pleased to consider the Regulation further after discusslug it with the Board.
Mr. Massie commented upon a discussion he had had with three
interested
banks in New York regarding the proposed amendment to RegulatiO4 K; Mr. Ireland commented on a similar discussion with a bank in
Boston; and Mr.
Denton commented on the proposed revision of the Regulation because of the interest he had in the subject through the American
°verseas Finance Corporation.
The gist of the comments was that in-
terested persons either had submitted their views directly to the Board,
would do so, and the Council as such did not have a position to take
c°4eerning the proposed revision of the Regulation.
Governor Szymczak commented briefly on the purpose of publishing
a' Proposed draft of
Regulation in the Federal Register, noting that this
4.075
5/22/56
-24-
Vas a first
ep looking toward revision of the Regulation.
The Chair-
man noted that the final date for submitting comments to the Board on
the draft of Regulation published. in the Federal Register was May 25,
1956.
President Fleming stated that in the absence of objection on
the part of the Board the next meeting of the Federal Advisory Council
would be held on September 16, 1956, and that the Council would plan to
meet with the Board on Tuesday., September 18. Chairman Martin indicated
that this would be satisfactory to the members of the Board.
Thereupon the meeting adjourned.
@FedFRASER