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Minutes of actions taken by the Board of Governors of the Federal " Res System on Wednesday, May 23, 1951. (IA 1 am PRESENT: Mr. Mr. Mr. Mr. The Board met in the Board Room Martin, Chairman Szymczak Evans Powell Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Kenyon, Assistant Secretary Thurston, Assistant to the Board Riefler, Assistant to the Chairman Vest, General Counsel Young, Director, Division of Research and Statistics Wayne, Acting Director, Division of Examinations Horbett, Assistant Director, Division of Bank Operations Solomon, Assistant General Counsel Hackley, Assistant General Counsel Sloan, Assistant Director, Division of Examinations Anderson, Economist, Division of Research and Statistics In the teetirt€ accordance .ctsterclay,with the request of the Board at the conclusion of 44c1 there had been prepared under date of May 22, 1951 distributed to the members of the Board before this meeting a draft bi"provid,„ supplemental authority over bank reserves which would tha „ uri ne any period specified by the Board every insured bank 61cet. ziatual must maintain a reserve balance, in a savings 4qftila bank) specified Percentage, against that amount of its "loan assets" illttcess of ho per cent of its total assets, with the proviso that the 7 5/23/51 stated -2- percentage of total assets could be varied in either direction irlthe discretion of the Board to the extent of five percentage points. draft bill included provision for a sliding scale of reserve percelltaee, but there were also presented alternative paragraphs which 14)/114 Provide for a flat reserve percentage if desired. Loan assets, referred 4. vo in this bill as "adjusted assets", would include all assets cept cash) balances due from banks, and direct obligations of the lkited states. Balances required under the bill would be carried with PeCietal Reserve Bank except that a nonmember bank would have the privi- leCt c ounting a balance carried with any insured bank if maintained 81)ecial account not utilized for other purposes, and the reserve recluiteillerite Of the bill would be in addition to all other requirements or state or Federal law. There had also been distributed to the members of the Board ber°te this fleeting a memorandum dated May 23, l9)1, from Messrs. Young 441 liorbett c ommenting on the adjusted asset base provided in the draft bill, the de sirability of providing a period of adjustment in connection Vith 411Y suPplemental reserve requirement Imposed by the Board under the terza the bill, scale, and the advantages and disadvantages of a graduated Of euPplemental reserve requirements as opposed to a flat rate. Chairman Martin said that in a conversation with Senator Maybank, C411411144 of the Senate Banking and Currency Committee, he had informed 5/23/51 -3- the Setor that the Board would endeavor to have some bill ready for 1)1'esentation to the Congress next week. He went on to say that after 44181(10ring the draft of bill prepared following yesterday's meeting, he vas i -Lhelined to believe that it would not provide a satisfactory 441,4s or restraining expansion of credit and that, if this were the 4.8e 'it should not be presented to the Congress by the Board. Chairtrisja Itrtill then called upon Mr. Riefler for an expression of his views, ezamr. Riefler said that he questioned this type of bill because it volaa Dermit banks with adjusted asset ratios below the national average to ex PaIA their loans up to that ratio without penalty, it would probably e6,1180 b anks with high adjusted asset ratios to sell Government securities t° beet th additional reserve requirements and this would militate against Drs seat °Pen market policy, and it would. affect all banks with high 10411r 4ti°8 equally despite the fact that some of these might be located eX1(1 Drerere areas where there were deficiencies of capital. He expressed 144 41. nee for the draft of loan expansion reserve requirement bill which a C1101. % 'eQ at the meeting yesterday and which incorporated a base°4 r°rmula, re,toria, saying that he believed that that bill would meet satisthe objections to the draft bill based on a current loan-ratio g 1)111 _ There followed a general discussion of the merits of the two "bvt otsensus as to the form of the legislation was agreed upon. 5/23/51 -4- The meeting recessed for luncheon and reconvened at 2:3') p.m. withi.,11Le same attendance as at the morning meeting except that Mr. Eccles ' eserit and Mr. Sloan was not present. There was presented a memorandum from Mr. Viayne, dated May 10, 'Pre senting certain views, opinions, and recommendations, based on 411aie 8 illade by him in connection with his assignment as Acting Director or the Board's Division of Examinations, of the responsibilities of the Ilecieral Reserve System in the field of bank supervision with particular Niarli to the relationships between the System, State banking authorities, 414Other Federal agencies with statutory responsibilities including bank Nervision. The memorandum, copies of which had been furnished the mem- bers °I' the Board for their consideration prior to discussion at a meet- 14cluded a the Board's review of the organization, functions, and purposes of Division of Examinations, a review of the organization and Nactions of the Reserve Banks as they relate to bank examination and Nervis .erve kere ion: and a review of the relationships between the Board and the banks in this field. The recommendations contained therein 48 f°110w8: (1) That unless and until the Congress directs otherwise the Board assure itself that thorugh examinations are made of all member uanks at least annually, in the case of 1,tiona1 banks by the Comptroller of the Currency and in the case of State member A banjç8 %, uY the Federal Reserve Banks; that the staff of the Division of Examinations be enlarged by the creation of three addtional Assistant Directorships, the primary functions Of the persons filling these positions being to establish and maintain a regular schedule of conferences at the Iteserve Banks and their time to be divided about equally between Washington and the districts assigned to their special attention; that the Director and Assistant Directors be called into consultation with the Board either at regular meetings or otherwise In recognition of the fact that bunk examination and supervision is an integral part of the over-all responsibilities of the Federal Reserve System and that a more constant contact between the Division and the Beard is essential in order that members of the Division's staff visiting the Reserve Banks and Other supervisory agencies may intelligently represent the views of the Board in the course Of these contacts; that the Board appoint an Advisory Committee on Bank Supervision consisting of the Director of the Division of Examinationd and four senior officers of the Reserve Banks, with the Director serving as permanent Chairman; that appointments of the Reserve Bank officers serving on this Advisory Committee be arranged sc) as to provide for the expiration of at least one term each year so as to insure continuity of membership but, at the same time, regular changes in the personnel of the Committee; that the Advisory Committee constitute the body through which the Board would seek advice and 1-Ince1 concerning appropriate activities of the eystem in the field of bank supervision and ex amination; that in addition to such other duties as the ! ) , ard might see fit to delegate to this Committee, "'zilch would be required to meet in Washington regularly (not less than once each quarter), its res res-po ponsibilities specifically include the following: (a) recommending a minimum scope of examination for adoption and use throughout the Federal Reserve System and maintaining a regular 5/23/51 -6- (8) review of this procedure in order that it might from time to time propose appropriate improvements and modifications; (b) recommending ways and means of maintaining appropriate cooperative relationships between the Federal Reserve System and other bank supervisory agencies parti cularly State banking authorities; (c) suggesting ways and means of maintaining close working relationships between the Board's Division of Examinations and the Bank Examination Departments of the Reserve Banks to the end that uniformly high standards and practices might be maintained; and (d) suggesting, for submission to the Reserve Banks, appropriate training programs designed to assure high standards of performance by examiners and assistants; that Mr. George S. Sloan, presently Assistant Director of the Division of Examinations, be appointed Director of the Division effective at the termination of the present appointment of the Acting Director. Powell stated that he had carefully reviewed the memorandum 14 hi ca.PacitY hs member of the Board whose assignments include examination at- IneMber banks) that the Personnel Committee also had reviewed the teraor 4.141 ;an Nat 414e(1 that he would recommend the adoption of the recommendations in it. Thereupon, upon motion by Mr. Powell, the recommendations contained in the memorandum were approved unanimously with the understanding that Mr. Sloan's appointment as Director of the Division of Examinations would become effective June 1, 19)1, and that Mr. Wayne would remain with the Board in the capacity of adviser to the Board, for such time as would allow him to visit all of 5/23/51 _7_ the Reserve Banks and discuss with the appropriate officers the contemplated changes in examinations policies and procedures. Approval was also given to reimbursement to the Federal Reserve Bank of Richmond for (1) the salary of Mr. Wayne during such time as was spent by him in his capacity as adviser to the Board and (2) for travel and other official expenses incurred by him including hotel accommodations on such basis as is approved by the Board's Personnel Committee. The above actions were taken with the understanding that, if Mr. Vardaman wished, his position with respect to the actions would be recorded in the minutes of the Board, There Was a further extended discussion of the two draft bills -°flsideration to provide supplemental authority over bank reserves, liklely "the draft dated May 18, 1951 providing for a.loan asset base for b allk and for maintenance of supplemental reserves against any increase 14 the b loans above that base and the draft dated May 22) 19')1 pro0r. hoee oar" POsit10of a supplemental reserve requirement on any bank a8sets exceeded some specified percentage of total assets. At the cono1usion of the discussion, Chairman Martin suggested theA sirice there continued to be a difference of opinion among the members "thell°ard as to the type of authority which would be suitable, the dis1181be continued be t°1Q(I lc'' x esent, at a meeting on May 28 when all members of the Board r71 5/23/A -8This suggestion was approved unanimously. Mr. Eccles suggested that it would be helpful at the discussion ne4tMondaY to have the opinions of the Presidents of the Federal Reserve 448 11-th respect to the two draft bills. This suggestion was approved unanimously With the understanding that drafts of the bills and memoranda relating thereto would be mailed to the Reserve Banks today and that telegrams requesting their views would be sent tomorrow as follows: stated at the recent meeting of the Board and the eesiaents, the Board expects to present to the Congress rel7Y shortly proposed legislation relating to supplemental 1,„serve requirements. Since Presidents were here matter been discussed by the Board and staff and yesterday 0 ;sent to you by air mail copies of memoranda and drafts :° e. bills now being considered as possible standby Etb,2ritY during national defense emergency. Board would 4reiate very much if you would review this material r° ,4.114arcl your comments by wire to reach the Board as prom, considered noon 1Y as Possible rilld in sny event not later than StIng' and reproduced MaY 27, so that they may be TheTn""e Board takes the matter up again on Monday morning. dlrat'iri eipal difference between the two bills is that the May 18 would provide for a loan asset base for agaillualak and for maintenance of supplemental reserves The'jt anY increase in a bank's loans above that base. l'esel;ft °f May 22 would permit imposition of a supplemental sot '' requirement on the bank whose loan assets exceed Such 2!°ified percentage, say 40 per ceut of total assets. volo.,4-`uaitional reserve requirements under May 22 draft be computed either on a sliding scale related to 1)erceT0 of loan assets to total assets or on a flat your n°14slic:,ge basis. Board is primarily interested in 4301 7.'which form the bill should take on this point 14 mind that plan adopted (a) should be as effective 4.`"SSble it restraining further loan expansion, (b) should j 5/23/51 have minimum adverse effects on the Government securities !rket, and (c) should be as equitable as possible and at "e same time achieve the objective of restraining loan apansion. Your views on which form of bill would encounter eas legislative opposition would be helpful. rizitY sTIr comments are also desired on the following collateral (1) is it desirable to authorize the Board to e.adjustments to meet abnormal temporary or seasonal flue(see definition of adjusted asset base on page 2 of 1Y 18 draft of bill), (2) should provision be made In May draft for a minimum ratio of loan assets to total assets below4 Which supplemental reserve requirements would not 121)1Y) (3) would it be desirable and would the legislation to effective as to nonmember banks if they were permitted ' arrY the required reserves with correspondent banks." T T j At this point all of the members of the staff with the exception 'Carpenter, Sherman, and Kenyon withdrew, and the action stated r8 the ze.ct to each of the matters hereinafter referred to was taken by lieaerve Minutes of actions taken by the Board of Governors of the Federal 6Ystem on May 22, 1951, were approved unanimously. MeIll°randum dated May 7, 1951, from Mr. Noyes, Director of the b41. 4 °f S elective Credit Regulation, recommending an increase in the Selective e a1 of Theodore A. Veenstra, Analyst in that Division, from $3,100 tc)3)22r), ver annum, effective May 27, 1951. Approved unanimously. or Le tc.,, xevy t--' to • Bilby, Vice President of the Federal Reserve Bank °rk, readi ng as follows: lette pview of the circumstances described in your 1,4_ay 17, 1951, the Board of Governors approves ttl° rvL. salaries to the following employees at 5/23/51 -10- "the rates indicated which are in excess of the maximums established for the grades in which their respective positions are classified. Salary Name Dolan, Mary $3513 3600 English, Mary Miles, Catherine 3)89 VanNote, Helen 3)86 Bell, harry W 3885 Duffy, George F. 3885 Ricks, Francis J. 388) Swift, James T. 3801 O'Connor, Chas. 3711 Schnears, John 3899 Fleming, John 8685 5812 Rumphreys, Wm. O'Brien, Helen 3062" Approved unanimously. Of Telegram to Mr. Slade, Vice President of the Federal Reserve Bank au. -u'rancisco, reading as follows: H Reurtel may 19, 1951. Board approves appointment Betratlinuaer Deitrick as an examiner for Federal Reserve Of .e ase advise when his indebtedFrancisco. ! tless he.e been Of s unanimously. kr. 0. blenicTandum dated Mey 22, 1951, from Mr. Powell recommending that Sterling Bunnell, Vice President, The National City Bank of New York, lilt, New York, and General Henry C. ;!:vans, Partner, Stein Bros. and 14%1) 6 south Calvert Street, Baltimore, Maryland, be appointed alternate 414114r. °r the Voluntary Credit Restraint Committee for Mr. George S. Moore William K. Barcl ay, jr., respectively. Approved unanimously. 5/23/51 -11Letter to Mr. Peterson, Vice President of the Federal Reserve Of St. Louis, reading as follows: 4 41 "In accordance with the recommendation contained Your letter of May 17, 1951, the Board of Governors ejtends to September 21, 1971, the time within which Jefferson-Gravois Bank of St. Louis, St. Louis, 811 15°Uri, may accomplish termination of its memberunder the waiver of six months' notice granted '” march 21, 1951." „1, Approved unanimously. Letter to Mr. Bryan, President of the Federal Reserve Bank of ktlezta, reading as follows: eon "This refers to your letter of May 11, 1951, I G cerning the proposed purchase by your bank of the : -°rengi American' property in Atlanta. "The terpTheBoard has considered the matter and will per °8e no objection to the purchase of this pro1341:;!r at a cost of $300,000. It is noted that such Der ! ilase price would provide for title to the proclev'Y free of an existing lease, which was made for el °Pment of commercial automobile parking facilities." Approved unanimously. Letter to Mr. Roger W. Jones, Assistant Director, Legislative Bureau of the Budget, Washington, D. C., reading as follows: "This 15 in May 14 response to Mr. MacPhail's letter of a-rait'1951 requesting the views of the Board on a. rorli °f legislation which would provide compensation 414 d'amage to private property and property owned ,.,e and local public 'bodies. the po!h'". araft would establish a War Damage Administration, 011 143;14inistrator of which would have authority to pass ee 1,.Lmage claims in the first instance, and a War l'everu : IPPeal Board with power to affirm, modify, or atY settlement approved by the Administrator. St? 5123/51 -12- "Title II authorizes an appropriation in the 81141 of twenty billion dollars for the purpose of procompensation for war damage to private proPayments to be made in accordance with the Pr ovisions of that Title. "Title III of the bill provides for payment to ,!Ette governments, their political subdivisions, and 'rritories and possessions of the United States for Irttr damage to public property. The administration Of Title III is placed directly in the President 1:a4her than the War Damage Administration. Two billion 0o4-4r8 is authorized to be appropriated for purposes f this Title and payments may be made up to 75 per cent of the estimated cost of replacement, repair, or ee fulaing of damaged public property. The balance c the cost is to be supplied by the government entity enerned if financially able to do so. Otherwise, elltitY may acquire necessary funds through the utz of its obligations to the Treasury which is ap,"Qrtzed to purchase such obligations in the q°.160regate amount of one billion dollars. lati "The Board recognizes that some form of legisres necessary in advance of actual damage theZTfle from possible enemy attack, and further, exie42'he exdgencies of the situation which may (milt" following attack can not be fully anticipated. lati°1181Y, therefore, it is desirable that any legisbe sot which may be adopted at the present time should iciently flexible as to be effective in almost °f emergency. The draft provides considerable some Y although an actual emergency may require reel3e1210dification of its provisions particularly with be reet to the amount of the appropriation which may the Taired. The Board approves the objective of sorltk iall and considers that the draft provides a rea13reEetZ Mr eo .:rh to the problem as it exists at the r Approved unanimously.
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