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y?, Minutes of actions taken by the Board of Governors of the Federal Reserve System on Wednesday, May 27, 1953. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Martin, Chairman Szymczak Evans Mills Robertson Carpenter, Secretary Sherman, Assistant Secretary Kenyon, Assistant Secretary Thurston, Assistant to the Board Riefler, Assistant to the Chairman Thomas, Economic Adviser to the Board Bethea, Director, Division of Administrative Services Mr. Vest, General Counsel Mr. Young, Director, Division of Research and Statistics Mr. Noyes, Assistant Director, Division of Research and Statistics Mr. Cherry, Legislative Counsel Mr. Mr. Mr. Mr. Mr. Mr. Mr. Chairman Martin referred to a letter ahich he had received under date of May 4, 1953, inviting the Board to cooperate with the Rockefeller Foundation Public Service Awards program, and stated that he had asked Mr. Riefler to act in a liaison capacity in this matter and to work out with Mr. Allen, Director of the Division of Personnel Administration, arrangements for informing members of the Board's staff of the fact that they might apply for such an award. He pointed out that if an employee should be selected to receive one of the awards, -2- 5/27/53 it would involve granting him a leave of absence for the period of his study, al11.3h would be from six to twelve months. Chairman Martin added that he understood practically all of the Government agencies were cooperating in the program. Mr. Riefler then commented on the nature of the awards and stated that employees had the option of filing applications direct or through the agency where they were employed. It was agreed that Mr. Riefler should act in the capacity proposed by Chairman Martin. Prior to this meeting there had been circulated among the members of the Board a proposed telegram from Mr. Vest to Mr. Hodge, General Counsel of the Federal Reserve Bank of Chicago, reading as follows: "Re your letter May 20 enclosing copy of opinion of Circuit Court of Michigan in case of Federal Reserve Bank of Chicago v. Department of Revenue of Michigan, holding that purchases by Reserve Bank in Michigan are subject to Michigan State sales tax but that sales by cafeteria at Detroit Branch are exempt. Note your inclination to appeal unfavorable aspect of decision to Michigan Supreme Court for a final determination and agree with you that such an appeal would be advisable." At Chairman Martin's request, 7.1r. Vest commented on the opinion of the Circuit Court and noted that the decision resulted from an action brought by the Federal Reserve Bank of Chicago, after the Bank -3- 5/27/53 had been advised that the Board would interpose no objection, under the Michigan Declaratory Judgment Act in order to determine the Bank's rights under the State tax lax. In the circumstances, Mr. Vest said, he knew of no objection to the Federal Reserve Bank going ahead with the appeal. Chairman Martin expressed the view that while therf, as some question as to the desirability of the appeal, the Federal Reserve Bank should be allowed to use its oxn judgment in the matter. At the conclusion of a discussion, the telegram to Mr. Hodge WAS approved unanimously. Prior to this meeting there had been sent to the members of the Board copies of a draft of letter to the Bureau of the Budget, Prepared in response to the Bureau's letter of May 20, 1953, requesting the Board's comments on a draft bill submitted by the Housing and Home Finance Administrator "to amend the National Housing Act and other laws relating to housing". There vas an extended discussion of the draft of reply during Which it was stated that the draft bill would make numerous changes in the existing law and that, because of the short time available for consideration of the bill, the scope of the reply had been limited to two Proposed changes which the staff felt to be of enough importance from 5/27/53 the standpoint of credit in the housing field to justify comment by the Board, namely, the substantial relaxation in down payment requirements which would result from the proposed changes in the law, and proposed changes in the National Housing Act relating to the Mutual Mortgage Insurance Fund. At the conclusion of the discussion it was agreed that further consideration would be given to the matter at the meeting of the Board tomorrow. Messrs. Noyes and Cherry then withdrew from the meeting and Messrs. Allen, Director, Division of Personnel Administration, and Shay, Assistant Counsel, entered the room. There had been sent to the members of the Board prior to this meeting copies of a memorandum dated May 25, 3_953, from the Legal Division reading as follows: "On April 27, 1953, the President issued an executive order setting up a neir program covering loyalty and security of Government employees. The order was issued under a statute which is believed to be applicable to the Board. At the same time, the President issued a statement which contemplates the adoption by each agency of regulations designed to establish minimum standards for employment under the program. "The executive order makes the head of each agency responsible for the establishment and maintenance of an effective program to insure that the employment of any officer or employee is 'clearly consistent with the interests of national security'. In meeting this test, consideration is to be given -5- 5/27/53 "not only to possible disloyalty but also to dishonesty, criminality, immorality, serious mental disorder, and susceptibility to pressure contrary to the best interests of the national security. Nev appointments are subject to investigation, much as at present, but appointment to (and present occupants of any)'sensitive positions', which are defined on page 1 of the attached draft of regulations, must be made the subject of a full field investigation.* If it appears that the continuance of employment of any employee is not clearly consistent with the interests of the national security, he may be suspended. Before his employment is terminated, however, he is entitled (if he is a permanent employee) to a hearing before a security hearing board which would act in an advisory capacity to the Board of Governors. Such a board would consist of three persons, not employed by the Board of Governors but selected by the Board of Governors from a roster of Government personnel to be maintained by the Civil Service Commission. "Under the President's order and statement, it is contemplated that certain actions will be taken by each agency. Accordingly, it is recommended that the Board of Governors no give consideration to the following matters: (1) The adoption of the attached draft of regulations relating to Board employee loyalty and security. These regulations, with a few exceptions, are in the form of the sample regulations supplied by the Attorney General pursuant to Presidential request. Attention is invited to the fact that the attached draft omits a provision of the sample regulations authorizing certain lesser investigations of temporary or per diem employees if the consent of the Civil Service Commission is obtained. On the other hand, the draft includes the provision that permits a person dismissed on security or loyalty grounds from another agency to be employed by the Board if the Board and the Civil Service Commission agree. Full field investigations will be made by the Civil Service Commission. The estimated cost to the Board will be 1;.230 each. -6.- 5/27/53 "(2) The function of suspending employees. In d the case of the Board of Governors, it is believe itself Board the that this authority should be in and the attached regulations have been so drafted. Officer, (3) Appointment of a Personnel Security and dations who would review cases, make recommen prepare charges. make (1) Appointment of a Legal Officer aho would nt represe recommendations, designate attorneys to the Board of Governors at hearings, and perform related functions for the purposes of these regulations. (5) Designation of certain Board positions as 'sensitive positions'. This matter is now under consideration and a separate memorandum will be submitted to the Board to cover this problem. "In addition, the Board has been asked by the Civil Service Commission to submit the names of persons in the Board's employ to be on the roster to be maintained by the Civil Service Commission for appointment to security hearing boards to consider cases arising in other agencies. Certain problems in this connection are now under consideration and a draft of reply to the Civil Service Commission request will be submitted to the Board as soon as these can be ironed out. "The executive order contemplates that this program will become effective May 27, 1953, and it would be desirable, although probably not essential, that the Board act before that date by adopting a general regulation to carry out the executive order. It is contemplated that copies of this regulation would be made available to Board employees. For the Board's further information, there are attached summaries of the provisions of the executive order and of the sample regulations sent to the Board." Consideration was given to what criteria might be used in the designation of "sensitive positions". of Personnel Administration It was stated that the Division as endeavoring to ascertain what standards were being established at other Government agencies, and that the Director of that Division had sent memoranda to the heads of other divisions -7- 5/27/53 requesting information as to what persons have access to classified security material designated as "confidential" or higher, together with an explanation as to why it was essential for each individual to have access to such material. It was suggested that the term "sensitive position" might be defined to include only those positions where the occupant would have access to classified security information on a continuous basis because the availability of such information was essential to the performance of his official duties. Messrs. Vest and Shay discussed the respects in which the proposed regulations relating to Board employee loyalty and security differed from the sample regulations supplied by the Attorney General and stated why these changes had been made. Chairman Martin then suggested that the Board adopt the regulations in the form submitted, with the understanding that changes might be made from time to time if that were found to be desirable. Thereupon, the regulations were approved unanimously in the form attached to the memorandum of May 25, 1953, with the further understanding that they would be available to any employee who desired to see them. Messrs. Allen and Shay then withdrew from the meeting. Mr. Bethea discussed the delay encountered in printing the May issue of the Federal Reserve Bulletin because of a strike of a local -8- 5/27/53 typographical union which affected the composition department of the firm having the contract to print the Bulletin. In view of in- dications that the dispute might not be settled for some time, Mr. Bethea outlined a plan proposed by the printing firm pursuant to which the type would be set by a non-union firm outside of Washington. He added that this might involve one or two employees of the Division of Administrative Services going to the offices of the non-union establishment to make sure that the type was properly set up. Following a discussion, Governor Robertson suggested that no action be taken until Wednesday, June 3, and that if the strike had not been settled by that time the Board give consideration to requesting the printing firm to perform its contract by any arrangements it saw fit. Governor Robertson's suggestion was approved unanimously. The members of the staff then withdrew and the Board went into executive session. Following the executive session the Chairman informed the Secretary that the Board had appointed Mr. Allen, Director of the Division of Personnel Administration, as the Personnel Security Officer for the purposes of the security regulations adopted earlier in this meeting and had asked Governor :ails to talk -9- 5/27/53 with Mr. Vest, General Counsel, with respect to the appointment of someone in the Legal Division to serve as Legal Officer for the purposes of these regulations. The meeting then adjourned. During the day the following ad- ditional actions were taken by the Board with all of the members except Governor Vardaman present: Minutes of actions taken by the Board of Governors of the Federal Reserve System on May 26, 1953, were approved unanimously. Memorandum dated May 22, 1953, from Mr. Allen, Director, Di- vision of Personnel Administration, recommending that the resignation of Elizabeth A. McMahon, Personnel Clerk in that Division, be accepted, effective June 5, 1953. Approved unanimously. Letter to Mr. Latham, Vice President, Federal Reserve Bank of Boston, reading as folloss: "In accordance with the request contained in your letter of May 22, 1953, the Board approves the appointment of John A. Hayes as an assistant examiner for the Federal Reserve Bank of Boston. Please advise us the date upon which the appointment of Mr. Hayes is made effective." Approved unanimously. Letter to Mr. Stetzelberger, Vice President, Federal Reserve Bank of Cleveland, reading as follows: -10- 5/27/53 "In accordance with the request contained in your letter of May 22, 1953, the Board approves the appointment of Stanley T. Traska as an assistant examiner for the Federal Reserve Bank of Cleveland. Please advise us as to the date upon which the appointment becomes effective." Approved unanimously. Letter to Mr. Woolley, Vice President, Federal Reserve Bank of Kansas City, reading as follows: "In accordance with the request contained in your letter of May 22, 1953, the Board approves the appointment of James A. Broaddus as an assistant examiner for the Federal Reserve Bank of Kansas City. "If the appointment is not made effective July 1, 1953, as planned please advise us." Approved unanimously. Letter to Mr. Mangels, First Vice President, Federal Reserve Bank of San Francisco, reading as follows: "In accordance with the request contained in your letter of May 22, 1953, the Board approves the designation of Donald H. Farness as a special assistant examiner for the Federal Reserve Bank of San Francisco. It is noted that Mr. Farness will serve as special assistant examiner at your Portland branch and that Mr. L. C. Jensen, whose appointment as a special assistant examiner has been heretofore approved, will serve out of the head office instead of the Portland branch." Approved unanimously. Letter to the Board of Directors, Kingston Trust Company, Kingston, New York, reading as follows: S/27/3 -11- "The Board of Governors approves the establishment and operation of a branch by Kingston Trust Company in the unincorporated village of Phoenicia, Town of Shandaken, Ulster County, Nem York, such branch to be located on the north side of Main Street on a site approximately 110 feet from the intersection of Chichester Road and Main Street in such village, provided the branch is established within one year from the date of this letter." Approved unanimously, for transmittal through the Federal Reserve Bank of New York. Letter to the Board of Directors, Girard Trust Corn Exchange Bank, Philadelphia, Pennsylvania, reading as follows: "The Board of Governors approves the establishment and operation of a branch by Girard Trust Corn Exchange Bank, Philadelphia, Pennsylvania, at 5500 Germantown Avenue, Philadelphia, Pennsylvania, provided: (a) the proposed merger with the National Bank of Germantown and Trust Company, Philadelphia, Pennsylvania, is effected substantially in accordance with the plan submitted, and (b) formal approval is obtained from the appropriate State authorities." Approved unanimously, for transmittal through the Federal Reserve Bank of Philadelphia. Letter to the Board of Directors, Metairie Savings Bank & Trust Company, Metairie, Louisiana, reading as follows: "Pursuant to your request submitted through the Federal Reserve Bank of Atlanta, the Board of Governors approves the establishment and operation of a branch on Metairie Road near Frisco Avenue in the Metairie community, by the Metairie Savings Bank & Trust Comnany, Metairie, Louisiana, provided (1) that the formal consent of appropriate State authorities is obtained, (2) that the branch -12- 5/27/53 "is established within one year from the date of this letter, and (3) that, prior to the establishment of the branch, the capital stock of the Metairie Savings Bank & Trust Company shall be increased to not less than $350,000 through sale of additional shares." Approved unanimously, for transmittal through the Federal Reserve Bank of Atlanta. Letter to The First National Bank of Sumner, Sumner, Iowa, reading as follows: "The Board of Governors of the Federal Reserve System has given consideration to your application for fiduciary powers, and grants you authority to act, when not in contravention of State or local law, as trustee, executor, administrator, and guardian of estates, the exercise of all such rights to be subject to the provisions of the Federal Reserve Act and the regulations of the Board of Governors of the Federal Reserve System. "This letter will be your authority to exercise the fiduciary powers granted by the Board pending the preparation of a formal certificate covering such authorization, which will be forwarded to you in due course." Approved unanimously, for transmittal through the Federal Reserve Bank of Chicago. Letter to the Board of Directors, Security Trust & Savings Bank of San Diego, San Diego, California, reading as follows: "Pursuant to your request submitted through the Federal Reserve Bank of San Francisco, the Board of Governors approves the establishment and operation of a branch at Burgener Street and Clairemont Drive, San Trust & Savings Bank Diego, California, by is given by the approval formal provided Diego, San of -13- 5/27/53 "appropriate State authorities, and the branch is estabH lished within six months from March 12, 1953. Approved unanimously, for transmittal through the Federal Reserve Bank of San Francisco. Letter to the Board of Directors, First State Bank of Salina, Salina, Utah, reading as follows: "Pursuant to your request submitted through the Federal Reserve Bank of San Francisco, the Board of Governors approves the establishment and operation of a branch at Panguitch, Utah, by First State Bank of Salina provided (a) the capital stock of the bank is increased to at least $100,000 prior to the establishment of the branch,(b) formal approval is given by the appropriate State authorities, and (c) the branch is established within one year from the date of this letter." Approved unanimously, for transmittal through the Federal Reserve Bank of San Francisco. -
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