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[194 Minutes of actions taken by the Board of Governors of the ?"el'al Reserve System on Monday, May 28, 1951. The Board met in the Board Room at 10:30 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Eccles Szymczak Evans Vardaman Norton Powell Mr. Carpenter, Secretary There was presented a memorandum dated May 14, 1951, from Mr. 136thea) Director, Division of Administrative Services, which had been in eil'eulatioD to the members of the Board prior to consideration at a meeting, l'ec"nienclill'i that Edwin J. Johnson, currently Technical Assistant, Division " ealk,C er,tions, be appointed Assistant Director, Division of Administrti„ ServIces, on a non-permanent basis in accordance with the Board e.ctiori of December29, 1950, at a salary of $7,500 per annum, effective the (14t° he assIzies his duties. Upon motion by Mr. Norton, this recommendation was approved unanimously. There was presented a memorandum dated May 18, 1951, from Mr. 44 4i4ert , Director, Division of Personnel Administration, and Mr. 111'4818taro-"Director of that Division, which had been in circulation 1:fie rae .11e1111)ers' of the Board prior to consideration at a meeting, recom4-trig that • Franklin Sprecher, Jr., currently an employee of the 4,1 R "erve Bank of Minneapolis, be appointed Assistant Director, 5/28/51 c.— Division of Personnel Administration, on a non-permanent basis in accordtee with the Beard action of December 29, 1950, at a salary of 7,500 Per annum, effective the date he reports for duty after having passed the usual PhYsical examination. The memorandum also recommended that Mr. 41'eCher receive a per diem allowance of $12 from the time he reports for (111'4' at the Board until he has established a local residence and that the 4eao . " reimburse him for moving expenses. Upon motion by Mr. Norton, the recommendations contained in the foregoing memorandum were approved unanimously. Chairman Martin reviewed conversations which he had had since the —381°4 _ti; the meeting of the Board On Wednesday, May 22, with respect toiNislation by the Congress granting addttional authority to the Board Vith resPect to hank reserve requirements. He outlined the reasons for • hie 8 or Ilgestion that any action by the Board looking toward a recommendation is1at1on be deferred for at least a week and perhaps until the corn- lpletioll Of consideration by the Congress of the extension of the Defense Ucti °4 Act of 1950. The other members of the Board concurred in Chairman Martin's suggestion and it was agreed unanimously that it should be followed. In taking this action it was understood that the drafts of bills that had been prepared on this subject should be given further study in the light of the comments made by the members Of the Board at this meeting and the replies received from the Federal Reserve Benks to the Board's telegram of May 24, 1951, with a view to legislation which, if possible, would meet the approval of all of the members of the Board and the Presidents of the Federal Reserve Banks. 5N1/51 -3Mr. Powell reported briefly on the inventory situation result- 14"v3131 the present decline in the volume of retail buying and the prob1"16 confronting retail business concerns and banks in that connection. At this point the action stated with respect to each of the "(ars hereinafter referred to was taken by the Board: Minutes of actions taken by the Board of Governors of the Federal Reserve System on May 25, 1951, were approved unanimously. Memorandum dated May 18, 1951, from Mr. Young, Director of the °11 of Research and Statistics, recommending an increase in the basic 84417 Of Daniel H. Brill, Economist in that Division, from $7,600 to Per annum, effective June 10, 1951. Approved, Mr. VardamAn not voting. Letter to Mr. Nosker, Assistant Cashier of the Federal Reserve 13atik c)f Ri chmond, reading as follows: sub "Reference is made to your letter of May 17, 1951, co:,!!itting the request of the Wachovia Bank and Trust to 4111Y, Winston-Salem, North Carolina, for permission establish an additional branch in Charlotte, North arolina Gov In view of your recommendation the Board of abearre approves the establishment and operation of alidt„-ch at the intersection of West Morehead Street ca "alnut Avenue in the city of Charlotte, North by the Wachovia Bank and Trust Company, 18—'411-Salem, North Carolina, provided the branch lete tnablished within six months from the date of this Coly„::r and the formal approval of the State Banking -41sioner of North Carolina is obtained. i$ understood that Counsel for the Reserve te4k Of 11 review and satisfy himself as to the legality -4-4. steps taken to establish the branch." Approved unanimously. i 1, 5/28/) Letter to Yr. 1,9,thqm, Vice President of the Federal Reserve of Boston, reading as follows: "Reference is made to your letter of May 14, 1951, slibmitting the reTiecet of The Colon4a1 Trust Company, Waterbury, Connecticut, for approvl-, oestablishment °t 0 branch in Watertown, Connecticut, in connection with Proposed merger with The Viatertown Trust Company, 1.:tter" ' ° 111)..Connecticut, a nonmember uninsured bank. In view of your recommendation, the Board of Governors j E Pr°7es the establishment and operation of a branch in '._iter°14n) Connecticut, by The Colonial Trust Company, Waterbury, , 'i.°11.necticut, provided the proposed merger with The Watern Trust Company 13 effected substantially in accordance h the plan submitted; the prior formal approval of the Propriate State authorities is obtained; the Federal 'oerPosit Insurance Corporation consents to the assumption th° deposit liabilities of the uninsured bank; and the " 11 011re Bank is satisfied, as a result of the examination b!vi teIng made, as to the acceptability of the assets to ac:uired through the merger. It is understood that Counsel for the Reserve Bank review and satisfy himself as to the legality of the ,'uPs taken to effect the merger and establishment of the uranch.Approved unanimously. Letter to Mr. Stetzelberger, Vice President of the Federal Reserve Cleveland, reading as follows: : , 8141141"Reference is made to your letter of May 15, 1951 Trust Company, Richland M(1, tt.111Z the request of The vait!ield, Ohio, for permission to increase the carrying ' of investment in bank premises to Y3t5,000 its indirect qtr "In view of your recommendation, the Board of Governors sui;Tec an increase of $245,000 in the carrying value of the -et bank's indirect investment in bank premises which is to ; or ;?sult frcm an increase in the carrying value of the stock wholly owned affiliate holding title to the bank prerrom $100,000 to $300,000, as approved by the Superinent of Banks of the State of Ohio, and a loan to the 98 51128bl ft affiliate in the amount of $45,000 for the purpose of liquidating an outstanding mortgage indebtedness." Approved unanimously. Letter to the Honorable E. H. Foley, Under Secretary of the Tr@asur Y, Treasury Department, Washington, D. C., reading as follows: "This refers to your letter of April 30, 19)1, Is stated that the Bureau of Engraving and ; rIllting desires to refund the sum of $214,523.04 paid ' 37. the Federal Reserve Board on May 15, 1930, for establish?g a working reserve of 4,250,000 sheets of incomplete zederai Reserve notes. It is proposed to effect the l'efund by deducting $214,523.04 from the bill for finished. xletes delivered during the current month. We have communicated with the Federal Reserve Banks, , IId he Banks and the Board of Governors are agreeable wle method of adjustment suggested." In 1.71,4 ""loh it Z Approved unanimously. Letter to Mr. Slade, Vice President of the Federal Reserve Bank or Sa"luloisco, reading as follows: con. ileference is made to your letter of May 16, 191, pe , eerning the correspondence exchanged with the Federal co;"it Insurance Corporation regarding fidelity insurance knietrage, copies of which were forwarded to the Reserve May i7 for their information with the Board's letter of 4 1951. by y "YOUI. inquiri pertains to the word 'maximum' as used to fir .:1 Hanl in his letter of April 20, 1951, with reference Mr, LelitY insurance coverage. While it is realized that ' rli s meaning is not deli, the Board did not intend that14e lits letter of May 4, 19-1, should be accepted as amend--NY way its letter of August 28, 19)0, (S-113)). Approved unanimously. ) /28/31 -0- Letter to Mr. J. L. Blomgren, Deputy Director, Bureau of Federal Credit Unions, Federal Security Administration, Washington, D. C., readas follows: "This refers to your letter of May 10, 19)1, concerning application of section 7(k) of Regulation W to loans by Federal credit unions. "An instalment loan by a credit union to one of Its members would be exempt under section 7(k) if the loan 'is r211theY secured' by the borrower's withdrawable shares in credit union. Your understanding is correct that the eixemption applies regardless of the purpose of the loan so ig as the loan is so secured. However, as you indicated, the loan would be subject to the provisions of section 8(a). "The situation referred to in the third paragraph of Your letter must be considered in the light of section 6 (1 of the regulation. Briefly, this section provides that a 'antor of instalment credit shall not extend any such credit or financing the purchase of a listed article if he knows or has reason to know that there is, or that there is to be, 4nY other credit of any kind' extended in connection with Purchase of the listed article which would bring the pjal amount of credit extended in connection with such b,rchase beyond the amount of instalment credit permitted g the regulation. Consequently, it would not be permissible Zr a credit union to extend Instalment credit to one of its members for the full amount of the purchase price of a listed t,icle, notwithstanding the fact that the member's shares the , credit union (equal to the necessary down payment) °e pledged as security for the credit. The credit would thee to be fully secured by the member's shares in order for 14st credit union to finance the full amount of the purchase Intee Of the article. This matter was the subject of an servrTretation which was published in the 19)0 Federal Re698,e Bulletin, page 1472 and in 1) Federal Register, i„? ') section 222.111, October 19, 19)0. A copy of the -rpretation is enclosed herewith. or Re'questions have been received regarding section 6(1) not gulation W. The section states that 'a Registrant shall extend any credit for financing the purchase of a listed the J p 5/28/)1 -7- "article' if he knows or has reason to know of any other credit that would cause the total credit in connection with the purchase to exceed the amount of instalment credit Permitted by the regulation. "(1) The requirements of the section apply to a Reeistrant only in a case tn which he is extending instalment credit. This is because section 2 (a) of the 'oresent regulation limits the application of the entire regulation to cases In which the Registrant is extending instalment credit. "(2) In any case in which the Registrant Is ex.! .11ding instalment credit subject to the regulation for 'ne purchase of a listed article, he must take into account under section 6(i) all credit, of which he knows (11.1p has reason to know, in connection with the purchase -1 the article. He must take into account not merely ,0_her credit that would be subject to the regulation, thealso 'other credit of any kind' in connection with Purchase of the article, including credit that is t Itself subject to the regulation. :(3) Single-payment credit is one example of credit that ls not itself subject to the present provisions of see but that must be taken into account under when silleptl "6(i) the Registrant extends instalment credit Ject to the regulation for the purchase of a lirted article. re„,"(4) Similarly, credits exempted by section 7 of the Itr-Lation are also among the credits that must be taken 7(0 account under section 6(1). For example, section wit111 , exemPts certain credits that are fully secured by vitl,' u rawable shares issued by or savings accounts held cre ' ci ( the lender but such credits, like single-payment seej ts, must nevertheless be taken into account under 6(1) by any Re.c;istrant extending any credit ubj a ir" to the regulation for the purpose of purchasing 48ted article. Of p: We appreciate your writing to us since the Bureau pia eqeral Credit Unions and the activities of your examiners Of Importantimportant part in the effective admtnistration the re he,th gulation• We hope that the information supplted letter., adequately answers the questions raised in your Approved unanimously. tr. ; 5/2V51 -8Letter to the Presidents of all Federal Reserve Banks, reading 8.8 follows: "Fro:11 time to ttme questions have been received under Regulation W concerning the provisions of sections ICa), 8(j)()), and 8(j)(6) lqhich exempt from the regula-Len instalment credit "n a principal amount' exceednE b,000 in the case of automobiles, and exceeding q°2,500 in other cases. "Whether credits considered individually or collectively. In certain circumctances, credits may be added and treated col lectively as a single credit for the purposes of the : f reg°Ing dollar figures. To be considered collectively : s EL single credit, the Indebtedness must not only be in;urred between the same Rezistrant and one customer, but ,t `t180 must be incurred pursuant to a basic contract oetween them which governs the indebtedness and which l i st be relied upon to enforce the indebtedness'. Even -11r there is some kind of basic contract, various items (od%_it cannot be added together to reach the $2,500 d rj ) )000) ficure if they are represented by Indivis‘ua-L notes or other evidences of indebtedness that would 1,LLPPort an action for the debt without resorting to the v481c contract. trio:The amount stated in the basic contract is not conbe;"-LIDE except to the extent that articles have actually to n delivered or funds actually been disbursed pursuant iA the contract. This may be illustrated by an example fol,tch a Registrant and a customer enter into a contract sav. 7! delivery and instalment sale to the customer of, .A) refrigerators. Suppose further that each delivery th4efrigerators is represented only by a mere receipt 840 l'efers back to the original contract and would not kixd : °rt a separate action. In such a case, deliveries thec '/' the original, basic contract would be subject to ceearegulation until the outstanding indebtedness excreX $2,150f% Once that figure was exceeded the entire would be exempt. Additional deliveries under the aaeo contrar et while the indebtedness exceeded $2000 would exempt. eEts "The foregoing principles would apply also in the °D instalment leases or instalment loans. I T 4 5/28/>1 2H, -0 _ "Continuance of Over42,)00 ($5z000) Exemption. The ov-jr. 7 77757 7 177;),000) exemption is not lost merely because the princlyll amount of instalment laclebtedness falls below such figure as the obligation is paid down. Rowever, when such indebtedness has fallen below the exeraption ii_Eure, additions thereto do not get the benefit of the exemption unless they are sufficient to brinc the total of the indebtedness above the "emPtion 1'i-cure. When the outstanding credit under a leasing or similar contract for financing quantity merchandising has exceeded the exemption amount, subPt itutions or exchanges of articles that are =Item),18",t_ed by the contract may be made without regard to 7 4 8n repayments that may in the meantime have reduced .fle amount of the credit. "The views expressed herein shall be regarded as suPerseding the views expressed in any earlier inter.„ta.tions under the reJulation which may be inconsistnt, with the views here expressed." Approved unanimously. Order for Proceedings and Notice of Hearing, prepared pursuant t0 the , s -c'tan of the Board at the meeting on May 10, 1931, reading as roilovs. "UNITED STATh3 OF AMERICA e TEE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM ! ting ef the Board of Governors of the Federal Reserve System mid at its offices in the City of Washington, D. C., on the 28th day of May, A. D., 1931. At he Matter of ;;,,11,,OTELS, INC., &MAliaET ST., 4LIIIIA PA • ORDER FOR PROCEEDINGS AND NOTICE OF HEARING PURSUANT TO SECTION (5(b) OF REGULATION W) CONSUMER CREDIT. the jhe Federal Reserve Bank of Philadelphia has advised R, i44/ard- of Governors of the Federal Reserve System that r)ieci' l tels, Inc., hereinafter called the registrant, has a rectstration statement with that Bank pursuant to c.11: 1 no' 5/28/)1 -10- *2". 2 (b) of Regulation W, consumer credit, issued by the Board of Governers pursuant to Sec. 601 or the Defense Production Act of 19')0; and that Bank has transmitted information to the Board of Governors which tends to show that since September 18, 19)0, the effective date of ReCulation W and contrary to the provisions thereof, the registrant has made instalment sales of television sets and other articles listed in that regulation: 1. Without obtaining the down payment required by Regulation W. 2. Without maintaining and preserving such books of account, records and other Papers as are relevant to establishing whether or not credit extended by it Is in conformity with the requirements of Regulation W. II The information reported to the Board of Governors, "set forth in Section I hereof tends, if true, to show: A. , f That the registrant has violated Section 3 (c) ReEplation W by not obtaining the down payment required •bv ReEulation W at or before the time of delivery of the 'Isted article. B. That the registrant has violated Section 6 (f) ! al '0 l e 11ationW by delivering listed articles in anticiVlon of instalment sales of listed articles without pr,”11-Ing at or before the time of such delivery, a deposit tirl to the down payment that would be required on such i nstalment sale. C. That the registrant has violated Section 8 (a) : 11411eEulation W by maintaining books of account, records °ther papers, which did not show whether or not credit ended by it is in conformity with the Regulation. TIT aee The Board having considered the aforesaid information, i,21 ! 1 it necessary and appropriate that proceedings be -0TeLtuted to letermine: (a) whether the stltements set forth in Section I hereof, are true; (b) whether the registrant has violated Section 3 (c) of Regulation W; (C) whether the registrant has violated section 6 (f) of Regulation W; '344q1/4 vae 5/28/ 1 "(d) whether the registrant has violated Section 8 (a) of Reffulatton W; (() whether it is necessary or appropriate in the public interest to suspend the license of the registrant pursuant to Sec. 8 (b) of Regulation II; IV IT IS BERPBY ORDERED that a hearing for the purrose of takiry evidence on the questions set forth in l'aragraph III hereof be held at 10:00 A.M., on June 2), , 19)1 in the United States Courthouse, 9th .and Chestnut ,brtreets, Philadelphia, Pennsylvania, before Unrold B. "garden, Trial Txalliner, or such other trial examiner as the Board may designate. The trial examiner is designated an officer of the Board for the purpose of these 131'°ceedings and Is emowered to administer oaths and affirmations and issue sub.poeuas. This Order and Notice shall be served on Registrant ersenally or by registered mail forthwith. BY the Board. (signed) S. R. Carpenter Secretary." Approved unanimously. Letter to Mr. Symms, Vice President and Cashier of the Federal erve ?ank of San Francisco, reading as follows: it "This refers to your letter of May 11, 19)1, with tt: en closures, regarding a request made by the California v 1..1 of Los Angeles, that the commitment fee on a Regulation dee; &11 bY that Bank to Acme Electronics, Inc., should be 011 'Jd to accrue from the date of the first disbursement the Lie loan rather than from the date of the execution of guarantee agreement. tive," e have informally discussed this matter with representathe Department of Defense and the Department of comm::Ir Force. It is their view, with which we concur, that from -!Illent fees charged with respect to V-loans should. accrue exc,,,r Lhe date of the execution of the agreement, and that no should be made in the present case. 1)rert, rit understood that in this case the lendinfr bank (2ert,,rea not to make disbursements under the V-loan until %me:Idnents to the p1.2rentee aiTeement had been 5/28/51 -12- "executed. However, it is noted that in your opinion these amendments were not such as to preclude disbursement by the bank at any time and that the guarantor continued to b3 liable on its commitment during the period between the date of the exelution of the guarantee agreement and the date of the first disbursement. Moreover, it is felt that it would be undesirable to establish a precedent by waiving the general rule in a case of this kind." Approved unanimously. Letter to Mrs. Valerie R. Frank, Secretary, Retirement System of the Federal Reserve Banks, Federal Reserve Bank of New York, New York, tre`or reading as follows: , "Reference is made to your letter of May 21, „,-), 101 submitting for the Board's approval certain amenderttZ t tan he Rules and Regulations of the Federal Reserve System voted by the Board of Trustees at its meeting on May 17, 1951. ase, "The Board of Governors approves the amendments 4, ,g u 4-resented and it is noted that resolutions adopted by irustees provide an interest rate of three per cent 41aum on Installment and deferred death payments.' T Approved, Mr. Vardaman not voting. Letter to the Uonorable Guy M. Gillette, United States Senate, n, D. C., reading as follows: to 1, "We have received your note of May 1, addressed let; °rmer Chairman McCabe, with which you enclosed a e1 'from Mr. Paul Groszkruger, President of the ear ens Stale Bank at Belle Plaine, Iowa, who makes Of statements concerning the lending activities cerj vernment aencies in his locality and also con-4C savings bonds. Etgertei"We agree with Mr. Groszkruger that Government nhould not contribute to excessive credit -"'"01'. at the present time. To be consistent with V2V51 -1_3- rrinciuleP of the Voluntary Credi': Restraint ProCram in which nrivate financing institutions are particilating, el,ery effort should be made to curb credit extensiens of Golonlratmt agencies that are not needed to finance the defelise effort or the essential needs of agriculture, inOustry, and commerce. "eme steiis have teen t-tken in this direction. Covernment credit aF,oucies, which opercte under authority granted by the Congress, are subject to ?ontiauous scrutiny by the Bureau of the Budget, and it Ls our understInding that such scrutiny at the present tune Ls being directed toward curbing loans that are inconsistent with the Voluntary Credit Restraint Program. . The national Voluntary CradIt Restraint Committee, vhich has been established under the Program and consists rePresentatives of the principal groups of private 114aneing institutions, has been apprehensive that ?°0Peration of the private institutions participating n the Program may be jeopardized if they turn down oans, feeling that they do not represent types of , 'Dredit which should be extended pursuant to the princi' les of the Program, and then discover that the loans Eitre e xtended by Government agencies. For this reason tetters have been sent by the Chairman of the Committee eithe heads of various Government lending agencies sttnE their support for parallel policies, as far v-iPossible, between their lending operations and the t untarY Credit Restreint Program, and requesting them fli vise, after reviewing the Program, whether it con'"c in any way with their lending policies. e° Several points in Mr. Groszkrucer's letter deserve th:Ments because they indicate some misunderstanding of r041:ifacts. A large number of Government agencies are leans as a result of programs established by the Witi ongress, and some of this lending is consistent 4e1:; , te defense effort or the essential needs of Govc„-u ' turo, commerce, and Industry. Loans of many eth-rImlent agencies, moreover, are made from funds than those appropriated by Congress. For example, tile eo,Production credit associations and the banks for clZratives obtain funds from the Federal intermediate it' )4.11k8 which sell debentures In the market. 4the I I 5/2e/51 -14- "The purchase of savings bonds by the public with its savings is anti-inflationary, not inflationary. As a result of such sales, funds already in existence are used to finance Government defense exnenditures rather than to compete for civilian goods and services. Also, 11.e Government through sale of savings bonds is not uorrowing money without interest. This type of bond IS redeemable according to a schedule of values, which Provides an interest return after the bond has been held Year. For Series E savings bonds held to maturity ‘4 Years) the interest return is about 2.9 per cent c9111Peunded semi-annually. Under the recent legislation, the owner of any Series E bond may cash it at maturity and realize this interest. As the enclosed Treasury release ind4 catos, the owner has the option, if he vishei;) of holding the bond for an additional period 11,°t exceeding 10 years. Interest will accrue on the eace value at a rate of 2-1/2 per cent simple Interest , ach Year for the first 7-1/2 years, and then increase (31' the remaining 2-1/2 years to bring the aggregate Isteltere st return to approximately 2.9 per cent compounded yemt-annually. At any time during the additional 10 tl,, ( ! r he may redeem the bond for its face value plus " interest which has accrued. n ! " ° appreciate opportity to read having had theopportunity Mr„ re iuszkruger's letter, which is returned herewith as 1„e"iuested, together with the newspaper clipping which ' enclosed:, Approved unanimously. Acbaii Meraoranclum dated May 23, 1951, from the Div__sion of Personnel rEttic)n) recommending that the Board of Governors give an informal O r0r Mr. Hilkert, Acting Director of that Division, on the afternoon ot t.T4rie 6.3 114 J.ce 1) -)1) the last day of his service before returning to his position rres4 dent of the Federal Reserve Bank of Philadelphia and that the eias.4°-Liioation of the budget of the Division of Personnel Administ,ic)11 be Increased to cover the cost incurred. Approved unanimously. 4/ /1 40Pat itt.4mmili AAA( Se 11 'etary.
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