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dr77,'„A,:4,. • Minutes of actions taken by the Board of Governors of the Federal the Reserve System on Thursday, May 31, 1951. The Board met in Board Room at 10:30 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Martin, Chairman Szymczak Evans Vardaman Powell Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Pte,,:lerve Carpenter, Secretary Sherman, Assistant Secretary Kenyon, Assistant Secretary Thurston, Assistant to the Board Riefler, Assistant to the Chairman Thomas, Economic Adviser to the Board Vest, General Counsel Young, Director, Division of Research and Statistics Noyes, Director, Division of Selective Credit Regulation Chase, Assistant Solicitor Solomon, Assistant General Counsel Fauver, Assistant, Division of Selective Credit Regulation Paley, Technical Assistant, Division of Selective Credit Regulation Clinton R. Chalkley, a member of the staff of the Federal Bank of Richmond, who was assisting the Board temporarily in e°114°ction with consumer credit matters, also aas present. There ffas presented a memorandum dated May 25, 1951, from Mr. 4alls which had been in circulation to the members of the Board prior t° eor)zideration at a meeting, suggesting that the Board consider the cleel-rability of bringing to the attention of the boards of directors the Federal Reserve Banks an attached resolution adopted by the 21 5/31/51 -2- Independent Bankers Association at its meeting in Mobile, Alabama, last month which recommended an amendment to the Federal Reserve Act to prode for the election of members of the Federal Advisory Council by the nlember banks of each Federal Reserve District in the same manner that directors of these Reserve Banks were elected and to provide that no nlber of the Council might serve more than three consecutive years, eccept that this provision would not preclude election of a member who had served three consecutive years if there had been a lapse of at " 1 One year. Mr. Evans stated that although this resolution had not been atnilitted formally to the Board, the presidents of the two independent banker s associations had spoken to him concerning the method of election 1fl -Illuera of the Federal Advisory Council, and he had told them that he wolad bring the matter to the attention of the Board. In discussion it was noted that suggestions for rotation of 4111.ber 8111 on the Council had been proposed from time to time in the Nlet a ad that most of the Federal Reserve Banks now followed_some such Plan. It was also stated that, although it might be preferable, an 'lent to the Federal Reserve Act to accomplish this purpose in all ?ederai Reserve Districts would not be necessary if the individual Re'11/Q should adopt such a policy. Ur. s -zYmczak suggested that copies of the resolution be sent to "Len and Presidents of the Federal Reserve Banks with a note 5/31/51 -3- stating that the matter had been discussed by the Board and that the Board would appreciate having the reaction of the directors of the Reserve Banks. This suggestion was approved unanimously. Before the meeting there had been distributed to the members of the Board copies of a special report from the staff dated May 29, 1951) on the position of consumer durable goods, and a supplementary memorandum, also dated May 29, on sales and stocks of passenger automobiles. In response to a request by Mr. Evans, Mr. Young commented on the memoranda, stating that the current situation was one of a softening clenland in the consumer durable goods market, although at the same time there c ontinued to be a high level of activity and a very low level of 1111eMPloYment. He said that the present situation reflected heavy buying 117 e°11'unlers during the latter part of 1950 and the first few months of t4118 Year, Plus the fact that the economy had been producing more goods llIthe Past year than consumers had purchased, thus resulting in a very allbstatitial rise in retail inventories. Mr. Young called attention to 4R11res in the memorandum on consumer durable goods showing approxi41Y8iX months' supplies of various classes of household durable " II . on hand at department stores, based on the rate of sales April 1951. or,:e 5/31/51 -4In answer to a question by Mr. Vardaman, Mr. Young said that he doubted that a relaxation in the terms of Regulation WI Consumer Credit, would have much effect on the movement of consumer durable gc)(Ws in view of consumer resistance to high prices and the heavy bIlYing last winter. He added that personal incomes continued at a high level and would rise somewhat further as defense production increased, while production of consumer goods probably would decline frail' current rates due to material shortages. In these circumstances, he said, present inventories would tend to be drawn down over the course Of the next several months. Commenting on the supplementary memorandum on passenger car aale s and stocks, Mr. Young said that according to confidential reports trom '4ahufacturers, sales of new cars declined during April and May to below levels of corresponding months in 1950 and that dealers' stocks accUmulating, although, except in the case of certain makes of ear8 the stocks still represented less than a 30-day supply. He said that Prices of used cars had shown marked decreases from earlier high lei7eiss but that it did not appear that used car stocks of franchised kalers covered by the data were abnormally high in relation to the kte 01, sales. Mr• Noyes stated that information on the consumer durable goods "had been requested by the clerk of the House Banking and CurNley. °InInittee for transmission to members of that Committee, and 5/31/51 -5- allggested that if there were no objection, copies of the special report 011 that subject (excluding the supplementary memorandum containing conflA"bial data on automobiles) be sent to the Connittee. It was under- Stood that this suggestion would be followed. In a brie discussion which followed Mr. Youngts comments, the °P1-11-1 n was expressed that the situation as outlined did not appear to call for a change in the terms of Regulation W at this time, but that it should be watched closely for significant developments. At this point Messrs. Noyes, Chase, Solomon, Fauver, Pawley, and Chalidey withdrew. Chairman Martin referred to the discussion at the meeting on 144'1a 24, 1951, regarding the payment by the Board and the Reserve Banks q"I'Lain expenses in connection with the savings bond program of the Treasury, Department. Chairman Martin stated that, in accordance aith the understanding t h t e rieetingr he talked with Secretary of the Treasury Snyder, telling Lla that in the opinion of thethe Board it would be preferable for 1N-soY D epartment to seek an appropriation from the Congress for large exPenses incident to the program. He said that Mr. Snyder was fll)athe ic with this point of view. The (11, Chairman then called upon Mr. Carpenter who stated he had the matter with Mr. McDonald, Executive Officer of the Savings Ilrj-81-on of the Treasury, who said that funds were available to • `",., . 5131/51 k • 0 - -6- meet the expenses of small groups but that there were to be a number of national meetings which would involve dinner and luncheon expenses for which the Treasury had no funds available. Mr. Carpenter said that Mr. McDonald estimated that $6,000 would be required to meet these expenses for the remainder of this year. The substance of his conversation with 14% McDonald is given in a memorandum dated May 1, 1951, which has been Placed- in the Board's files. In a discussion of this matter, it was noted that the System had an interest in an effective savings bond program as a part of the anti-inflationary program and that on this basis it would seem aPPr°Priate for the Board, as it had done on occasions in the past, to lake commitments from time to time to meet certain expenses in connection "Irneetincrs of savings bond workers if requested by the Treasury. Mr. Vardaman stated that he would be in agreement with such a procedure but 41t, that hereafter there should be incorporated in the Board's Annual ilePc)rt to Congress as a matter of record evidence of expenses of this Ilatitre which were paid by the Board. Other members of the Board present e)claressed agreement with Mr. Vardaman's suggestion. Thereupon, upon motion by Mr. Szymczak, the Secretary was authorized by unanimous vote to state informally to Mr. McDonald that, for reasons outlined in the conversation with Mr. McDonald, the Board questioned the advisability of making any blanket commitment to pay expenses in connection with the savings bond program but that because of the interest of the System in an effective program it would consider a request from the Treasury during the remainder of this year 5/31/51 -7whenever an occasion arose where it was having a large meeting of volunteer workers in connection with which it was desired to have a luncheon or dinner, at which time the Board could make a commitment to pay all or part of the expense of such luncheon or dinner as the situation might call for. At this point all of the members of the staff withdrew and the Board went into executive session. Following the executive session the action stated with respect to each of the matters hereinafter referred to was taken by the Board: Minutes of actions taken by the Board of Governors of the Federal Res ,ve oYstem on May 29, 1951, were approved unanimously. Letter to Mr. Wiltse, Vice President of the Federal Reserve Bank Of York, reading as follows: "In accordance with the request contained in your lett, -er of May 28, 1951, the Board approves the appoint3 of Eugene P. Emond and Paul L. Mack as assistant xaminers for the Federal Reserve Bank of New York. "Please advise us as to the effective dates of their aPPo intmeas." Approved unanimously. Letter to the Presidents of all Federal Reserve Banks, reading a llOws: co "There have been forwarded to you today under separate ba, 1Tr copies of Corm F. R. 107b to be used by State member submitting their reports of earnings and dividends he six months ended June 30, 1951. The form is the hale as the one used in submitting reports for the first e of 1950. its latest reprinting of earnings instructions oltrrnational banks, the Office of the Comptroller of the oen°Y adopted the same instructions for the treatment ver and under accruals of taxes on net income as 5/31/51 -6- "those previously adopted by the Federal Deposit Insurance Corporation and the Board. It also added another sentence instructing national banks to deduct all refunds of income taxes paid in prior periods from the tax expense, item 7. "In the interest of uniformity, both the FDIC and the BOard have adopted the same changes; and the following reYlslons will appear in the next reprinting of the Board's instructions for the preparation of reports of earnings and dividends, form F. R. 107a. On page 12, at the end of the second paragraph under item 7, taxes on net income, the following sentence will be added: 'All refunds of income taxes paid in prior periods should be deducted from , t_ax.expense reported in this item'. On page 10, at the ueglnning of the paragraph under item 4(c), all other rec°veries, the following words will be deleted: 'Refunds of taxes paid in prior periods'. It is suggested that Ycu so advise the State member banks in your District." Approved unanimously. Letter to the Presidents of all Federal Reserve Banks, reading a8 fellows • ."The subject of refinancing 'balloon' notes written TII-Or to September 18, 1950, the effective date of Reguaaton w, has been given further consideration, especially 1;lt relates to the interpretation published at 222.117, _:ederal Register 7756, November 15, 1950 and 1950 Federal Reserve Bulletin 1612, entitled 'Pre-effective date f , al°0n" Notes or Payments'. As the result of such ij'her consideration, the Board has concluded that such erpretation should be revised to read as follows: 'Pre-effective date "Balloon" Notes or Payments. The Board has considered certain questions concerning instalment credits involving so-called "balloon" notes or payments that were written before September 18, 1950, the effective date of Regulation W. In a typical case the kind, there would be 11 notes followed by a 12th tualloon" note which may be in an amount several times amount of each of the preceding notes. It appears s at in most cases, because of bhe special nature of 011,ch financing, it was necessarily anticipated that the uQ-loon note or payment written before September 18, 5/31151 -9"11950, would be refinanced when due so that the future instalment payments of the obligor would be approximately in the same amounts as the earlier payments. 'In the circumstances, the Board is of the view that it may be presumed that arrangements for such refinancing were made between the parties at the time of the original transaction, and that section 8(h) of the regulation permits the carrying out of any such*arrangement." Approved unanimously. Letter to Mr. M. Robert Deo, Managing Director, National Auto- 140bile Dealers Association, 1026 - 17th Street, N. N., Washington, D. C., reading as follows: "This will acknowledge your letter of May 24, to Governor Evans, in which you request that the terms of ae gulation W applicable to the instalment sale of automobiles be relaxed. ."As you know, the Board is continuously studying c°11dati0n3 throughout the country as they relate to the effect of Regulation W in markets for particular regulated ''Lloles. Your suggestion will receive serious considera' 10n in the light of the data available to the Board and leral assured that theeconomic and credit conditions. You may be Board will inform you of its decision regarding Your request." r Approved unanimously. Letter to the Honorable Errett P. Scrivner, House of Representatbre '4shington, D. C., reading as follows: re, "This refers to your letter of May I addressed to cermer Chairman McCabe regarding Regulation W which conconsumer instalment credit. We regret exceedingly the rIeLdelaY in replying to your letter and that it was 0 8arY for you to send another copy because the rial was lost. tio, We appreciate the point you raise that the activa' of defense plants in outlying sections raises a W31/51 -10- "transportation problem for defense workers who often must travel to and from their work in private automobiles. We recognize that the terms of Regulation d may make it difficult for some of these workers to buy new cars or the higher priced used cars. In view of this situation, the Board has given considerable study to the Possible need for special provisions covering cases of this kind. To date, however) our studies have not indicated that the need for such a special exemption is great enough to justify the sacrifice that would be involved in the effectiveness of Regulation a. This is especially true, in our opinion, because the regulation, on balance, 18 helpful to the low income purchaser in making an automobile available to him at lower prices. "Before Regulation f was reissued last September, automobile prices were substantially higher than they are 11". New automobiles were generally sold with extra equipment or small trade in allowances and used automobiles often were priced a third or more higher than they are now0 While Regulation W was not the only factor tending to reduce car prices, we feel it has made an important contribution. As a result of these price declines, downPayment requirements are substantially smaller than they 4f?re, and the monthly payments required under the regulation are materially less than they would have been at Pre-regulation prices. Our studies show that good used viars are available on terms that can be met out of factory b°rkerst incomes. The man of average income typically cluYs a used car. Good usable cars continue to be available n terms of 25 to 50 dollars a month. "The Board has also studied the possibility of making ;Vividual exemptions in certain special cases. These aiudles, based in part on our experience with such provi; e cens during World War II) have indicated that any such 0 : 4 1113tt n would also tend to weaken seriously the effectivethe regulation. Among other possibilities we have stludied a provision for certification of need such as you j, but we have found no practicable procedure that J-d be effective in accomplishing its purpose without "' l eatening to nullify the regulation. or "The consumer credit regulation must be restrictive, rse, if it is to accomplish its major purpose of Ilea n to restrain general inflationary forces by curbing 'Fuer instalment credit. While the Board does not wish wr3t, 12 5/31/51 -11- "to be excessively restrictive in the case of individual articles, nevertheless, in carrying out its responsibilities under the Defense Production Act, it must at the same time consider the necessity of curbing the inflationary effect 01 instalment credit in the interests of the economy as a whole in this period of national emergency. "We appreciate this opportunity to outline our views °n the problem of defense worker transportation involved under Regulation W." Approved unanimously. Letter to Mr. Christian C. Luhnox, Editor and Publisher, Trusts Estae,n 50 East 42nd Street, New York, New York, reading as follows: "This is in reply to your letter of May 14, 1951, referring to the Board is letter of May 10 regarding your earlier request for an official letter or statement of hj-s Beard supporting the collection and publication of j Ir rtpuc data concerned with the administration and operaof common trust funds. "In viea of the proposed re-examination of all aspects of the several questions involved in the matter 11,1 Publicity of data relating to common trust funds, irrItl°ned in our letter of May 10, it is the Board's w that publication of any authorization to collect ' .11(1 Publish data of any kind should be deferred pending :01DP1(.1tion of such study. by m '*our offer of cooperation in our contemplated study akIng your files of reference material available to 1-8 much appreciated." Approved unanimously. Solietto Me morandum dated May 23, 1951, from Mr. Chase, Assistant r, reading as follows: Pede uLuo Gregory O'Keefe, Jr. was borrowed from the aze, r i al Reserve Bank of New York to assist in the Transilexi'ea case. There will be short periods during the that few months when he will not be fully occupied by tale case, and Mr. Townsend and 13 who value his legal rite very highly, would like to have him use those 5/31/51 -J.2- "periods to assist in the work of this office on Regulation W, and on Regulation X should the occasion require, since it is evident that there will be a very heavy load. Accordingty, it is recommended that the action of the Board of June 5, 1950 and January 12, 1951, which authorized his employment in connection with Transamerica, be amended to include work on Regulation W and Regulation X. "In this connection it may be necessary for Mr. O'Keefe to travel out of WashLngton from time to time, and it is !commended that an adjustment be made in his per diem. Ine present arrangement Is that he receives $14.00 per day, which is designed to cover the cost of maintaining his familY in Washington. If he makes trips for the Board, we recommend that, in addition to the above per diem, he seive (as he did when he was on the West coast in November, 75()) reimbursement for transportation costs on the basis c)f arrangements authorized by the Board's official travel ' legulations, plus reimbursement for hotel room accommodations a3 shea'n by receipted bills." Approved, Mr. V, daman voting "no”•
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