The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Minutes of actions taken by the Board of Governors of the Federal Reserve System on Tuesday, May 8, 1951. The Board met in the Board Room at 3:05 p.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Szymczak Evans Vardaman Norton Powell 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 Thomas, Economic Adviser to the Board Leonard, Director, Division of Bank Operations Vest, General Counsel Young, Director, Division of Research and Statistics Noyes, Director, Division of Selective Credit Regulation Williams, Assistant Director, Division of Research and Statistics Before the meeting there had been distributed to the members of the Board copies of a draft of statement to be presented by Chairman Martin when testifying before the Senate and House Banking and CtIrrncy Committees later this week relative to the extension of the Defense Production Act of 1950. Various changes in the draft were proPosed and after discussion it was understood that the draft, revised t° incorporate certain of these suggestions, wouldbe presented by Chairman Martin at the hearings as expressing the views of the Board of Governors. 990 5/8/51 -2Mr. Vest reported that he had been informed that when Chairman Martin testified at the hearings referred to above he would be questioned concerning the position of the Board with regard to the need for additional authority over bank reserves, the need for inclusion of existing structures under Regulation X, Real Estate Credit, the extent to which the Board had used "orthodox" credit controls in its anti-inflationary program, and the underlying purposes of Regulation A, Consumer Credit. During a discussion of the views which Chairman Martin might express on the problem of reserve requirements, it was noted that the Board had not yet reached a conclusion with regard to any particular Plan, and that according to present plans such legislation would not he proposed until after the meeting on May 14 of the Committee of Four, appointed by the President on February 26, 1951, to study ways and means of providing restraint on private credit expansion, at which time the Committee would consider the report which it would submit to the President. It was suggested that if questioned, Chairman Martin might reply to that effect. Mr. Vardaman raised the question as to what comment the Chairman nlight offer if asked during his testimony on the Defense Production Act Why the Board had not raised reserve requirements at central reserve eitY banks to the maximum permitted by statute. There was a discussion Of this question, at the conclusion of which Mr. Vardaman stated that he felt the Board had been remiss in not raising reserve requirements at central reserve city banks to the maximum permitted by statute during the latter part of 1950, that the fact that the Board had not exercised its full statutory authority would weaken its position in requesting additional authority from Congress, and that he felt that such action should still be taken. The Chairman then stated that before the meeting of the Committee of Four next Monday, he would like to have some definite indication of the preference of the Board with regard to the various suPPlemental reserve plans that had been proposed, and members of the Board present indicated that they felt the loan expansion reserve Plan would be most satisfactory, that a second choice would be the Plan providing supplemental authority over primary reserves with an °Ption to the banks to hold a portion of the additional reserves in C*vernment securities, and that a third choice would be a combination of the two plans. It was stated also that in order to be acceptable anY plan would have to be applicable to all insured banks rather than to member banks only. Mr. Vardaman suggested that if none of the foregoing alternatill "was acceptable the Board indicate that it would be glad to collaborate with other interested agencies in working out an acceptable Plan. 992 In discussing the loan expansion reserve plan the view was expressed that considerable opposition would develop if supplemental reserve requirements were to be imposed on any increase in loans above a selected base period on the grounds that this would penalize those banks which had been cooperative in restricting their loans. For this reason it was suggested that an alternative to the draft bill covering the loan expansion reserve plan be prepared for consideration by the Board which would eliminate reference to a base Period and set forth a percentage of loans to deposits above which the supplemental reserve requirements would apply on a graduated scale. The thought was expressed also that during the transition Period within which the supplemental reserve plan would become effective some formula should be devised which would enable banks to adjust their positions. During the foregoing discussion Mr. Solomon, Assistant General Counsel, joined the meeting and at its conclusion Mr. Townsend, Solicitor, entered the room. Mr. Townsend referred to the adoption by the Board on April 171 1951, of orders for formal investigation of four automobile dealers and two finance companies located in and around San Francisco, Califor- Ilia, in accordance with a recommendation of the Federal Reserve Bank of Francisco, and stated that at the conclusion of the investigations, which were conducted jointly with counsel and other representatives of the Reserve Bank, there appeared to be evidence of collusion between Public Loan Corporation, San Francisco, California, its Manager, Walter L. Boynton, and Herman Bryan Hamric, doing business as Hamric Motor Sales, San Francisco, California, to violate the terms of the Regulation. He recommended that on the basis of that evidence the matter be referred to the Department of Justice for such criminal action as might be deemed aPPropriate by the Department in the circumstances. Under that proce- dure, Mr. Townsend said, the Office of the Solicitor would discuss the matter informally with the Criminal Division of the Department of Justice, and would prepare a criminal reference report to the Department to be transmitted over the signature of the Secretary outlining the proposed case and presenting a complete review file of the evidence, after which the Department would either instruct the United States Attorney of the Palticular area to take the necessary steps to prosecute the case in Ciplirt or would decide to take no action. He noted that under such a Pr'cesdure the staff of the Board and the Federal Reserve Bank of San Fi'anciseo would place themselves at the disposal of the Justice DepartIlle14 in any way necessary to enable the Department to proceed with the case. During the course of Mr. Townsendls remarks, Chairman Martin thdrew. After discussion, upon motion by Mr. Evans, Mr. Townsend's recommendation was approved unanimously ( 5/8/51 —6— with the understanding that the Office of the Solicitor would take the necessary steps to refer the matter to the Department of Justice with a view to institution of criminal proceedings by the Department. Secretary's Note: Pursuant to the foregoing actionl a letter dated May 11, 1951 was sent to Honorable James M. McInerney, Assistant Attorney General, Department of Justice, Washington, D. C., as follows: "Pursuant to Section 21 of the Securities Exchange Act of 1934 (made applicable to the Board of Governors by Section 604 of the Defense Production Act of 1950), the Board of Governors is transmitting to you herewith a report of investigation concerning acts and practices which appear to the Board to constitute violations of its Regulation W by Public Loan Corporation, Walter L. Boynton and Herman Bryan Hamric, d/b/a Hamric Motor Sales. This report is sent to you in order that you may, in your discretion, Institute such criminal proceedings as may appear to be justified or required." Mr. Townsend then stated that during the investigation of the PlIblic Loan Corporation in San Francisco, he had permitted counsel for that company to be Present during the examination of employees Of the company who were subpoenaed as witnesses, and that counsel for the company had now requested the privilege of purchasing copies of the stenographic report of such testimony. He said that it was his ' leco mmendation that this request be granted. Thereupon, upon motion by Mr. Evans, this recommendation was approved unanimously. 995 5/8/51 _7. Mr. Townsend said that since his return to Washington following the investigation of Public Loan Corporation, he and Mr. Evans had received telephone calls from counsel for that Corporation requesting information as to what action the Board would take in connection with the case, and that he had declined to furnish this information but had said that he would inform the Board of the request. Mr. Townsend said that it was his recommendation that pending the institution of criminal Proceedings by the Department of Justice no information as to the contemplated course of action be transmitted to counsel for Public Loan Corporation. Mr. Vardaman withdrew at this point, but before leaving the meeting stated that he could perceive no objection to telling counsel or Public Loan Corporation that the Board was referring the case to the Department of the Justice and that he would favor authorizing the So licitor to furnish this information. After discussion, upon motion by Mr. Evans, it was agreed that the question whether information should be furnished Public Loan Corporation and if so, at what time, should be left to the discretion of the Solicitor. Mr. Townsend then stated that Maxim Appliance Company, Bartoa, Fl011-da, a registrant under Regulation WI Consumer Credit, had refused to Permit investigation of its records by the staff of the Federal Re8"lre Bank of Atlanta and that it was his recommendation that the Office Of the Solicitor be authorized to institute action in the appropriate Court to compel the registrant to produce its records and open its books for investigation. This recommendation was approved unanimously. Mr. Townsend reported receipt of information from the Federal Reserve Bank of San Francisco that the Gould Investment Company Beverly Hills, California, had refused to permit representatives of the Reserve Bank to inspect its books and records, and recommended that in accordance aith the recommendation of the Reserve Bank the Board order an investigation for the purpose of obtaining information as to whether the company was engaged in the business of extending real estate credit subject to Regulation X, Real Estate Credit, and, if so, whether it had violated the provisions of Section 602 (b) of the Defense Production Act of 1950 and Section 6 (d) of Regulation X in refusing to permit inspection of its books and records. Upon motion by Mr. Norton, unanimous approval was given to the following order, with the understanding that if circumstances warranted taking other action a further recommendation would be presented to the Board: "UNITED STATES OF AMERICA BEF(110-0 , 41x, THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM At a meeting of the Board of Governors of the Federal Reserve SYstem held at its offices in the city of Washington, D. C., on the 8th day of May, A. D., 1951. 5/8/51 "In the Matter of GOULD INVESTMENT COMPANY ORDER DIRECTING INVESTIGATION AND DESIGNATING OFFICERS TO TAKE TESTIMONY Members of the staff of the Federal Reserve Bank of San FranCiSCO have reported information to that Bank, which that Bank has transmitted to the Board, which tends to show that: 1) Gould Investment Company is engaged in the business of extending real estate credit subject to Regulation X, Real Estate Credit, issued by Board of Governors of the Federal Reserve System. 2) Gould Investment Company has failed and refused to Permit the Federal Reserve Bank of San Francisco, by its duly a uthorized representatives, to inspect the books and records Which the Company is required to keep pursuant to the said Re gulation. II The Board, having considered the aforesaid report, deems it necessary and appropriate that an investigation be made for the 2 13 11303e of determining whether or not Gould Investment Company is ngap;ed in the business of extending real estate credit subject to ulation X and, if so, whether it has violated the provisions of t:ctien 602 (b) of the Defense Production Act of 1950 and of Sec°n6 (d) of Regulation X in refusing to permit inspection of its oks and records. III It is pursuant to Sec. 705 of the Defense Producordered tio ,. n Act of 1950 and Sec. 902(a) of Executive Order 10,161, that an 4-alre 4. • 3 ulgation be made to determine the matters set forth in paragrVh II hereof. It is further ordered, pursuant to Sec. 902 of the said ite Order, that for the purpose of such investigation, J. de r.lard Townsend and John A. 01Kane, and each of them, is hereby 0,,s, gnated an officer of the Board and empowered to administer s and affirmations, subpoena witnesses, compel their attendance, core evidence and require the production of such books, papers, vanfesPondence, memoranda or other records as may be deemed velein ti or material to the inquiry, and to perform all other duties ecmnection therewith as authorized by law. By the Board. (signed) S. R. Carpenter, Secretary." V Z t!fx$ *IS 5/8/51 -10At this point all of the members of the staff with the excep- tion of Messrs. Carpenter, Sherman, and Kenyon withdrew, and 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 Reserve System on May 7, 1951, were approved unanimously. Memoranda from the heads of the divisions indicated below recommending increases in the basic annual salaries of the following employees in those divisions, effective May 13, 1951: Ekte of Memo 94142211e liZAllarITATTEE 4/30/51 C harles H. Bartz AttW Hammons, Jr. BANK OPERATIONS 5/4/51 Esth,:a Conover Rutli B. 71illard Title Salary Increase To From 5 625 Federal Reserve Examiner Assit. Federal Reserve Examiner 3,100 $5,750 3,225 3,725 2,890 3,850 2,970 Statistical Clerk Clerk-Typist Approved unanimously. Letter to Mr. Slade, Vice President of the Federal Reserve Bank ‘‘ 01 San Francisco, reading as follows: accordance with the request contained in your letter of May 1, 1951, the Board approves the appointment of Leslie Harder, at present an assistant examiner, aS an examiner for the Federal Reserve Bank of San Francisco. "If the appointment is not made effective July 1 as Planned please advise us." Approved unanimously. 5/8/51 -11Letter to Mr. Slade, Vice President of the Federal Reserve Bank of San Francisco, reading as follows: "In accordance with the request contained in your letter of May 1, 1951, the Board approves the appointment of John N. Aamodt, at present an assistant examiner, as an examiner for the Federal Reserve Bank of San Francisco. "If the appointment is not made effective July 1 as Planned please advise us." Approved unanimously, Letter to Mr. Woolley, Vice President of the Federal Reserve Bank of Kansas City, reading as follows: "Reference is made to your letter of May 21 1951, enclosing a certified copy of a resolution adopted by the Board of Directors of the Washington County Bank, Blair, Nebraska, signifying its intention to withdraw from membership in the Federal Reserve System and requesting waiver of the six months' notice of such withdrawal. ."As requested, the Board of Governors waives the requirement of six months' notice. Accordingly, upon sur7nder of the Federal Reserve Bank stock issued to the llashington County Bank, Blair, Nebraska, you are authorized to cancel such stock and make appropriate refund thereon. It is noted that the bank has been approved by the Federal 1?ePosit Insurance Corporation for continuance of deposit Insurance after withdrawal. "Please advise when cancellation is effected and refund is made. The certificate of membership issued to the bank should be obtained, if possible, and forwarded to the Board. The State banking authorities should be advised of the bank's proposed withdrawal from membership and the date such withdrawal becomes effective." Approved unanimously. Letter to Mr, Slade, Vice President of the Federal Reserve Bank of San Francisco, reading as follows: 5/8/51 —12— "This refers to your letter of April 30 relating to the extension of credit to an affiliated bank, Homedale State Bank, Homedale, Idaho, as shown on Schedule 10' of the report of condition submitted by the Continental State Bank, Boise, Idaho as of April 9, 1951. "Since the extension of credit was an overdraft that occurred because of a mismailing of a remittance, we con— cur in your recommendation that submitting a report of an affiliate on form F. R. 220 and filing a certificate of its publication on form F. R. 220a should not be required." Approved unanimously. Letter to Mr. Robert M. Morgan, Vice President and Treasurer, The Boston Five Cents Savings Bank, Boston, Massachusetts, reading as follows: "This will confirm your conversation with Governor Potrell this afternoon inviting you, on behalf of the Board of Governors of the Federal Reserve System, to become a member of the Voluntary Credit Restraint Committee. As YOU know, this is the Committee set up under the Defense Production Act of 1950 to administer the Voluntary Credit Restraint Program which was announced by the Board of Governors on March 9, 1951. "The next meeting of the national Committee will be held at 9:00 a.m. on Monday, May 21, 1951, here in the Federal Reserve Board Building in Washington. Governor Powell understands from your telephone conversation that YOU can be present. We shall all be looking forward to the privilege of meeting you and I know that the Committee wIll welcome you as a member. "Under separate cover I am sending you some literature Showing the nature of the work of the national Committee up to the present time. The meeting on May 21 will discuss, among other things, a formula for real estate loans of the conventional type on existing structures. The Committee wIll benefit greatly from your experience in this field." Approved unanimously.
@FedFRASER