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r-0 Minutes of actions taken by the Board of Governors of the Pederal Reserve System on Tuesday, November 14, 1950. The Board Illet in the Board Room at 10:55 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. McCabe, Chairman Szymczak Evans Vardaman Norton Powell Mr. Mt. Mt. Mr. Mr. Mr. Mr. Mr. Mt. Mr. Mt. Mr. Mt. Carpenter, Secretary Sherman, Assistant Secretary Kenyon, Assistant Secretary Morrill, Special Adviser to the Board 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 Horbett, Assistant Director, Division of Bank Operations Youngdahl, Chief, Government Finance Section, Division of Research and Statistics Koch, Chief, Banking Section, Division of Research and Statistics Mr. Thomas gave a report of developments in the money market dur g the Past week, especially with respect to trading in longtern bank eligible bonds, intermediate bonds, and longer notes. Chairman McCabe stated that he had not been able to have the e°11versat1on8 with others concerning a possible increase in reserve lulrements of member banks as contemplated at the meeting on tiOve ber In and it was understood no action would be taken at this etI -z of the Board. It was also understood that consideration of 11/14/50 -2- Ilhat, if any, action should be taken to change the margin requirements Prescribed in the Board's Regulations T, Extension and Maintenance of Credit by Brokers, Dealers, and Members of National Securities Ego— 'Images, and U, Loans by Banks for the Purpose of Purchasing or CarrYing Stocks Registered on a Nation0 Securities Exchange, would be deferred until a decision had been made on the question whether reserve requirements of member banks should be increased. Mr. Powell referred to the discussion at the meeting on November 10 of a possible voluntary program by the. American Bankers Asa°ciation to restrain bank credit, and stated that in discussions °f the matter with the Association officials, he had learned that a letter had been sent to the members of the Association calling °4 the banks to screen loans and calling their attention to the credit conference to be held in Chicago in December. Mr. Powell said that the Ama,.4 -,-Lcan Bankers Association had also sent a questionnaire to 500 b., which was expected to bring in some information on where the expansion of loans had been taking place. He added that a telegram els° had been prepared in the Board's offices to the Federal Reserve 114114 +-A ""ullY asking them to mAke a spot check of bank loans and report by "o14_ vember 22 on the nature of the increase in commercial and 14duetrial loans at reporting member banks. The telegram, which read as follows, was approved unanimously: 11 114150 -3- "Bank credit has continued to expand rapidly and over two-thirds of recent loan expansion is in commercial and industrial loans, for which practically no breakdown is available. Increases in commercial, industrial, and agricultural loans at all weekly reporting member banks between June 28 and November 1 were $2,921 million or 21.5 per cent. In your District, comparable figures Were $ A per cent. B million and "To provide background for policy decisions, please make spot check of each weekly reporting bank that shows an increase since June of over per cent, but c to less amounted disregarding those where such increase summary than $ D million, and telegraph tabular indicating types of business and purpose of loans. "We are most interested in purpose classification but realize it is more difficult to ascertain than industry classification. The following is a suggested tYPe of summary illustrating the possible types of businesses and purposes of borrowings. Names of individual companies may be included in special cases. Type of Business Increase June 28 or 30 Purpose of of Borrower to November 1 in millions Borrowing M anufacturing: Food and liquor 8 Inventory, normal 15 capital Other working 20 Tobacco Inventory, normal 8 normal Textiles, apparel, Inventory, 18 and leather additional Inventory, 7 Defense contracts equipment 9 Plant and Retirement of other debt 5 and preferred stock Metal and metal products (Similar breakdowns as above for remaining etc. types of business) Petroleum, coal, chemicals, and rubber All other manufacturing Trade (retail Find wholesale) Public Utilities Sales finance Co nstruction Commodity dealers: cotton Other All other Totals 1762 11/14/50 -4- "Data should be obtained from the banks preferably by Personal interview or telephone, on the basis of information already available to their loan officers. Examination reports might be valuable for banks examined recently. If October 4 condition report indicates unusually large increases in commercial and industrial loans since June 30 at individual banks not in weekly series, please make similar inquiries of them. "Please wire summAry in whatever detail time permits to arrive by November 22. Details, comments on individual loans, results from inquiries of nonweekly reporting banks, and other available information on the subject may follow by mail. D C B A _ Boston 10 18.7 3:8 5 New York 25 1..5 24.0 1,197 10 16.1 83 Philadelphia 5 10 Cleveland 10.4 84 5 Richmond 15 21.0 89 5 Atlanta 15 24.9 130 5 Chicago 10 15 20.6 332 St. Louis 10 15 44.5 209 10 18.7 Minneapolis 42 5 I ansas City 10 20.2 119 5 Dallas 10 18.1 5 150 San Francisco 10" 10 18.9 358 Mr. Powell then presented two drafts of a letter that might be sent to all member banks which had been prepared in accordance ith the discussion at the meeting of the Board on November 10. l'he drafts were read and during the discussion that followed, Mr. Vard arnan suggested that, for reasons which he stated, it might be Preferable for the letter to be sent by the President of each of the Peclera- Reserve Banks to the member banks in their respective Federal districts, rather than by the Board. to s Mr. Vardaman went on aY that he felt that it would be desirable to send the proposed 163 4/14/50 letter and that if the Board decided it should be sent direct or if tha Federal Reserve Bank Presidents believed that it would be preferable to send it direct, he would concur. Chairman McCabe suggested that Mr. Powell discuss the letter and the question raised by Mr. Vardaman with several of the Federal Reserve Bank Presidents to ascertain their views, and that a draft r the letter be sent to all Reserve Bank Presidents for comment. Mr. Szymczak stated that while he felt there was no objection to sending the letter, he would prefer that the Board take action to increase reserve requirements of member banks, that he felt the letter would result in delaying action on reserve requirements at 4 time when loans and investments of member banks were still expandand that an increase in reserve requirements at this time could be related to the present economic situation and to proposals that ttlight be submitted to Congress with respect to additional authority t°r dealing with the inflationary situation. Following the discussion, it was agreed unanimously that Mr. Powell should revise the draft of letter along the lines suggested at this meeting, that he should discuss with several Reserve Bank Presidents the question whether the letter should be sent by the Board or by the Federal Reserve Bunks, And that when the letter was in form satisfactory to Mr. Powell and Chairman McCabe it would be sent either direct or through the Federal Reserve Banks to all member banks. EtalIELEA2t.a: In accordance with the above action, the following letter, prepared for Chairman McCabe's signature, was mailed to the Chief Executive Officers of all Member Banks under date of November 17, 1950. Before the letter was mailed a copy was sent by telegram to all of the Federal Reserve Banks for comment, and Mr. Powell reported to the Secretary that he had discussed it by telephone 11h4/50 -6- with several of the Presidents and all but one preferred that the letter be sent direct by the Board, that the Comptroller of the Currency and the Chairman of the Federal Deposit Insurance Corporation informally expressed approval of the letter, and that a copy had been sent to the President of the National Association of Supervisors of State Banks: "The success of the battle against inflationary dangers depends in large measure upon maintaining a reasonable balance between available goods and services and the supply of dollars bidding in the market place. Since early summer the persistent and unprecedented rise in bank loans has been the major factor in the country's increasing money supply. "From mid-year to mid-November total loans at all commercial banks rose well over five billion dollars. This Was a much greater expansion than occurred in the corresponding period of any previous year on 'record. Continued growth of bank credit, not balanced by increases in production of civilian goods, would put additional upward pressure on prices, impairing the buyi-ug power of the dollar and adding to the cost of the Nation's defense program. "The Board of Governors of the Federal Reserve System therefore again wishes to call to the attention of every member bank the loan policy announcement of August 4, 1950 which was unAnimously approved by the Board of Governors, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Home Loan Bank Board, and the National Association of Supervisors of State Banks. As You will recall, that joint statement stressed the imrtance of sensible and restrained action by businessmen, laborers, farmers, and consumers, as well as governmental agencies, national and State, to curb excessive credit exPansion. The joint declaration concluded: 'A continuation of the rapid growth of credit resulting from consumer demand for houses and other goods and speculative accumulation of inventories by business would add to inflationary pressures and seriously hanclicap the necessary expansion of military production. Therefore, lenders should carefully pnalyze all loan applications and avoid making loans which would have these adverse effects.' r 765 11/14/50 -7- "The purpose of this letter is to request your utmost cooperation in helping to achieve the objectives of the foregoing appeal. Every bank has it within its Power to make an important contribution to sound money by limiting loan extensions, and by advising would-be borrowers to hold their borrowing requirements to the lowest limits consistent with their rock-bottom needs. "We realize that bankers have been exercising selection in the kind of credit they are extending. The point we wish to emphasize is that in a period like this even sound individual credits are inflationary in the aggregate, they add unduly to a growing supply of money. With full employment, high level Production, and rising wages and prices, almost everyone's credit appears to be good. Further exPansion in bank credit means more dollars competing for limited supplies of labor and materials. Unless such expansion of credit is checked it is bound to raise prices. Defense dollars will soon be added t° civilian dollars in competition for available goods. The nation's defense needs must be adequately met without runaway prices. "To meet its statutory responsibilities and to PlaY its part in restraining over-expansion of bank credit, the Federal Reserve System has adopted an anti-inflationary program. As integral parts of this program, the Federal Reserve, under the authorization Of the Defense Production Act of 1950, has instituted consumer credit regulations. With the concurrence of the Housing and Home Finance Agency, it has also adopted curbs on residential construction credit. "Commercial banks can also do their part in bringing about restraint of credit by advising borrowers to avoid overstocking of inventories and to postpone Unnecessary business expansion and by discouraging various types of loans that do not make a definite contribution to the defense effort. The sacrifice of °111e earnings at this time is a small price to pay for ! Lhe defense of the dollar which is of paramount t mportance. "The Federal Reserve people are eager to know what the commercial bankers are thinking about the trend in bank loans. It would be greatly appreciated if you would care to write a letter to the President of the Federal Reserve Bank of your District so that we may have the 1766 144flAbo -8- "benefit of your views with regard to the following questions or any other information that you would care to communicate: What types or classes of borrowers occasioned most of the new loans in your bank since ! llid-Year? Can you say whether their borrowing is or ls not largely seasonal? If not seasonal can you identify a principal purpose? Do you expect the large demand for credit to taper off, continue, or increase in the next three months? Such other information and 171e/is as you would care to express on our mutual problem oz curbing inflation would also be most welcome to the Federal Reserve System." At this point, all of the members of the staff with the e"ti°n of Messrs. Carpenter and Riefler withdrew from the meet- Reference was made to informal discussions by members of the B c)ard, by the Personnel Committee, and at the meeting of the IloarA ' 4 on Friday, November 10, 1950, of a recommendation submitted to "e P ersonnel Committee by Mr. Vardaman that the salary of Mr. 130()the) Assistant Director of the Division of Administrative Services, be Jalcrea .A --R-%4 in recognition of the work he was doing as Deputy Adrilirlistrator of the V-loan program. Mr. Szymczak said that the Persotar, Committee had given the matter further consideration this rtiorrii ng in the light of memoranda submitted by Mr. Hilkert and Mt. Call)enter under date of November 13, and by Mt. Boothe under date "November 14, and that it was the recommendation of the Committee that (1‘ ) a salary increase of $1,000 per annum be approved for Mt. the '(2) that Mt. Boothe and the activities which he performs in co/ItLe "ion with the V-loan program be transferred to the Division 1 11/14/50 or ilank -9- Operations, and (3) that the Board immediately undertake study of the charges that should be made in the salaries of the Dlembers of the Board's official staff. The recommendation of the Personnel Committee was discussed at length and it was voted unanimously (1) to increase Mr. Boothe's salary from $10,305 to $11,500 per annum effective as of the beginning of the next payroll period, and (2) to request the Personnel Committee to submit recommendations with respect to (a) the charges that should be made in the staff organization for the handling of the V-loan program, and (b) changes in the salaries of the members of the Board's official staff. At this point Mr. Riefler withdrew, and the action stated Vtth r,, --Peet to each of the matters hereinafter referred to was toe by the Board: Minutes of actions taken by the Board of Governors of the Reserve System on November 13, 1950, were approved unanimously. Memorandum dated November 1, 1950, from Mr. Szymczak, reC°rIlterldivm. an increase in the basic salary of Miss Ruth E. Morris, tettographer in his office, from $3,475 to $3,600 per annum, ective November 26, 1950. Approved unanimously. Letter dated November 3, 1950, from E. R. Millard, Director °r the D ivision of Examinations, submitting his resignation to erre etive, in accordance with his request, November 30, 1950. be A NyeCI" Cit C . 5 11/14/50 -10Approved unanimously. Letter to Honorable Camille Gutt, Managing Director and Chairman of the Executive Board, International Monetary Fund, tr. We 'shiligt011, D. C., reading as follows: "We wish to acknowledge receipt of your letter of November 2, 1950, stating that you have received a request from the Minister of Finance of the Republic of Paraguay to make available to that government for a period of from four to five weeks, beginning on or about November 13, the services of two technicians !o analyze the financial system and assist in _'"e Preparation of the budget, and requesting that the Federal Reserve System supply a qualified person to undertake the duties of Frhief of the mission. It is noted that the 'Lntarnational Monetary Fund will undertake to arvide an economist thoroughly versed in _aguayan financial affairs who will act as assistant the mission. economist and translator for r "We are pleased to inform you that the Federal Rese I've Bank of Richmond has agreed to make available f purpose Mr. J. Dewey Daane, an economist 011 the staff of i "‘he that Bank's Research Department. , t iS Proposed that Mr. Daane will remain on the la 'aY roll of the Federal Reserve Bank of Richmond nnsillg the time that he is engaged in the mission, ;;AIIIL that his transportation expenses, living " aaces, and other expenses be furnished by the r Fund in accordance with the r:te national Monet gulations applicable to personnel of your organization. i "We believe that Mr. Daane's education and ePerience make him well qualified to undertake this i=nt and trust that his services will prove s ti satisfactory." Z Approved unanimously. Letter to Mr. Leach, President of the Federal Reserve Bank " Richraord, reading as follows: 01 1769 11/14/50 -11- "Reference is made to your letter of October 30/ 1950, in which you advised that it appears expenses for certain functions at your head office and branches will exceed the 1950 budget estimates as follows: Charlotte Function Baltimore Richmond Furniture and equipment $4,000 Postage and expressage 9,500 Stock of supplies 1,000 $7,000 4,300 Consumer credit 3,941 $17,540 12,500 Currency and coin Bank and public 2,200 relations Auditing 1,600 "The Board accepts the revised figures as submitted and appropriate notations are being made in the, 15oard's records." p. Approved unanimously. Letter to The Honorable, The Attorney General, Washington 25) D C., reading as follows: "On October 5, 1950 (JMM:JTG:IK 146-17-012), your Department wrote to this Board that it was in accord w ,h Proposals regarding the enforcement of Regulation (relating to Consumer Credit) which were the subject 1; the Board's letter to your Department of September indicated, the authority to 195o. As the Board's letter : ttr!gulate consumer credit was placed in the Board by Defense Production /ict of 1950, particularly, 001 of that Act. "Section 602 of the Defense Production Act of 1950 'authorized the President to prescribe regulations with !!Pect to real estate construction credit. This 744-Lhorii, --Y was delegated by the President to the Board ; 11 Part v of Executive Order No. 10161, dated September a 1950 issued Pursuant to this delegation the Board filed with the Federal Register its Regulation X efelating to Residential Real Estate Credit). The fective date of the regulation was October 12, 1950. f 1770 11/14/50 -12- "A 00PY of Regulation X is enclosed herewith. "The Board believes that it would be appropriate to establish an enforcement program with respect to Regulatdon X along the lines of that concerning Regulation 14, and there is enclosed a copy of a memorandum entitled 'Outline of Enforcement Program for Regula! 1°)3. X'. This outline is very similar to the outline or RegulPtion W submitted with the Board's letter of September 18, 1950. As in the case of Regulation W, it 18 proposed that the enclosed outline serve as a (7)neral basis for the enforcement program with respect Regulation X, and it will be appreciated if you advise us whether or not your Department would have any objection to such a procedure. "We would, of course, be happy to make available many copies as your Department might desire of Aegulation X and the enforcement program for that regulation We would also appreciate it if, as was one in , connection with Regulation W, you could Upply us with copies of any instructions from your Department to the United States Attorneys with respect to Regulation X. As you know, your circular 1 letter of October 3, 1950, concerning Regulation W _equested that no proceedings should be instituted In cases involving violations of Regulation ,v without Prior authority from your Department." r Approved unanimously. Letter to Mr. S. H. Kelley, Assistant Publisher, Kelley kUe Book, 1221 South Figueroa Street, Los Angeles 15, California, l'eading as follows: re 1 "Thank you for your letter of October 18 in IL-Y to the Board's letter of October 9. , "As stated in the Board's letter of October 9, also the Board's letter of September 9, 1950, sIE:s not designated any appraisal guides ; 68 : gr (. i%/ as such, but has merely designated certain specified issues. In other words, the ofs:.?_1ations are not merely limited as to periods ' 4-Jae but also as to particular issues. 11/14/50 -13- "The Board does not care to suggest at this time that you send out to your subscribers an correction regarding the designation of certain °f your issues. We believe you will appreciate that a correction can rarely catch up with an earlier statement and remedy the misapprehensions it may have caused. In addition, the Board does not wish to undertake to pass individually upon the various steps of a publisher's operations. As indicated in the Board's letter of October 9) suchA.ndividual determinations by the Board would t Only involve additional labor and expense, also could not provide a satisfactory substitute tor the extremely high degree of responsibility is essential on the part of publishers of "signated issues of guides if the designations are to serve their purpose." r Approved unanimously. Letter to Mr. Carl R. Lane, Executive Vice President, C°11necticut Automotive Trades Association, Inc., 252 Asylum Street, liartro rd 3, Connecticut, reading as follows: "Thank you for your letter of October 30, 1950 ; lid the summary of your survey of the effect of iam W on Connecticut automobile dealers. weglat e ihdr1711:1so received, and thank you for, the dealer replies to your questionnaire. vi41. "We appreciate your interest in providing us thenhis information and wish to assure you that st ,,`Ieta will be carefully considered in our alu'ies of the effect of the regulation. We are vbvaYs glad to hear from businessmen and others : 1 4) can report currently on the incidence of our a:Plations. We regret that inflationary tendencies national defense have made it necessary to ,,P°se credit restrictions that affect particular uusinesses and individuals. pu "As you can understand, since the particular fZP?se of Regulation 4 is to dampen consumer demand r-e— -instalment credit we can not discharge our sponsibility without restraining this type of A *- 11/14/50 credit where it is most active. After most careful consideration of all available information we placed the present requirements at 1/3 down payment and 15 months maturity for automobile credits with the hope that they would bring about the necessary curtailment without causing too much hardship in individual cases. "Regulation W, together with other credit re straints recently effected by the Board and the !Peoial fiscal measures taken by the Government, is Q:irected towards stopping the present inflationary Piral. The purpose, of course, is to serve the Public in a time of emergency. If this PrPose can be accomplished all business including automobile industry will benefit as well as all cOneumers. "The scope and terms of Regulation W are under constant study and may be changed from time to time .” c onditions warrant. You may be interested in the attached statement dated October 17 concerning he reasons for the amendment effective October 16." Approved unanimously. Letter to Mr. A. B. Lewis, .. B. Lewis Company, Fannin at 1301, Houston 2, Texas, reading as follows: 1950 "This is in reply to your letter of October 281 Regulo cerning the recent amendment to the Board's e"J-on W relating to consumer credit. "It It is indeed gratifying that you appreciate and Under the need for some sort of regulation of prlislImer credit during this period of severe inflationary ci: suree. We feel certain that you will also appre','e"the fact that it is difficult to consider Regulam0 : : 11 and its intended purposes apart from other t--ebarY and fiscal policies all of which are directed :arc" resisting further inflation. As a consequence viu will understand, we feel certain, that the probesi°ns of the regulation, at any period of time, must voicletermined in the light of the many factors inf.. ved. On the basis of the appraisal of all the izctors the Board concluded that the regulation, if 131! ,0 ere to accomplish its intended purposes, should vide for a fifteen months maximum maturity in respect 1"*I.r:>1 ire.? 1773 11/14/50 -15- "of all instalment sales of consumers durables subject t° the regulation, including automobiles. We recognize that in the administration of any such measure as Regulation W there are bound to be hardships on particular businesses and individuals. We regret that this is so and every effort has been Made to keep such hardships at a minimum. The regulation, of course, far from prohibits the instalment .”le of articles subject to its provisions. It is ' - kelY that, to the extent the regulation is effective, a material slowing down in the unprecedentedly high ; ate at which consumer durables have been manufactured, ! QAstributed, and sold is to be anticipated. It is inevitable that any considerable slowing down in the rate ol sale of any significant commodity will require readjustme nts all along the line. It would appear that re nA4 --dustments to the present level of terms under the egulat, ion will be made with considerably less hard: 1111P than is now anticipated. The readjustments, once h eY are made, should minimize the threat of extreme : 11 ; 1dship which could be expected to accrue to the T' - 1-011. as a whole were the present inflationary spiral 0 continue unchecked. "You may be certain that the Board will continue toI review • the terms of the regulation in the light of the facts which come to its attention and in that ,..Trjliezi will welcome any data that automobile dealers may care to submit." : Approved unanimously. 11, Letter to Mr. Lawrence Krueger, 2543 Pittsfield Boulevard, 'Ann Arbor, Michigan, reading as follows: Re 45 "Your letter of October 31, 1950 to Mr. Symington, 11111ch You request a ruling on the question whether Reg sch ?tion W applies to public entities such as a 001 district when the reimbursement is guaranteed by iact of the State legislature, has been referred to the Board of Governors for reply. "You state that under the State School Acts of 1946 mici,.and Particularly under the Public School Code of : bl lgan, school districts are permitted to purchase -es under a contract extending payment for a three 1.144ho' -16- "to five year period. You further state as an examPle that if a school bus should cost $4,000, 19Ie terms permitted might be a down payment of 0,t00 and three instalments of $1,200 each. , "Under the above circumstances credit extended 1,40 school districts, being agencies of the State of ichigan, would be exempt under section 7(d) of , Aegulation W from the provisions of the regulation. We are enclosing a copy of Regulation W and "We we the above adequately answers your question." Approved unanimously. Telegram to the Presidents of all Federal Reserve Banks, l'eMing as follows: "A transaction does not cease to be subject to Regulation W merely because the parties choose o call it a 'rental' rather than a 'sale'. WithoUt attemp ting to describe all the various arrangeats that are subject to the regulation, it should ,..e noted that the definition of credits that are bject to the regulation, includes, among other ofings, 'any contract for the bailment or leasing Property under which the bailee or lessee either ::the option of becoming the owner thereof or will olgEttes himself to pay as compensation a sum v-,stantially equivalent to or in excess of the _e_-411e thereof; * * * and any transaction or series , ur transactions having a similar purpose or effect.' r Z Approved unanimously. tealk or Telegram to Mr Olson, Vice President of the Federal Reserve Chicago, reading as follows: "Retel November 9 concerning liens resulting from permitted by exemption under section 5(g) of miulation X and question whether subsequent purchasers tov nacqUire title subject to such liens without regard t.,."egulation X. Your understanding with respect to ; 1 " - ! matter is correct. In case of sale by non, istremt, it is assumed that there is no other ezt 'llsion of credit which would be subject to Regulation X." 10 Re 11/14/50 -17Approved unanimously. Memorandum dated November 13, 19)0, from Mr. Hooff, Assistant Counsel, recommending that in addition to the material Previ,„ —44J-Y submitted for publication in the Law Department of the 11°vember issue of the Federal Reserve Bulletin statement in the f°rIm attached to the memorandum with respect to Amendment No. 1 to RegUlation x, together with the introductory statement be included. Approved unanimously. Se retar .
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