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flutes of actions taken by the Board of Governors of the exj Reserve System on Friday, November 29, 1946. PRESENT: Mr. Eccles, Chairman Mr. Draper Mr. Evans Mr. Mr. Mx. Mr. Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Thurston, Assistant to the Chairman As stated in the minutes of October 30, 1946, Er. Vardaman C' lofficial business. Telegrams to "..1r. Blair, Secretary of the Federal Reserve 1341k of C leveland; Er. Leach, President of the Federal Reserve Bank 4ehril°1-1 ; 7'r. Clark, Fir3t, Vice President of the Federal Reserve 1:381.1k of Atlanta; Er. Dillard, Vice President of the Federal Reserve 4.41k of Chicago; Ir. Stewart, Secretary of the Federal Reserve Bank (11' Louis.- Mr. Po:,e11, First Vice President of the Federal Reserve 1141kOf 14iiineapolis; . Caldwell, Chairman of the Federal Reserve of ICansas City; Mr. Gilbert, President of the Federal Reserve and Volberg, Vice President of the Feder.1 Re— 4\re Bzi•rik of Sen Fr- cisco, statThg that the Board approves the stab..!nerit without chanL;e by the Federal Reserve Bank of ‘'.;an on November 26, the Federal Reserve Banks of Atlanta, St. v ed Louis, Llinneapolis, and Kansas City on November 27, l?''aercti. Reserve Bank of Cleveland on November 28, and the the Reserve Banks of Richmond, Minneapolis, and Dallas today, rates of discount and purchase in their existing schedules. Aproved unanimously. 1708 11/29/46 -2l emorandum dated November 27, 1946, from Mr. Thomas, Director (4 the JJ-Lvision. of Research and Statistics, recommending the appoint- 111141t (3r Miss Genevieve P. Gilardi as a clerk in that Division, on a terapo ray indefinite basis, with basic salary at the rate of '2,394.00 Per effective as of the date upon which she enters upon the Pelql° ance of her duties after having passed the usual physical ' 41ation. 41e ber that The memorrndum also stated that Miss Gilardi was a °f the Civil Service Retirement System and would remain in System. Approved unanimously. Letter to Mr. John R. Steelman, Director of the Office of 4r11°13ilization and Reconversion, prepared in accordance with the 4eti°11taken at the meeting of the Board on November 19, 1946, and r4(N as follows: re,, "This refers to your letter of November 14, 1946, aC'e8ting reports with reference to temporary wartime 17ealt_es , and other legislation of concern to us which icipate may be considered by the next Congress. rec "There are only two temporary statutes which diTheyY affect operations of the Federal Reserve System. tho jelate to the purchase of Gov,rnment securities by fl, ,4,ecieral Reserve Banks directly from the Government t,0the exemAion of war-loan deposits from reserve 4/iirements and deposit insurance assessments. exi,4."Direct Purchase of Government Securities. - The riti'lng authority for the purchase of Government secu001,;" bY the Federal Reserve Banks directly from the ewnment, subject to a *5,000,000,000 limitation, is ot in a proviso which was added to section 14(b) War Federal Reserve Act by Title IV of the Second silq "ers Act, and will expire on March 31, 1947, or the perlier date as may be designated by Congress or tekt, resident. In lieu of a further extensLon of this 1.11 rarY legislation, the Board believes that this perm-ritY should be made permanent. It believes that arlent authority is desirable because, among other 170'zi 11/29/46 0 reason8, direct buying by the Federal Reserve Banks Provides the Treasury with a source to which it can turn to obtain funds in a substantial amount on little notice to meet temporary situations and contingencies, makes it Pcssible for the Treasury to operate with a smaller cash °alance than might otherwise be necessary, and provides a flexible mechanism to ease the money market in periods o r, mf heavy drain, as, for example, around income tax dates. Treasury Department also is interested in this matter an concurs in the Board's views with respect to it. • ls the Board's purpose to recorithiend to Congress that ? Present authority of the Federal Reserve Banks in ,t,"8 matter be ',Jade permanent. "ar-Loan Deposits. - The Act of April 13, 1943, 19 of the Federal Reserve Act to provide that, until six months after the cessation of hostilities • : r determined by proclamation of the President or concurb resolution of Congress, Government deposits in memsier l banks ehich are commonly known as war-loan deposits b all not be included in the deposits against which memenbanks are required to maintain reserves with the Fed't Serve Banks. It also amended section 12B of the we e deral Reserve Act to provide that, for a like period, er1 :710an deposits shall not be subject to the usual Fedde-4- Deposit Insurance Corponeton assessments against a Posits in insured banks. This legislation was strictly hilwartime measure, designed to facilitate the Government's Th!e financing program necessitated by the war effort. niel;4,exemption of war-loan deposits from reserve requireconstitutes a departure from sound peacetie;e poltie;e8 and was justified only on the basis of wartime 110 ;ei, ssitY. Since the Government's 1%ar financing has ex ueen completed, the need for the exemption no longer itass; and its continuance is undesirable because of vo, Inflationary effects. By the end of this year, the of war-loan deposits will have been so reduced e 6e't the adjustments required by the removal of the AcciliPticn should present no serious difficulties. sho diligly, the Board believes that the exemption tirae 7-d . be promutly terminated, and at the appropriate it Plans to recommend the enactment of legislaencl ' . to accomplish this end. The Treasury Department itt.,,the Federal Deposit Insurance Corporation also are 'rested in this matter. ra4 11/29/46 -4-"In addition to the foregoing, certain matters which nlaY be considered by the next Congress and which are of cencern to the Board are set forth below: 22.Eulation of Consumer Credit. - The Board's authority lr regulate consumer credit is conta;ned in Executive Order " t 8843, dated August 9, 1941, which was issued pursuant 5( 1,1, ection 5(b) of the Trading with the hhemy Act. Section is Permanent legislation but the pavers vhich it vests the President may be exercised by him only during the c le of war or during the time of national emergency detilared by him. In its Annual Report to Congress last June, wile, 8°ard recommended that Congress consider the question ller the regulation of consumer credit should be conon a peacetime basis, as a subordinate but contribst°, 17Y factor in the maintenance of economic stability. As 8- Led in the Report, 'Over the oast 30 years, consumer instalment financing has come to occupy an important and strategic place in the national economy. Such financing is essential to the mass distribution and conseQuently to the mass production of consumers' durable goods. From time to time, hoever, the expansion and subsequent contraction of consumer credit has gone so far as to accentuate the upswings and downswings of the business cycle. There is no way of preventing such excessive exPansion and contraction except governmental regulation of the terms on which consumer credit shall be made available, such as the down payment reSuired on instalment sales or financing and the The mlength permissible for instalment contracts.' erej°ard has recently revised its regulation on consumer the .tt; and, if it is to be continued on a peacetime basis, tZc'ard believes that the regulation should in general be teet e form and scope of this revision in order to be an eftesulve influence toward economic stability. However, the cort? as to flether the regulation should or should not be varilnued in any form is a subject of sharp controversy among lesj ils groups affected by it. The Board believes that this be ze should be decided by Congress and that c,n effort should tro 4Cle to 111 th B obtain a prompt determination of the matter. Aside Lit ! oard, it is believed that your Office is the Govern, most directly concerned with this matter. ktrikilation of Bank Holding Companies. - As a part of the tzl4t•ng Act of 1933, Congress attempted to provide for the reglon of bank holding companies and gave the Board the respon- 1.M 1112946 -5t? • . sibility for the administration of the law. Experience has demonstrated that effective regulation is impossible 111der the existing law and that the law is wholly inadequate to accomplish its objectives. In its Annual Report to Couress for 194J, the Board pointed out some of the defects 411 the law and recommended the enactment of new legislation; fld, subse,iuently, it submitted specific proposals to the th Congress. The proposed legislation (embodied in H. R. (,2 ) , 5 Was designed to provide for more effective supervision i; uank holding companies, to reuire them to eliminate acties unrelated to the ownership and control of bank 2,1c, and to control the expansion of bank holding com'es. The Board still favors legislation of this nature 16Z •;..'" expects to seek such legislation at the next Congress. In the past, the Treasury Department and the Federal Desit Insurance Corporation have been interested in legisation on this subject. "Loans to Business Enterprises. - Under section 13b it the Federal Reserve Act, the Federal Reserve Banks have b1 121-ted authority to make loans to industrial or commercial -rlesses and to purchase and to enter into commitments to Aurchase si liar loans made by other financing institutions. ca, Piart of the funds to enable the Federal Reserve Banks to 4141t7 cut this program are advanced to them by the GovernThe authority granted by section 13b is subject to val." restctions, ri however, as to be of relatively little rentle, and the Board beeves believes that that section should be i led. In lieu thereof the Board expects to recommend at ! s e appropriate time that section 13 of the Federal Realltlie Act be amended to give the Federal Reserve Banks Of 13°PitY of a standby character to assist in the financing tieallsiness, particularly small business, on a more praccolfl,basis. Under such authority, a Federal Reserve Bank taell guarantee up to 90 per cent of a loan made by a comteelal bank to a business enterprise, charging the bank a such guarantee. The new program tiould be carried ()lit 13 tik--"-a•-hout Government assistance and the Federal Reserve tizi ; 7:13uld be directed to return to the Government the beehs, amounting to approximately .L27,000,000, v,hich have advL.nced to them under section 13b. The Commerce De.,Illement has been interested in legislation of this nature ,,resumably the Treasury Department would be interested Italle " e!r; of the proposed return of the funds previously adto the Federal Reserve Banks. e r 17 2 11/29/46 -6- "Federal Reserve Branch Buildings. - The Federal ReAct provides that not more than $250,0)0 may be ex, iPpen .ded for the erection of any Federal Reserve Bank branch 211ding. The Board re,..iuested legislation at the 79th Conless to remove this liJnitation but no action was taken. 1,,e Board expects to renew this re,uest at the next Congress. '"e operations of the Federal Reserve Bank branches increased re.atly during the war and may be expected to continue indefltslY on a much larger scale than prior to the war. As a : slat, additions to existing buildings or new buildings are ' ssential at several of the branches; but their erection is P?joi?abited by the statutory limitation. In view of the superj I slon which the Board exercises over building operations of nue Federal Reserve Ihnks, the limitation appears to serve il?Ijseful purpose, and the Board believes it should be elimst' ed- The Board, of course, would not authorize any sub„Lail:LI-al building construction, except in case of emergency, 'al labor and materials become available in adequate supply 84 such construction would be helpful in the employment be 11`"tion. The limitation should be eliminated now, however, mac use the Federal Reserve Banks, being uncertain as to what tive Prepeventually be authorized, are unable to make effective 4t rations for the necessary construct on to be undertaken Alx;he aPpropriate time. The construction of the buildings not involve the use of any Government funds or approv'lated moneys. ta4, "I trust that the foregoiLg includes sufficiently deer'sd information for your pur,-)oses at this time. 1.e will, co be glad to furnish further information or discuss 'of these matters with you if you so desire.” W r Z Approved unanimously. Letter tiklit or to Mr. Hill, Vice President of the Federal Reserve Philadelphia, reading as follows: tet, :In view of the recommendation contained in your let1. aciE -1 October 30, 1946, the Board of Governors approves, Act the Provisions of section 24A of the Federal Reserve pa4 he loan of ::74,000 made by the Industrial Trust Com- hoictI L I'dli . nington, Delaware, to the wholly owned affiliate NiaL'g Its banking premises. The Board understands that sXtinar alld special periodic reductions are expected to ellisn the loan within three years." Approved unaniously. 1713 -7-
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