The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
1481 A meeting of the Board of Governors of the Federal Reserve System was held in Washington on Friday, October 18, 1946, at 10:35 a.m. PRESENT: Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Draper Vardaman Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. t, Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Parry, Director of the Division of Security Loans Vest, General Counsel Leonard, Director of the Division of Examinations Nelson, Director of the Division of Personnel Administration Townsend, Assistant General Counsel Mr. Ransom asked that Mr. Parry make a statement on Regulation p v r Credit, outlining certain proposed changes to be discussed th Pederal Reserve Bank representatives at a conference on October 28-29. Mr. Ransom lained that he wanted the Board to know what he hacl mind for this conference in order that he might knoA ,'.,hether he 11°1114 have the support of the Board in advancing these proposals. Was Mr. Parry stated that within the Federal Reserve System there MIleh 811PPort for streamlining Regulation V at this time and, so 1'4' as he knew, no opposition. Briefly, his thinking has been for an '414ericirtlent which would trim the Regulation down until it covered coninstanzent financing and consumer installment credit. To accomlh this it would be proposed (1) to eliminate charge accounts, as to flit3m the Prevent Regulation, except to the extent that might be necessary evasion through improper use of accounts which 1.ere not in 1482 10/18/46 reality charge accounts, (2) to reduce the list of articles, elimina- ting all soft goods and retaining only about 15 of the more important consumer goods such as automobiles, radios, appliances, and Perhaps p 4UrnitUre, (3) to eliminate most of the provisions relating to 6ihgle Payment loans, except those needed to prevent evasion, and (4) to e stablish a minimum figure such as $25 or ,c50 so that articles Pricecl below the a.41ount determined would in no case be subject to the Regulation. In addition, and especially if furniture were eliminated, (a move which he was inclined to favor), consideration should be given t°Lcuc lflgthe maturity as well as the down payment uniform for all 4rticies. Such changes, Mr. Parry stated, would greatly simplify the 4,egulation and would thus make administration and compliance more Practicabl e, and at the same time they would leave under the Regulation 4bout 75% of that part of consumer credit which is really its objective, 114111e1Y3 installment loans and credits for the purchase of durable con811111er goods which tend to fluctuate in wide cyclical swings. Mr. Parry stated that the luestion of timing was under consideration, and that, if such an amendment were adopted, he thought the effective date should be either January 1, 1947, or February 1, 1947, which would mean, under the Administrative Procedure Act, that notice should be given by Ncember 1, or, if the effective date were to be February 1, such liqies might be given December 26, immediately following the end of ChriqMas bu;ying• 1483 10/18/46 -3Mr. Vardaman conu-,iented that (1) he felt the minimum price of ari article subject to the Reomlatinn should be 5O or '60, - .1.th the idea of ellralflating most of the smdler items, the buying of vihich ht be restricted for veterans and others by the Pegula,ion; (2) he v:°111d like to eliminate furniture, 1r,hIch is , necessary item for t'tablishingia....nir households, and the elimin:tion of wh.ch t41 ay a grer+ del of thc coplaint concerninc the Regulation; arld (3) he believed the timing should be November 15, on the ground tlIc't, if the change is sound, it should be made in time to permit the 134blic to take advantaoc of the relaxed credit controls for the tr de, At th'-0 point Mr. Thomas, Dircctor of the Division of Resecrch Statistics) Joined the meeting. Mr. Vest stat, 'd that the import nt point under the AdministraPl'(DeecLure Act was that noLice of that is proposed by the Bonrd 11'` 1(1 be published in the Federal Register and interested persons 1.1'.en a reasoncble opportunity to present their opinions in writing t° the Board b,fore it act, presumably in not less than thirLy days; ec(:)1741-7 teat,if the Board takes action, it may not become ef. e 10 0 than thirty alys follovJing thrt action unless the k,o4, lr'dc an earlier date to be necessary. hairman Eccles stated that such changes as - ere being dissh°111c1 be considered from the standpoint of the reasons that 1484 10/18/46 —4— existed for Putting the Regulation into effect originally, and that arlY relaxation of the Regulation should be made primarily on the grounds that the conditions leading to the adoption of such restricmeaaures no longer existed. He pointed out that the entire Prc*am of the administration at this time is anti-inflationary in character, ' \ ith the and that any change of the nature proposed must be cleared Office of Economic Stabilization. He noted that about all that remains of the anti-inflationary program consists of monetary "41c1 fiscal measures, including the selective credit controls relattne to consumer credit and securities loans. Mr. Parry pointed out that the proposed changes should not be pres ented as a relaxation of the consumer credit regulation, but rather a"3 a step toward making it feasible to retain in the greatest 14'actie able measure whatever anti-inflationary influence it might . Re stated that the Regulation is now overextended in scope, atterani.,_ to regulate over 400,000 registrants and a Aide range of heNe a8 Well as hard goods, and that there are so many different kinds or ereclit covered that the enforceability of the restrictions is 414°st imP0ssible. The changes proposed would reduce the number of l'eaztrants to 200,000 or less, would be a step toward securing ereater 14. 1, r respect for the portions of the Regulation retained, and, riY it a. reiterated, would cover probably 75% of the credit which PPeared s ignificant to cover under the Regulation. He felt that 1485 10/18/46 —5— such a Regulation might be pretty close to a at he Tould propose for Permanent Regulation, if the Board were called upon to submit sug- gestions to he ef „ Congress. In response to an inquiry from Mr. Morrill, Mr. Parry stated support adoption of the proposed changes at this time despite the inflationary threats because the revisions would bring the Regulat `'n close to the form he had felt should have been in effect during the war Years, had the Board not felt under the necessity, largely because of the insistence of the Office of Price Administration, of broadening the Regulation beyond the scope he had felt desirable. Ur. Thomas stated that he agreed the provisions it was now Pr°P"ed to e liminate should never have been in the Regulation, but he felt the Board should not have it appear that just at the time l'e8trietive measures were most needed in the anti-inflationary proamthe Board had relaxed credit controls. In the discussion that followed it was the consensus that theBoard must not let it be assumed that it feels inflationary danger% are over or that controls in the monetary and fiscal field are beille abandoned; that, if and when the matter is discussed with the ()frice of Economic Stabilization, the economic and other arguments itlat a move which might be interpreted as a relaxation, as well the arguments which favor the changes from the administrative tIellcipoint, must be presented, together with a statement that the 1488 10/18/4 6 -6— Board has considered both sides and recommends the changes on the grounds that they would leave the most important parts of the Regulation intact and in a form most likely to be observed; that if the Office of Economic Stabilization should approve such changes it would then be in order to publish notice in the Federal Register; that if ellck notice were given, an appropriate press release should be issued to niake clear that the changes do not constitute relaxation from the laj°1' objective of the Regulation and that controls are not being lifted from durable goods chiefly in short supply or ,here it was 4asible to bring about compliance. At this point, Mr. Thurston joined the meeting and in reense to Mr. Ransom's inquiry stated that he felt the Board could 8ar Very frankly just what it was doing under such an amendment, and that, although such a change would inevitably be looked upon to some ettent as a relaxation, he believed the responsible press would use 4Propriate r'aease, and that the entire matter of presenting a reVision such as was proposed could be handled satisfactorily. It was unanimously agreed that a program as outlined should be presented to the conference with representatives from the Federal Reserve Banks to be held October 28 and 29, 1946. There the uoteral Peri ,eral a were presented telegrams to Mr. Treiber, Secretary of Reserve Bank of New York, Mr. McCreedy, Secretary of the eserve Bank of Philadelphia, Mr. McLarin, President of the 1487 10/18/46 -7Federal Reserve Bank of Atlanta, Mr. Dillard, Vice President of the Federal Reserve Bank of Chicago, and LT.. Mangels, Vice President of the Federal Reserve Bank of San Francisco, stating that the Board approves the establishment without change by the Federal Reserve Bank or San Francisco on October 15, the Federal Reserve Bank of Atlanta °11 Octob er 16) and the Federal Reserve Banks of New York, Philadelphia, Chicag°1 and San Francisco on October 17, 1946, of the rates of disc°1111t arld purchase in their existing schedules. Approved unanimously. " 11 Vardaman stated that he had recently learned that the lIclat'ddid not refer applications of national banks for trust powers to the Comptroller of the Currency prior to taking action upon them, andhe felt he would not be in a position to pass upon such applica1118 until the Comptroller) as the supervisory agency having responsibilitY for national banks, had expressed an opinion upon the (liestion or granting the powers recluested. He stated that Present policy had been adopted in 1941, and that have the BoLrd consider returning to the practice that date. The Secretaryread excerpts from el% . ions he understood the he would like to in effect before the minutes of 14, 1941, in whict ::: was stated that it appeared from disthat it would be the future policy of the Comptroller's C)ftice t° recommend to a greater extent than in the past against the Of trust powers to small national banks; that there was a 1488 10/18/46 distinct —8— impression that the Comptroller's Office would recommend unfavorably on mIliv applications similar to those on which the Office Prelriously had made favorable recommendations; and that the Board had Ilnardmously agreed, in view of the new policy of the Comptroller of the Currency of recommending adversely in a number of cases which, 1 "T its policy, the Board would approve, that the practice of 8eking the C omptroller for his recommendations in connection with aPPlications of national banks for trust powers be discontinued. Mr. Vardaman stated he felt the Board could defend overriding the e °111Ptrolier of the Currency in a given case better than it could defend 4 policy of not asking for his recommendation for national banks. Mr. Ransom stated that he had been opposed to the Board's P°11cY of granting trust powers to small banks, but that this was (3111 °Ile of many examples of differences of opinion growing out of the Y'stem of , multiole supervision of banks. Chairman Eccles stated that the Board had not fa-It it could, at a Practical matter, deny trust powers to a national bank solely becala 8e of smallness, partly because such action v,ould be regarded '-r-ulairiction against small enterprises, but mainly because the tak -es into membership small State banks which have trust powers, '11c1 -8 not feasible to deny the same privileges to natiorvl banks ill the 84'lible communities solely because of their size, 7,hen it would be cha,„ with placing them unfairly at a competitive disadvantage. 1489 10/18/46 He -9- st ated that it would seem useless to consult the Comptroller on each a pplication of a national bank if that office was knov.n to have a Policy of consistently recomiending against certain classes of ap- °I-cc:Lions which the Board would approve, but that when the Board ille*er having the assignment desired to do so he would have no objection to restmling the practice of consulting with the Comptroller, Thlee that procedure could always be reconsidered if the policies of theta() offices seemed in conflict. Mr. Draper stated he had no objection to consulting with the Comptroller, but felt we should not h tate to override a recommendation of that office when the Board w°11"14 °therwise have approved the application under its present Mr. Vardaman stated he understood the Comptroller of the eilll ' eheY had never adopted any definite policy of recommending against tIllq Powers for national bilaks solely because of their size. He felt tle.t if la the future the Board should wish to discontinue consulting MA11 the Co mptroller on these applications, the action should be taken t(*ta4aly, arid official notice given the Comptroller's Office. He went °Ilt° 8aY that coordination and cooperation among the three Federal teies su pervising banks must be attained voluntarily or there will It. Ettely be a consolidation of the three. It was unanimously agreed that future applications for trust powers by national banks would be discussed 1490 10/18/46 -10-informally with the office of the Comptroller of the Currency, and that the Division of Examinations would report in its memoranda concerning such applications the views or reco-,endations of the Comptroller's office. lAr• the Ransom stated that he would like a further discussion of Procedure to be followed in the event the National Labor Relations Board does not decline to t2ke jurisdiction of the Dallas labor case, dl-Issed l'ender an previousiy. Mr. Vest stated that, if the Labor Board should adverse decision on the (Alestion now before it, the matter '4°113-cl probably be referred back to Drllas for an election, and that, Mlether the proceedings took place in Dallas or elsewhere, it would be Possible for the Board of Governors or any Federal Reserve Bank to intervene because of their interest in legal aspects of the case. It was unanimously agreed that if the case came up for hearing, either in Dallas or elsewhere, it was clearly a matter of System concern and should be handled as such from the outset; that intervention by the Board would make it a System matter; that the Board should therefore intervene, either formally or informally, as counsel might think best, and that it would not be necessary or desirable to suggest that other Federal Reserve Banks intervene in the proceedings. At this point Messrs. Sherman, Thurston, Parry, Vest, Leonard, 144nsend and Thomas withdrew from the meeting. 1491 "/18/46 -11- Ur. Vardaman referred to certain personnel problems at the Federal Reserve Bank of St. Louis centering around the continuance " r• Hitt as First Vice President of the Bank and to his (Mr. Varciejliaril e) informal discussions with President Davis of these Pl'c61 ems. He auggested that, in view of all the circumstances, the board consider the advisability of addressing a letter to the ChairOf the board of directors of the Bank inviting him, the executive tte and President Davis to come to ;%ashington to discuss the niatter. This suggestion, he said, was not m,,de with the thought of ill'erfering with the management of the St. Louis Bank but because the complaints which had come to him from the St. Louis district with l'esPect to the situation in the Bank were such that he did not think the Board could afford not to do something about them. After a discussion of Mr. VardLman's suggestion, it was understood that Chairman Eccles would call President Davis on the telephone end tell him that the question of the continuation of Lr. Hitt as First Vice President of the Bank had been brought up by Mr. Vardaman, and that it had been suggested the Board discuss this and related personnel matters with him and, if he would prefer, with the Chairman of the board of directors, a committee of directors, or any other of the members of the board of directors whom Mr. Davis might wish to have come to Washington for the purpose. 1492 10/18/46 -12The action stated with respect to each of the matters hereinE'tlr't;er r eferred to was then tflken by the Board: The minutes of the meeting of the Board of Governors of the ecleral Reserve System held on October 16, 1946, were approved unani111°1181y. Memorandum dated October 16, 1946, from Mr. Boothe, AsFistant Director of the Division of Administrative Services, recommending the aPPointment of Mr. Charles D. Clabaugh, Jr., as a Guard in that Dlviof ona temporary indefinite basis, with basic salary at the rate '4.020 per annum effective as of the date upon which he enters uP°13, the Performance of his duties after having passed the usual exa mination. The memorandum also stated that it was contcm- Plated that Mr. Clabeugh would become a member of the Federal tleserve retirement system. Approved unanimously. Letter to Mr- Douglas, Vice President of the Federal Reserve ' c r New York, reading as follows: the "The Board of Governors approves the changes in servePenel classification plan of the Federal Reofi Bank of New York, involved in the establishment the e and Correction Section in the Savings ae Issue Division of the Government Bond Department, submitted with your letter of October 11, 1946." Approved unanimously. 1493 1°1/18/46 -13- Letter dated October 17, 1946, to the Federal Deposit Lletirance Corporation, Washington, D. C., reading as follows: Fed "Pursuant to the provisions of section 12B of the eral Reserve Act, as amended, the Board of Governors the Federal Reserve System hereby certifies that the _l c rth Shore Bank, Liami Beach, Florida, became a member ' ' 1.1 the Federal Reserve System on October 15, 1946, and now a member of the System. The Board of Governors of thathe Federal Reserve System further hereby certifies m -1, t, in connection with the admission of such bank to uerthip in the Federal Reserve System, consideration se-4given to the folloviing factors enumerated in sub4°11 (g) of section 12B of the Federal Reserve Act: e' Z 1. 2. 3. 4. 5. 6. The financial history and condition of the bank, The adequacy of its capital structure, Its future earnings prospects, The gqneral character of its management, The convenience and needs of the community to be served by the bank, and alether or not its corporate powers are consistent with the purposes of section 12B of the Federal Reserve Act." Approved unanimously. Bank Letter to Mr. Clark, Vice President of the Federal Reserve °f Atlanta, reading as follows: "In accordance with the recommendation contained Your letter of October 15, 1946, the Board of Governcrs extends to December 15, 1946, the time within which the DeKalb State Bank, Doraville, Georgia, may accomplish membership." Approved unanimously. 1494 10/18/46 -14Memorandum dated October 18, 1946, from TAr. Chase, Assistant Counsel, reading as follows: "The reported to the Board Federal Reserve Bank of New York has that the Star Credit Clothing Co., the largest ?hant peddler organization in Newark, New Jersey (which lat!.-s clothing, household furnishings, etc.), has been vioof lng Regulation r: persistently for the past year in spite repeated investigations and warnings by the Reserve Bank. IT Reserve Bank feels that nothing further can be accomfon!cl by disciplinary measures in the field, and therecr : -t -Lt is recommended that, if possible, the 'consent deProcedur which was followed in the Consumers Home —1'Plnent Co. case in Detroit be followed in this case. wix "If this recommendation is adopted, the Reserve .41•4,13e asked to ascertain whether the company Bankto consent the--eentry of a decree by the Court and, if so, to handle wh. remaining steps, except the preparation of court papers lch will be done here." Z Approved unanimously. Letter to Mr. Thomas F. Kelly, Government Coordinator for The Hoover Company, North Canton, Ohio, reading as follows: "This refers to your letters dated October 21 31 and ' 91-ej4lers1 1946 regarding the offering of a 'free home trial' of .ain anticipation of an instalment sale under Regue note from the advertisements you enclosed that this sort are being made by Milbern Vacuum Store of iran;s, at Harrisburg, Lancaster, and Reading, PcnnsylVac a; Penco Vacuum Stores, Rochester, New York; Ace &to:LIM Stores, Cleveland, Ohio; United Vacuum Cleaner t.es, North Canton, Ohio, and Scranton, Pennsylvania; Abol., ;. id.nces, Scranton; and Hub Vacuum Stores, at chTalte Vacuum Stores, and Union Vacuum Stores, all ago, Illinois. gate,4 ine Federal Reserve Bank of Cleveland has investiat the advertisements by United Vacuum Cleaner Stores home'eensburg and Pittsburgh, Pennsylvania, and at the Vacuu rfice in Cleveland, Ohio. It has also checked Ace Stc)res, at the office in Cleveland, Ohio, covering 1495 10/18/46 -15, advertising for the Cleveland, Cincinnati, and Detroit areas. The Bank rei,orts that the 'free home trial' adyertised by these stores does not represent a violation In-11 tact. The salesmen do not, in any case, leave the ners with the customers for the purpose of a free ' al Period before the sale is consummated. The sales,en always keep the sweepers in their possession and take than with them when they leave the homes of pros8, In the case of Ace Vacuum Stores, Inc., the trial' advertised meant that the customer merely had the option within this stated period of Ch anging the cleaner to a larger or smaller model. "Although the advertising of a 'free home trial' 11° X 1.1°t in itself constitute a violation of the reguof, 2-°n1 we aPpreciate your sending us these instances lezie d:Ze ib5; misleading advertisements. If you have any case involving an actual violation in raa,ajtice we should like to know about it. Such inforRe 1°n would be particularly helpful to the Federal serlre Banks in the areas involved in their continuing es igations of this class of Registrants. "At present, however, it does not seem to us that the wjegituation justifies the amendment to the regulation, Y°u suggest, to permit a free home trial." r j r Approved unanimously. Letter Of St• LOui S3 to Mr. Davis, President of the Federal Reserve Bank reading as follows: 1946 "Enclosed is a copy of a letter dated October 10, Low 'from. Mr. Thomas Graham, of The Bankers Bond Co., riVville, Kentucky, asking for advice regarding a the Board prohibiting officers and directors of member banks opes,7j51°er from serving in similar capacities for '7c1 investment companies. ed • The ruling to which Mr. Graham refers is containthe Board'o lettPr of September 22, 1942, 5-556 warse Leaf Service No. 7610, page 2790). This letter we l'IcYt Published in the Federal Reserve Bulletin, but , -ee no objection to advising Mr. Graham of the subof such letter. appr It will be appreciated if your bank will make an reply to Mr. Graham's letter. Mr. Graham hasZteen advised of this reference to your bank." CI, in 1496 10/18/46 -16Approved unanimously. Letter to Mr. Berge, Secretary and Assistant Counsel, Federal Reserve Bank of Boston, reading as follows: "This refers to your letter of September 23, 1946, 60 Itir. Vest, recuesting a ruling from the Board with respect to an offering of stock which the State Street -1!,Ivestment Corporation, Boston, 1.1assachusetts, contem1! 1 ates making in Deceliber of this year along the same Ines as that offered to its shareholders in 1945. t . "It is understood that the Corporation proposes issue to its shareholders subscrintion rights pertlng them to reinvest capital gains realized by the ,rPoration in 1946; that no more stock than the amount an the reinvestment; e d theCapital gain will be offered for offering will be limited to a period of not to cxceed 30 days. V.e also note that no stock of the 2rporation has been sold since January 24, 1946, and no stock of the Corporation has been redeemed "18 year. In these circumstances the Board will not consider that the intended action of the State Street Corporation 3, bring the Corporation within the purview of section : f ?f the Banking Act of 1933. However, any future ofof its stock will make necessary further consid' 1Qn of the question as to whether the Corporation isengaged in the securities business within the e meaning of section 32." 4 Approved unanimously. Memorandum dated October 16, 1946, from Mr. Vest, General C°11480 4" Pqrtin recomaending an increase of 050.00 in the Division's arld Binding Account for the following reasons: (1) There is a. balancf., -- of 03.00 in this account, and a bill outstanding of g. 20 or Printlijg the Board's brief in the Peoples Bank case. (2) The D ivision will probably have to pay comparable sums for D111-0Ling .. b P---s in the Consumers Home Equipment Company case and 1499 10/18/46 4,_ '11Tiev-Fayerweather , , : , these -17case. The memorandum also pointed out that were it:-m,s which could not ID, : anticipated at the beginning of 145rear arld vier° therefore not ;- Drovided for in the budget. Apl;roved unani,ciously. Thereupon the meeting ad Secret ry.
@FedFRASER