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Minutes of actions taken by the Board of Governors of the Neral Reserve System on Friday, October 20, 1950. The Board met illthe Board Room at 10:30 a.m. PRESENT: Mr. Mr. Mr. Mr. McCabe, Chairman Eccles Evans Powell Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Kenyon, Assistant Secretary Morrill, Special Adviser to the Board Thurston, Assistant to the Board Riefler, Assistant to the Chairman Horbett, Assistant Director, Division of Bank Operations Solomon, Assistant General Counsel Garfield, Adviser on Economic Research, Division of Research and Statistics Youngdahl, Chief, Government Finance Section, Division of Research and Statistics Koch, Chief, Banking Section, Division of Research and Statistics There were presented telegrams to the Federal Reserve Banks Clt BO et°n, New York, Philadelphia, Atlanta, Chicago, St. Louis, Kansas °it ) and San Francisco stating that the Board approves the.estab11.41.11 ent without change by the Federal Reserve Bank of San Francisco n_ •'utober 17, by the Federal Reserve Banks of Atlanta and St. Louis 1311 °etober 18, by the Federal Reserve Banks of New York, Philadelphia, 4t1c1 ph. Icago on October 19, by the Federal Reserve Bank of Kansas On October 20, 1950, and by the Federal Reserve Bank of Boston today ) of the rates of discount and purchase in their existing schedules. Approved unanimously. 5is 10/20/ o -2- Mr. Evans said that he had learned that preparation of page Pl‘c*fe of an amendment to Regulation WI Consumer Credit, which would el(Pand the Regulation to include charge accounts and single payment loath. had necessitated late night duty by several members of the 81*ff, and that he would suggest that the Secretary be asked to send then 'appropriate letters of commendation on behalf of the Board. • Carpenter stated that a number of employees worked late for the "e of expediting the printing of Regulation X, Real Estate CI'eclit) and that a similar letter should be sent to them. It was understood that the suggested letter would be sent by the Secretary to each of the members of the staff concerned. Mr. Evans stated that, in preparation for further consideratiori bY the Board of the question whether to extend the scope of Iteglia„„ W to include charge accounts and single payment loans, the state had been studying the possibility of regulating so-called or nrevolving" accounts which are short-term instalment aceclint8, that he had suggested that the matter be taken up with the Ileserve tanks and the trade to ascertain the administrative feasibil43rof covering charge accounts or budget accounts by the type of tree 21ng mechanism in effect from 1942 to 1947 or by some alternative raethod ) and that it probably would not be possible to present a recto the Board for consideration before the week beginning Octobe r 30. No objection to this procedure was indicated. r 1V20/50 —3— Mr. Eccles said that he would not be present at a meeting that week but that, in his opinion, the results accomplished by broadening the Regulation to include charge accounts and single Parilent loans would be negligible in the anti-inflationary program, Yfillls it would pose difficult and burdensome administrative prob44 "for the Reserve Banks and for the merchandising institutions atrected. Mr. Evans stated that his duties as Hearing Officer in the 0lart Act proceeding against Transamerica Corporation probably *kid Preclude his regular attendance at Board meetings for some time ) and that he would like to state his belief that the Board sh().,0 ( make a decision to increase member bank reserve requirements "4-0 "Tithowt u further delay. In explaining the reasons for his attitude, Evans said that reports which he had received indicated that cotrute relal banks anticipated such action and were questioning why it was not taken, that he felt an increase in reserve requirements 11.0,ad be effective in restraining further bank credit expansion, and that . lt was his understanding that previous actions, including the inere ase in Reserve Bank discount rates and the increase in the shortterm . Interest rate, were approved in the expectation that reserve 'reitlents would be raised in the near future as a fundamental ‘44 Part p the same program. He stated further that, whereas restrichad now been imposed by the Board upon borrowers through the oS1 "er credit and real estate credit regulations, little or no r- CD 00C, 10/20/50 —4— Pressure was being exerted on lenders, particularly banks, that higher rates on Government securities had actually increased the "Ings of the banks, and that he doubted the efficacy of an inel7esss in the discount rate in retarding the extension of credit Mr. Evans noted that the short-term rate had now moved to ' 4-lao3tl per cent and said that he felt that all of the cir- "v"Ices dictated a prompt decision to increase reserve require- Chairman McCabe said that he had been impressed by statements orState Bank Supervisors who attended a real estate credit meeting at the Board yesterday to the effect that it would be inconsistent the Board did not follow its recent actions with an adjustment Of re serve requirements, that as he understood it the Board had alresdY agreed that such action should be taken, and that the question W48 °ne of timing. In the ensuing discussion of the timing of the action, an McCabe suggested that the Board consider making the increase ette e'lve on November 16, 1950, with the announcement of the action at the close of business on November 10. Mr. Eccles (who said he probably would be in the West when 4"4.0 11 was taken) stated that he agreed with Mr. Evanst conclusion that the interest rate adjustment had had practically no retarding IIIII/lsnce on bank credit expansion, but that there was evidence that th° tightening of consumer credit restrictions and the imposition of 1559 10/20/50 -5- 1114a estate credit controls would prove to be quite effective. Re also said that he would have no objection to Chairman McCabe's sliggestion of November 161 1950, as the effective date for the 411 but, for reasons which he stated, he would prefer that the " 11111°11110ement be made as early as October 271 since this would give rillItler banks more time to make the necessary adjustments without 1115setting their investment programs. At the conclusion of the discussion, Chairman McCabe suggested that the Board discuss the matter again on Friday, October 27, +1,4 (41c1 that - would give the members of the Board not in attendance 4tt°dV s 3 meeting a chance to present their views. He also suggeated that it would be valuable to the Board if an invitation could be e„ 46ended to Mr. Fisher, Administrator of the Office of Real Estate to attend a meeting on or before that date and give the Board ' the, uenefit of his views on the problem. These suggestions were approved unanimously. During the preceding discussion, Mr. Townsend, Solicitor, and kr. A, Cheau-Le, Economist, Division of Research and Statistics, joined the Mr. Eccles stated that since he intended to be away from ‘14-441gton for about a month, he desired to place in the record cer- obse rvations reflecting his views as to the type of a legisla- tbre Pr°gram which the Board should prepare for submission to the C 4 10/20/50 . -6after it reconvenes on November 27. While it was unlikely, he • said, that any legislation would be enacted before the new Conmet in January 1951, it was probable that there would be hear- illgs during the session to be held later this year and therefore the Board should have a program ready for submission. In connection with this subject there had been sent to the 114416er3 of the Board before this meeting a memorandum from Mr. Young dated October 18, 1950 transmitting a staff memorandum with respect *4°8uPPlementary bank reserve requirement proposals prepared by Meas a r-, Cheadle and Koch under date of October 18 pursuant to the clisellssion at the meeting on September 12. During a discussion of the memorandum, Mr. Eccles said that he . f4-"L strongly that the Board should be prepared to submit a pro'' greal requesting additional authority over reserve requirements when ecohp.1.reconvened on November 27, since it was the duty of the 8411 +-v report to Congress on the situation and to make recommenda48 to what legislation was needed to enable the Board to deal Prope r-LY with the expansion of credit in which field it had responY for maintaining economic stability, so far as that was Po esible through credit controls. He suggested that the Board out- Na Clearly to the Congress the alternatives available to the Fedeserve System in dealing with the credit expansion, even though he felt it • unlikely that legislation on the subject would be enacted 1.561 10/20/5o —7— the new Congress meets in January 1951. The alternatives to be presented, he said, were (1) the System could abandon its 84port of the long-term 2 1/2 percent rate and thereby deny reserves to the market, a course which certainly would stop bank credit ex(2) Congress could give the System additional powers over Nerves of all commercial banks which would permit the System to credit expansion while maintaining the 2 1/2 percent long-term l'ate r 'or (3) bank credit expansion and inflation colad be permitted toe°11tinue unabated. Mr. Eccles emphasized his feeling that these alternatives should be brought to the attention of Congress, and that the CbrIgress should indicate which course it felt should be followed. There was a discussion of Mr. Eccles' proposal and while no °°11Lel1a81011 as to steps to be taken was reached, it was understood that, 'dile matter would be discussed at a later meeting of the Board. The meeting then recessed and reconvened at 3:00 p.m. with kosar 8* 80arrl McCabe, Eccles, Evans, Vardaman, and Powell, members of the and Messrs. Carpenter, Morrill, Thurston, and Townsend, mem- bers of the staff, present. Mr. Townsend referred to the discussion at the meeting of the kod " on October 17, 1950, of developments in connection with the of brief to be filed by the Solicitor General of the United 3tate 8 taking the position that the Supreme Court should deny the petit; of Bank of America N. T. & S. A. and Transamerica Corporati-oh -4-or a writ of certiorari in connection with the action of the 10/20/so -8- of Appeals of the Ninth Circuit with respect to the 22 banks Ifilich the national bank converted into branches contrary to the l'e6training order issued by the Court last June. He stated that as a result of further discussions between representatives of the (Iffice of the Solicitor General and the Treasury the material sub— titted by the Treasury for inclusion in the Solicitor General's brief Ilacibeen revised and was now in about the form in which it was ex— Pected it would be incorporated in the brief. Mr. Townsend then read two paragraphs to be incorporated early in the brief, the illateltal submitted by the Treasury to be included in the brief in °Notation marks, and a concluding paragraph of comment by the Solic— itor General on this material. He said that it was also possible tlut the brief would contain an express statement that the Solicitor Crerleral does not agree with the position of the Treasury. At the conclusion of his statement, in response to questions from Members of the Board, Mr. Townsend said that the brief in its 1101? indicated form had gone a long way to meet his objections and, e inclusion of the material from the Comptroller might weaken azict tend somewhat to confuse the position taken in the brief that certio,„ should not be granted, he would recommend that, in the cire,_ 'ulletances, including the other important questions which will arise . ln the future in connection with the Clayton Act proceeding, the Board concur in the brief in the form approved by the Solicitor Fr,R, 10/20/50 —9- C4111"al. In that connection he stated that he had suggested that liell*t sign the brief and that it carry the signature only of the 8°114i-tor General so that it would be entirely clear to the Supreme e(4Irt that it represented the Solicitor Generalts views. At the conclusion of the discussion Mr. Townsend's recommendation was approved unanimously. Mr. Townsend then stated that in his testimony given this week in the pending Clayton Act proceeding against Transamerica Co l'Porati0 2n Mr. L. M. Giannini, President of the Bank of America 2. S. A., introduced various communications from the Comptroller 4 ' T. Ot the. Currency with respect to the permission granted by that °trio e to Bank of America to operate branches at the locations of the 22 h„.0, ---,Az and their branches which the national bank attempted to take over last summer in violation of the restraining order of the e°11rt °f Appeals of the Ninth Circuit. The purpose of the documents, Mr. Tn "Insend said, WAS to put into the record the position that had been tak --en by Transamerica and the national bank for some time that thei ere being made the victims of a jurisdictional struggle between tile coin Ptroller of the Currency and the Board of Governors, that the Comptroller of the Currency granted permission to establish the br 4nehes in question he determined as a matter of law that the 44111-1 . -4.8Ition of the 22 banks was not in violation of the Clayton Act, ktici that therefore any other decision by the Board in the pending I 564 10/20/50 -10- 114Vton Act proceeding could not establish anything more than a difference of view between two Government agencies. In view of that development, Mr. Townsend said, it was in"ant to get into the record, (1) whatever information was available tO the Board to establish the fact that the Comptroller of the Ourr encY does not have responsibility for the enforcement of the C4V1°11 Act and that his decision in authorizing the establishment the branches at the sites of the 22 banks and their branches did 11'4 affect the Board's jurisdiction or determine the question in• Ilalred in the Clayton Act proceeding, and (2) any other information that would bear on the question of monopoly and the extent to which that Point was considered by the Comptroller of the Currency. In that c onnection he referred to the confidential memorandum of August 31'1945, from the Comptroller of the Currency which Mr. Vinson, then Sacre tarY of the Treasury, turned over to Mr. Eccles in 1945, in kch the Comptroller of the Currency took the position in very "g terms that the growth of Bank of America and its practices Were Mo nopolistic in character and that therefore certain applications Pending before him for permission to establish additional branc hes should not be granted. He pointed out that the memorandum 44d, b e-n made an exhibit and attached to the affidavit filed in court tith tv. "e approval of the Board by Chairman McCabe on July 5, 1950, „ sPonse to an order of the Court of Appeals of the Ninth Circuit S 10/20/50 -11- that the exhibit had not been made public. He went on to say that certain statements in the memorandum were directly in point the question of monopoly and on the fact that at that time the e4440trol1er of the Currency felt very strongly that the activities or the Transamerica group were unsound and should be restricted, 411cithat if that were the situation at that time it would necessarily be the case now in view of the further expansion of the group. He Pressed the opinion that the pending Clayton Act proceeding would be laced in very serious jeopardy if the record made by Mr. Giannini thia week were left unchallenged and that the introduction of the (1.21(1Tancillin would be a most effective way of combatting the contention or 4ansamerica. He went on to say that, if the Comptroller of the Currency adhered to his original position that he would assist the Board Ilithe conduct of the Clayton Act proceeding, there might be no tieeeta 81tY for the introduction of the memorandum. However, since the Ptroller of the Currency had seen fit to reverse that position W ae actively aiding the other side, including the execution of '4.11davit which took the position that in granting of permission to es,_ bush the branches in question he had determined the question or .4.u.Le violation of the Clayton Act adversely to the position t h L ' 0:Y the Board in the pending proceeding, it was believed that the Bo 41'd would be justified in putting the memorandum into the 1.e record of the proceeding. 1 10/20/50 -12- The question presented by Mr. Townsend was discussed at length particularly in the light of questions raised by Messrs. keeabe, Vardaman, and Powell as to whether, notwithstanding the Chan 0 in the position of the Comptroller of the Currency and the tactics used by Transamerica Corporation and Bank of America in 13141°3ing the pending Clayton Act proceeding, the Board would be justifiv ' 111 introducing into the public record a memorandum which came the hands of the then Chairman of the Board as a strictly con4de1t1a1 document. Mr. Vardaman inquired how the memorandum came into the Board's 3 and Mr. Eccles stated that in 1.945, when it appeared that the Trans anierica group were working in devious ways to get permission , to ea , ' 401ish additional banking offices, he took the matter up with vi ' lleon who was then Secretary of the Treasury and outlined for "-Lormation the history relating to the matter and the attempt t3pr event further expansion of the group. When he saw Secretary 1114804 a second time, Mr. Eccles said, the Secretary handed him the kekor arldum of August 31, 1945, and asked him to look it over, stating the '' n,41113troller of the Currency felt just as the Board did as t° th ,„, e --Auesirability of further expansion by the Transamerica group. Re m ' cled that at that time the Board, the Comptroller of the Currency, th 6 Federal Deposit Insurance Corporation were in complete agreethat further expansion of the group would not be desirable. He 10/20/50 -13- e°11auded with the statement that he had not returned the memorandilmand that he did not have any idea then that the time would e°11* When the Comptroller of the Currency would completely reverse 48 position. Toward the end of the discussion, Mr. Townsend in response t°4 question stated that, while it would be helpful to have the nienl°randum available in connection with his cross examination of 14'. G4 44nnini, it could be put into the record at any time before the elose of the hearing and, therefore, the decision of the Board could becieferred for a few days. He also said that he would not put into the , --°ra any portion of the memorandum relating to the condition h, 'anagement of the Bank of America and that the purposes of the Oa Would be accomplished if only those portions of the memorandum 'lore Put in evidence which related to the opinion of the Comptroller 'c t the Currency on the question of monopoly. It was understood that a decision would be deferred until the Matter could be discussed with the absent members of the Board. Inasmuch as Mr. Evans would probably be occupied with the "cln Ater Act proceeding and Mr. Eccles would be in Utah when the was next considered by the Board, they expressed their opinions 43 t° the action the Board should take. Mr. Eccles stated that he wollad vote to authorize Mr. Townsend to put in the record the portions Ot the memorandum referred to by him as relating to the question of -°13o lY for the reason that the circumstances involved thoroughly 10/20/50 Notified such action by the Board. Mr. Evans stated that he Ibtad agree with Mr. Eccles' opinion for the reason that the Board was in the position of having a responsibility under a statute and the Comptroller of the Currency as another agency of the Government doing everything he could to defeat the efforts of the Board to e arrY out that responsibility. Y'a8 At this point all of the members of the staff with the exCent.on of Mr. Carpenter withdrew, and the action stated with respect t° each of the matters hereinafter referred to was taken by the Board: Minutes of actions taken by the Board of Governors of the ?ed. — Reserve System on October 19, 1950, were approved unanimously. Memorandum dated October 16, 1950, from the Personnel Corn- tkitteel reading as follows: "In accordance with discussions with the Presidents of the Federal Reserve Banks of Philadelphia and Richmond, and the informal discussion at the meeting of the Board of Governors on Friday, October 6, 1950, it is recommended that the Board approve the following arrangements with respect to personnel: (1) Effective as of the date he assumes his duties on about December 1, 1950, the Federal Reserve , I&.nk of Richmond will make Mr. Edw. A. Wayne, Vice rresident, available to the Board for a temporary Period to enable him to serve under appointment by the Board on a part time basis as Acting Director of the Board's Division of Examinations. It is underStood that he will serve as Acting Director for a period of about six months and will spend an average .cL.3 four days a week in this assignment. During that 61Me he will survey the functions and purposes of the Division of Examinations and make suggestions to the Board with respect thereto, and also with respect 1 5G9 10/20/50 "to the selection of a future Director of the Division. (2) Effective as promptly as he can report for duty, the Federal Reserve Bank of Philadelphia will make Mr. Robert N. Hilkert, Vice President, available to the Board for a temporary period to enable him to serve under appointment by the Board as Acting Director Of the Board's Division of Personnel Administration. It is understood that he will give his entire time to the temporary assignment for a period of approximately 8iX months and that during that time he will make suggestions to the Board with respect to a future Director of the Division. (3) Effective as of the date Mr. Hilkert assumes his duties as Acting Director of the Division of Personnel Administration, Mr. Nelson will be appointed an Assistant Director of the Division of Examinations with no change in his present salary at. the rate of $12,000 Per annum and as such will perform the duties set forth in the attached memorandum dated October 9, 1950, from Mr• Millard. In addition he will be available for such consultation with Mr. Hilkert as may be necessary. and (4) It will be understood that Messrs. Wayne Rilkert will remain on the payrolls of their respective Federal Reserve Banks and that the Board will reimburse the banks for their salaries and travel and other official expenses incurred by them, including hotel accommodations in Washington. Since they will retain their ?resent homes and will have occasion to travel frequently between Washington and their respective cities, such travel will be regarded as reimbursable official travel. leimbursement of salaries and official expenses as outlined in this paragraph will be on such basis as is approved by the Board's Personnel Committee." I Approved unanimously with the understanding that the 1950 budgets of the Division of Personnel Administration and the Division of Examinations would be increased by amounts sufficient to cover the costs of reimbursing the Federal Reserve Banks of Philadelphia and Richmond. Letter to Mr. Peyton, Chairman, Conference of Presidents, c/0 ederal Reserve Bank of Minneapolis, prepared in accordance with 1 10/20/50 0 —16— the discussion at the meeting on October 18, 1950, reading as falows: "The letter dated October 4, 1950 from Mr. Clement Van Nice, Secretary of the Conference of Presidents, outlining several actions by the Presidents' Conference extending the free services Of the Federal Reserve Banks, has had preliminary consideration by the Board of Governors of the Federal Reserve System. In view of the recommendation of the Subcommittee on Bank and Public Relations and Free Services of the Presidents' Conference that these matters be discussed with leading correspondent banks before placing the changes in effect, the Board would appreciate such consultations by the Federal Reserve Banks as seem appropriate. Since the Reserve Banks may hold one or more conferences with correspondent banks along the line of the meeting in New York, outlined by President Sproul at the last meeting of the Conference of Presidents, it might be appropriate to discuss this question at such a meeting. "Accordingly, the Board of Governors will defer formal action on these recommendations for a short Period to obtain such reactions as the Federal Reserve ,ank3 may report from correspondent banks in their 1_) Qistricts. We trust that the delay will not be inconvenient to any Federal Reserve Bank. "Since several Federal Reserve Banks may be calling meetings with correspondent bankers within the next few days, we are sending a copy of this letter to all Federal Reserve Bank Presidents, suggesting the possibility of placing this topic on the agenda for such meetings." Approved unanimously. Letter to Mr. Peyton, Chairman, Conference of Presidents, F ederal Reserve Bank of Minneapolis, prepared in accordance with *411e . Iscussion at the meeting on October 18, 1950, reading as fol' 1.()Isfs "rhe question of announcing approval as of a 4efinite date of two days as the maximum deferment ' 10/20/50 -17- "for cash items sent from any Federal Reserve Bank or Branch or any direct sending member bank or nonmember clearing bank has had the careful consideration of the Board of Governors of the Federal Reserve System. At the informal request of the Chairman of the Federal Advisory Council, the Board's decision in this matter was postponed until the Federal Advisory Gauncil had had an opportunity to express its views, which was done at a joint meeting of the Council and the Board on October 31 1950. Among other considerations mentioned by the Federal Advisory Council was the fact that the shortening of maximum deferment Which would involve the absorption by the Federal Reserve Banks of upwards of $100,000,000 of daily float would be inappropriate at a time when the Federal Reserve System is attempting by all means at its command to check the inflationary growth of bank credit. "On October 11 Chairman McCabe and Governor Powell met with representatives of the Reserve City 13 nkers Association to discuss Federal Reserve relatIonships with the correspondent banks. These representatives stated that a series of meetings between Federal Reserve Bank officials and representatives of i c)rrespondent banks in all districts except New York ?ad been suggested. The representatives requested -91at announcement of two-day maximum deferment of cash items be delayed until after those meetings had been held. It was thought that the announcement would be better received by correspondent banks if they had had a Prior explanation at these meetings of the circumstances leading up to the decision. . "In view of the matters related in the two foreg°ing paragraphs, the Board has decided to delay announcement of two-day maximum deferment of cash items until the Reserve Banks have had an opportunity to hold such meetings with correspondent bank representatives they may plan and to explain the reasons for the '10-day maximum at those meetings. Since these meets may be held within the next few days, we are senda copy of this letter to all Federal Reserve Bank ,re sidents." Approved unanimously. Telegram to the Presidents of all Federal Reserve Banks, Nioti ng as follows: 10/20/5o -18- "In response to an inquiry from a Federal Reserve Bank the Board has ruled that draperies or curtains are not listed articles under Group D of the Supplement to Regulation W." Approved unanimously. Telegram to Mr. Hitt, First Vice President of the Federal Ite"TVe Bank of St. Louis, reading as follows: "Reurlet October 12, 1950, re question under Regulation W in which bank would finance automobile for dealer who would supply it, free of charge, to a driver training school. Dealer would sell car after seven or eight months, paying off bank financing. Board is of view transaction would be subject to regulation as loan by bank to dealer to purchase automobile." Approved unanimously. Telegram for the signature of the Chairman, to Honorable cearran, Golden Hotel, Reno, Nevada, reading as follows: "I am pleased to reply to your wire of October 18 regarding the Board's recent amendlent to Regulationiff providing a 15-months maturity on sales of automobiles. "All aspects of the regulation were thoroughly ?xPlored with representatives of various industries oefore the original regulation was issued effective elptember 18, 1950. The Board fully recognized at .T:hat time that the trade representatives favored rrms even easier than those prescribed in the origflal regulation. As a result of those consultations the Board also was well aware that many sellers and -Lenders would not be in sympathy with the recent a mendment. "The Board was also faced with the fact that in the period prior to the September 18 effective date °f the original regulation there had been a large exPansion of credit as a result of forward buying nd high-pressure selling based on the anticipated erms of the new regulation. Further consultation Z 10/20/50 -19- "With industry representatives in addition to that already held not only would have failed to contribute additional information in the Board's consideration of the question but would also have raised serious danger of further expansion of credit similar to that which had preceded the September 18 effective date. "In the circumstances, the Board was convinced, and.stated in publishing the amendment in the Federal I!.egister that: 'Special circumstances have rendered Impracticable and contrary to the interest of the national defense consultation with industry representatives, including trade association representatives, In the formulation of the above amendment; and, therefore, as authorized by the aforesaid section 709, the amendment has been issued without such consultation.' 'he Board has been greatly concerned at the Seriousness of the inflationary situation. As the ”nate Banking and Currency Committee stated on page 2 of its report on the Defense Production Act: 1* * * Ihe present international situation has greatly increased the necessary demands of the Government for pods and services. One of the major factors in the 1511 volume of private purchases has been the availof mortgage and consumer credit on liberal terms. 53 prompt and effective action is taken, this situa41:11e Zion will upset the Nation's economic balance and add the difficulties in procuring the manpower and ma6erials necessary for our national security.' 1. 'The anti-inflationary benefits of Regulation WI 'Ike the harmful results of excessive consumer credit, are not limited to the industries that manufacture nd .sell the particular articles subject to the reguj-atIon. They extend throughout the economy. As stated page 10 of the Committee Report of the House Banking tl,d Currency Committee on the Defense Production Act: ,'xPansion of consumer and mortgage credit contributes t t only to the current demand for labor and materials go into housing and durable consumer goods, but 0 augments the demand for all other goods. The pure asing power created by consumer and mortgage credit ters the income stream where it adds to the competij °n for goods, including materials vital to the na1°nal defense.' "As you know, the cruel burden of inflation is T 7 j I 574 10/20/50 -20- "especially severe on families of moderate or small income. Measures to restrain excessive price advances are of special benefit to those families as well as to others. As stated in the Committee Report of the Senate Banking and Currency Committee °n Public Law 905 of August 16, 1943, which authorized the exercise of consumer credit controls: 'The Person of small income is the one hit hardest when inflation pushes prices beyond his reach, and the one o suffers most when the resulting deflation throws him out of a job. The legislation should tend to result in directing competition along the line of de'easing prices rather than extending excessive credit erms. By making some contribution toward preventing ' further inflation at this time, and thus toward moderating any ensuing deflation, consumer installment credit controls can especially serve the interests of the .Person of low income in addition to serving the in'crests of all other consumers affected by our national economy., "ae are replying by letter rather than wire to . Individuals who have communicated with us on this subject and I am sure that the replies will reach them shortly. I have been unable to discover any instance representatives of industries who have sought con4 erenoe or advice on the subject and have been refused -tnterviews. I would appreciate it greatly if you would me of any such instances, including the names °r the representatives, that have been reported to you. tel„, "I ask your indulgence for the length of this , -gram, and since I know that you are gravely con:,erned, as we are, over the great threat to the national .7elfare arising from the present inflationary spiral, am taking the liberty of setting out below a copy of tt statement by the Board on the subject: Re,,,The action of the Board of Governors in amending 4_b't-Lation -N (Consumer Credit), effective October 16, make it more restrictive was a part of a general e °gram designed to reduce inflationary pressures gen,rated by excessive credit expansion and to contribute 8"° credit conditions appropriate for a growing economy ' Uhiect to heavy rearmament demands. Inflationary trends, if unchecked, would lead to es.strous consequences for this country. Inflationary a ends cannot be curbed without some inconvenience and acrifice. The Board believes that the present terms n 10/20/50 -21- of Regulation 4 are no more stringent than the current inflationary dangers and the requirements of the defense effort justify. Since early September when Regulation W was reinstated under the authority of the Defense Production Act, outstanding credit has continued to expand. This expansion has taken place from peak levels and follows extremely sharp increases during the summer. Since mid-June outstanding bank credit has increased by over 44 billion, a record rate of increase for this period of the year. Expansion of consumer instalment credit has been responsible for contributing heavily to this exceptional growth in he money supply. The reasons for the Board's action ' 11 tightening the Regulation were set forth by Chairman McCabe in the following statement: 'The Board's action was based upon consideration of reports from Federal Reserve Banks and other sources in the field in all parts of the country which reflect continued upward pressures on prices in the five weeks 8inee the reissuance of the Regulation was announced "September 8, 1950. While the intensity of these Pressures on the market varies somewhat from time to ;Ime the fact remains that the underlying inflationary °rces are unabated and have been augmented by the eCntinuing growth of bank credit as well as credit in sPecific areas, including instalment credit. More Itigorous application of regulation of instalment credit, c°incident with the imposition of the real estate credit controls, is therefore in order so that these . ahd other credit measures may most effectively serve 2 3 11 the effort to hold the line until further fiscal easures, as nearly as possible on a pay-as-you-go basis, ,hd such additional credit measures as may be necessary la:n be brought into play. This is in accordance with ine President's Mid-Year Economic Report of July 26 n which he stated that first reliance should be placed UP" fiscal and credit measures and that this would make 4!es necessary resort to direct controls. Likewise, .;'"e action is pursuant to the statement of August 18 which the Reserve System declared its purpose to use n 1 the means at its command to restrain further exof bank credit. pressures on productive capacity, 'Prospective 11 Power supplies, and the price structure arising out exPanded defense and military aid programs will be Z 10/20/50 -22- "'increasingly heavy. This action was taken in the light of the System's statutory responsibilities, both under the Federal Reserve Act and under the Defense Production Act, to reduce inflationary forces Particularly in various credit areas; to help maintain the purchasing power of the dollar; and to assist Other agencies in assuring that the needs of the defense Program are adequately met." Approved unanimously. Letter to Honorable Clyde Doyle, 405 Post Office Building, 3ng Beach, California, reading as follows: "This refers to your telegram of October 18, 1950, regarding the Board's recent amendment to RegIllationiN providing a 15-months' maturity on sales of automobiles. "All aspects of the regulation were thoroughly exPlored with representatives of various industries before the original regulation was issued effective sePtember 18, 1950. The Board fully recognized at that time that the trade representatives favored terms even easier than those prescribed in the original regulation. As a result of those consultations the Board also was well aware that many sellers and lenders would not be in sympathy with the recent amendment. After giving careful consideration to those facts, the Board concluded that the terms issued effective September 18 and as amended effective October 16 should be prescribed in the public interest in order to help in protecting the national economy and the defense effort against the disastrous consequences of further inflationary pressures. "The Board was also faced with the fact that in the period prior to the September 18 effective date of 'Aue original regulation there had been a large expansion of credit as a result of forward buying and highPressure selling based on the anticipated terms of the new regulation. Further consultation with industry representatives in addition to that already held not °n1Y would have failed to contribute additional infortion in the Board's consideration of the question; "would also have raised serious danger of further expansion of credit similar to that which had preceded the September 18 effective date. 10/20/50 -23- "In the circumstances, the Board was convinced, and stated in publishing the amendment in the Federal Register that: 'Special circumstances have rendered impracticable and contrary to the interest of the national defense consultation with industry representatives, including trade association representatives, in the formulation of the above amendment; and, therefore, as authorized by the aforesaid section 709, the amendment has been issued without such cons ultation.' "The Board has been greatly concerned at the seriousness of the inflationary situation. As the Senate Banking and Currency Committee stated on page 42 of its report on the Defense Production Act: 1* * * The present international situation has greatly increased the necessary demands of the Government for goods and services. One of the major factors in the high volume of private purchases has been the availability of mortgage and consumer credit on liberal terms. Unless prompt and effective action is taken, this situation will upset the Nation's economic balance and add O the difficulties in procuring the manpower and materials necessary for our national security.' "The anti-inflationary benefits of Regulation WI Jake the harmful results of excessive consumer credit, are not limited to the industries that manufacture ad sell the particular articles subject to the regution. They extend throughout the economy. As stated On page 10 of the Committee Report of the House Banking atzd Currency Committee on the Defense Production Act: Expansion of consumer and mortgage credit contributes riot only to the current demand for labor and materials Lint go into housing and durable consumer goods, but also augments the demand for all other goods. The pureha.s.1Jag power created by consumer and mortgage credit iters the income stream where it adds to the competi1:?on for goods, including materials vital to the naL,lonal defense.' "As you know, the cruel burden of inflation is esPecially severe on families of moderate or small inMeasures to restrain excessive price advances re of special benefit to those families as well as to z hers. As stated in the Committee Report of the Senate ' anking and Currency Committee on Public Law 905 of istugust 16, 1948, which authorized the exercise of continier credit controls: 'The person of small income is r n 1(3/20/50 "'the one hit hardest when inflation pushes prices beyond his reach, and the one who suffers most when the resulting deflation throws him out of a job. The legislation should tend to result in directing competition along the line of decreasing prices rather than extending excessive credit terms. By making some at contribution toward preventing further inflation deg ensuin this time, and thus toward moderating any can flation, consumer installment credit controls low ?specially serve the interests of the person of other all income in addition to serving the interests of consumers affected by our national economy.' "dith further reference to the grave threat to the national welfare arising from the present inflationrY spiral, there is enclosed a copy of a statement issued by the Board on the subject. "de appreciate the opportunity to comment on the Board's actions in attempting to aid in protecting the the national economy and the defense effort against pressures, disruptive effects of excessive inflationary er we can we hope that you will let us know whenev in be ue of any assistance in supplying any information that connection." Approved unanimously, with the understanding that similar letters would be sent in response to other inquiries regarding Amendment No. 1 to Regulation WI Consumer Credit, where such letters would be appropriate. Honorable Letter for the signature of the Chairman, to un B. Johnson, United States Senate, Washington, D. C., reading follows: "'de have received your several notes dated October 15, 16, 17, and 18 referring to us messages from automobile dealers and dealers associations Texas and from Mr. Tom Stevenson, an appliance in Brownsville, Texas, all protesting against the 'Jae terms of this Board's Regulation d, governing who consumer credit. Many of the automobile dealers .ddressed telegrams to you also addressed them elseWhere. Senator Connally has referred to us a number r -,k) FIrj 10/20/50 -25- "of such appeals, and we have received others from the White House and from Representative George Mahon. "Our study of the consumer credit field as a Whole and of such important industries as the automobile business in particular is continuing, and we are glad to have expressions from the public to include in that study. We thank you for referring to Us the various messages from your constituents, and we are sending you herewith a number of copies of a statement by the Board of Governors explaining the reasons for its action, which we thought might be of interest to the dealers whose messages you sent us. We understand from Miss Westman, Governor Evans' secretary, that your office has kindly offered to distribute this statement directly to your constituents who have addressed protests to you in addition to those You have sent us. "We recognize that in the administration of any such measure as Regulation W, which must be applied to the country as a whole, there are bound to be hardships on particular individuals and businesses. We regret exceedingly that this is so, and every effort has been made to keep such hardships at a minimum. After careful consideration of all of the factors involved, it seemed to the Board that action was necessary as an effort to avoid the widespread hardships that are a concomitant of inflation." Approved unanimously, with the understanding that similar letters would be sent in response to other inquiries regarding Amendment No. 1 to Regulation W, Consumer Credit, where such letters would be appropriate. Letter to The Honorable, The Comptroller of the Currency, 'urY Department, Washington 25, D. C., reading as follows: "This refers to our letter of July 28, 1950, !equesting that a supplemental order for printing 53000,000 sheets of Federal Reserve notes of the 3-934 series during the fiscal year ending June 30, ., 4-95l, be placed with the Bureau of Engraving and I riSO 10/20/50 -26- 'Printing. At this time it is desired to allocate 470,000 sheets of this total to Federal Reserve notes Of the Federal Reserve Banks specified below: Number of Federal Reserve DenomiAmount sheets nation Bank 117555,000 10,000 $ 50 Atlanta 12,000,000 10,000 $100 San Francisco 27,000,000" 45ol000 $ 5 Approved unanimously.
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