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1581 Minutes of actions taken by the Board of Governors of the Fed'el'al Reserve System on Thursday, September 11, 1952. The Board nlet in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Szymczak, Acting Chairman Evans Mills Robertson Sherman, Assistant Secretary Kenyon, Assistant Secretary Vest, General Counsel Noyes, Director, Division of Selective Credit Regulation Mr. Boothe, Assistant Director, Division of Selective Credit Regulation Mr. Hackley, Assistant General Counsel Mr. Connell, Technical Assistant, Division of Selective Credit Regulation Mr. Mr. Mr. Mr. Messrs. Jess Larson, Administrator, Maxwell H. Elliott, General C°111143el, and P. W. Jordan, Director, Credit and Finance Division, General Beryl. cee Administration; and Arthur Phelan, Vice President, Federal ReBank of New York, also were present. Under date of September 4, 1952, the Board addressed a letter to kr. T. —41'eon raising certain questions which had resulted from its consideratioh _ Qf the contemplated terms and conditions of a proposed V-loan to Rey415148 Reduction Company of Richmond, Virginia, a newly organized subsidiary or e UO1dB Metals Company, for the expansion of certain aluminum facilities. The etter stated that the Board would be glad to meet with Mr. Larson and NIsia er any Dosed, r views which he might wish to express with regard to this pro- 1- alleing, and in accordance with that invitation Mr. Larson had 1582 9/11/52 -2- to meet with the Board this morning. Mr. Larson explained that General Services Administration had acted as guaraxteeing agency under the V-loan program in reletively few cases, that in the circumstances he was not entirely familiar with the practices arldtechniques involved in this type of financing, and that he and his ste f were anxious to have the advice of the Board in this connection. He eEtici that this project constituted an integral part of the prorari for NAricion of aluminum facilities which the Government considered eseential tC) the national defense program, that it was a rather unique as well as Ilr€'ent Part of the total program because other companies were dependent on ae °ids Metals to furnish alumina, and that if the project, which had been negotiation for many months, fell through at this late date he would hoe to assume the responsibility. He also brought out that plans were now III Pr °cess for a third round of facilities expansion and that the announce- 41:1t "these further plans was being withheld pending a decision on the eY2101.1 .W43 Reduction Company project. Mr. Larson then referred to the commitment fee and termination fee 1).rovis. 1°ns which it was proposed to incorporate in the bond indenture under the • He said it was his understanding that a commitment fee was corzzo t° commercial banking practice and was normally provided for in connect:loll w ith a transaction which involved a long-term loan for capital improvements. lie ve cql to bay that he was not so familiar with the practices usually .1q14 9/11/52 -3- f°110wed with respect to Providing for a premium on repayment of the indebtedness that before maturity of the outstanding obligations, but understood such a provision likewise was customary in this kind of financing. Mr, La rson explained that the negotiations in this case had been protracted, 11°1: Particularly because of any fault on the part of the Government, but bee ause the borrower and the interested financing institutions had not bee, the able to reach an agreement. He felt it would be very unfortunate if financing institutions were to withdraw from the negotiations at this f3tage. Governor Szymczak then reviewed the role of the Federal Reserve SYstem • - In relation to the guaranteed loan program. He stated that the Board, 111'4 r a uthority granted to it by legislation and by Presidential executive had a responsibility with respect to the establishment of rates and aria that the questions presented by this particular financing were c4st i°ns as to which the Board had thus far taken no T;osition. with re- 3*I'd to t ermination fees, Governor Szymczak pointed out that the Board, o tter comultation with the guaranteeing agencies, had prescribed a rule thevt Izl° such fee would be permissible, but that this rule applied only to or working capital purposes and the question had not Com up until t114 ttnle as to whether the same rule should be applied to long-term loans t°1a He called attention to the fact that if a rule were to be ill'eecribed with regard to long-term loans, the Board would first have to 9/1a/52 -4- consult with all of the guaranteeing agencies. As to commitment fees, Governor Szymczak pointed out that heretofore the Board had set a maximum rate of 1/2 of 1 per cent, such fee to be shared in by the guaranteeing 48elleY, whereas the current proposal would also provide for the payment Of commitment fee of 1.7 per cent from July 1, 1952 to the date of the eeelltion of the guarantee agreement, which fee would not be participated 111 bY the guaranteeing agency concerned. This proposal " YPe which the Board had not yet considered. he said, was of Governor Symczak assured Mr. larsoll that the Board recognized the problem with which he was confronted all'Ithe reasons why he was anxious to arrange the financing. Mr. Phelan said that in commercial banking it is customary to harcra .,.- a commitment fee, but only where a firm commitment is given, and thai. 'IA the history of the V-loan program there had not been a case to date a commitment fee was charged for any period prior to the execution of the glaarantee agreement. It was his understanding that the banks involved ill the - Proposed V-loan to Reynolds Reduction Company probably would go along vith 8.4 elimination of the prior commitment fee but that the insurance con- %rue s I'701.11d resist such a proposal. Mr. Phelan remarked in this connection that , "'he Proposal that the fee be charged from July 1, 19)2 represented a r4Dro cc ' ' Ilse since originally the insurance companies had requested that it 1585 9hab2 -5- begin APril 1, 1952. He did not know how the proposed rate of 1.7 per We.s arrived at but thought it probably was based on the Government bili rate and was supposed to represent a reimbursement for loss to the Illellrance companies through failure to employ their funds otherwise. Mr. P. hea-8.1.1 felt, however, that it was probable that the companies had used the. funds in the interim period. He noted that the commitment fee would arac4111t to $108,000 a month during the entire period from July 1 until the IlaTantee agreement was executed and commented that he thouf;ht it would be cill'ficult to justify the allowance of such a fee. With respect to the proposed premium ul'on prepayment, Mr. Phelan cor,n4, -°,-otered the proposed scale beginning with a 10 per cent premium very bigh and certainly much higher than the prevailing rate with respect to (111cl/fees in commercial banking. PrellIn Of 5 He felt that in all the circumstances a per cent might be reasonable in this case and that it would 4c)treeUlt in any serious injury to the interests of the Government. After some further discussion Mr. Noyes summarized the questions illacler consideration by the Board in connection with the proposed V-loan in the f°110wing manner: With respect to the prior commitment fee the questio4s were: (1) whether the Board would permit the payment of any commitfee prior to the execution of the guarantee agreement; (2) if so, Vhether the rate should be limited to the same maximum as on fees charged 4I'ter „ - 'due execution of the guarantee agreement; and (3) whether, if it I r-5-11) ‘ Ma/52 ahould -6- be determined that the prior commitment fee was permissible, it 814111d be required that the guaranteeing agency share in such fee to the 4418 extent as it would in any fee charged following the execution of the gllarattee agreement. Regarding the proposed prepayment premium the questions were: (1) , ,lether such a premium should be permitted in the case of a long-term i(3`111 for facilities; (2) if permitted, whether there should be a restrict101404 the size of the premium; and (3) if permitted, whether the Governshould share in the premium. Mr. Noyes thought that for practical 1)11113°8es the last question was resolved in the negative because with the 13411ellt of the loan in full, the Government would be relieved of any haY in connection with the loan. There followed an extended discussion covering, among other things, the t erme and conditions of the proposed loan, the prospects for obtaining NIce 8sions during further negotiations with the financing institutions, the 1514Isibl-e disadvantages to the Government inherent in the terms and conditioxls ellrrently contemplated, and the possibility of accomplishing the lag in other ways, perhaps through the Reconstruction Finance Corpora- During the course of this discussion Mr. Noyes withdrew from the 11114tibr, At its conclusion Mr. Larson stated that General Services Ad- at tat11--4.0n would have no reluctance to comply with any regulations the 15' 9111/52 -7- flight lay down with regard to this type of financing under the V-loan He realized the difficulty involved in letting one piece of fi- 1)17c1gram. dictate the rules to be laid down for general application and that °Ile devon from the established rules would almost certainly be followed by rekiuests for concessions in subsequent transactions. Mr. Larson urged, cver, that the Board consider providing some flexibility in whatever NAIlations it might prescribe because General ['ervices Administration apPettredt0 be practically the only guaranteeing agency concerned with fill:1/1e ing long-term loans for facilities and this type of financing appeared to 4., '"0701ve certain problems which the other agencies did not have to face. Following a statement by Mr. Larson that he had not engaged per'Y in the negotiations concerning the proposed loan to Reynolds Reduction ' 1°P1Pany and could not say what commitments had been made during the C s 0f such negotiations, Messrs. Elliott and Jordan expressed the thought that.t -- might be possible to reopen the negotiations concerning the commit- rtitlt ee. They doubted, however, the possibility of reopening the negotia- tioris with any hope of obtaining agreement to an elimination of the terminat )rlfee. Mr. Larson then withdrew from the meeting to keep a previous en- There ensued a further discussion of the proposed financing during Governor Robertson asked Mr. Vest whether the Board had authority under 1588 9A1/52 the law -8to take into consideration the so-called advance commitment fee. Mr. Vest responded by saying that the Board had the power to prescribe Illtee, fees, and charges after consultation with the guaranteeing agencies, the:t one would usually think of the commitment fee as a fee to be applicable stUr the guarantee agreement was executed, but that this was not necessarily 8°, especially where there was a substantial fee being charged prior to the date that the guarantee agreement went into effect. He thought that the lloard had the authority to consider the propriety of such a fee if it ell013e to exercise that authority. The discussion then turned to the course of action which might be taken bathe light of the views expressed at this meeting, and various NOV. 4, were advanced. At the conclusion of the discussion, during the .— '-ularse of which Mr. Connell withdrew from the meeting, Mr. Elliott said that i f the Board should decide to consult with the guaranteeing agencies ea41, °110wing that consultation issued regulations having general applica131147 - -0 V-loan firPncing, it would be difficult to make an exception in given case. He would prefer, therefore, that General Services Administrat.04 begotiate further with the financing institutions before any general Ilass "ere prescribed. 5.tlOn He felt that an expression by General Services Ad- during further negotiations to the effect that the Board was % d with the proposed terms and conditions would be helpful in bolster114€tha - Position of the Administration. 1589 9/11/52 -9Messrs. Elliott and Jordan then withdrew from the meeting. Following consideration by the Board of the advice which should be Cillen to General Services Administration as to its views, Governor Mills l'rcTosed suggesting to Messrs. Elliott and Jordan that representatives of Gerleral Services Administration go back to the Insurance companies and say t0 them that the matter had come to the attention of the Board of Governors; the:t a determination would have to be made by the Board; that in discussion with the Board it had developed that there was a real question whether tht u(XY would be willing to prescribe rules to permit the advance commit- tent fee or the termination fee; that it seemed doubtful whether the Board do so; that the insurance companies had a good loan, which was to be 14 " Administrailea'ailteed; and that it would be the opinion of General Services tLori that the insurance companies should waive both the advance commitment ee .noL the provision for a premium upon prepayment of the indebtedness.. ' It was agreed unanimously that Mr. Boothe should advise Messrs. Elliott and Jordan of this suggested procedure for General b.'ervices Administration to follow, and that the Board should take no further action in the matter at the present time. It was understood in this connection that Mr. Boothe also would advise Governor Vardaman, who was unable to attend this meeting, of the action taken by the Board. At this point Mr. Phelan and all of the members of the Board's staff txQe Messrs. Sherman and Kenyon withdrew from the meeting and the follow`td itional actions were taken by the Board: 1_590 9/11/52 -10Minutes of actions taken by the Board of Governors of the Federal Reserve System on September 10, 1952, were approved unanimously. Memoranda recommending that the basic annual salaries of the following employees be increased in the amounts indicated, eff?,ctive September 14, 1 952: Date ndum 8/5/52 8/5/52 8/29/52 Salary Increase To From Name and Title Memoranda from Mr. Vest, General Counsel, Legal Division Jean Crosby, Secretary Evelyn W. Edwards Secretary Jerome W. Shay, Assistant Counsel $4,035 4,035 9,360 Memorandum from Mr. Marget, Director, Division of International Finance 8/28/52 Dorothy L. Helprin, Economist 4,160 4,330 3,030 3,175 4,045 4,170 2,560 2,630 2,952 3,032 Memorandum from Mr. Leonard, Director, Division of Rank Operations 9/5/52 Dorothy F. Burton, Clerk-Stenographer Memoranda from Mr. Bethea, Director, Division of Administrative Services 8/19/52 9/8/52 Mary E. Sanders, Secretary Alene D. Carroll, Charwoman W. E. Hardy, Messenger Approved unanimously. 1591 9A1/52 -11Memorandum dated September 8, 1952, from Mr. Bethea, Director, 1317ision, of Administrative Services, recommending that the temporary aPPointraent of Mary C. Tippett, Telephone Operator in that Division, beexteaded on a temporary-indefinite basis without change in her preee,4. uu basic salary of $2,950 per annum, effective September 15, 1952. Approved unanimously. Memorandum dated September 8, 1952, from Mr. Bethea, Director, Qlon of Administrative Services, recommending that the temporary 8441c/iritillent of James E. Caldwell, Messenger in that Division, be exter 4ed on a temporary-indefinite basis without change in his present 1348ic Salary of $2,552 per annum, effective September 14) 1952. Approved unanimously. Memorandum dated September 8, 1952, from Mr. Bethea, Director, 1. 18 on of Administrative Services, recommending that Virginia E. 'ken. Secretary in the Division of Selective Credit Regulation) be r elulferred to the position of Stenographer in the Division of strative 3)785 Services, with no change in her present salary of The annum, effective as of the date she reports for duty. 4e14°randux stated that, in accordance with the Board's established 1°111eY, Miss Leaman's basic salary would be adjusted from $3,78 3)655 1)eriod. or he to Per annum effective at the beginning of the first pay roll fcalowing the expiration of six months from the effective date r tzlansfer, provided she was still occupying the position to which AL, 9/11/52 -12- she Ilas now transferred or another at the same level. Approved unanimously. Memorandum dated September 10, 1952, from Mr. Allen, Director, 1Sion of Personnel Administration, recommending that the basic 88-417 of Charles R. Norris, Assistant Head Messenger, Division of 14Z1nistrative Services, be adjusted from $3,660 to $3,230 per annum, effective September 14, 1952. Approved unanimously. Memorandum dated September 8, 1952, from Mr. Sloan, Director, DIN1 of Examinations, recommending that John J. Hart, Technical Btant, Division of Bank Operations, be loaned to the Division of —"laations for the period from September 22 through December 31, 1952, l'°I'c14t:)r with the field staff of examiners, and that he be appointed a 'al Reserve Examiner effective September 19, 1952, through December 31) 1o,- with official headquarters in Washington, D. C. Approved unanimously. Letter to Mr. Slade, Vice President, Federal Reserve Bank of 4144anci5c0, reading as follows: i "This refers to your letter of August 25, 1952, enclostng a COpy of a letter addressed by your Bank to First ecuriwere noted 4 Y Corporation transmitting certain exceptions which the Board's letter to you of August 7, 1952, and enclosing tso memoranda submitted by your Counsel regarding the ques,°11. whether receipt of 'employees' savings accounts' by First curity Company should be reported as violations of either ,-fagraph (1) or paragraph (2) of section 21(a) of the Banking ' 1Cc °f 1933. Z ' C 9/11/)2 r -13- "We recognize the merits of the points made by your Counsel on the question whether a violation of the law is involved. On the other hand, the statute applies to a corporation which is engaged 'to any extent whatever' in the deposit business, and the providing of the deposit service by First Security Company may be regarded as but an incident of the primary purpose of the company, which is Profitmaking in character. However, it is not the Board's Practice to undertake to express opinions as to whether the criminal statutes have been violated, as this is a matter 'which falls within the province of the Department of Justice. "In the circumstances, the Board continues to feel that it would be well for you to bring the matter to the attention of the holding company affiliate, with advice as to the Board's Practice of reporting to the Attorney General apparent violations of the banking laws and with the suggestion that the comPany supply any additional information or comments it IllaY care to as a basis for your further consideration of the question whether this matter should be so reported." Approved unanimously. Letter to the Board of Directors, Norfolk County Trust Company, 4ock, "tIlle, Massachusetts, reading as follows: "Pursuant to your request submitted through the FedReserve Bank of Boston, the Board of Governors of the :ederal Reserve System approves the establishment and opera,ion of a branch at 287 Harvard Street, Brookline, Massachusetts, q" Norfolk County Trust Company, Brookline, Massachusetts." Approved unanimously, for transmittal through the Federal Reserve Bank of Boston. Assl'tant Secretary.
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