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M IN UTES OF M EETIN GS of the FED ERAL A D V ISO R Y CO U N CIL 1953 MINUTES OF MEETINGS of the FEDERAL ADVISORY COUNCIL February 15'17> 1953 May 17'19, 1953 September 13 "15, 1953 November 15'17» 1953 OFFICERS AND MEMBERS OF THE FEDERAL ADVISORY COUNCIL For the Year 1953 OFFICERS: President, Edward E. Brown Vice President, Robert V. Fleming Director, Henry C. Alexander Director, Geoffrey S. Smith Director, George Gund Secretary, Herbert V. Prochnow EXECUTIVE COMMITTEE: Edward E. Brown Robert V. Fleming Henry C. Alexander Geoffrey S. Smith George Gund M EM BERS: Ernest Clayton Henry C. Alexander Geoffrey S. Smith George Gund Robert V. Fleming Paul M. Davis Edward E. Brown V. J. Alexander Joseph F. Ringland Charles J. Chandler De Witt Ray John M. Wallace District No. District No. District No. District No. District No. District No. District No. District No. District No. District No. District No. District No. 1 1 2 3 4 5 6 7 8 9 10 11 12 BY-LAWS OF THE FEDERAL ADVISORY COUNCIL ARTICLE I. OFFICERS The Officers of this Council shall be a President, Vice President, three D irectors and a Secretary, all of whom, except the Secretary, shall also serve as the E xecutive C om m ittee. ARTICLE II. PRESIDENT AND VICE PRESIDENT The duties of the President shall be such as usually pertain to the office; in his absence the Vice President shall serve. ARTICLE III. SECRETARY The Secretary shall be a salaried officer of the Council, and his duties and com pensa tion shall be fixed by the E xecutive Com m ittee. ARTICLE IV. EXECUTIVE COMMITTEE The Executive Com m ittee, as indicated in Article I of the by-law s, shall consist of the President, Vice President, and the three Directors. ARTICLE V. DUTIES OF THE EXECUTIVE COMMITTEE It shall be the duty of the E xecutive Com m ittee to keep in close touch w ith the Board of Governors of the Federal Reserve System and w ith their regulations and promulgations, and to com m unicate the sam e to the mem bers of the C ouncil, and to suggest to the Council, from tim e to tim e, special m atters for consideration. The Executive Com m ittee shall have the power to fix the tim e and place of holding its regular and special m eetings and m ethods of giving notice thereof. The Executive Com m ittee shall have full power, as officers of the Council, to act for the Council between m eetings of the Council. M inutes of all m eetings of the E xecutive C om m ittee shall be kept and such m inutes or digest thereof shall be im m ediately forwarded to each member of the Council. A m ajority of the Executive C om m ittee shall constitute a quorum, and action of the Committee shall be by m ajority of those present at any m eeting. ARTICLE VI. MEETINGS Regular meetings of the Federal Advisory Council shall be held in the C ity of W ashington on the third Tuesday of the m onths of February, M ay, Septem ber and Novem ber of each year, unless otherwise directed by the E xecutive C om m ittee. A preliminary meeting of the Federal Advisory Council shall be called b y the Sec retary in accordance with instructions to be given by the President of the Council. Special meetings may be called at any tim e and place by the President or the Execu tive Committee, and shall be called by the President upon written request of any three members of the Council. ARTICLE VII. ALTERNATES In the absence of the regular representative of any Federal Reserve District, the Board of Directors of the Federal Reserve Bank of that District may appoint an alternate. The alternate so appointed shall have the right to be present at all the meetings of the Council for which he has been appointed. He shall have the right to take part in all dis cussions of the Council but shall not be entitled to vote. ARTICLE VIII. AMENDMENTS These by-laws may be changed or amended at any regular or special meeting by a vote of a majority of the members of the Federal Advisory Council. February 15, 1953 3 MINUTES OF THE MEETING OF THE FEDERAL ADVISORY COUNCIL February 15, 1953 The first and organizational m eeting of the Federal A dvisory Council for the year 1953 was convened in Room 1032 of the M ayflower H otel, W ashington, D .C ., on February 15, 1953, at 2:18 P .M . P resent: Ernest C layton H enry C. Alexander Geoffery S. Sm ith George Gund R obert V. Flem ing Paul M . D avis Edward E. Brown V. J. Alexander Joseph F. Ringland Charles J. Chandler D e W itt R ay John M . W allace Herbert V. Prochnow D istrict N o. 1 D istrict N o. 2 D istrict N o. 3 D istrict N o. 4 D istrict N o. 5 D istrict N o . 6 D istrict N o . 7 D istrict N o . 8 D istrict N o. 9 D istrict N o. 10 D istrict N o. 11 D istrict N o . 12 Secretary Mr. George Gund was elected Chairman Secretary pro tem. pro tem and M r. H erbert V. Prochnow, The Secretary pro tem stated that com m unications had been received from the twelve Federal Reserve banks, certifying to the election of their respective representatives on the Council for the year 1953. The following officers were nom inated and unanim ously elected : Edward E . Brown, President Robert V. Flem ing, Vice President H enry C. Alexander, Director Geoffrey S. Sm ith, Director George Gund, Director Herbert V. Prochnow, Secretary On motion, duly made and seconded, the salary of the Secretary w as fixed at $3,000 annually. On motion, duly made and seconded, the Council approved the by-law s, copies of which are a part of these minutes. The Secretary presented his financial report for the year 1952, w hich had been audited by Mr. W alter A. Grau, Assistant Auditor of The First N ational Bank of Chicago. The report was approved and ordered placed on file. A copy of the report is attached and m ade a part of these minutes. 4 On motion, duly made and seconded, the printed minutes for the meetings of the Council held on February 17, 18, 19, 1952; May 18, 19, 20, 1952; October 5, 6, 7, 1952; November 16, 17, 18, 1952; and the mimeographed notes of the meeting held November 16, 17, 18, 1952, copies of which had been sent previously to the members of the Council, were approved. On motion, duly made and seconded, a resolution was adopted authorizing the Secretary to ask each Federal Reserve Bank to contribute $350.00 toward the secretarial and incidental expenses of the Federal Advisory Council for the year 1953, and to draw upon it for that purpose. A complete list of the items on the agenda for the meeting and the conclusions of the Council are to be found in the Confidential Memorandum to the Board of Governors from the Federal Advisory Council, which follows on pages 8 and 9. The meeting adjourned at 5:35 P.M. HERBERT V. PROCHNOW Secretary. 5 REPORT OF THE SECRETARY OF THE FEDERAL ADVISORY COUNCIL For the Year Ended D ecem ber 31, 1952 Balance on hand, Decem ber 31, 1951................$ 7,337.99 A ssessm ents— 12 Federal Reserve Banks S a la ries.. . . . 4,200.00 $11,537.99 .V : .............................. 3,000.00 Conference E xp en se..................... 779.03 Printing and S tation ery............. 344.00 1' M iscellaneous.................................. 25.35 Balance on hand, Decem ber 31, 1952.................. 7,389.61 $11,537.99 Chicago, Illinois February 1, 1953 To the Federal Advisory Council: I have audited the books, vouchers, and accounts of the Secretary of the Federal A dvisory Council for the year ended Decem ber 31, 1952, and certify that the above statem ent agrees therewith. R espectfully, T H E F IR ST N A T IO N A L B A N K OF C H IC A G O (Signed) W alter A. Grau A ssistant A uditor 6 MINUTES OF THE MEETINGS OF THE FEDERAL ADVISORY COUNCIL February 16, 19b3 At 10:05 A.M., the Federal Advisory Council reconvened in Room 1032 of the May flower Hotel, Washington, D. C., with the President, Mr. Brown, in the Chair. Present: Mr. Edward E. Brown, President; Messrs. Ernest Clayton, Henry C. Alexander, Geoffrey S. Smith, George Gund, Robert V. Fleming, Paul M. Davis, V. J. Alexander, Joseph F. Ringland, Charles J. Chandler, De Witt Ray, John M. Wallace, and Herbert V. Prochnow, Secretary. The Council reviewed its conclusions of the previous day regarding the items on the agenda, and sent to the Secretary of the Board of Governors the Confidential Memorandum which follows on pages 8 and 9, listing the agenda items and the conclusions reached by the Council. The Memorandum was delivered to the Secretary of the Board of Gover nors at 12 noon on February 16, 1953. The meeting adjourned at 11:40 A.M. HERBERT V. PROCHNOW Secretary 7 C O N F ID E N T IA L M E M O R A N D U M TO T H E B O A R D OF G O V ER N O R S FR O M T H E F E D E R A L A D V ISO R Y C O U N C IL R E L A T IV E TO T H E A G E N D A FO R T H E JO IN T M E E T IN G O N F E B R U A R Y 17, 1953 1. Consideration of a m odification of the U nited States Bureau of Internal Revenue regulation having for its purpose an increase in the perm itted loss reserves in comm ercial banks to an am ount more realistic w ith possible potential loss should a serious business depression occur. The Bureau of Internal Revenue formula, which fixes the m axim um perm issible additions to loss reserves that can be deducted from the taxable incom e of com m ercial banks, was fair when it was first adopted, and it operated satisfactorily for several years. H owever, the heavy losses of 1929 and the early 1930’s cannot be taken into consideration under the present formula, and few banks have had any considerable losses in recent years. The volum e of loans is at an all-tim e high level, but the present form ula does not perm it banks to deduct for incom e tax purposes additions to reserves in an am ount bearing a sound relationship to probable losses, based on past experience. Tax policy should encourage additions to loss reserves at this tim e in order to strength en the banking system and protect bank depositors. The Council would appreciate any assistance which the Board m ight find it possible to give in working out a form ula wTith the Bureau of Internal Revenue which would m eet present conditions. A com m ittee of the American Bankers Association has suggested a formula w hich the Board of G overnors might find helpful in its consideration of this problem. 2. W hat are the view s of the Council on the prospective business and econom ic situation during the next six m onths and the probable changes in the volum e of bank loans during that period? W hat problems, if any, does the Council foresee in the substantial growth of consumer and real estate credit that has taken place? Business is operating at a high level, and industrial production, wages and personal incom e are setting peacetim e records. U nem ploym ent is low. R etail sales over the country as a whole are good. D espite spottiness in certain industries, businessm en are generally optim istic regarding the econom ic outlook for the next six m onths. T he C ouncil believes this optim ism is justified. In some sections of the country in which agriculture is of major im portance, and where drouth conditions now threaten, the continuance of the present high rate of business activity will depend on the weather. For m onths there has been a gradual decline in the prices of various basic com m odities, especially farm products. These price declines will result in a decrease in farm purchasing power and will affect some industries adversely. However, these price declines m ay serve a constructive pur pose if they tem per excessive business optim ism and restrain increases in other prices. The Council believes that the present volum e of bank loans, except for normal seasonal fluctuations, will show little change in the next six m onths. All m em bers of the Council are concerned with the growth of consum er credit. The dem ands on banks for this type of credit, whether by finance and sm all loan com panies, retail stores, m ail order concerns, or directly by consumers, show no im m ediate sign of abatem ent. A strong m inority of the Council believes that legislation should now be adopted perm itting 8 the reimposition of Regulation W. A majority of the Council is opposed to such legislation now, but favors reviewing the matter at a later date when developments in the economy should make clearer whether any legislation is desirable. The Council does not believe present conditions justify reimposing Regulation X. There is some evidence that housing construction is showing a tendency to level off. A policy of stricter and more realistic appraisals, not only by those approving Governmentguaranteed loans, but also by officials supervising the savings and loan associations, is highly desirable and should be helpful in restricting the growth in the volume of unsound real estate credit. 3. Does the Council have any comments or suggestions to make with respect to System credit policies during the recent period and what these policies should be in the months ahead? In view of the fact that bank loans increased more than seasonally in the last few weeks of 1952, the Council believes that the recent increase in the rediscount rate from 1 V± per cent to 2 per cent was justified. The 2 per cent rediscount rate is also more nearly in accord with present money market rates. Other than its psychological influence, the increase in the rediscount rate had little effect. The Council believes that no increases should be made in present reserve requirements, and that unless there is an important change in the economic outlook the present rediscount rate should be continued. If conditions in the next few months should make tighter money desirable, the Council suggests the use of open market operations for that purpose. 4. The Board has not yet finally formulated its views as to definite recommendations with respect to legislation during the present session of the Congress and would like to have the comments of the Council as to the proposals that might be made. The Council understands the Federal Reserve System has exhausted its authorization for expanding and modernizing the facilities of its branches. The Council would favor legislation giving the System $15 million to $20 million with which to expand its branch facilities to handle the increasing volume of business of the System. The Council would also favor legislation permitting the reissuance without penalty of all Federal Reserve Notes by any of the Federal Reserve Banks, regardless of which Bank issued the Notes. This would save present costs in shipping Notes. The Council does not know what legislation the Board may contemplate proposing at the present session of the Congress. The Council would be pleased to discuss with the Board any legislation it is considering proposing. MINUTES OF THE MEETING OF THE FEDERAL ADVISORY COUNCIL February 16, 1953 At 2:20 P.M., the Federal Advisory Council convened in the Board Room of the Federal Reserve Building, Washington, D.C., with the President, M r. Brown, in the Chair. Present: Mr. Edward E. Brown, President; Messrs. Ernest C layton, H enry C. Alexander, Geoffrey S. Smith, George Gund, Robert V. Fleming, Paul M . D avis, V.J. Alexander, Joseph F. Ringland, Charles J. Chandler, D e W'itt Ray, John M . WTallace, and Herbert V. Prochnow, Secretary. Dr. Woodlief Thomas, Economic Advisor to the Board of Governors of the Federal Reserve System, spoke to the Council on the subject, ‘‘Current M oney M arket D evelop ments”. The meeting adjourned at 3:45 P.M . HERBERT V. PROCHNOW Secretary 10 MINUTES OF JOINT CONFERENCE OF THE FEDERAL ADVISORY COUNCIL AND THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM February 17, 1953 At 10:30 A.M., a joint conference of the Federal Advisory Council and the Board of Governors of the Federal Reserve System was held in the Board Room of the Federal Reserve Building, Washington, D. C. Present: Members of the Board of Governors of the Federal Reserve System : Chairman Wm. McC. Martin, Jr.; Governors M. S. Szymczak, R. M. Evans, James K. Vardaman, Jr., A. L. Mills, Jr., and J. L. Robertson; also Mr. S. R. Carpenter, Secre tary, and Mr. Merritt Sherman, Assistant Secretary of the Board of Governors. Present: Members of the Federal Advisory Council: Mr. Edward E. Brown, President; Messrs. Ernest Clayton, Henry C. Alexander, Geoffrey S. Smith, George Gund, Robert V. Fleming, Paul M. Davis, V. J. Alexander, Joseph F. Rineland, Charles J. Chandler, De Witt Ray, John M. Wallace, and Herbert V. Prochnow, Secretary. President Brown read the first item on the agenda and the conclusions of the Council as expressed in the Confidential Memorandum to the Board of Governors from the Federal Advisory Council, as printed on pages 8 and 9 of these minutes. Chairman Martin stated that the Board will be pleased to discuss the matter with the Bureau of Internal Revenue at the request of the Bureau. The President of the Council then read the second item on the agenda and the conclusions of the Council as expressed in the Confidential M em orandum previously mentioned. President Brown added that since the Board receives statistics from over the United States, its information must necessarily be more complete than that of the members of the Council. However, the members of the Council do receive first-hand information in their respective districts, and receive it before the Board compiles the statistics. A brief discussion on this item, participated in by members of the Council and the Board, followed. The President of the Council read the third item on the agenda and the conclusions of the Council as expressed in the Confidential Mem orandum attached. President Brown then read the fourth item on the agenda and the conclusions of the Council as stated in the Confidential M em orandum , and asked whether the Board had any controversial legislation it would like to discuss with the Council. 11 Chairman Martin replied that he believed increasing the branch facilities of the Federal Reserve System was the most urgent item of legislation. H e also added that the Board would send to the Council in advance copies of any legislation the B oard m ay present to Congress. The meeting adjourned at 12:48 noon. HERBERT V. PROCHNOW Secretary 12 NOTE: This transcript of the Secretary®s notes is not to be regarded as complete or necessarily entirely accurateo The transscript is for the sole use of the members of the Federal Advisory Council. The concise o ffic ia l minutes for the entire year are printed and distributed later. Ho V. P. The Secretary*s notes on the meeting of the Federal Advisory Council on February 15* 1953> at 2s 18 PoMo, in Room 1032 of the Mayflower Hotel* Washington, D , C. A ll members of the Federal Advisory Council were present. George Gund was elected Chairman pro tem and Herbert V . Prochnow was elected Secretary pro tem. The Secretary pro tem stated that communications had been received from the twelve Federal Reserve banks, certifying to the election of their respective representatives on the Council for the year 1953# On motion, duly made and seconded, the by-laws were approved. The following officers were nominated and unanimously elected* Edward E , Brown, President Robert V . Fleming, Vice President Henry C. Alexander, Director Geoffrey S . Smith, Director George Gund, Director Herbert V . Prochnow, Secretary On motion, duly made and seconded, the salary of the Secretary was fix e d at $ 3 ,0 0 0 annually. The Secretary presented his financial report for the year 1952 which had been audited by Mr. Walter A , Grau, Assistant Auditor of The F ir st National Bank of Chicago, The report was approved and ordered placed on f i l e . It will be printed and attached to the formal printed minutes. A resolution was adopted authorizing the Secretary to draw upon each Federal Reserve bank for $350 toward the secretarial and incidental expenses of the Federal Advisory Council for the year 1953* The Council approved the Secretary's notes for the meeting of November 16 17 and 18, 1952. The printed minutes for a ll the 1952 meetings of the Council, copies of which had been sent previously to members of the Council, also were approved. IT E M C O N S ID E R A T IO N IN T E R N A L IN THE M O RE OF A M O D IF IC A T IO N REVENUE P E R M IT T E D R E A L IS T IC D E P R E S S I O N I R E G U L A T IO N LOSS W IT H OCCUR, RESERVES P O S S IB L E OF T H E U N IT E D S T A T E S H A V IN G F O R I T S IN PURPOSE AN C O M M E R C IA L B A N K S PO T E N TIA L _ _ _ _ _ LOSS BUREAU OF IN C R E A S E T O A N AMOUNT SHOULD A SE R IO U S B U S IN E S S -2 Brown i s in c lin e d be co n sid ere d by F le m in g p ro fits Excess b e lie v es Tax<> (A t P ro fits m iss ib le There w h ic h tio n s p e rm itte d in g on t h e Ray at the 5 per is to the ju stifie d p o in t a s u b je ct is t h e r e was banks, th is ite m i s p robably one w h ic h sho uld of Governors. so m ew h at related to the Excess an o ff- th e- reco rd d i s c u s s i o n loss are reserves, far too to b u i l d of reports that a c o m m it t e e of on e- half a of w h ic h can b e The h ig h e r th e ir re se rv e s, h ig h e r sa v in g s a n d e s p e c ia lly im p o rta n t. low . p ay in g m atter and has s it u a t io n w ith the su b je c t in rate th is o f the Board c o m p e titiv e m akes a d d itio n s are that the th is in c o m e o f are in ste a d the T a x ). W allace. a ss o c ia tio n s to b e l i e v e t h a t the T reasury d e d u c t e d from t h e the loan The p re se n t p e r sav in g s t h e m ore t h e y taxable and lo an can argue a sso cia that they rates. of fo rm u la the A m eric an B a n k ers A s s o c i a t i o n that w o uld p e r m it b u i l d i n g one p er cent a n n u a lly fo r is up l o s s ten y e a r s , to w ork reserves a total of cent* F le m in g does not th in k that le g isla tio n is re q u ired to change the present fo rm u la. Ray s t a t e s Brown. tio n that (T h e E x c es s of p e rm ittin g fr o m t h e B u r e a u first adopted, p e rio d the recent years. ted deduct to C o u n c il Board can of the A ss o c ia tio n cent for o b ta in in g of The p r e s e n t the early for no fo rm u la purposes ad d itio n s its sho uld be re v ised good o f f i c e s are fa ir cannot b e have had the banks and to w ork when i t was the co n sid era losses are that it o u t a m ore in no t p e rm it reserves. The hopes the satisfacto ry Revenue. e n title d t o a m o re re a listic b asis for sh o u ld have for the b e n e f it was a further C o u n c i l m ay a l s o of the a deter- fo r th e p ro tectio n of lon g o ff- th e- reco rd d i s c u s s i o n in fo rm the Board th at am o u n t o f reserves loans up to o u tsta n d in g . p e r m i t t i n g m axim um r e s e r v e s up on th e E x c e s s th e A m e ric an Bankers to on e- half The 5 per the o p in io n of each of t h e m em bers of the of fo rm u la cent. WHAT ARE THE VIEWS OF THE COUNCIL ON THE PROSPECTIVE BUSINESS AND ECONOMIC SITUATION DURING THE NEXT SIX MONTHS AND THE PROBABLE CHANGES IN THE V0LUI1E OF BANK LOANS DURING THAT PERIOD? WHAT PROBLEMS, IF ANY, DOES THE COUNCIL FORESEE IN THE SUBSTANTIAL GROWTH OF CONSUMER AND REAL ESTATE CREDIT ________ ___________________________ __ THAT HAS TAKEN PLACE? for th e ir of the F e d e r a l D e p o s it In s u r a n c e form u la p e r m ittin g average ten y e a r s , a new fo rm u la ITEM I I Brown a sk s ques However, g iv e n large to The new r e g u l a t i o n fo rm u la was under th e present adequate a several y ears. 1 9 3 0 's a n d m ost b a n k s of In tern al develop ed an nually apply o ff- t h e - r e c o r d ). on e reserves. (T h e r e has len d d e p o sito rs also The and the fo rm u la Bureau The ban ks Taxo) tax d isc u ssed is satisfacto rily fo rm u la, w ill The and C o rp o ratio n # w o uld that Tax is Revenue. 1929 in co m e _oss Brown. d e p o sito rs in not r e q u ir e d . reserves operated C o nsequ ently, fo r Governors bank P r o fits it present W allace. n in in p " loss In tern a l losses state form u la w i t h per of is P ro fits larg e r and of heavy tio n u n d e r le g isla tio n C o u n cil0 one - 3C layto n, There 1952, quarter o f th r o u g h t h e w as and first h alf year ago* Other than creases lo an s are in S m ith * o utlo o k Gund* are g o o d . are a c tiv ity 195U® fo r h ig h B u sin e ss a c tiv ity is is of a the a cause B u sin ess off. to level. Sav in g s o u tlo o k, seasonal are there a or de large. a year ago . concern. Any loans peak further There has b een w ill R e ta il is There so m e e v i d e n c e s o m e w h a t m o re i n ra p id rise large in c re a se a sales lev els. and th ere Loans d e c l in e d feel in creasin g * d istrict. at to so m e p e s s i m i s m cred it h is of b u sin e ss, little . is P ro fits co n tin u e flu c tu a tio n s, consum er E m p lo y m e n t i s off co n tin u in g at a good r a t e Loans b e lie v e ta p e rin g The in and sh o uld be are h ig h e r t h e r e m ay b e off real p ro b a b ilitie s a c tiv ity There is up. the w h i s k e y in d u stry are fell. cotton Less C o n su m e r credit than som e estate are a c tiv ity is in m ort in that a year d e c lin e credit consum er but 195U* in in good fo r ago, the are There m e d iu m t o cred it w ill con and still m onths m id d le the year drought de m and f o r on of A Ray, 1953 One m o istu re is are up. The The cotton for houses little The at co n tin u e in h is u n til h is last d istric t year. crop was th is at h ig h p rim a r ily to in above cotton usual d istr ic t, of m uch o il p ric es. the tim e in and Sales good b u t of levels. of p ric es the y e a r . There Paducah. fall. depend on m o is t u r e w h ic h The is still B u sin ess Loans has the have held up w ill is good after so m e re lie f There has been fo r the an from the a c tiv e re sid e n ce s. su ffered drought from h is the ch ances l o a n v o lu m e in d istr ic t p ric e s depends co n d itio n s. of in creased very h ig h h is no rm al. not Drought co n tin u e have crop in d istrict the d e clin ed p ric e d . A b ig a good th is o n ly B u sin ess in year m uch in the Tenth ac tiv e , p ro blem s in d u stry up. and in Farm l a n d year. good b u s in e s s good b u sin e ss l a n d was less than are g o in g p lanted but average. roay b * Loans of of last sho uld co n d itio n s h ig h e r- p r ic e d c o m m ercial where the co n tin u an c e Sav in g s than B u sin ess A has b e e n less d istr ict d istr ic t. 195 3 « carry- over is lev els. h ig h e r in c o n tin u a n c e n a tio n a l cases fo r h is except fo r acreage the exce p tio n a l d istr ic t are bad w ill are p r o b l e m a t i c a l . than in a E m p lo y m en t i s expected agricu ltu re w in ter w h eat are c o n sid era b ly . c o n d itio n . houses, C h an d ler. larg ely is Loans are six present good dem and sales in creasin g . th e f i r s t of a last year. R in g lan d , co n d itio n s o ff sp e n d in g h ig h above is R e ta il h a s b e e n m oved th a n i s is some g o v e r n m e n t peak fo r or l o n g e r . m arked Vance A le x a n d e r . less least ris e. b u ild in g and a re at last y ear, M any p e rso n s h ig h e r- p rice d h o u s i n g . tin u e for is 1953 of rather the la s t th an they w ere A lt h o u g h m ost p e r s o n s ac tiv e . sam e p e r i o d com pared to tap e rin g in no i m p o r t a n t i n c r e a s e s le v e l w ith le v e llin g consum er c r e d i t has b e e n a d istr ict s o m e w h at h i g h e r a h ig h m ay s l a c k e n a be m onths h is p ro bably co n tin u e at a h ig h le v e l in very gage d e b t w o u l d F le m in g 0 are e c o n o m ic Except a fa ir ly o p e ra tio n s six at at January t h a n f o r first is im m e d iate M an u factu rin g steel Loans som e b u s i n e s s e s . the som e i n d i c a t i o n s that in e x p e c t e d ,. reg ard in g about th e o f b u s in e ss a c tiv ity w il l seasonal flu c tu a tio n s, B u sin ess p robably c o n t in u e 1953* of a r e so m e w h a t l o w e r f o r o p tim istic an upsurge t h is b u s in e ss very d istr ict B u sin ess a c tiv e . larg e. pro bably not At the is t h e is lack good. Low er- priced end d e clin e if of of r a in . Departm ent houses January, there is an are loan s The store sales m o v in g w e l l ., were in c r e a s e at in o il u- W allacco in d u stry i n The power sh o rtag e that sectio n, C alifo rn ia h as had r a i n s a year has in p o p u latio n , also g a in ed , been a d v e r s e . D e p o sits so, bankers are to dow n f r o m about t h e ir D a v is g ardin g end not There i s Brown, the n e x t men a r e six in m onths* depends new In feel sp ite o p tim istic som e d i s t r i c t s , as flu c tu atio n s, change. The dem ands is Id a h o p ric es have h is d is t r ic t . the next year or thro ugh w h ic h stores, the m a il the stores is and m a il Loans lo an s are Loans not that b u sin e ss the good, co n tin u e w ill in at c o lle c tio n s. Decem ber d e clin e. There are than p ro bably m ay s t a t e at h ig h for p ro bably next of six good Except show fo r little fin a n c e consum ers, fo r b u sin e ss the c o n tin u a n c e to lev els in d u stries , consum er c r e d i t 9 w h e th e r b y or d i r e c t l y b y reports ever b e fo re . is C o u n cil c o n d itio n s* w ill re- ac tually outlo o k drought C o u n c il sin c e and th e re c e rta in of bank loan s in co n tin u e a the off year The ag ricu ltu ral, concerns order houses to of m ay th is e co n o m ic from a n d m any on c o m m o d itie s , som e s l o w n e s s p lants. of sp o ttin e ss m onths m en a n d flu c tu a tio n s« fran ch ises in d u stria l fo r six based o t h e r m em bers been dealer volu m e next a u to m o b ile s a l e s . and r e l i e f order ch ain M ost b u s in e s s those expected. regardin g on b a n k s the d e m o ralized . p rim a rily on w e a t h e r seasonal departm ent m ade i n good. seasonal F lo rida about m em bers g enerally b u sin e ss in the W is t Brown e x p e c ts T h ere has lo an s b u ild in g its In fo r o p tim istic in is d u r in g fa rm m a c h in e ry b u s i n e s s in m onths. lately, U 0 ,0 0 0 traffic, sho uld end i n in rains g a in in g m etal d isc o v e rie s Korea esp ec ia lly Large except co n sid era b ly m ay b e The some s l a c k e n i n g the B o a rd t h a t as in c re a se changes fa llin g e sp ec ia lly co n tin u e Loans, o u tlo o k. is som e c o n c e r n t h a t m o re If is state of v a c a tio n case, and gas consum er c r e d i t . levels, th e b u s in e ss sind no i m p o r t a n t to o f the y e a r , q u ite The c o a l b u s i n e s s i n w h ic h d is t r ic t b u s in e ss longer. extend present is t h r iv e d because b u s in e ss, good b u s in e ss the and the affected have been but there a c tiv e lev els. in the Seventh to Northw est h a s a d v e r s e l y to K o r e a now g o e s . c o n tin u e are b o rr o w in g is b een n e w o i l at peak a d e clin e In expect b u sin e ss have are the t r a f f i c expect i t 5 A r iz o n a has There and lo an s Brown, the except fo r m in in g , t h e r e m ay b e much o f in e s p e c i a l l y alu m in u m , c o m p a n ie s show no sig n of abatem ent, H. the A lexan der C o u n cil. Brown. The g u a r a n tie s of a p p ra isa ls both and loan grow th fo r and th e in itia te a p o lic y of the D a v is w ith the co n c lu sio n s It of su p e rv isin g stricte r m em bers a cred it and to the Brown has that of the he is p e rio d of a n d m ore C o u n c il due in a fa ilu re is to have lo an s w o uld be h ig h l y o ffic ia ls states in real estate a g e n c ie s governm ent~ guaranteed asso cia tio n s. o b lig a tio n s of governm ent a g e n c ie s o p in io n agrees expressed as those ~ and fo r d e sira b le sa v in g s and re a listic regardin g w o rr ie d abo u t the if lo an large to lib e ra l re a listic those m ade b y these governm ent a ss o c ia tio n s a p p ra isa ls. consum er a b ility part m ore Brown sa v in g s w o u ld asks the cred it. of the payer to m eet h is d e p ressio n , an S m ith * b e m o re pressure Brown. danger approve We are e n te rin g fo r Every e a sie r new h o u se a p e rio d o f /o v j r s u p p l y of goods, and so there w ill term s* needs v a r io u s ap p lian ce s. Brown asks w hether o f a n in c r e a s e i n consum er c r e d i t is so g r e a t t h a t t h e C o u n c i l s h o u l d the p rin cip le of R e g u la tio n W* the of 5 F le m in g b e l ie v e s it - w ould b e b est to d efer a d e c is io n regarding R eg ulatio n W a t l e a s t u n t i l t h e M a y m e etin g ® He b e l i e v e s t h a t m o v in g f a m i l i e s t o t h e s u b u r b s h a s s u b s t a n t i a l l y i n c r e a s e d c o n su m e r c r e d i t . F a m i l i e s who p u r c h a s e i n d i v i d u a l hom es i n s u b u r b s n e e d c a r s a n d e l e c t r i c a l a p p l i a n c e s o f v a r i o u s types* fo r Any d eclin e consum er credit Brown* b e lie v e p o lic y The present of guaranteed The next c o n s t r u c t io n w ould b r in g fin a n c e th ese ap p lia n c e s C o u n c i l m ay s t a t e loans of h o u sin g c o n d itio n s stricte r A l l m e m b ers in to ju stify that t h e m a jo rity re im p o sin g a n d m ore r e a l i s t i c and the real estate the C o u n c il are f e w m onths w i l l o f t h e C o u n c il does not is re q u ired A th e g r o w t h clearer p ictu re of the o f consum er c r e d i t . trend in co n su m e r c r e d i t 5 as w e l l as o f d e v e lo p m e n t s i n th e econom y. The m a jo r it y of th e C o u n c il w o uld l i k e t h e o p p o r t u n i t y a t a l a t e r d a t e t o r e v i e w th e q u e s t i o n o f w h e t h e r R e g u la t io n W s h o u ld b e re im p o se d . A f t e r a s h o w o f h a n d s , B row n r e p o r t s t h a t a strong m in o rity now. A m a jo rity r e v ie w in g m ake the of of the the C o u n c il C o u n cil m atter a t a c le a r e r what s t e p s , feels is t h a t R e g u l a t i o n W s h o u l d b e r e im p o s e d opposed t o su c h l e g i s l a t i o n n o w , b u t f a v o r s l a t e r d a t e w h e n develo p m en ts if any, sh o uld be taken in in the econom y s h o u l d co n n e c tio n w ith co nsu m er credit. Ho A l e x a n d e r im p o sin g states that he fa v o r s l e g i s l a t i o n w h ic h w o u l d p e r m i t re- R e g u la tio n W now. Brown of hands reports that fiv e that th ey fav o r m em bers o f t h e le g isla tio n C o u n cil have p erm ittin g i n d i c a t e d b y a sho w the r e im p o s it io n of R egulatio n W now0 IT E M I I I DOES THE C O U N C I L H A V E A N Y COMMENTS O R S U G G E S T IO N S T O MAKE W I T H R E S P E C T T O S Y S T E M C R E D IT P O L I C I E S D U R IN G THE RECENT P E R I O D A N D W H A T T H E S E P O L I C I E S SH O U L D BE I N THE MONTHS A H E A D ? Brown0 (T h e r e Brown b e l i e v e s W allace. d u r in g the System . end of The recent Brown. The In an o ff*= t h e - r e c o r d d i s c u s s i o n the in c r e a se C o u n c i l m ay s t a t e of and was re d isc o u n t rate had no m arket, some m e m b er s of the U n less is C o u n c il in the C o u n c il does suggests F le m in g . and ju stifie d . there rate. the (T h e r e governm ent f i s c a l it re d isc o u n t r a t e .) effect. approves System c r e d it p o l i c i e s approves If Board is an early in effect th e the the th e ir e c o n o m ic use Open M arket to r e s t r i c t the in the the governm ent bond in fo rm al o u tlo o k, the r e q u ir e m e n t s cred it, or the o p e ra tio n s. o ff- th e- rec o rd d i s c u s s i o n p o l i c i e s .) raise change in s h o u ld be an y change i n r e s e r v e i t becom es d e s i r a b l e of the seaso nally at the except p o ssib ly i n C o u n c il have in d ic a t e d i n change i n p o lic ies 1953, than s e n t im e n t a lly , a n im p o rta n t there recent cred it i n c r e a s e d m ore t h a n su b stan tially Other im p o rta n t not b e lie v e red isc o u n t that i t th e f a c t t h a t lo an s d id not d e clin e rate com m ents. on t h e the r e d is c o u n t r a t e h ad l i t t l e p e rio d . re d isc o u n t as in C o u n c i l m ay s t a t e v ie w 1952, is that i on g overnm ent- o f sa v in g s a n d lo a n a s s o c i a t i o n s . concerned w ith g iv e a t h e dem and R egulatio n W or R e g u latio n X . a p p ra is a ls lo an s a d e clin e in and a u t o m o b ile s . on S y s t e m c r e d i t p o l i c i e s ITEM IV THE BO A RD HAS NOT Y ET F I N A L L Y FORMULATED I T S V IEW S AS TO D E F I N I T E RE COM M EN D ATION S W IT H RESPECT TO L E G I S L A T I O N D U R I N G T H E P R E SE N T S E S S I O N OF T HE CONGRESS AND W OU LD L IK E T O H A V E T H E COMMENTS O F THE C O U N C IL A S TO THE PR OPO SA LS T H A T M IG H T B E M A D E . F le m in g b e l i e v e s to raise the present $ 1 5 or $ 2 0 m il l io n for $ 1 0 m illio n is Brown. its The th e Bo ard has no p resen t in t e n t io n lim ita tio n s on r e s e r v e to expand it s branch f a c i l i t i e s . la r g e ly exhausted. C o u n c i l m ay s t a t e a u th o rizatio n for exp a n d in g that its it of a sk in g the re q u ir em e n ts . Congress The B o ard w ould lik e The p r e s e n t a u t h o r iz a t io n un d erstan d s th e System has branch f a c i l i t i e s , and th a t exhausted the C o u n c il w o u ld f a v o r l e g i s l a t i o n g i v i n g th e B o ard $ 1 5 to $ 2 0 m il l i o n to expand th e se fa c ilit ie s now. The C o u n c il w o uld a ls o fa v o r l e g i s l a t i o n p e rm ittin g the r e issu an ce , w ith o u t Reserve b a n k s , present cost of sh ip p in g C o u n c i l m ay a l s o He fo r general p o ss ib le ask A lexander the b a n k s , tax the have notes the M il l s Reserve notes b y any o f the F e d e r a l o r i g i n a l l y is s u e d the w o u ld be to because in v o lv ed . P la n sh o uld be the in ten d s rep ealed. The The to in tro d u c e . It is not past has alw ay s b e e n r e l u c t a n t good to tak e th ey co n c e rn the T r e a s u r y and b e c a u s e T h is m atter is deal. ad jo u rn ed a t notes. su bstan tially reduced. or the c o u n try . C o u n c il i n q u e stio n s The m e e tin g the Treasury, im p lic a tio n s T r e a s u r y w o uld of a ll Federal o f w h ic h ban k th e B o ard what l e g i s l a t i o n i t th in k s the Brown s t a t e s up p enalty, regardless 5s35 P«M . largely of the one w i t h w h i c h t h e T H E C O U N C I L CO N VEN ED AT 1 0 * 0 5 A „M „ ON FEBRU ARY 1 6 , 1 9 5 3 , I N ROOM 1 0 3 2 OF THE MAYFLOWER H O T E L , W A S H IN G T O N , D .C . A L L MEMBERS OF THE F E D E R A L A D V IS O R Y C O U N C IL WERE PRESENT. The be sent C o u n c i l p r e p a r e d a n d a p p r o v e d th e a t t a c h e d C o n f i d e n t i a l Mem orandum to to the Board o f Governors of the C o u n c il to M r . Carpenter, Secretary 1953• It noted th at the w ill be c o m m en ts The of the m e e tin g re lativ e and Board on February 1 7 , to t h e A g e n d a f o r t h e 1953* o f t h e B o ard of Governors at 12 each ite m o f the agenda is C o u n c il. a d jo u rn ed a t 1 1 ? 1*0 A . M . j o i n t m e e t in g T h e Mem orandum w a s d e liv e re d n o o n on F e b r u a r y 1 6 , l is t e d together w ith C O N F I D E N T IA L M EMORANDUM TO T H E BOARD OF G OVERNORS FROM T H E F E D E R A L A D V IS O R Y C O U N C IL R E L A T IV E TO T H E AG EN DA F O R T H E J O I N T M E E T IN G ON FEB R U A R Y 1 7 , 1. C o n sid e ra tio n Bureau of purpose of able in c o m e of 1929 and the early p resent f o r m u l a , re s e r v e s in not an few of am ount sho uld a Revenue was c a n n o t be banks fo rm ula, that fa ir is banks taken have had at a States for its reserves b u sin ess w h ic h de fix e s ca n be d e d u c t e d when i t was How ever, in to an a ll- t im e fo r in w ith first the tax adopted, and co n sid era tio n h ig h sound r e l a t i o n s h i p to under lo sses level, in c o m e t a x t h e m axim um fro m th e heavy lo sses an y co n sid e ra b le to d e d u c t b e a rin g lo ss se rio u s several y ears. lo an s p e rm it p e rm itte d reserves banks, for 1 9 3 0 's and The volu m e form ula d o e s lo ss c o m m ercial sa tisfacto rily lo ss In te rn a l to op erated the h aving a n am o u nt m ore r e a l i s t i c to occur. Bureau regu latio n banks p o te n tial a d d itio n s the U n ite d in p ressio n The Revenue of in c re a se p o ssib le p e rm issib le on p a s t a m o d ific a tio n In te rn a l an co m m ercial years. of 1953 but the in the it of recent present purposes a d d it io n s pro bable lo sses, to based e x p erien c e . Tax p o lic y sh o u ld encourage a d d itio n s to l o s s reserves at th is time i n o r d e r t o s t r e n g t h e n t h e b a n k i n g s y s t e m a n d p r o t e c t b a n k d e p o s i t o r s . The C o u n c i l w o u l d a p p r e c i a t e a n y a s s i s t a n c e w h i c h t h e B o a r d m i g h t f i n d i t possible t o g i v e i n w o r k i n g o u t a f o r m u l a w i t h t h e B u r e a u o f I n t e r n a l R e v enue w h i c h w o u l d m e e t p r e s e n t c o n d i t i o n s . A c o m m it t e e o f t h e A m e r i c a n Bankers A s s o c i a t i o n h a s s u g g e s t e d a f o r m u l a v h i c h t h e B o a r d o f G o v e r n o r s might f i n d h e l p f u l i n i t s c o n s i d e r a t i o n o f t h i s p r o b l e m . 2. W hat are the v ie w s b u s in e ss and e co n o m ic m onths lo an s the and the d u r in g C o u n c il sum er and B u sin e ss that real o p e ra tin g low . over in c e r t a i n sales in d u stries, economic o u t l o o k for are the the is o f m a j o r im p o rtance, and t in u a n c e o f the h ig h F or m onths there six som e rate has the n ext in v o lu m e o f are a vh o le and p ro d u c tio n , U n e m p lo y m e n t good. D esp ite o p tim is tic d e c lin e v ill in the the th is vh ich ag ricu ltu re nov t h r e a t e n , ac tiv ity is sp o ttin e ss regarding b e lie v es country in c o n d itio n s gradual does con in d u strial records. are the bank any, growth o f The C o u n c il of b u sin e ss a if six taken place? g en erally drouth of has level, m onths. been the p e ac e tim e sectio ns vhere p ro s p e c tiv e d u r in g that a h ig h se ttin g next In the su bstantial credit at on W hat p ro blem s, the bu sin e ssm e n ju stifie d . w eather. changes co u n try as optim ism i s present situ a tio n in estate in co m e C o u n cil p e rio d ? foresee is the p ro bable wages a n d p e r s o n a l R e tail of the depend p ric es con on t h e of -2various b a s i c co m m o d itie s, esp ec ia lly fa r m p r o d u c t s . These p ric e d e c lin e s w ill r e s u l t i n a d e c r e a s e i n f a r m p u r c h a s i n g p o w er a n d w i l l a f f e c t some in d u s t r ie s a d v e r s e l y . H o w e v e r , t h e s e p r i c e d e c l i n e s may s e r v e a c o n s t r u c tive p u r p o s e i f t h e y t e m p e r e x c e s s i v e b u s i n e s s o p t im is m a n d r e s t r a i n i n creases i n other The p ric e s . C o u n cil be lie v es except f o r n o r m a l seasonal next s i x m o n t h s . A ll m em bers of consum er c r e d i t . The by f i n a n c e loan and sm all or d i r e c t l y by m inority o f the p e rm ittin g the opposed to such la tio n i s present the w ill C o u n cil on b a n k s of le g islatio n in that the but th is favo rs type s ig n of m a il th e the credit, g ro w th w hether order concerns, of abatem ent. A strong le g isla tio n R eg u latio n W . now, change i n co ncerned w ith stores, s h o w n o i m m e d ia t e b e lie v es are for re tail volum e o f b a n k l o a n s , show l i t t l e s h o u l d n o w be a d o p t e d A m a jo r ity o f the C o u n c il is re v ie w in g the m atter at a la t e r e co n o m y s h o u l d m ake c l e a r e r w h e t h e r a n y l e g i s d e sira b le. The C o u n cil R e g u la tio n X . There a te n d e n c y t o level does is no t b e lie v e som e off. A not o n ly b y t h o s e a p p ro v in g cials the su p e rv isin g and sh o u ld b e real e s t a t e 3. the c o m p a n ie s, re im p o sitio n date when d e v e l o p m e n t s of denands consum ers, C o u n c il that flu c tu a tio n s, e v id e n c e p o lic y in co n d itio n s of str ic te r and loan restric tin g grow th in is re im p o sin g is a n d m ore r e a l i s t i c a ss o c ia tio n s , the ju stify c o n str u c tio n Governm ent- guaranteed l o a n s , sav in g s h elp ful present th a t h o u sin g but also s h o w in g ap p ra isa ls, by o f f i h ig h ly d e sira b le t h e vo lu m e o f u n s o u n d cred it. Does the w ith respect p e rio d C o u n cil to have a n y com m ents o r System and what these s u g g es tio n s credit p o lic ies p o lic ies sho uld d u rin g be i n to make the recent t h e m onths ahead? In in the l a s t v ie w few of in the r e d i s c o u n t 2 per c e n t be c o n t i n u e d . from rate than had little in change present in If money d e s i r a b l e , the the 1 - 3 /4 is cent p sy c h o lo g ic a l reserve e c o n o m ic in i n c r e a s e d m ore t h a n s e a s o n a l l y b e lie v es that to 2 p e r c e n t w as j u s t i f i e d . m ore n e a r l y effect. C o u n cil lo an s C o u n c il per also its c o n d itio n s the that bank 1952, Other re d isc o u n t r a t e 3hould be m ade fact of rate re d isc o u n t market r a t e s . important the w eeks The in accord w ith in flu e n c e , C o u n cil re q u irem e n ts, o utlo o k the n e x t suggests the recent in c r e a s e th e b e lie v es an d in c r e a s e in th e t h a t no i n c r e a s e s that u n less there the p r e s e n t r e d is c o u n t ra te f e w m on th s the u s e The p r e s e n t m oney is an sho uld s h o u l d make t i g h t e r o f open m arket o p e r a t io n s fo r that p u r p o s e . 4. The Board d e fin ite d u r in g to The the have that has the m ig h t C o u n c il i+-s a u t h o r i z a t i o n not yet fin a lly reco m m en d atio n s w it h fo r present se ss io n c o m m e n ts be of the of fo rm u lated respect the its v ie w s as to to l e g i s l a t i o n C o n g r e s s a n d w o u ld l i k e C o u n c il as to the p ro p o s a ls m ade. understands e xp an d in g th e F e d e r a l R eserv e System has e x h a u s ted and m o d e r n izin g th e fa c ilitie s of its -3branches. The C o u n c il w o uld to $ 2 0 m i l l i o n w i t h w h i c h t o in c re a sin g volu m e The of regardless costs i n b u s in e ss C o u n c il w o uld w it h o u t p e n a l t y B a n k s, of f a v o r l e g i s l a t i o n g i v i n g th e S y ste m $ 1 5 m i l l i o n e x p a n d i t s b r a n c h f a c i l i t i e s to h a n d l e th e all of also the Sy stem . favo r le g isla tio n F e d e r a l Reserve Notes o f w h ic h Bank iss u e d p e r m it t in g the r e is s u a n c e by any o f the F e d eral Reserve the N o t e s . T h is w o uld sav e p r e s e n t sh ip p in g N o te s. The C o u n cil p la t e p r o p o s i n g be p l e a s e d at the to d i s c u s s p o s in g . does n o t know w hat l e g i s l a t i o n present w ith the se ssio n of the the C o n g re ss. Board a n y l e g i s l a t i o n it B o a r d may co ntem T he C o u n c il w o u l d is c o n sid erin g pro - 8 - T H E C O U N C I L C ON VEN ED I N THE BOARD ROOM OF THE F E D ER A L R E S E R V E B U I L D I N G A T 2 : 2 0 P . M . ON FEBRUARY 1 6 , 1 9 5 3 . A L L MEMBERS O F T H E C O U N C IL WERE P R E S E N T . Dr. Federal W o o d lie f T h o m as, E conom ic A d v is e r t o R eserve System , D evelopm ents” . d istrib u te d on t h e su b je c t c o n f i d e n t i a l sum m ary o f t h e t o m em bers T h e m e etin g A spoke the B o ard o f Governors re m a rk s o f th e C o u n c il a t the m e etin g . ad jo u rn ed a t 3 : U 5 P *M * of the o f MC u r r e n t M o n ey M a r k e t of D r. Thom as was - 9ON F E B R U A R Y 1 7 , 1 9 5 3 , AT 1 0 : 3 0 A 0M 0 T H E F E D E R A L A D V I S O R Y C O U N C IL H E L D A J O I N T M E E T IN G W I T H T H E B O AR D O F G O V E R N O R S IN OF T H E F E D E R A L R E SE R V E S Y S T E M T H E B O A R D ROOM OF T H E F E D E R A L RESERVE B U I L D I N G , W A S H IN G T O N , D 0 C. A L L MEMBERS O F T H E C O U N C IL W ERE P R E S E N T . THE F O L L O W IN G M EM BERS O F THE BO A RD O F GOVERN ORS W ERE PRESENT: C H A IR M A N M A R T I N ; G OVEN ORS S Z Y M C Z A K , VARDAMAN, M I L L S A N D R O B E R T S ON <, SECRETARY, AND MR. MR. EVANS CARPENTER, SHERMAN, A S S IS T A N T SECRETARY, O F T H E B O A R D O F G O V E R N O R S , W ERE A L S O P R E S E N T 0 IT E M C O N S I D E R A T I O N O F A M O D I F I C A T I O N OF THE U N IT E D STATES OF IN T E R N A L PURPOSE A N IN C R E A S E IN THE MORE R EVEN U E P E R M IT T E D Brown in tr o d u c e s of the E x e c u tiv e C o m m it t e e of these present the He up Bureau as expressed at the The Board to of In tern al a s /A m e r ic a n the that B u reau . and an y is feel Bankers su g g estio n s Ray. In v ie w has su b je c t other cent Board, w h ic h Board to the the the the for te n states is that that the Ite m is not the the on e to of In te r n a l Board w ith to th e to sure request In te r n a l to have loss of p o in ts out th e ad v a n tag es but q u e stio n . the The p o sitio n the of ass o c ia tio n s p leased the re q u e st the som e c h a n g e s of su g g estio n in background up per to the of th is the of one cent. the m atter rather of on e- half C o u n cil a p p r e c ia t e s Revenue, developed* the A m e ric a n B a n k ers The fo rm u la reserves d isc u ss Bureau has tim e . been of 5 in at is q u e stio n w ith to h a v e the h i s t o r i c a l a total the Revenue m atters, C o m m itte e . r e lie f but Board w i l l b e p leased t im e t o these g iv in g is th is The Brown c a l l s the b a n k e r s The e a rlie r the He b e l ie v e s the of the the w ith Treasury. the to b e of Board fo un d of tax raise of advocate. Board One and system . raised not w ish the fa m ilia r reserves. C o u n c il does fro m p e rm its is is the b a n k in g the th at there years, he lo ss resp o n sib ility Bureau statem ent in fo rm a tio n Board q u e stio n that the fact A sso c ia tio n an n u ally M artin is C o u n c il has a Brown re a d s the Board sh o u ld not A ss o c ia tio n of the filed A m e ric a n B a n k e r s per the The The B o ard repeats in fo r m s th e A m e ric a n B a n k ers A s s o c i a t i o n C o m m itte e d e a l i n g A ss o c ia tio n and S E R IO U S o f t h e m e m b er s U ndersecretary o f p leased that m atter w ith and t h e M em oran d um t o stren g th en in g that Revenue. M artin C o n g re ssio n al in as tim e . of further C o u n c il 1953o t h a t he assum es fo rm u la w h ic h in c lin ed to d i s c u s s of the C o u n c il a n d t h e nam es C o u n c il f o r ad v o c a tin g , m e a s u r e s w h ic h i t such PO T E N TIA L LOSS SHOULD A by M r. W ig g in s a m atter a tte n tio n t o t h e is C O M M E R C IA L BA N K S T O A N AM OUNT u n d e r w h i c h b a n k s m ay s e t u p set M artin. of the states fo rm u la w o r k e d w e l l Board IN t h e n e w m em bers of the C o u n c il fo rm u la p rim arily P O S S IB L E o ffic e r s notes. form u la w as RESERVES BUREAU D E P R E S S IO N OCCUR, t h e na m es answ er R E G U L A T IO N H A V IN G F O R I T S LOSS R E A L IS T IC W IT H B U S IN E S S in I the v ie w sh o uld not com e f r o m the go of the from Bureau the to the B o a r d . W allace have I n m ore of up l o s s th is the respect. sav in g s reserves d e p o sits eq ual, oan a s s o c ia tio n s . Digitized forlFRASER Sav in gs at w h ic h the sav in g s a n d and lo an a ss o c ia tio n s of least the country. are The banks c o m p a ra tiv e ly , to those lo an ta k in g sho uld be of the a sso c ia tio n s o v e r m o re a n d able sa v in g s to b u ild and S m ith states that h is bank h$s s e t up lo ss reserves in excess of the form u la! S t o c k h o l d e r s m ay o f f e r o b j e c t i o n s . I f lo s s e s becom e h e a v i e r , the a d d i t i o n a l lo ss re serv es a re a proper tax- free ch arge a g a in s t e a r n i n g s . IT E M I I W HAT A R E T H E V IE W S O F T H E C O U N C IL ON T H E P R O S P E C T IV E B U S I N E S S A N D E C O N O M IC S I T U A T I O N D U R IN G THE NEXT S I X MONTHS A N D T H E P R O B A B L E CHANGES I N P E R IO D ? THE VOLUME OF BANK LOANS D U R IN G T HA T W HAT P R O B IE M S , IF ANY, D OE S T H E C O U N C IL F O R E S E E I N T H E S U B S T A N T I A L GROWTH OF CONSUMER AND REAL E S T A T E C R E D IT T H A T H A S T A K E N P U C E ? _______________________________________________________________ Brow n re ad s Ite m I I M em oran dum t o t h e B o a r d * over the U n ited S t a t e s , a n d t h e c o n c l u s i o n s o f t h e C o u n c i l as e x p r e s s e d i n t h e He s t a t e s t h a t the B o a rd r e c e iv e s s t a t i s t i c s fro m and its sta tistic a l m ore c o m p l e t e t h a n t h e m em bers of the C o u n cil do r e c e iv e and r e c e iv e it befo re su c h as M i n n e a p o l i s , T h e m em bers part, change in out v o lu m e re im p o sitio n in g and the than m atter C o u n cil at of the be lie v e the m ore realistic teed lo an s states the has b u sin e ss are in clu ded in creased . is date. in are of sa v in g s he w ould lik e drought* dependent, of m onths. som e o f Brown the r e g u la r b o rro w in g s an d c red it* Brown reports l e g is l a t io n p e rm ittin g also that that re v ie w a m a jo rity wW n on p r i n c i p l e , fo r of as real estate c o n n e c tio n w it h the the no w a n d f a v o r s As in no im p o r t a n t six sales Brown r e p o r ts d ise ase* severe is loans, He a l s o b e l i e v e s necessary in lo an s d istr ic ts th e ir opposed to R e g u la tio n w orse th a n the d istricts v ario u s the n e x t in stallm ent the C o u n c il f a v o r in g re sp e c tiv e been a o f in s ta llm e n t be t h e m em bers In ac tiv ity expected in care stores late r rem edy i s a p p ra isa ls there opposed to su ch l e g i s l a t i o n C o u n c il and w ith M artin is a little the m a j o r it y that take in th e ir co n n e c tio n w it h bank seasonal is R e g u la t io n W has of the that How ever, sta tistic s* C ity , d o n o t s h q w up as o f m em bers of feel In to re tail sales its and Kansas d istricts other houses num ber m a jo rity D allas, c o n d itio n s. in sta llm e n t the B o ard co m piles t h a t b o rro w in g s m a il o rd e r that first- h an d in fo rm atio n i n the those on m o is t u r e p o in ts these from in fo r m a t io n m ust n e c e s s a r i l y o f the C o u n c il r e c e iv e * they credits, governm ent g u a r a n and lo an a s s o c ia t io n s . t o h e a r f r o m so m e o n e w h o is in the m in o rity on R e g u l a t i o n W . Ho A l e x a n d e r ju risd ictio n of credit co m es sum er c r e d i t able, states he is o v e r m a n y fo r m s on to p tends consum er to of a boom . says thousands of b u s in e sse s, but d e sira b le now. H. lim ite d H. understands and were in c re a se it m an y c a s e s W o uld a fo rm is The B o ard has of of p eop le a r e as credit. W i t h m o re b e lie v es goods the r e a l e s t a t e cred it V . A lexand er states one h a s of and R eg ulatio n X? a re la tiv e ly co nnected w ith bank p ro blem b e s o l v e d t h e a p p r a i s a l s w o u l d b e m ore t h a t no hundreds R egulatio n W is if rem oved? A le x a n d e r b e lie v es a v a il and d e p re s sio n s. few er groups so d i r e c t l y to b e to p o lic e that type Con e a sie r. betw een R e g u la tio n W and not T h is in v o lv e d * t e rm s b e c o m e e x a g g e r a t e s b o t h boom s R e g u la tio n X d e als w ith in is is very d iffic u lt he n e v e r th e le s s How do y o u d i s t i n g u i s h Robertson. guarantees he Consum er c r e d i t A lexander. area, M illio n s threatens to A lexander M artin . the m in o r it y * T h is m ake a d e p r e s s i o n w o r s e . credit that a m em ber o f of cred it. re a listic . l o s t m oney o n T i t l e One credit. governm ent - 11 Vardam an. In co n sid erin g t h e re im p o sitio ifi o f R e g u l a t i o n W , w o uld you fo rg e t R e g u la tio n X , the vo luntary cr ed it r e s t r a in t program , and re se rv e r e q u ir e m e n ts a s in s t r u m e n t s f o r th e c o n t r o l o f c r e d i t . Vardam an u n d e r sta n d s th a t th e b a n k s have o n e- h a lf o f t h e in s t a l l m e n t c r e d i t and t h e B o a rd c o u ld th e r e fo r e re ac h t h is in s ta llm e n t c r e d it thro ugh a v o lu n t a r y c r e d it r e s t r a in t program and in other w ay s. H» A l e x a n d e r does not b e lie v e a v o lu n tary credit re s tr a in t program w o u ld be needed now . Vardam an says the r i g h t that am ount in sta llm e n t now t h a n i t sum er has cred it sim p ly a that he or what credit been is does n o t know w hat p ro p o rtio n is in actually the p a s t . an a d d itio n d iffe re n t use of the W allace reports consum er c r e d i t Brown is crease is in Persons the v o lu m e tends debt are cred it if of a is it is If been delayed tie d sale the hom es in p eo p le the abse n ce o f ap p lia n c e s are co uld s e le ctiv e the Brown. b e lie v es co ntro ls, in of (A t sum er c r e d i t . in c r e a s e in because of h o u sin g a u to m o b ile , h elp e asily he the in starts. fu rn itu re, on a n i n s t a l l m e n t to o b ta in o b tain ab le our p r e s e n t d o m estic help m a c h in e s. h o u sin g , refuse to If then ap p lia n c e the they are ow ner e q u ip m en t. rig h t usually in sists effec tiv e . w ill If refu se to sh in gles c o n d itio n s, e q u ip m e n t” if not fo r these ask in g we m ust b e th e Board not of u n s e ttle d w orld the B o ard i s if M artin b e lie v e s on g iv in g the B o ard go i n t o what happens o f a house b u i l t W ith to c r e d it co ntrols » fire - fig h tin g How ever, a econom y. s e le c tiv e co ntrols, the has but wonders "b u s t ” Congress take th is Congress. a person a p o in t, these credit reason that it is co ntro ls. th is p o in t, R eg u latio n W the co ntro ls. fire - fig h tin g F lem in g b e l ie v e s hom es i n to and he b eliev es se le ctiv e Board by up and th e n co ntro ls, then sam e not credit the He b e l ie v e s they buy to g e t s i n g l e ty p e agrees go b r o k e from p o l i t i c a l d e clin e to he to se le c tiv e the Board if that d e cid e w o uld n o t control the fe w m in u te s su ch as w a sh in g states the for volu m e d o m e stic of M artin types a need an w h ic h som e p e o p l e b e l i e v e for fo r large suburbs he w ish es. v ario u s to cred it fo llo w . "b u s t ” t a k e them in stru m e n ts R eg ulation W . up w i t h t h e go cred it con is g o ld m edal to P r e s id e n t E is e n h o w e r . and to to have other in co m e of and what percentage o f the re a so n s n e c e s s a r y to u se the consum er general g iv e n id e as B r o w n co m m en ts t h a t separated the structure. opposed to re im p o sin g to i n d i v i d u a l in cre ase enough p e o p le in credit F le m in g has n a t io n a l p ro d u c tio n , and structure, a n d m any o t h e r a p p l i a n c e s , M oreover, W allace. sales credit Board c a n use o f d isp o sa b le asks what p e rc e n ta g e is out v alu able. p re se n tatio n w h o m ove to that consum er of the cred it He p o in t s structure. very v e r y m uch w a s h in g m a c h in e s basis. same little . a sm aller p ercentage t h a t F l e m i n g 's were reports a tte n d in g F le m in g credit p r o p o r t io n o f in stallm ent to o m uch o r t o o Vardam an a I s o to t h e of the Ho A l e x a n d e r b e l i e v e s rem a in d er is suburbs the has Purchases there were o n ly in case trem endous been a of very o ff- th e- reco rd o f war m i g r a t i o n fro m the im p o r t a n t f a c t o r a u to m o b ile s c o m m e n t s .) o r som e s e r i o u s and e l e c t r ic a l cities in Brown em ergency. to in d iv id u a l the grow th a p p lia n c e s of of con a l l k in d s - 12 on a n i n s t a l l m e n t c r e d i t b a s i s the s a t u r a t i o n m o v in g l e s s level R inglan d Sm ith seem s have reached. fo llo w ed* Houses in T h is the trend w il l upper p r ic e co n tin u e bracket are u n til now re a d ily * agrees enter a dangerous It is agrees u n w ise w ith so c ia l w ith to Brown. W h e n y o u im p o s e R e g u l a t i o n W i n p e a ce tim e , you area. H . A le x a n d e r. C o n su m e r c r e d i t i s co ntro l the e n t ir e cred it structure m o ving i n t o in order to new a r e a s . reach one group. Evans reports th a t he han dled larg e m a n u fa c t u r e r s about t h e in c re a se of in p eop le w ere p l e d g i n g told Evans th at he fin an c in g * but p e rie n ce cars R eg u latio n W f o r a lon g consum er c r e d i t . th e ir cred it too T h is far was in clin ed and w ere t h e b u sin e ssm a n w a n t e d One of the p a r t ic u la r b u ssin essm an f e l t in to the futu re. h a d w elcom ed th e e n t r y o f t h e b a n k s he tim e . r e c e n t l y a s k e d h im h o w c o n c e r n e d t h e B o a r d w a s ones to f e e l that in to they had not to in fo rm the bankers of consum er c r e d i t had w ho m i g h t no w o v e r - e x t e n d t h i s the Board that The b u sin e ssm a n su fficie n t type the of ex cred it. dangers in The th is type of c r e d it . F le m in g th in k s t h a t m ost b a n k e r s w ill not lend on a car o ld e r th an a 19U9 m o del. V. sm all A lexander* auto dealers D a v is th in k s M artin are sectio n sp rin g in g that he asks th in k s w hether on r e im p o sin g Evans in h is up re p lie s that there are and are R e g u la t io n W sh o uld be says F le m in g be p a s s e d Banks liv in g m a k in g up to R e g u la tio n W . lib eral M any term s. re im p o se d . th e d i s c u s s i o n has b e e n v a l u a b l e * is a chance in Congress now f o r l e g i s l a t i o n to R e g u latio n W . F le m in g knows the an sw er* w h ic h is that it is h ig h ly im p ro ba ble. M artin p e a ce tim e says or w ar, l o n g - t im e v i e w R inglan d past th is after any and asks the w ho le q u e stio n is regu latio n of in p o litic s W hether i t consum er c r e d i t m ust b e not under pressures o f v a r io u s w h e t h e r m ost co ntrols of now. the is in operated w ith a k in d s. h a v e n 't actually com e i n the harm has b e e n d o n e . M artin b e lie v e s that they p ro b a b ly have i n m any c a s e s . IT E M I I I DOES THE W IT H C O U N C I L H A V E A N Y COMMENTS RESPECT TO S Y S T E M C R E D I T P E R IO D AND WHAT T H E SE Brown reads Ite m th e M e m o r a n d u m t o t h e Open M a r k e t M artin a c tiv itie s asks III P O L IC IE S and the how t h e been C o u n cil of the T O M AKE R E C EN T C o u n cil H e com m ents t h a t dem onstrated feels D U R IN G THE S H O U L D BE I N T H E MONTHS A H E A D ? co n clu sio n s Board a t t a c h e d . has OR S U G G E S T IO N S P O L IC IE S in th e as expressed in effec tiv e n e ss recent m onths. about the present lev el of lo an s. of Brown, Brown do es Loans have not b e lie v e D a v is expects s h o w n som e that lo an s th at lo an s H* A l e x a n d e r b e l i e v e s credit s t r u c t u r e m ay b e Robertson cred it H* sho uld A le xan d er b e lie v es asks w hether as M artin® and th e V* are Szym czak w ith in its d istric t* and t h a t the w h o le exp an sio n sh o u ld b e curbed* R eserve System to have c r e d i t in lo an s sin c e states up m o re t h a n s e a s o n a l l y that ca rry in g at p o lic y tig h te r* January 1 has d istrict cotton has a part Reserve th at one better. Reserve System i s the of the in to n o t m oved a s of the Bank in the is he s t a t e s to be crop, advantages tw elve banks How ever, p riv ile g e thought it w ould l a s t fe w weeks Szym czak of asks be* 1952, whether re str ic tiv e ® a larger the Federal states has b een ab o u t what he s h o u l d b e m o re t h a n s e a s o n a l * d e ce n tra liza tio n each h is that Federal w o uld be d e s i r a b l e the s e a s o n a l d e c l i n e went th erefo re A lexander and b o r r o w in g s in p retty h ig h debt C o u n c il b e l ie v e s s h o u l d b e m a d e m o re the South g e ttin g He t h in k s seaso nal d e c lin e Loans d e c lin e R egulatio n A are go lo w er expected® The Szym czako tend to h ig h . it as large w ill the for h im s e lf, tig h te r* C han dler been in be Sp eaking a r e t oo h i g h * bank lo an s too asks whether p o lic y se a so n a l d eclin e® av a iled ra p id ly w h ic h d istrict of as usual* Banks m ay m ak e b a n k larg e r cred it th a n no rm al. the F e d e r a l R eserv e System that it can deal w ith th ^^b o r ro w in g from t h e o f /o c e s s io n a l l y and for co n d itio n s Federal re la tiv ely short p e r i o d s . H* tio n s A lexander* such V. as A lexander southern banks Brown larg e am ounts I. the that i n of b ills to in v e sted C onsequently, in b il l s repeat the Board to the in th e ir Ray. A lexander’ s take c a r e w ill th is to b e sure it is necessary of the take care of situ a the p o s it io n of for the b an ks carry personal property tax to b u y b i l l s m ust have to c a rry The B o ard w i l l 1928. It them e xcep tio n a lly w o uld to the situ a tio n over on the A p r i l be careful not be b e s t to d e a l w ith for the D av is p roblem does not of d istricts. situ a tio n that is have had to h old at the banks understands to the present so m e w h a t that in Vance lo an s. Ray levels. b o rr o w in g b e c a u s e they are lik e c a r r y m an y l i v e s t o c k of the not bo rro w in g Excess in h is P ro fits d istric t Tax? for that r e a s on* reaso n ! E u t he 1 la r g e am ounts have to seem t o F e d er a l Reserve banks d istrict reports here to understood® p e rio d . The banks p ro bably Are A lexand er expect re sp e ctiv e d istrict* Robertson. C h ic a g o in d iv id u a l The E le v e n th loan s ju s t w anted of th e Board i n tell b o rro w in g he a r e a was the banks d u r in g ac tio n Reserve System i s d e sc r ib e s® that cotton M any c o rp o ra tio n s tax date* V. states in exp lain s A p ril expects The F e d e r a l Vance A lexander t h e r e m ay b e som e b o r r o w i n g know o f it sp e cifica lly . in h is d istr ic t fo r that - lU Brown* P ro fits No b a n k w o u ld a d m it t h a t Tax_, b u t M artin „ As another stu d y M ills Board t h e r e m ay b e the m e n tio n s reports that 1 ,3 0 0 was is re c e iv e the q u e s tio n felt the 1 ,3 0 0 banks m ig h t f e e l p o sitio n com pared to other banks and a w ish to f e e l selves a P r o fits th a t b y a n sw e rin g s p e c ia l group d id a n y th in g study sh o uld be a banks that if Tax„ P ro fits in th is M ills re la tio n sh ip M ills The and to The p laced i n of the Federal c o n stitu tin g the Excess felt survey an on t h e i r F e d e r a l these banks w ould they w ere the The The A m e r ic a n B a n k e r s reported T ax and b o rr o w in g expects to m ake Tax. m atter. they w ere b e in g co n n e c tio n w it h P ro fits one. tax. study. q u e stio n n aire The A m e ric a n B a n k ers A s s o c i a t i o n on t h e E x c e s s C o u n c il b o rr o w in g . other w o rd s, the q u e s tio n n a ir e to be s t u d ie d separate aro und M arch In the th is com m ent. answer i t . they s t u d y was m ade o f t h e p o s s i b l e the E x c e s s and F e d e r a l b o r r o w in g s . Board to on F e d e r a l u n fo rtun ate b o rro w in g s t o d isc u ss support it A sso ciatio n b o rr o w in g s the to on th e E x c e s s p r e p a r e d to concerned w ith asked by the E xc ess of a g e n c y t o m ake t h e s e c o n d stopped y e s te rd a y to b a n k s who w i l l of to b o r r o w b e c a u s e He asks M i l l s study a lo g ic a l A m e ric a n B a n k e r s A s s o c i a t i o n A sso c ia tio n Tax<> the B o a rd ’ s f i r s t seem ed t o b e w o uld b o rro w b e c a u s e t h e B o ard was P r o fits R o la n d Hughes encourage the it relu c tan c e C o u n cil know s, on t h e E x c e s s therefo re less P ro fits that i f from not them Tax the the S y s t e m , to be sent the to t h e 5* IT E M I V THE BOARD HAS D E F IN IT E NOT Y E T F I N A L L Y F O R M U LA T ED I T S V IE W S A S TO R E C OM M E N D A T ION S W I T H R E S P E C T T O L E G I S L A T I O N D U R IN G THE PRESENT S E S S IO N T H E COMM ENTS OF OF THE THE C O N G RESS C O U N C IL A S T O AND W OULD L I K E T O HAV E THE P R O P O S A L S T H A T M IG H T BE M ADE. Brown reads M e m o ran d u m t o v e rsia l M artin IV Board le g isla tio n and th e w h ic h le g isla tio n . for states fun ds is to th e $ 1 0 m illio n su b stantially. re ce iv e d that he That is Ray a sk s M artin»s re p lie s Ray s t a t e s Brown. that The the T r e a s u r y 's Digitized fordFRASER e sira b le. the the the i t ad v isab le date. expressed fac ilitie s to e xp lain co m m en ts not ask any in the contro C o u n c il. or $ 2 0 m il l io n , F le m in g th e Board w i l l as 3oard has branch fo r is the in its com pared that costs leg islatio n th is is T r e a s u r y 's fo r p o sitio n . v ie w a b o u t d o in g so m e th in g w i t h that it B o ard*s account has standby l e g i s l a t i o n w ith to a s k f o r $ l £ an e a r l i e r understands d isc u ss fin d C o u n c il w hether the in creasin g necessary at o f the r e im p o se R e g u la t io n W . M artin 0 M artin to t h a t t h e B o a r d m ig h t why i t them to lik e he b e lie v e s have r i s e n Brown says Brown asks w o uld that F le m in g p e rm ittin g it it e m of co n clu sio n s attached. re p lie s m ost u r g e n t request Ite m the is also p rim a r ily to a la r g e a c tio n h elp ed a p o ssib le in plan. a T re a su ry p ro b lem . extent c r e d itin g to even the M i l l s the checks p roblem of $ 1 0 ,0 0 0 out f l u c t u a t i o n s . voluntary credit of the banks. o r m ore Brown th in k s to that r e s t r a i n t p ro g ra m m ig h t b e - 35 F le m in g a g r e e s , H e f e e l s t h e v o l u n t a r y c r e d i t r e s t r a i n t p ro g r a m w as v e r y h e l p f u l , b u t t h a t i t i s n o t s o m e t h in g y o u c a n o p e r a t e y e a r a f t e r y e a r * F l e m i n g a s k s w h e t h e r t h e B o a rd w ill s e n d to t h e C o u n c i l i n a d v a n c e c o p i e s o f a n y le g isla tio n of it m ay w i s h to present to the C o n g re ss, M a r t i n r e p l i e s t h a t t h e Bo ard w i l l se n d to t h e C o u n c il i n ad va nce co pies a n y l e g i s l a t i o n t h e B o a r d m ay p r e s e n t t o C o n g r e s s , b u t t h e B o a r d w o u l d n o t expect asked to to send to the C o u n cil in advance a n y t e s t im o n y i t may m ake w h e n i t is co m m ent o n som e l e g i s l a t i o n . T h e m e etin g ad jo u rn ed a t 12*1*8 P .M o THE N EX T M E E T IN G The n e x t m e etin g of th e C o u n c il w i l l b e h e l d on May 1 7 , 18, and 1 9 , 1953*
@FedFRASER