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NOTE: T h i s t r a n s c r i p t of the S e c r e t a r y ’ s notes is not to b e r e g a r d e d as c o m p l e t e or n e c e s s a r i l y entirely accurate. T h e t r a n s c r i p t is for the sole use of the m e m b e r s of t h e F e d e r a l A d v i s o r y Council. H.V.P . W .J . K . t~ T h e S e c r e t a r y ’s n o t e s of the m e e t i n g of the F e d e ra l A d v i s o r y C o u n c i l on N o v e m b e r 18, 1968, at 9:30 A.M. in th e B o a r d R o o m of T h e M a d i s o n , W a s h i n g t o n , D.C. A l l m e m b e r s o f t h e F e d e r a l A d v i s o r y C o u n c i l were p r e s e n t e x c e p t Mr. G e o r g e S. M oo re . Mr. George A. M u r p h y , C h a i r m a n , I r v i n g T r u s t C om p a n y , New York, New Y o rk , h a d p l a n n e d to a t t e n d as A l t e r n a t e for Mr. M o o r e , b u t g ot th e f l u a nd wa s un a b l e to be present. Mr. J o h n E. G r a y , P r e s i d e n t , First Security N a t i o n a l B a n k , B e a u m o n t , T e x a s , w h o w i l l r ep re s en t t h e E l e v e n t h F e d e r a l R e s e r v e D i s t r i c t as a me mb er of t h e F e d e r a l A d v i s o r y C o u n c i l for 1969* also was present. The C o u n c i l a p p r o v e d t h e S e c r e t a r y ’ s n o t e s for the m e e ti ng of S e p t e m b e r 1 6 - 1 7 , 1968. The P r e s i d e n t of t h e C o u n c i l r e p o r t e d that the poll of the members of t h e C o u n c i l on a l t e r n a t i v e m e e t i n g d a te s r e v e a l e d that no one d a t e f r o m a m o n g t h e c h o i c e s a v a i l a b l e was a c c e p t a b l e to all m e m b e r s of t h e C o u n c i l . It w a s a l s o p o i n t e d out that s ch ed uling m e e t i n g s on a n y d a y o f t h e w e e k o t h e r t h a n M o n d a y and Tuesday would r e q u i r e a n a d d i t i o n a l d a y f o r t r a v e l i n g for thos e w ho live some d i s t a n c e f r o m W a s h i n g t o n . It wa s a g r e e d that Pr es id en t Mayer would so r e p o r t to t h e B o a r d of G o v e r n o r s a nd sug ge st that the present d a t e s a p p e a r e d t o be m o r e s a t i s f a c t o r y to mo st people. P r e s i d e n t M a y e r s u g g e s t e d t h e C o u n c i l fir st c o n s i d e r those items on t h e A g e n d a w h i c h i n v o l v e p r o p o s e d r e g u l a t i o n s and whi ch are d e t a i l e d a n d h i g h l y t e c h n i c a l . It a l s o was a g r e e d that any m e m o r a n d a t h e m e m b e r s m i g h t h a v e on 'these i t e ms be s u b m i t t e d directly to t h e B o a r d or t h r o u g h t h e i r l o c a l F e d e r a l R e s e r v e banks and that t h e C o u n c i l ’ s d i s c u s s i o n be l i m i t e d to b r o a d g e n e r a l observations. ITEM IV THE B O A R D W O U L D BE I N T E R E S T E D IN ANY C O M M E N T S CO U N C I L MEMBERS M I GH T H A V E ON T H E D R A F T OF T H E P R O P O S E D R E G U L A T I O N TO I M PL E MEN T T H E T R U T H IN L E N D I N G T I T L E OF T H E C O N S U M E R CREDIT P R O T E C T I O N A C T T H A T W A S P U B L I S H E D ON O C T O B E R 16. P r e s i d e n t M a y e r r e a d I t e m IV. T h e r e was a b r ie f dis cu ss io n which d i s c l o s e d tha t a l l m e m b e r s of the C o u n c i l were di smayed at the l e n g t h a n d g r e a t d e t a i l of t he p r o p o s e d r e g u l a ti on . There was wide a g r e e m e n t t h a t it w o u l d h a v e b e e n p r e f e r a b l e if the r egulation could h a v e b e e n w r i t t e n in m o r e g e n e r a l te r m s and s ub stantially reduced in l e n g t h . I T E M VI THE B O A R D W O U L D BE I N T E R E S T E D IN A N Y C O M M E N T S C O U N C I L MEMBERS M I G H T H A V E O N T H E D R A F T OF T H E B O A R D ’S P R O P O S E D R E G U L A T I O N TO I M P L E M E N T T H E B A N K P R O T E C T I O N A C T OF 1968 T H A T HAS BEEN R E L E A S E D F O R P U B L I C A T I O N O N N O V E M B E R 8. The P r e s i d e n t of t h e C o u n c i l t h e n r e a d I t e m VI. The Council briefly d i s c u s s e d t h e p r o p o s e d r e g u l a t i o n a n d c o n c l u d e d that it should be w r i t t e n in the f o r m of b r o a d g u i d e l i n e s . The guide lines w o u l d p e r m i t f l e x i b i l i t y d i c t a t e d by size, l ocation, and other f a c t o r s , r a t h e r t h a n p r e s c r i b e d e t a i l e d , t e c h n i c a l , protec ti ve and s e c u r i t y m e a s u r e s r e q u i r e d of e v e r y bank. It a l s o was suggested that b a n k e r s b e r e q u i r e d to a d v i s e the a u t h o r i t i e s that the ir p r o tective m e a s u r e s do c o m p l y w i t h the g u i d e l i n e s . S e v e r a l m embers of the C o u n c i l s t a t e d t h a t t h e a p p r o p r i a t e s t a f f p e r s o n n e l in their i n s t i t u t i o n s w o u l d m a k e s u g g e s t i o n s d i r e c t l y to the B o a r d or to their l o c a l F e d e r a l R e s e r v e b an ks . ITEM I A ECONOMIC C O N DITIONS AND PROSPECTS. A. H OW DOES THE COUNCIL APPRAISE THE GENERAL ECONOMIC OUTLOOK F O R L A T E 1 9 6 8 A N D E A R L Y 1 96 9? A R E T H E R E ANY I N D I C A T I O N S T H A T T H E M I D - Y E A R T A X I N C R E A S E IS A F F E C T I N G C O N S U M E R S P E N D ING O R B U S I N E S S P O L I C I E S A N D PLANS, OR T H A T TH E M E A S U R E S W I T H R E S P E C T T O L I M I T A T I O N S O N G O V E R N M E N T S P E N D I N G ARE HAVING AN IMPACT? P r e s i d e n t M a y e r r e a d I t e m I A. A b r i e f d i s c u s s i o n followed. It d i s c l o s e d a f a i r l y u n i f o r m e x p e c t a t i o n that e c o n o m i c ac ti v i t y and the l e v e l of b u s i n e s s in g e n e r a l w i l l c o n t i n u e to rise in the w e e k s a h e a d and in the ea rly m o n t h s of 1969 , but that the rate of growth w i l l lessen. It was a c k n o w l e d g e d that there is little persuasive e v i d e n c e that the m i d y e a r tax in creases has yet s ig nificantly a f f e c t e d c o n s u m e r s p e n d i n g or b u s i n e s s policies and plans. H o w e v e r , m o s t m e m b e r s of the C o un ci l bel ie ve that the tax increase w i l l t e n d to m o d e r a t e b o t h c o n s u m e r s p en di ng and business i n v e s t m e n t . A f ew m e m b e r s i n d i c a t e d that the li mitations on go ve rn me nt s p e n d i n g are h a v i n g an impact in some areas, but this is t e n d i n g to be o b s c u r e d by o t h e r e x p a n d i n g forces. ITEM I B B. W H A T I N D I C A T I O N S DO C O U N C I L M E M B E R S HA V E F R O M C US T O M E R C O N T A C T S R E G A R D I N G C A P I T A L I N V E S T M E N T S PE ND IN G IN THE YEAR AHEAD? IS M O R E O R L E S S E X T E R N A L F I N A N C I N G THAN R E C E N T L Y L I K E L Y TO BE R E Q U I R E D F O R SU C H SPENDING?________ The P r e s i d e n t of t he C o u n c i l t h e n . r e a d I te m I B. All but two of t he m e m b e r s of th e C o u n c i l h a v e the i m p r e s s i o n fr om their customer c o n t a c t s t h a t c a p i t a l i n v e s t m e n t s p e n d i n g in the year ahead w i l l i n c r e a s e m o d e r a t e l y or s h o w no s i g n i f i c a n t change. Members f r o m t h e f i r s t a n d e i g h t h d i s t r i c t s h a v e 'the im pr es si o n that c a p i t a l s p e n d i n g w i l l s h o w some d ec l i n e . It was concluded that the l e v e l of e x t e r n a l f i n a n c i n g w o u l d n o t ch ange ap pr eciably in the y e a r ah e ad . I T E M II A BANKING DEVELOPMENTS. A. W H A T IS T H E C O U N C I L ’S A S S E S S M E N T OF TH E P R O B A B L E S TR EN G T H OF B U S I N E S S L O A N D E M A N D IN T H E M O N T H S A H E A D ? W H A T KINDS OF C U S T O M E R R E A C T I O N S H A V E D E V E L O P E D TO T H E P R E V A I L I N G "SPLIT” PRIME RATE? P r e s i d e n t M a y e r r e a d I t e m II A. Most m e m b e r s of the C o u nc il expect b u s i n e s s l o a n d e m a n d to s h o w g r e a t e r t h a n s e a s o n a l s t r e n g t h t hrough t h e r e m a i n d e r of t h e year. As the mor e r e s t r i c t i v e fisc al policy b e g i n s t o h a v e a g r e a t e r i m p a c t , some me m b e r s b e l i e v e there will be a m o d e s t s l o w i n g of lo a n d e m a n d in the first h a l f of 1969It was a g r e e d t h a t t h e r e w a s l i t t l e r e a c t i o n to the " s p l i t ” p rime rate, r e f l e c t i n g in p a r t t he n a r r o w n e s s of the spread. I T E M II B B. IN V I E W OF T H E P R O S P E C T S F O R E X C E P T I O N A L L Y H E AV Y M O R T G A G E L O A N D E M A N D , E S P E C I A L L Y IN T H E I N C O M E - P R O P E R T Y AREA, DOES T H E C O U N C I L B E L I E V E T H A T B A N K S W I L L S I G N I F I C A N T L Y INCREASE T H E I R T A K I N G S OF M O R T G A G E S IN 1969?_____________________ _ The P r e s ident of the C o u n c i l r e a d I t e m II B. He o bserved that b e c a u s e of the p e r s i s t e n c e of the r e l a t i v e l y s t r o n g d e m a n d for credit, and the m o r e than, s e a s o n a l v o l u m e of "carve out l o a n s , ” he was d o u b t f u l th at m o r t g a g e loans w o u l d i n c r e a s e a p p r e c i a b l y . The s u b s e q u e n t d i s c u s s i o n d i s c l o s e d , h o w e v e r , that the C o u n c i l was about e q u a l l y d i v i d e d . T h o s e w h o e x p e c t e d that m o r t g a g e t a k i n g s by banks w o u l d i n c r e a s e in 1969 c i t e d the g r o w i n g c o m m i t m e n t of commercial b a n k s to u r b a n r e h a b i l i t a t i o n . I T E M II C C. W H A T IS T H E C O U N C I L ’ S V I E W R E G A R D I N G C U R R E N T AN D P R O S P E C T I V E I N F L O W S OP C O N S U M E R - T Y P E T I M E D E P O S I T S ? HAS THE TAX INCREASE HAD ANY NOTICEABLE EFFECT ON SUCH FLOWS? P r e s i d e n t M a y e r r e a d I t e m II C. T h e d i s c u s s i o n d i s c l o s e d that c on su m e r - t y p e d e p o s i t s are c o n t i n u i n g to i n c r e a s e b u t only at a moderate r a t e a nd th a t m o s t m e m b e r s of t h e C o u n c i l l o o k f or li ttle or no i m p r o v e m e n t in t he m o n t h s ah ead. S e v e r a l c i t e d the i n c r e a s e in Social S e c u r i t y t a x e s b e g i n n i n g in J a n u a r y and the a d j u s t m e n t in the s u r t a x l i a b i l i t y b e c a u s e of i n s u f f i c i e n t w i t h h o l d i n g s . The Council is i n c l i n e d to a t t r i b u t e t he r e d u c t i o n in th e i n f l o w of c o n s u m e r - t y p e t i m e d e p o s i t s to t he t a x i n c r e a s e . I T E M II D D. HOW WOULD THE C OUNCIL ASSESS THE E X P E R I E N C E OF M E M B E R B A N K S T H U S F A R W I T H T H E N E W M E T H O D S OF C O M P U T I N G R E S E R V E R E Q U I R E M E N T S UND E R THE AMENDMENT TO R E GULATION D THAT B E C A M E E F F E C T I V E S E P T E M B E R 12, 1 9 68 ?____________________________ The P r e s i d e n t o f t h e C o u n c i l r e a d I t e m II D. T h e C o u n c i l was un animous in t h e i r j u d g m e n t t h a t b a n k e r s g e n e r a l l y h a v e b e e n f a vorably i m p r e s s e d w i t h t h e n e w p r o c e d u r e fo r c o m p u t i n g r e s e r v e requirements despite the fact that all banks have not c ompletely adjusted to t h e n e w m e t h o d . I T E M II E t E. W H A T R E S P O N S E , IF ANY, IN B A N K E R O B S E R V E D T O T H E B O A R D ’S R E A C T I O N BANKS TO OWN AND O P E R A T E C E R T A I N C ORPORA T I O N S AND LOAN PRODUCTION PLANS HAVE COUNCIL M EMBERS ALLOWING STATE MEMBER K I N D S OF S U B S I D I A R Y OFFICES? ___________ P r e s i d e n t M a y e r r e a d I t e m II E. It w a s a g r e e d that the r e c e n t d e ci si on by t h e B o a r d l i b e r a l i z i n g t he o p e r a t i o n s of state m e m b e r banks w a s w e l c o m e d b y t h e va s t m a j o r i t y of b a n k e r s . The a u t h o r i ties in s e v e r a l s t a t e , h o w e v e r , h a v e r u l e d t ha t t h e s e o f f i c e s c o n stitute b r a n c h e s w h i c h h a s l i m i t e d t he i m p a c t of the r ul ing. ITEM I I F. F W H A T C O M M E N T S OR S U G G E S T I O N S DO C O U N C I L M E M B E R S HAVE R E G A R D I N G R E G U L A T O R Y P R O V I S I O N S TH E B O A R D M I GH T ISSUE IN I M P L E M E N T A T I O N OF T H E R E C E N T L Y E N A C T E D L E G I S L A T I O N C ON C E R N I N G R E G U L A T I O N S OF A D V E R T I S I N G OF R AT ES OF INTEREST ON D E P O S I T S ? _____________ P r e s i d e n t M a y e r r e a d I t e m II F. The m e m b e r s of the Council were a g a i n u n i f o r m in u r g i n g that the p r o p o s e d r e g u l a t i o n s p r o vide g e n e r a l g u i d e l i n e s r a t h e r t h a n lengthy, d e t a i l e d requirements. In the C o u n c i l ’s j u d g m e n t , the o b j e c t i v e s h o u l d be to p revent the use of s t a t e m e n t s w h i c h m a y m i s l e a d the public. Bankers in general also s t r o n g l y b e l i e v e that s i m i l a r r e g u l a t i o n s s ho ul d be a p p l i cable to all s a v i n g s and t h r i f t i n s t i t u t i o n s . I T E M III A BALANCE OF PAYMENTS A. H O W D O E S T H E C O U N C I L A P P R A I S E T HE O U T L O O K F O R THE R E M A I N D E R OF T H E Y E A R F O R (1) D E M A N D S F O R E U R O - D O L L A R LOANS AT F O R E I G N B R A N C H E S OF U. S. BANKS, (2) E U R O - D O L L A R S A D V A N C E D BY B R A N C H E S TO H O M E OF FI C E S , AND (3) D I R E C T B O R R O W I N G S F R O M F O R E I G N B A N K S BY U. S. B A N K S (I.E., NOT T H R O U G H F O R E I G N B R A N CH ES )? -___________________________________ P r e s i d e n t M a y e r r e a d I t e m III A. The C o u n c i l a n t i c i p a t e s a s ea s o n a l i n c r e a s e in t he d e m a n d for E u r o - d o l l a r loans at f o r ei gn b r a n c h e s of U. S. b a n k s , r e f l e c t i n g in p a r t y e a r - e n d b o r r o w i n g by U. S. c o r p o r a t i o n s as t h e y a d j u s t t h e i r d ir ec t i n v e s t m e n t p o s i tions. C h a n g e s in the v o l u m e of E u r o - d o l l a r s a d v a n c e d by br an c h e s to h o m e o f f i c e s as w e l l as d i r e c t b o r r o w i n g s f r o m f o r e i g n banks by U. S. b a n k s w i l l be l a r g e l y d e t e r m i n e d by the r e l a t i v e costs of t h e s e f u n d s v i s - a - v i s o t h e r sou rc es . The r e l a t i v e t i g h t n e s s of U. S. m o n e y m a r k e t s w i l l a l s o be a factor. If con di ti on s r e m a i n about w h a t t h e y are t o d a y , the C o u n c i l does not a n t i c i p a t e the volume of t h e s e a d v a n c e s or b o r r o w i n g s to c hange a p p r e c i a b l y d u r ing the r e m a i n i n g w e e k s of the year. I T E M III B B. D O C O U N C I L M E M B E R S H A V E A N Y C O M M E N T S OR S U G G E S T I O N S W I T H R E S P E C T TO A V O L U N T A R Y F O R E I G N C R E D I T R E S T R A I N T P R O G R A M F O R 1 9 6 9 ? _________________________________________ _ T h e P r e s i d e n t of the C o u n c i l r e a d I t e m III B. A b r ie f d i s The C o u n c i l c o n c l u d e d that it w o u l d urge cussion followed. 6. (1) the e x c l u s i o n of ex po rt f i na nc e f ro m the g uidelines and (2) the f u r t h e r e a s i n g of the p r o g r a m for 1 9 6 9 w it h the objective of e l i m i n a t i n g the p r o g r a m as soo n as possible. ITEM V THE B O A R D W O U L D A P P R E C I A T E H A V I N G T H E V I E W S OF THE CO UNCIL M E M B E R S AS T O T H E P R O S P E C T S F O R ANY L E G A L OR OTHE R P ROBLEMS SEEN IN T H E F O R M A T I O N OF C O M M U N I T Y D E V E L O P M E N T C OR PO RA TI ON S OR S I M I L A R A R R A N G E M E N T S (E IT HE R BY I N D I V I D U A L BANKS, GROUPS OF B A N K S , O R B A N K S A ND O T H E R I N S T I T U T I O N S ) F O R THE PURPOSE OF E X T E N D I N G F I N A N C I N G OR R E A L E S T A T E D E V E L O P M E N T A S S IS TA NC E TO B U S I N E S S E S A N D C O N S U M E R S IN T H E E C O N O M I C A L L Y D I S A D V A N T A G E D A R E A S OF C I T IE S. The P r e s i d e n t of the C o u n c i l r e a d I t e m V. The b r ie f d i s cussion w h i c h f o l l o w e d d i s c l o s e d that a l t h o u g h the e x pe ri e nc e of the C o u n c i l m e m b e r s v a r i e d , n o n e h a d e x p e r i e n c e d import an t legal problems in t h e i r p a r t i c i p a t i o n w i t h c o m m u n i t y d e v e l o p m e n t c o r p o r a ti on s. It w a s a c k n o w l e d g e d that b a n k e r s g e n e r a l l y are co o p e r a t i n g in t h i s e f f o r t a nd are w o r k i n g c l o s e l y w i t h the U r ba n Affairs C o m m i t t e e of th e ABA. ITEM VII W H A T A R E T H E C O U N C I L ’S V I E W S ON M O N E T A R Y AND C R E D I T P OL IC Y UNDER CURRENT CIRCUMSTANCES? P r e s i d e n t M a y e r r e a d I t e m VII. The C o u n c i l b e l i e v e s that a policy of m o n e t a r y a n d c r e d i t r e s t r a i n t Is a p p r o p r i a t e b e c a u s e of the p e r s i s t e n c e of t he s t r e n g t h in d e m a n d and the r e s u l t i n g c o n tinued u p w a r d p r e s s u r e on p r i c e s . B e c a u s e of the lag b e t w e e n changes in f i s c a l p o l i c y a n d t h e i r i mpact on e c o n o m i c activ it y , the C o u n c i l b e l i e v e s a p o l i c y of m o d e r a t e r e s t r a i n t s h o u l d be c o n t i n u e d u n t i l t h e r e is c l e a r e v i d e n c e that i n f l a t i o n a r y p re s s u r e s have l e s s e n e d . The m e e t i n g a d j o u r n e d a t 12:15 P.M. T H E C O U N C I L C O N V E N E D IN TH E B O A R D R O O M OF THE FED E RA L R E S E R V E B U I L D I N G , W A S H I N G T O N , D.C., AT 2:30 P.M., ON N O V E M B E R 18, 1968. A LL M E M B E R S OF THE C O U NC IL WERE P R E S E N T E X C E P T MR. G E O R G E S. MOORE. MR. JOHN E. GRAY A L S O W A S PRESENT. Mr. D a n i e l H. Brill, D i r e c t o r , D i v i s i o n of R e s e a r c h and S t a t i s ti cs , and o t h e r m e m b e r s of the B o a r d ’ s staff di sc us se d the f economic o u t l o o k t h r o u g h m i d - 1 9 6 9 . T H E C O U N C I L R E C O N V E N E D AT 5:30 P.M., ON N O V E M B E R 18, 196 8 IN T H E B O A R D R O O M OF T HE M AD IS ON . A L L M E M B E R S OF T H E C O U N C I L W E R E P R E S E N T E X C E P T MR. G E O R G E S. MO O RE . MR. J O H N E. GR A Y A L S O WAS PRESENT. T he C o u n c i l p r e p a r e d a nd a p p r o v e d a C o n f i d e n t i a l M e m o r a n d u m to be sen t to t he B o a r d of G o v e r n o r s for the j o in t m e e t i n g of the C o u n c i l a n d t h e B o a r d on N o v e m b e r 19, 1968. The M e m o r a n d u m was d e l i v e r e d to th e F e d e r a l R e s e r v e B u i l d i n g at 7:15 P.M. \ The m e e t i n g a d j o u r n e d a t 6:35 P.M. CONFIDENTIAL MEMORANDUM TO THE BOARD OF GOVERNORS FROM THE FEDERAL ADVISORY COUNCIL RELATIVE TO THE AGENDA FOR THE JOINT MEETING ON NOVEMBER 19, 1968 1. Economic c o n d it io n s and p rospects. A. How does the C o un cil ap p raise the general economic o u tlo o k fo r l a t e 1968 and e a rly 1969? Are there any i n d i c a t i o n s th a t the mid-year tax increase i s a f f e c t i n g consumer spending or business p o l i c i e s and p la n s , or th a t the measures w ith respect to l i m i t a t i o n s on government spending are having an impact? The C o u n cil expects economic a c t i v i t y and the le v e l of business in general to co ntinue to r i s e i n the weeks ahead and i n the early months of 1969, but t h a t the r a te of growth w i l l le sse n. There i s l i t t l e persuasive evidence t h a t the midyear tax increase has yet s i g n i f i c a n t l y affe cted consumer spending o r business p o l i c i e s and p la n s . However, most members of the C o u n c il b e lie v e t h a t the tax increase w i l l tend to moderate both consumer spending and business inve stm e nt. There i s some evidence, though i t tends to be somewhat obscured, t h a t the l i m i t a t i o n s on government spending are having an impact i n some areas. B. What i n d i c a t i o n s do C o u n c il members have from customer c o n tac ts reg arding c a p i t a l investment spending i n the year ahead? I s more or less e x te r n a l fin a n c in g than re c e n tly l i k e l y to be re q u ire d fo r such spending? Customer c o n ta c ts of most of the C o u n cil members suggest th a t c a p i t a l investment spending i n the year ahead w i l l increase moderately or show no s i g n i f i c a n t change. C o u n c il members from two d i s t r i c t s expect c a p i t a l investm ent spending to show some d e c lin e . No major change i n the le v e l of e x te rn a l fin a n c in g is expected in the year ahead. 2. Banking developments. A. What is the C o u n c i l ’ s assessment of the probable s tr e n g th o f business lo an demand in the months ahead? What k ind s of customer re a c tio n s have developed to the p r e v a i l i n g " s p l i t " prime rate? 8. -2Most members of the Council expect business loan demand to show greater than seasonal streng th through the remainder of the year. As the more r e s t r i c t i v e f i s c a l p o lic y begins to have greater impact, some members of the C oun cil b e lie v e t h a t there w i l l be a modest slowing of loan demand in the f i r s t h a l f of 1969. I n g e n e ra l, because the spread was so sm all, there was l i t t l e r e a c tio n to the " s p l i t " prime r a t e . 3. I n view of the prospects for e x cep tio nally heavy mortgage loan demand, e s p e c ia lly i n the incomeproperty area, does the Council b elieve that banks w i l l s i g n i f i c a n t l y increase t h e i r takings of mortgages i n 1969? A m a jo r it y o f the members of the Council believe th at banks v j i ll not s i g n i f i c a n t l y increase t h e i r takings of mortgages i n 1969. However, several members of the C o u n c il i n d i c a t e th a t mortgage takings by banks would increa se i n 1969, p a r t i c u l a r l y i n view o f the growing commitment of commercial banks to urban r e h a b i l i t a t i o n . C. What is the C o u n c i l ’ s view regarding current and p ro sp e c tiv e in flo w s of consumer-type time deposits? Has the tax increase had any no tic e a b le e ffe c t on such flows? Consumer-type time dep o sits continue to increase but only at a moderate r a t e , and most members of the C ouncil look for l i t t l e or no improvement i n the months ahead. The fac to rs accounting for th is opinion in c lu d e the increa se i n S o c ia l S e c u r ity taxes beginning January 1 and the adjustment i n the su rta x l i a b i l i t y because o f i n s u f f i c i e n t w ith h o lding s. The C o u n c il b e lie v e s t h a t the tax increase has resulted i n some reduction in the in f lo w of consumer-type time d e p o s its. D. How would the C o un cil assess the experience of member banks thus f a r with the new methods of computing reserve requirements under the amend ment to R e g u la tio n D th a t became e ffe c tiv e September 12, 1968? Although a l l member banks have not completely adjusted to the new methods o f computing reserve requirements under the amendment to R e g u la tio n D, the C o u n c il b e lie v e s t h a t bankers g e n e rally have been fav o ra bly impressed w ith the new procedure. -3E. What response, i f any, i n banker plans have C oun cil members observed to the Board's r e a c t io n allo w in g S ta te member banks to own and operate c e r ta in kinds o f subsidiary co rp o ra tio ns and loan p roduction o ffic e s ? The C ouncil believe s t h a t the Board's decision to allow State member banks to own and operate c e r t a in kinds of subsidiary corporations and loan p ro d u c tio n o f f i c e s was welcomed by the vast m a jo rity of bankers. There have been some d iffe r e n c e s i n the i n t e r p r e t a t i o n by State a u th o r itie s as to whether these o f f i c e s c o n s t i t u t e branches which have lim ite d the impact of the r u l i n g . F. What comments or suggestions do Council members have regarding re g u la to ry p ro v isio n s the Board might issue i n implem entation o f the recently enacted l e g i s l a t i o n concerning r e g u la tio n of a d v e r t i s i n g of rates of i n t e r e s t on deposits? The members o f the C oun cil have no s p e c i f i c suggestions to the Board regarding r e g u la to r y p ro v is io n s to be issued i n implementation of the r e c e n tly enacted l e g i s l a t i o n concerning r e g u la t io n of a d v e rtisin g of rates of i n t e r e s t on d e p o s it s . However, the C ouncil would urge th at the r e g u la tio n s provide general g u id e lin e s r a th e r than lengthy, d e ta ile d requirements. The o b je c tiv e should be to prevent the use o f statements which may m islead the p u b l i c . Bankers i n general stro ng ly believe that s i m i l a r r e g u la t io n s should be a p p lic a b le to a l l savings and t h r i f t in s titu tio n s . 3. Balance of Payments. A. How does the C ouncil appraise the outlook for the remainder of the year for (1) demands for E u ro - d o lla r loans a t fo re ig n branches of U.S. banks, (2) Euro-dollars advanced by branches to home o f f i c e s , and (3) d ir e c t borrowings from fo r e ig n banks by U.S. banks ( i . e . , not through fo r e ig n branches)? (1) The C o u n c il a n t i c ip a t e s a seasonal increase i n the demand for E u r o - d o lla r loans a t f o r e ig n branches o f U.S. banks, r e f l e c t i n g in p a rt year-end borrowing by U.S. corporations as they a d ju st t h e ir d ir e c t investment p o s i t i o n s . (2) and (3) Changes i n the volume of Euro-dollars advanced by branches to home o f f i c e s , as w e ll as d ir e c t borrowings from fo r e ig n banks by U.S. banks ( i . e . , not through foreign branches), w i l l be la r g e ly determined by the r e l a t i v e cost of these funds vis-a-vis other sources. The r e l a t i v e t ig h tn e s s of the U.S. money markets w i l l also be a fa c to r determ ining the volume of these transactions * I f conditions remain about what they are today, the amount of Euro-dollars advanced by branches to home o f f i c e s or d i r e c t borrowings from foreign branches are not lik e ly to change a p p re c ia b ly during the remainder of t h is year. B. Do C oun cil members have any comments or sugges t io n s w ith respect to a voluntary fo reign c re d it r e s t r a i n t program for 1969? The members of the C ouncil would favor (1) the exclusion of export fin a n c in g from the g u id e lin e s , and (2) the fu rth e r easing of the v o lu n tary fo r e ig n c r e d i t r e s t r a i n t program for 1969, with the objective of e lim in a t i n g the program as soon as p o s s ib le . 4. The Board would be in te r e s te d i n any comments the C o u n c il members might have on the d r a f t of the proposed r e g u la t io n to implement the Truth i n Lending T i t l e of the Consumer Credit P r o t e c t io n Act t h a t was published on October 16. The C o u n c il b e lie v e s th a t the ap p ro priate s t a f f personnel in the la r g e r banks have subm itted comments on the d r a f t of the proposed r e g u la t io n to implement the Truth i n Lending T i t l e o f the Consumer P r o te c tio n A c t. Some members of the Council are today subm itting a d d it io n a l memoranda on t h i s s u b je c t to the Secretary of the Board. The members of the C o un cil were dismayed a t the length and great d e t a i l of the proposed r e g u la t io n . I n the C o u n c il's judgment i t would have been p r e fe r a b le i f the r e g u la t io n could have been w r itte n in more general terms and s u b s t a n t i a l l y reduced i n length. 5. The Board would ap p re c ia te having the views of the C o u n c il members as to the prospects for any le g a l or other problems seen i n the formation of community development corporations or s im ila r arrangements ( e it h e r by i n d i v i d u a l banks, groups o f banks, or banks and other i n s t i t u t i o n s ) for the purpose of extending fin a n c in g or r e a l e s t a t e development a s s is ta n c e to businesses and consumers i n the economically disadvantaged areas o f c i t i e s . The experience o f the C oun cil members on the formation o f community development co rp o ra tio n s or s i m i l a r arrangements for financing businesses and consumers i n the econom ically disadvantaged areas of c i t i e s has d is c lo s e d no im p o rta n t le g a l problems. -5Bankers g enerally over the country are cooperating in this e f f o r t , and broadening t h e ir p a r t i c i p a t i o n . The Urban A ffa ir s Committee of the ABA is aggressively encouraging banks i n t h is a c t i v i t y . 6. The Board would be in te re ste d i n any comments Council members might have on the d r a ft of the Board's proposed r e g u la tio n to implement the Bank P r o te c tio n Act of 1963 th at has been released for p u b l i c a t i o n on November 8. The C oun cil believe s th a t i t would be preferable i f the Board's r e g u la t io n to implement the Bank P r o te c tio n Act of 1968 were w r itte n in the form of broad g u id e lin e s . These g u id e lin e s would permit f l e x i b i l i t y d ic ta te d by s iz e , lo c a t io n and other fa c to r s , rather than prescribe d e t a ile d t e c h n ic a l p r o te c tiv e and se c u rity measures required of every bank. I n d i v i d u a l banks would be expected to report only that they are in general compliance w ith the r e g u la t io n . Some members of the C ouncil have asked appropriate s t a f f personnel i n t h e i r i n s t i t u t i o n s to comment i n w r it in g d ir e c t l y to the Board or through t h e i r lo c a l Federal Reserve banks. 7. What are the C o u n c il's views on monetary and c r e d i t p o lic y under current circumstances? The C o u n c il belie v e s t h a t a p o lic y of monetary and c re d it r e s t r a i n t is a p p ro p ria te because of the persistence o f the strength of demand and the r e s u l t i n g continued upward pressure on p ric e s . There has been a lag between changes i n f i s c a l p o lic y and t h e i r impact on economic a c tiv ity . The C o u n c il, t h e r e fo r e , believe s th a t a p o lic y of moderate r e s t r a i n t should be continued u n t i l there is clear evidence th at i n f la t io n a r y pressures have lessened. ON N O V E M B E R 19, 1968, AT 10:30 A.M., T HE FE D E R A L A D V I S O R Y C O U N C I L H E L D A J O I N T M E E T I N G WI TH THE BOARD OF G O V E R N O R S OF T HE F E D E R A L R E S E R V E S Y S T E M IN THE F E D E R A L R E S E R V E BU IL DI NG , WA SH I N G T O N , D.C. ALL M E M B E R S OF T H E C O U N C I L WE RE PR E S E N T E X C E P T MR. G E O R G E S. MOORE. MR. JO H N E. GRAY ALSO WAS PRE SE NT . T H E F O L L O W I N G M E M B E R S OF T HE B O A R D OF G O V E R N O R S WERE P RE S E N T : C H A I R M A N WM. M c M A R T I N , JR., V I C E CHAIR MA N R O B E R T S O N ; G O V E R N O R S M I T C H E L L , M A I S E L AND SHERRILL. MR. R O B E R T C. H O L L A N D , S E C RE TA RY , MR. K E N N E T H A. K E N Y O N , D E P U T Y S E C R E T A R Y , AND MRS. S E M I A , T E C H N I C A L A S S I S T A N T , A L S O W E R E PRESENT. ) T he m i n u t e s of the j o i n t m e e t i n g are b e i n g p r e p a r e d in the office of the S e c r e t a r y of the B o a r d of G o v e rn or s of the F e d e r a l R e s e r v e S y st em . T h e i r c o n t e n t w i l l be c o m p a r e d w i t h the notes of the S e c r e t a r y of the Co un c i l . A s s u m i n g they are in s u b s t a n tial a g r e e m e n t , t he y w i l l be r e p r o d u c e d and d i s t r i b u t e d to the m e mb er s of the C o un ci l . T he m e e t i n g a d j o u r n e d at 12:20 P.M. * * * * The n e x t m e e t i n g o f t h e C o u n c i l w i l l be h e l d on F ebr ua ry 17-18, 1969* A me e t i n g of the Board of Governors of the Federal Reserve System w ith the Federal Advisory Council was held in the Board Room of the Federal Reserve B u ild in g in Washington, D. C. , at 10 30 a.m. on Tuesday, November 19, 1968 PRESENT Mr. Mr. Mr. Mr. Mr M a r tin , Chairman Robertson, Vice Chairman M i t c h e ll M aisel S h e r r ill Mr H o lla n d , Secretary Mr. Kenyon, Deputy Secretary Mrs. Semia, Technical A s s is t a n t , O f f ic e of the Secretary Messrs, Simmen, S t i l l , Mayer, W ilkinson, C r a f t , Kennedy, Fox, Nason, Conn, S tew art, and L a r k in , Members of the Federal Advisory Council from the F i r s t , T hird, Fourth, F i f t h , S ix th , Seventh, E ig h th , N in th , Tenth, E le v e n th , and Twelfth Federal Reserve D i s t r i c t s , r e s p e c tiv e ly Mr John E. Gray, Member-elect of the Federal Advisory Council from the Eleventh D i s t r i c t Mr. Prochnow, Secretary of the Council Mr. K orsvik, A s s is t a n t Secretary of the C ouncil Chairman M a r tin noted th a t Messrs Simmen, S t i l l , and Stewart would conclude t h e i r service on the Council at the end of t h i s year and, on b e h a lf of the Board, expressed a p p r e c ia tio n for th e ir c o n trib u tio n s 11/19/68 -2- 1. Economic conditions and prospects. A. How does the Council appraise the general economic outlook for la te 1968 and early 1969? Are there any in d ic a tio n s that the midyear tax increase is a ffe c t in g consumer spending or business p o lic ie s and plans, or th at the measures with respect to lim i t a t i o n s on Government spending are having an impact? The Council expects economic a c t i v i t y and the level of business i n general to continue to r is e in the weeks ahead and i n the e a rly months of 1969, but that the rate of growth w i l l lessen. There is l i t t l e persuasive evidence that the midyear tax increase has yet s i g n i f i c a n t l y affected consumer spending or business p o l i c i e s and plans. However, most mem bers of the Council believe th at the tax increase w i l l tend to moderate both consumer spending and business investment. There i s some evidence, though i t tends to be somewhat ob scured, th a t the l i m i t a t i o n s on Government spending are having an impact i n some areas. I n response to a q u e stio n , President Mayer said there were no s u b s t a n t ia l d iffe r e n c e s of views w ith in the Council regarding the answer th a t had been given. Chairman M artin in q u ir e d whether i t was believed that the slowdown, i f i t came, would occur as early as the Christmas season. P resident Mayer responded th a t he would not be prepared to pinp oint the time. Some members of the C o u n c il, he s a id , were in c lin e d to expect a l a t e r emergence o f the slowdown than others. In his own view, i t would come l a t e r than the Christmas period. Mr. Conn said he did not belie ve there would be any s ig n i f i c a n t slowdown fo r the f i r s t few months of 1969; too much needed to be done and demands were too strong. 11/19/68 -3Mr. Larkin remarked th at i t was hard to believe that factors such as the s h i f t in Government receipts and expenditures and the coming increase i n S o c ia l Security taxes would not have an impact. However, h is own view was th a t a slowdown would not occur u n t i l w ell i n t o 1969 Mr. Kennedy noted the tremendous i n f l a t i o n a r y pressures present in the economy. Nevertheless, i t seemed reasonable to b e lie v e t h a t the f i s c a l actio ns taken would have some e ffe ct in reducing the r a te of growth. I t was important to bear in mind th a t what was being talked about was not a c o n tra c tio n but a moderation of the rate o f growth. As for tim in g , some gloominess in the period a f t e r the f i r s t of the year was u su a l, and there were u n c e r t a i n t i e s i n terms of changes th at would occur, such as the coming i n t o o f f i c e of a new A d m in is tra tio n . B. What i n d i c a t io n s do Council members have from customer contacts regarding c a p it a l investment spending in the year ahead? Is more or less external financ ing than r e c e n tly l i k e l y to be required for such spending? Customer contacts of most of the Council members suggest th a t c a p i t a l investment spending in the year ahead w i l l increa se moderately or show no s i g n i f i c a n t change. C o un cil members from two d i s t r i c t s expect c a p it a l in v e st ment spending to show some d e c lin e . No major change i n the le v e l of external financing i s expected i n the year ahead, 11/19/68 -4- Mr. Simmen commented that he was one of the members who expected a d e c lin e in c a p it a l investment spending, th is view being based on a survey of more than 500 manufacturing firms in New England th at accounted for 24 per cent of t o t a l manufacturing employment. That survey suggested a d ecline next year in the order of 5 per cent. Mr Fox was i d e n t i f i e d as the other member who believed c a p i t a l spending would dec line. Mr. C ra ft said th a t an increase in the level of external fin a n c in g appeared l i k e l y in Birmingham and A t la n t a , which were experiencing rap id growth. Elsewhere in the D i s t r i c t such a trend was not foreseen, 2. Banking developments. A. What i s the C o u n c il's assessment of the probable streng th of business loan demand i n the months ahead? What kinds of customer re a c tio n s have developed to the p r e v a ilin g " s p l i t " prime rate? Most members of the Council expect business loan demand to show g re ate r than seasonal strength through the remainder o f the year. As the more r e s t r i c t i v e f i s c a l p o l i c y begins to have greater impact, some members of the C o un cil b e lie v e th at there w i l l be a modest slowing of lo an demand i n the f i r s t h a l f o f 1969. I n g e n e ra l, because the spread was so sm all, there was l i t t l e r e a c t io n to the " s p l i t " prime rate P re sid e n t Mayer commented th at few banks of any consequence had departed from the g e n e r a lly p r e v a ilin g prime rate. 11/19/68 -5Chairman M artin inquired whether there was any feeling th at s p l i t rates might recur, and responses indicated that i f there should be a recurrence i t probably would be of r e la t iv e ly short d u r a tio n . President Mayer added th at although some people professed to b e lie v e t h a t the prime rate was a thing of the past, he did not subscribe to th a t view. Such a device was necessary, for example, i n order to set up a revolving c r e d it th at converted to a term loan. B. I n view of the prospects for exceptionally heavy mortgage loan demand, e sp e c ia lly in the income-property area, does the Council b e lie v e t h a t banks w i l l s i g n i f i c a n t l y i n crease t h e i r takings of mortgages in 1969? A m a jo r it y of the members of the Council believe t h a t banks w i l l not s i g n i f i c a n t l y increase t h e ir takings of mortgages i n 1969. However, several members of the C ouncil in d ic a t e d th a t mortgage takings by banks would increa se i n 1969, p a r t i c u l a r l y in view of the growing com mitment of commercial banks to urban r e h a b i l i t a t i o n . P resident Mayer said th a t the Council had been about evenly d iv id e d , f i v e members present fe e lin g th at banks would increase t h e i r mortgage tak ing s i n 1969, p a r t i c u l a r l y in view of the growing commitment of banks to urban r e h a b i l i t a t i o n . This was an undertaking toward which a l l of the banks with which Council members were asso c ia te d appeared to f e e l a deep r e s p o n s i b i l i t y . The American Bankers A s s o c ia t io n , through a s p e c ia l committee, was doing a good job in making banks aware o f the job to be done. 11/19/68 -6I n response to a question by Governor M itc h e ll, President Mayer said he did not believe those members who expected greater takings of mortgages predicated th a t view on the prospect of a r e l a t i v e weakness of loan demand. Governor M it c h e ll inq uired whether i t might not be expected, however, th a t the share of the mortgage market held by banks would tend to creep up i n r e f l e c t i o n of a more aggressive a t t it u d e engen dered by rate in flu e n c e s. Mr. S t i l l commented th at i t was tru e , at h is bank, that improved rates were beginning to make mortgages a more a t t r a c t iv e investment. They had become about as de sirab le as tax-exempt se c u ritie s . Other Council members agreed, but in terms that mortgages were now ju s t barely com petitive with tax-exempts. Mr. Simmen remarked th a t i f there was a reduction in Treasury borrowing and less demand for bank c r e d i t , some a d d it io n a l funds should be freed fo r the mortgage market. Mr. Kennedy said th at h is bank had continued to increase i t s mortgage lo ans, even when mortgage rates were not p a r t i c u la r l y a t t r a c t i v e , because of i t s p o lic y to support th at f i e l d , e sp e c ia lly in terms o f urban p r o p e rtie s Now th at b e tte r rates p r e v a ile d , mortgages were a much more a t t r a c t i v e investment, but the bank's p o l i c y was one th a t continued regardless of rates. 11/19/68 -7Governor Maisel observed that the most notable surge in the l a s t s ix months had been in tax-exempt s e c u r itie s , and Mr Kennedy expressed the view th at th at was where the bulk of the funds would go i f there was an easing of loan demand. The heavy volume of issues coming to market would tend to keep rates up. C. What is the C o u n c il's view regarding current and prospective inflows of consumer-type time deposits? Has the tax increase had any n o ticeab le e ffe c t on such flows? Consumer-type time deposits continue to increase, but only at a moderate r a t e , and most members of the C ouncil look fo r l i t t l e or no improvement in the months ahead. The fa c to rs accounting for t h is opinion include the increase i n S o c ia l S ec urity taxes beginning January 1 and the adjustment i n the surtax l i a b i l i t y because of i n s u f f i c i e n t w ith h o ld in g s . The Council believes that the tax increase has re s u lte d in some reduction in the in f lo w of consumer-type time deposits. There was no s i g n i f i c a n t discu ssio n of th is to p ic . D. How would the Council assess the experience o f member banks thus fa r with the new methods o f computing reserve requirements under the amendment to R e gulatio n D that became e ffe c t i v e September 12, 1968? Although a l l member banks have not completely adjusted to the new methods of computing reserve requirements under the amendment to R e g u la tio n D, the Council believes that bankers g e n e r a lly have been favorably impressed with the new procedure. There was no s i g n i f i c a n t d iscu ssio n of th is to p ic . E What response, i f any, in banker plans have C ouncil members observed to the Board's ac tio n a llo w in g S ta te member banks to own and operate c e r t a i n kinds of s u b s id ia ry corporations and loan p rod uctio n o ffic e s ? 11/19/68 -8- The Council believes that the Board's decision to allow State member banks to own and operate c e rta in kinds of s u b sid ia ry corporations and loan production o ffices was welcomed by the vast m a jo rity of bankers. There have been some diffe re nce s in the in t e r p r e t a t io n by State a u th o r itie s as to whether these o ffic e s c o n s titu te branches which have lim it e d the impact of the r u l in g . President Mayer commented that he believed the r u lin g had been a step i n the r ig h t d i r e c t i o n , one th at would be b e n e fic ia l to the image of the Federal Reserve, In response to a question by Governor M itc h e ll regarding the a t t i t u d e of S tate supervisory a u t h o r it ie s toward the in te r p r e ta tio n on loan production o f f i c e s , Mr. C raft noted th at the Florida banking a u t h o r it ie s regarded such o ffic e s as branches, which were not allowed i n the S tate. Mr. Stewart commented that a s im ila r s it u a t i o n pre v a ile d i n Texas., Mr. W ilkinson in d ic a te d that the a t t i t u d e in V i r g i n i a was th a t such o ffic e s were not e s s e n t ia l ly d if f e r e n t from t r a v e li n g representatives operating from h o te ls . Mr. Fox observed t h a t the S tate Commissioner i n Missouri had challenged the r u lin g , which was odd because he had never challenged the mortgage company o pe rations of Mr. Fox's bank. Chairman M artin withdrew from the meeting at th is p o in t. F. What comments or suggestions do Council members have regarding regulatory pro v is io n s the Board might issue in imple m entation of the recently enacted l e g i s l a t i o n concerning re g u la tio n of a d v e r t is in g of rates of in te r e s t on de p o sits? 11/19/68 -9- The members of the Council have no s p e c ific suggestions to the Board regarding regulatory pro v is io n s to be issued in implementation of the recently enacted l e g i s l a t i o n concerning re g u la tio n of advertising of rates of i n t e r e s t on deposits. However, the Council would urge th at the reg ula tio ns provide general guide lin e s ra th e r than lengthy, d e ta ile d requirements. The o b je c tiv e should be to prevent the use of statements which may mislead the p u b lic . Bankers in general s tro n g ly b elieve th at s im ila r regulations should be a p p lic a b le to a l l savings and t h r i f t i n s t i t u t i o n s . President Mayer said th at the Council was concerned about advertisements th a t stressed the y ie ld on a c e r t i f i c a t e of deposit i f held for a long period of years, with only passing reference to the annual in t e r e s t ra te The Council did not believe such a d v e r tis in g was d e s ir a b le , because i t re fle c te d adversely not only the bank th a t resorted to such a d v e r tis in g but also the banking in d u stry g e n e rally . I t was f e l t th at such practices should be stopped The p r i n c i p a l emphasis of the C ouncil, President Mayer added, was on the need to p r o h i b i t a d v e r tis in g that would mislead the p u b lic and to subject t h r i f t i n s t i t u t i o n s to r e s t r ic t io n s com p ara ble to those placed on banksIn response to a question on the l a t t e r p o in t , Governor Robertson said he believed th at the a t t i t u d e of the Federal Home Loan Bank Board, which would prescribe reg ula tio ns for savings and loan a s s o c ia tio n s under Federal sup erv isio n, would be cooperative. The Board's s t a f f had prepared a d r a f t of amendment to Regulation Q, 11/19/68 -10- Payment of In t e r e s t on Deposits, which he f e l t was consistent with the views expressed by the Council. I f such a regulation were approved by the Board of Governors, the Federal Deposit Insurance C orporation, and the Federal Home Loan Bank Board, he believed th a t as much would have been accomplished in th is broad area as was p o ssib le w ithout going in to great d e t a i l . Mr. W ilkinson expressed agreement that the subject should be approached i n broad terms; the conspicuous exceptions could be d e a lt with without much trou ble Mr Conn in q uire d whether the Board considered i t manda tory to adopt r e g u la t io n s , and Governor Robertson re p lie d t h a t , w hile i t was not mandatory, he p erso n ally believed i t was desirable, if the r e g u la tio n s were of the r ig h t kind. I f the agencies f a il e d to take any a c tio n by way of issuance of r e g u la tio n s , he thought they would run in t o re a l d i f f i c u l t i e s in future appearances before Congressional committees. Mr. Conn then commented on supervisory methods employed to c o n tr o l a d v e r t is in g p rac tic es followed by banks in the past and expressed the view th a t those methods had worked q u ite s a t i s fa c to r ily . While r e g u la tio n s couched in broad terms might provide u s e fu l g u id e lin e s fo r the fo rm ula tio n of dec isio n s, he f e l t i t would be almost necessary to use a case-by-case approach in a d m in is t e r in g such g u id e lin e s -11- 11/19/68 P resident Mayer inq uired whether the proposed regulations would a f f e c t long-term guarantees of a c e r ta in rate of in te r e s t, in response to which Governor Robertson brought out that under the present terms of R e gulatio n Q such guarantees stood even i f the maximum p e r m is s ib le i n t e r e s t rates were revised downward. The Board had the power to re q u ire t h a t deposit contracts be brought into conform ity i f the maximum rates were reduced, but as a matter of p o lic y i t had taken the p o s i t i o n th a t outstanding contracts should not have to be a d ju ste d . 3. Balance of payments. A- How does the Council appraise the outlook fo r the remainder of the year for (1) demands fo r Euro-dollar loans at foreign branches of U.S. banks, (2) Euro-dollars advanced by branches to home o f f i c e s , and (3) d i r e c t borrowings from foreign banks by U.S. banks ( i . e . , not through foreign b ra n c h e s)? (1) The Council a n t i c ip a t e s a seasonal increase in the demand fo r Eu ro- do llar loans at fo reig n branches of U.S. banks, r e f l e c t i n g i n p a rt year-end borrowing by U.S. corpora tio n s as they a d ju s t t h e i r d ir e c t investment p o s itio n s. (2) and (3) Changes i n the volume of Euro-dollars advanced by branches to home o f f i c e s , as w ell as d ir e c t borrowings from fo r e ig n banks by U.S. banks ( i . e . , not through foreign branches) , w i l l be la r g e ly determined by the r e l a t iv e cost o f these funds vis-a-vis other sources The r e l a t iv e t i g h t ness o f the U S. money markets w i l l also be a fac tor deter m ining the volume of these tr a n s a c tio n s . I f conditions remain about what they are today, the amount of Euro-dollars advanced by branches to home o f f ic e s or d ir e c t borrowings from fo r e ig n branches are not l i k e l y to change appreciably d u rin g the remainder of t h is year. 11/19/68 -12Governor M itc h e ll inquired whether, in view of the substan t i a l increase i n Euro-dollar borrowings in recent years, i t would seem d e s ir a b le to set any l i m i t a t i o n s in terms of the banking system or i n d i v i d u a l banks. Some banks obviously had large holdings of E u r o - d o lla r s . P resident Mayer said t h a t , while the Council had not discussed such a p o s s i b i l i t y , h is own bank kept q uite a careful balance between funds obtained from the Euro-dollar market and other sources. Mr. Kennedy commented th at h is i n s t i t u t i o n also maintained i t s own l i m i t a t i o n s on E u ro- do llars, these being changed as conditions changed. Of course, having too many funds in almost the demand area was a cause fo r concern. The need to meet commitments already made was the force t h a t might cause an increase in Euro-dollars between now and the end of the year. By and la rg e , h is bank regarded the choice between Euro-dollars and CD's as almost dependent on rates, asid e from the q uestio n of m a tu rity . Governor Maisel in q u ir e d whether the decision might not a ls o give weight to the fa c t th a t i n the Euro-dollar market there was no lender of la s t r e s o r t. Mr. Kennedy r e p lie d t h a t a l l of the major banks had been concerned about whether they could get Euro-dollars at a l l . They t r i e d to keep a clo se check on developments in the Euro-dollar market and were aware of t h e i r v u l n e r a b i l i t y . 11/19/68 -13Governor S h e r r i l l said he had received the impression that bankers f e l t the Euro-dollar market was becoming less v o l a t i l e , and Mr Kennedy noted th at the volume had held up both in good times and bad. President Mayer commented that perhaps the banking community was becoming accustomed to dealing in Euro-dollars as an a lt e r n a t e source of money. Most banks r e s tr ic te d t h e ir use of Euro-dollars i n p ro p o rtio n to t h e i r CD's, although he agreed that the p r o p o r tio n was tending to r is e . Mr. Kennedy observed th a t, w hile a bank might not always be able to issue CD's, according to the experience thus fa r i t could always obtain Euro-dollars, a t a p r ic e . In response to a question by Governor M it c h e ll, Mr. Kennedy said the Eu ro- do llar market apparently was tending to lengthen a little , but the rates were high . Longer-term money was a v a ila b le , but only i f one was w i l l i n g to pay the p rice. B. Do Council members have any comments or suggestions w ith respect to a voluntary fo re ig n c r e d it r e s t r a in t program fo r 1969? The members o f the Council would favor (1) the e x c lu sio n of export fin a n c in g from the g u id e lin e s , and (2) the f u r t h e r easing o f the vo luntary fo reign cre d it r e s t r a i n t program for 1969, with the o b je c tiv e of e l i m i n a t i n g the program as soon as p o ssib le . P resident Mayer said there was some fe e lin g th at others were being given r e l i e f from the r e s t r i c t i o n s while the banks were n o t. I t was easy to re g u la te banks, and therefore there might be a tendency to t r e a t them a l i t t l e d i f f e r e n t l y . 11/19/68 -14I n response to a question, Governor Robertson said that the Board had not yet decided on guidelines for 1969. He noted th at the dete rm ination of those g uideline s was not e n tir e ly a matter fo r the Board's d e c is io n , and i t was possible that whatever was decided upon might be changed by the incoming Administration. His own view was th at i t would be necessary to go slow in e lim in a t ing the fo r e ig n c r e d it r e s t r a i n t program as long as the balance of payments problem remained fundamentally serious. He noted that the easing announced by the Department of Commerce had a c tu a lly been very s l i g h t . There were others who shared the view of the Council that export fin a n c in g should be excluded, Governor Robertson continued. Perhaps th a t view was c o r r e c t, but he did not th in k so. He believed t h a t i f export fin a n c in g were excluded a completely d if f e r e n t type of program would be necessary. He would rather see the present program dropped than to see i t s effe ctivene ss undermined. Governor M i t c h e ll observed th a t the program, o r i g i n a l l y announced as temporary, had been i n e ffe c t for four years„ This type of program,which ad m itte d ly papered over the fundamental problems, tended to become more d is c r im in a to r y and in e q u itab le w ith the passage of time. On the other hand, i t could hardly be abandoned unless something was a v a i la b le to replace i t He would l i k e to see other types of measures explored that might accomplish 11/19/68 -15- the purpose of the program more e ffe c t iv e ly . The balance of payments problem was a d i f f i c u l t one to solve, and i t had been approached in a temporizing way through a device that was no longer app ro priate . Governor Robertson agreed with the view that something must be s u b s t it u t e d i f the current program was to be elim inated. President Mayer said there was general agreement w ith in the Council th a t the balance of payments problem must be solved i n one way or another. 4. I t would not simply disappear. The Board would be interested in any comments the Council members might have on the d r a f t of the proposed re g u la tio n to implement the Truth i n Lending T it le of the Consumer C redit P rotection Act t h a t was published on October 16. The Council believes th a t the appropriate s t a f f personnel i n the la rg e r banks have submitted comments on the d r a f t of the proposed r e g u la tio n to implement the Truth i n Lending T i t l e of the Comuner Credit Protection Act. Some members of the Council are today submitting a d d i t i o n a l memoranda on t h i s subject to the Secretary of the Board. The members of the Council were dismayed at the le ngth and great d e t a i l of the proposed re g u la tio n . In the C o u n c il's judgment i t would have been preferable i f the r e g u la t io n could have been w r itte n in more general terms and s u b s t a n t i a l l y reduced i n length. P resident Mayer commented th at much of the f i e l d covered by the r e g u la t io n was extremely t e c h n ic a l. Although members of the C ouncil were f a m i l i a r with the subject at the p o lic y le v e l, they had had l i t t l e experience at the le ve l of day-to-day opera tio n s and f e l t somewhat at a loss to o ffe r co nstructiv e comments. 11/19/68 -16- T h e y w e r e b o t h e r e d by the length of the r e g u l a t i o n and assumed that it m a y h a v e r e s u l t e d from the receipt of adv i c e from numerous o u t s i d e s o u r c e s as to p o i n t s that should be covered. G o v e r n o r R o b e r t s o n r e m a r k e d that the Council members were not a l o n e in t h i n k i n g the r e g u l a t i o n was too long and complicated. However, t hat had not r e s u l t e d f r o m r e c e i v i n g a great volu m e of o u t s i d e a d v i c e as m u c h as f rom h a v i n g the best ava i l a b l e technical e x p e r t s f r a m e the r e g u l a t i o n so as to a p p l y to all kinds of b u s i n esses. Also, a b o u t a third of the r e g u l a t i o n as p u b l ished for c o m m e n t c o n s i s t e d of t e c h n i c a l p r o v i s i o n s that would be used only b y g r o u p s c o m p i l i n g i n t e r e s t rate tables. It was pla n n e d to s e p a r a t e t hat p a r t in a s u p p l e m e n t , w h i c h w o u l d be p r o v i d e d only to t h o s e w h o w a n t e d it. M a n y c o m m e n t s on the d r a f t r e g u l a t i o n had b e e n received, G o v e r n o r R o b e r t s o n said, and the s t a f f was trying to take them i n t o a c c o u n t in s u c h a w a y that the r e g u l a t i o n would not become e v e n m o r e lengt h y. T h e r e had a l s o b e e n s u ggestions for m a k i n g the r e g u l a t i o n less c o m p l i c a t e d , and e v e r y effort would be e x e r t e d to m a k e it m o r e u n d e r s t a n d a b l e and easi e r to apply. G o v e r n o r R o b e r t s o n t h e n d e s c r i b e d the time table for r e f i n i n g a n d a d o p t i n g the r e g u l a t i o n and s p oke of the effort being undertaken, t h r o u g h c o n s u l t a t i o n w i t h p r o f e s s i o n a l s in s u c h f i e l d s as a d v e r t i s i n g and p u b l i c rel a t i o n s , to develop 11/19/68 -17- presentatio ns of the substance of the reg ula tio n that would be understandable to everyone, in c lu d in g small merchants and con sumers. I t was hoped to e n l i s t organizations such as banker groups, trade and c r e d it a ss o c ia tio n s , and chambers of commerce i n the extensive educational effort that would be necessary. The thought was to confine the Federal Reserve as much as possible to the ro le of p ro v id in g leadership in the ad m in istra tio n of the le g is la tio n . Mr. Conn in q uire d why the d r a f t re g u la tio n required that records of tra n s a c tio n s be retaine d for as long as two years, and Governor Robertson responded th at t h is had been specified at the request of re p resenta tiv es of some of the enforcement agencies who m aintained th a t they would otherwise have an i n s u f f i c i e n t basis fo r enforcement. However, some changes in the d r a ft regula t i o n were p r e s e n tly under c o n s id e ra tio n . questions by Mr In response to further Conn, he said th at f i l m records would be acceptable and t h a t i n any event the keeping of appropriate records would p r o te c t the lender or merchant fo r the purpose of defense against any charges t h a t might be brought ag ainst him. 5. The Board would appreciate having the views o f the Council members as to the prospects fo r, and any le g a l or other problems seen in, the fo rm ation o f community development corpora tio n s or s i m i l a r arrangements (e it h e r by i n d i v i d u a l banks, groups of banks, or banks and other i n s t i t u t i o n s ) for the purpose of extending fin a n c in g or re a l estate develop ment a s s is ta n c e to businesses and consumers i n the economically disadvantaged areas of c itie s . 11/19/68 -18- The experience of the Council members on the formation of community development corporations or s i m i la r arrangements for fin a n c in g businesses and consumers in the economically disadvantaged areas of c i t i e s has disclosed no important le g a l problems. Bankers g enerally over the country are coop e r a tin g in t h is e f f o r t , and broadening t h e ir p a r t i c ipation. The Urban A f f a ir s Committee of the ABA is aggressively encouraging banks in t h is a c t i v i t y . President Mayer remarked th at h is bank's attorneys had at f i r s t looked ra th e r dubiously at the kind of loans being made, one question being whether the j o i n t loans might involve some a n t i t r u s t i m p lic a t io n s . A lso, there seemed to be no doubt but th at some of the loans would turn out poorly. Governors Maisel and Robertson observed th a t the C o u n c il's statement ap p are ntly focused on j o i n t p a r t i c i p a t i o n by groups of banks i n community development e f f o r t s . The p o s s ib le le g a l problems th a t the Board wished to probe, however, r e la te d more to a s i t u a t i o n where a s in g le bank formed a community development co rp o ra tio n th a t would engage, among other t h in g s , i n buying, s e l l i n g , and le a sin g re a l e s ta te Members of the C ouncil agreed th a t t h e i r statement had been addressed p r i m a r i ly to cooperative e f f o r t s by banks. President Mayer said th a t w hile h is bank had made sure t h a t the community development c o r p o r a tio n o p e ratin g i n i t s area had never f a i l e d to get the c o n s tr u c tio n money i t needed, the bank i t s e l f had no equity 11/19/68 -19- in t e r e s t in the corporation, Mr. Wilkinson commented that in Richmond equity c a p it a l had been contributed to a nonprofit o rg a n iz a tio n by both banks and i n d u s t r i a l corporations. The eq uity c a p i t a l had provided a base for obtaining Federal funds. The program's th ru s t was to fin d housing for those in the $3,000 to $7,000 income bracket who, in the absence of help, would become f r u s t r a t e d and move back to a lower le v e l. Governors Maisel and Robertson inquired whether banks regarded these community enterprises as s t r i c t l y nonprofit opera tio n s and whether, i f no t, le g a l d i f f i c u l t i e s were foreseen. The Board's questio n r e fle c t e d i t s desire to f a c i l i t a t e the p a r t i c i p a t i o n of banks i n community development programs to the greatest extent p o s s ib le , w ith in whatever p ro te c tiv e framework was necessary to keep problems from developing. Members of the Council r e ite r a te d that they were aware only o f e f f o r t s being undertaken on a cooperative basis. Mr. Simmen, fo r example, commented th a t banks in h is area were looking in to the p o s s i b i l i t y of forming a s u b s id ia ry for such operations, Mr Kennedy suggested th a t more comprehensive information could be obtained from the committee of the American Bankers A s s o c ia tio n th a t had been studying t h is matter in te n s iv e ly . In the Chicago area, banks were exploring a l t e r n a t iv e ways of providing e q u ity c a p i t a l , which was the major problem, and had pledged funds 11/19/68 -20- to insure the a v a i l a b i l i t y of loans, even though there was no le g a l problem in s o fa r as the making of loans by in d iv id u a l banks was concerned. So fa r as equity c a p it a l was concerned, the founda t io n route was a p o s s i b i l i t y , or a corporation of some kind to which area banks would co n trib u te c a p i t a l , but i t was not contem p la ted th at in d iv i d u a l banks would set up th e ir own development su b s id ia rie s . Mr Conn inq uired whether there was some difference of opinio n between the Comptroller and the Board on the establishment by a bank of a wholly-owned subsidia ry th at would buy, develop, lease, and s e l l re a l estate for urban r e h a b i l i t a t i o n purposes The answer given was th at the Comptroller had ruled that a bank could purchase the stock of such a s u b sid ia ry , based on the concept of c h a r it a b le c o n t r ib u t io n s , as long as i t wrote o ff the investment on i t s books. Members of the Council indica ted th at they were not f a m i l i a r with the r u l in g in question Governor Robertson r e ite r a te d that the Board wanted to make sure t h a t whatever steps were taken to enable banks to p a r t i c i p a t e i n meeting the problems of urban r e h a b i l i t a t i o n were p rop erly designed for the purpose. I f i t seemed necessary to request l e g i s l a t i o n to f a c i l i t a t e the e f f o r t , that would be sought. -21- 11/19/68 6. The Board would be interested in any comments Council members might have on the d ra ft of the Board's proposed re g u la tio n to implement the Bank P rotection Act of 1968 that has been released for p u b lic a t io n on November 8, The Council believes th at i t would be preferable i f the Board's r e g u la tio n to implement the Bank Protection Act of 1968 were w ritte n in the form of broad guidelines. These g u id e lin e s would permit f l e x i b i l i t y dictated by s ize , loca t i o n and other fa c to r s , rather than prescribe detailed te c h n ic a l p ro te c tiv e and security measures required of every bank I n d iv id u a l banks would be expected to report only that they are in general compliance with the reg ulatio n. Some members of the Council have asked appropriate s t a f f personnel in t h e ir i n s t i t u t i o n s to comment in w riting d i r e c t l y to the Board or through t h e ir lo ca l Federal Reserve Banks. President Mayer said the Council was concerned about the p u b lic r e la t io n s aspects of the proposed re g u la tio n from the System's sta n d p o in t. There were vast d iffe r e n c e s , he pointed out, among banking o f f ic e s . A large downtown o f f ic e and a small country o ffic e had d i f f e r e n t p r o te c tio n problems; any set of rules th at would f i t one would be in a p p ro p ria te for the other. This philosophy was at variance w ith the r e g u la tio n as d r a fte d , which contained many sp e c ific requirements fo r equipment and p ro te c tiv e devices, Governor Robertson said th a t the Board wanted the Council's fra n k r e a c t io n and was glad th at some of the members also were having suggestions submitted in w r itin g by t h e ir i n s t i t u t i o n s . He described how the d r a f t r e g u la tio n had been developed in co nsulta t i o n w ith o rg a n iz a tio n s such as the Federal Bureau of In v e s tig a tio n , 11/19/68 -22- the Secret Service, and the equipment industry, pursuant to a s t a tu te that contained a mandate to prescribe minimum standards. At various places in the r e g u la tio n , allowance was made for "something comparable" to the equipment sp ecified . The e f f o r t had been, Governor Robertson added, to arrive at requirements w ith which almost a l l large banks and most of t h e i r branches would be found to have complied already. While such i n s t i t u t i o n s would have to make an i n i t i a l report, further reports would be necessary only when a crim ina l act had occurred. President Mayer remarked th at some i n s t it u t io n s had shockingly l i t t l e in the way of safeguards. There were wide v a r ia t io n s from one bank to another, for example, on cameras and how they were maintained. He noted, however, that the requirement th a t a report be made a f t e r every robbery was not necessarily a l i g h t burden, because a large i n s t i t u t i o n w ith many branches might experience numerous robberies. Mr. L a rk in said he could speak for an area where branch banking was the r u le and robberies were so frequent that i t had been estimated th at the burden of compiling a report on each one would take the f u l l time of one or two men in a s in g le i n s t i t u t i o n . Moreover, the nature o f the problem, e s p e c ia lly in a branch banking s t r u c t u r e , was such th a t the kind of re g u la tio n proposed--with requirements fo r s p e c i f i c p r o te c tiv e devices--was not going to 11/19/68 -23- c o n tr ib u te c o n s tru c tiv e ly toward a s o lu tio n . He described circum stances that contrived to make many such devices of very lim ited value and emphasized th at a large branch banking organization had to be prepared to deal with d if f e r e n t types of problems at each of i t s o f f ic e s . For such a banking structu re , the proposed regulation would be im p r a c tic a l and would f a i l to achieve the desired re su lts. Governor Robertson remarked th at i t would be h e lp fu l i f banks would o ffe r suggestions for a re g u la tio n that would be prac t i c a l and would carry out the mandate of the law. For better or worse, the Bank P ro te c tio n Act was on the books, and i t required th at reg ula tio ns be prescribed.. Mr. Conn commented on the sp e cia l problem of small banks. I n the Tenth D i s t r i c t , for example, most of the banks that suffered robberies were in the suburbs of the larger c i t i e s . A great number o f banks located in small towns had a low incidence of robberies and, w ith t o t a l resources t y p i c a l l y of no more than $5 m i l l i o n , they would f i n d the requirements regarding co ns tructio n and equipment extremely onerous. Then too, some of the provisions of the d r a ft reg ulatio n could not be complied with by small banks located in communities w ith o ut a lo c a l p o lic e force. He emphasized th at the Council r e a li z e d the d i f f i c u l t y the Board faced in devising a re g u la tio n th a t would carry out the l e g i s l a t i v e mandate and be constructive. Yet he f e l t i t should be p o s s ib le to set standards without such a la ck o f f l e x i b i l i t y as i n the d r a f t re g u la tio n . 11/19/68 -24President Mayer suggested that the Bank Management Commission of the American Bankers A ssociation might be h e lp fu l. He and Mr. Conn also stressed the d e s i r a b i l i t y of having comparable regulations adopted by the several Federal supervisory agencies. Governor Robertson stated that the American Bankers Association had been asked for h elp . He described some of the p r in c ip a l differences i n the outstanding d r a ft r e g u la tio n s , p a r t i c u la r l y as to reporting requirements, and advantages th at were seen in the Federal Reserve d ra ft. He also spoke of arrangements being considered in an e ffo r t to bring the re g u la tio n s of the several supervisory agencies more c lo s e ly together He had requested th at a sample of banks be selected by each agency and asked to study the a p p lic a t io n of the regulations to t h e i r own s i t u a t i o n s , w ith the thought th at the comparisons made would help to promote the greatest p ossible regulatory uniform ity. I n response to a question by Mr. Nason, he said that c r i t i c a l com ments would be welcomed by the Federal Reserve from a l l classes of banks. 7 What are the C o u n c il's views on monetary and c r e d it p o lic y under current circum stances? The Council believes th at a p o lic y of monetary and c r e d it r e s t r a i n t is appropriate because of the p e r s is tence of the strength of demand and the r e s u lt in g continued upward pressure on p ric e s . There has been a lag between changes i n f i s c a l p o lic y and t h e i r impact on economic a c tiv ity , The C o u n c il, th e re fo re , believes that a p o lic y o f moderate r e s t r a i n t should be continued u n t i l there is c le a r evidence th at i n f l a t i o n a r y pressures have lessened. 11/19/68 -25Governor Maisel inquired whether the Council was defining the present p o lic y posture as one of moderate r e s t r a i n t , and President Mayer re p lie d that the C ouncil's statement was intended to convey th at impression. Governor Robertson commented that the statement appeared to in d ic a t e th a t the Council believed the degree of r e s tr a in t being achieved by monetary p o lic y , in the absence of s u f f ic ie n t f i s c a l r e s t r a i n t , at le a s t in terms of consumer spending, would s u f f i c e to r e lie v e i n f l a t i o n a r y pressures while m aintaining r e l a t i v e l y f u l l employment President Mayer re c a lle d th at at i t s la s t meeting the Council had been somewhat c r i t i c a l of monetary p o lic y as being a little too easy r ig h t a f t e r the tax increase He believed the present view was th at at the moment the p o lic y posture was r i g h t , althoug h the Federal Reserve should not take i t s foot o f f the brake too soon. Governor Robertson asked whether the Council would advocate pushing down on the brake a l i t t l e harder, since the economy appeared stronger than most observers had expected and in f la t io n a r y pressures were s t i l l acute. Mr. W ilkinson observed th at i t was admittedly d i f f i c u l t to m a in ta in the same tempo of r e s t r a i n t week a f t e r week. had to fe e l i t s way along. The System The Council was trying to say that the 11/19/68 -26- System should stay w ith in the ranges that had prevailed recently, and not ease u n t i l i n f l a t i o n a r y pressures abated. Whether a l i t t l e more r e s t r a i n t would be desirab le was hard to say. Governor Maisel observed that views had been reported at the time of the recent meeting of the Business Council that an unemployment rate as high as 5-1/2 per cent would have to be to le r a te d i f i n f l a t i o n was to be brought under control and nothing else would s u f f ic e . He read the C o u n c il's statement as in d ic a tin g th a t i t did not consider a sharp increase in the unemployment rate to be a necessary goal for monetary p o lic y . Mr„ S t i l l expressed the view th at in present times such a s o lu t io n would be completely u n p a la ta b le , and President Mayer said he did not th in k i t would be acceptable to e ith e r p o l i t i c a l party. Governor Robertson said he did not th in k i t followed that a little tig h t e n in g of monetary p o lic y would produce a high unemploy ment r a te . Governor Maisel agreed. However, some members of the Busines Council seemed to fe e l th a t the goal should be an unemployment rate as high as 5-1/2 to 6 per cent and some representatives of large banks had been quoted s i m i l a r l y at the time of the ABA convention. Mr. Conn observed th a t there was a fa ir- s iz e d body of o p in io n to the e ffe c t th a t i n f l a t i o n could not be co ntrolled when the unemployment rate was as low as 3.6 per cent. The Advisory 11/19/68 -27- CouncM f e l t th at a f t e r the f i r s t of the year the increased Social Security taxes and the surtax would exert an increasing e ffe c t, and in view of th at the present posture of monetary policy appeared to be about r i g h t . However, i f the expected dampening effect did not occur, i t might be necessary to put on the brakes a l i t t l e harder. Mr. Kennedy said the Council had not gone in to the question of s i g n i f i c a n t unemployment and instead had looked at the present s i t u a t i o n and the changes th at were foreseen His own view was that p o ssib ly the present monetary p o lic y was not quite r e s t r i c t i v e enough, although i t was d i f f i c u l t to t e l l „ At the time of the la s t meeting he f e l t th at the Federal Reserve had moved toward ease a little too f a s t , apparently i n the b e l i e f that the f i s c a l le g i s l a t i o n would r e lie v e the e x is tin g pressures somewhat. Now i t was being fo recast th at perhaps next year conditions would not be so stro n g , but th a t was not c e r ta in and he would want to await further developments before making any p o lic y move. In response to a request for e la b o ra tio n of his comment regarding monetary r e s t r a i n t and the unemployment r a te , Governor Robertson said he was sure th a t i f monetary p o lic y was tightened s u f f i c i e n t l y the unemployment rate would r is e . However, he did not b e lie v e anyone could t e l l p re c is e ly what degree of r e s t r a in t would produce a p a r t i c u l a r r a t e , say 5-1/2 per cent. 11/19/68 -28Governor S h e r r i l l observed that at i t s September meeting the Council had expressed the view th at the reduction of the discount rate by 1/4 of 1 per cent might not have been a wise move He wondered i f i t was now the view of the Council that the previous ra te should be restored. Mr.. Kennedy suggested that i t might be better to le t the present rate stand and make any necessary adjustments through other instruments. In response to a furth er question by Governor S h e r r i l l , he and several other members said they now f e l t more comfortable w ith the posture of monetary p o lic y than they had at the time of the la s t meeting. Mr. W ilkinson commented th at there was a question as to what motivated the consumer. I f the consumer was motivated by the thought th a t i n f l a t i o n was l i k e l y to be a way of l i f e , he might continue to spend fr e e ly even i f increased taxes h i t him hard. Otherwise, the tax impact was l i k e l y to cause a c u r t a i l ment of spending. President Mayer said t h a t , pursuant to in q u ir ie s by Board r e p r e s e n ta tiv e s , the Council had discussed fu rth e r the p o s s i b i l i t y of s h i f t i n g to a d i f f e r e n t p atte rn of meeting dates th at would reduce c o n f l i c t s w ith meeting schedules i t understood were being considered by the Federal Open Market Committee, However, i t appeared t h a t any of the a l t e r n a t iv e s th a t had been suggested would involve 11/19/68 -29- numerous c o n f l ic t s with engagements that members of the Council must keep, according to the schedules of the present Council members. A fte r some discussio n of the possible a lte r n a tiv e s , Governor Robertson said th at i n the circumstances the scheduling problem of the Federal Open Market Committee would be resolved in some other way. I t was agreed th at the next meeting of the Federal Advisory Council would be held on February 17-18 1969 The meeting then adjourned. Secretary
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