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MINUTES OF THE MEETING OF THE FEDERAL ADVISORY COUNCIL Septem ber 18, 1955 The third statutory meeting of the Federal A dvisory Council for 1955 was convened in Room 932 of the M ayflower H otel, W ashington, D .C ., on Septem ber 18, 1955, at 2:10 P.M ., the President, Mr. Brown, in the Chair. Present: William D . Ireland Henry C. Alexander William R. K. M itchell Frank R. D enton Robert V. Fleming Wallace M . D avis Edward E. Brown W. W. Campbell Joseph F. Ringland Charles J. Chandler George G. M atkin John M . Wallace 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 On motion duly made and seconded, the m im eographed notes of the m eeting of the Council held on M ay 15, 16 and 17, 1955, copies of w hich had been sent previously to the members of the Council, were approved. The Secretary, Herbert V. Prochnow, tendered his resignation as Secretary, effective October 1, 1955. Mr. Prochnow has accepted an appointm ent, for a lim ited period, to the position of D eputy Under Secretary of State for E conom ic Affairs. T he C ouncil accepted the resignation with regret. Mr. William J. K orsvik was elected A cting Secretary, w ith an annual salary at the rate of $1,800. A complete list of the item s on the agenda for the m eeting and the conclusions of the Council are to be found in the Confidential M e m o r a n d u m to the B o a r d of Governors from the Federal Advisory Council , which follows on pages 22 and 23 of these m inutes. The meeting adjourned at 5:20 P.M . HERBERT V. PROCHNOW Secretary 20 MINUTES OF THE MEETING OF THE FEDERAL ADVISORY COUNCIL Sep tem b er 19, 1955 A t 10 A .M ., th e F ederal A d visory C ouncil reconvened in R oom 932 of th e M a y flo w er H otel, W ashin gton, D .C . P resen t: M r. E dw ard E . B row n, P resident; M essrs. W illiam D . Ireland, H en ry C . A lexander, W illiam R . K . M itch ell, Frank R . D en ton , R obert V. F lem ing, W allace M . D avis, W . W . C am p bell, C harles J. C handler, G eorge G. M atk in , John M . W allace, and H erbert V. P rochn ow , Secretary. A b sen t: M r. Joseph F . R ingland. T h e C oun cil review ed its conclusions of th e previous d ay regarding th e item s on th e agenda and sen t to th e Secretary of th e B oard of G overnors th e Confidential M e m o r a n d u m to the B o a r d of Governors fr o m the Federal Advisory C oun cil , w hich follow s on p ages 22 an d 23, listin g th e agenda item s w ith conclusions reached b y th e C ouncil. T h e M e m o r a n d u m w as delivered to th e A ssistan t Secretary of th e B oard of G overnors a t 12 noon on S ep tem ber 19, 1955. T h e m eetin g adjourned at 11:40 A .M . HERBERT V. PROCHNOW S ecretary 21 CONFIDENTIAL M E M O R A N D U M TO T H E B O A R D O F G O V E R 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 FOR T H E JO IN T M E E T IN G O N S E P T E M B E R 20, 1955 1. W hat are the view s of the C ouncil w ith respect to the prospective business situation during the rem ainder of this year and the first three m onths of next year and the probable changes th at will take place in the volum e of bank loans in each of these periods? D o the m em bers of the Council see any significant changes in the com position of bank loans in the present period of high level economic activity? The Council expects a high level of business activity during the remainder of this year and through the first three m onths of next year. It expects that the rate of increase in business activity will probably be less than th at experienced in the first three quarters of 1955. The mem bers of the C ouncil believe th at the volum e of bank loans will increase more than seasonally in the last three m onths of this year. In the first quarter of 1956, the Council anticipates a seasonal decline in loans, but less than usual. There is a distinct possibility that no decline m ay occur due to a probable further increase in the volum e of outstanding consum er credit represented both b y direct loans and by loans to finance companies and to com m ercial concerns carrying a m aterially larger am ount of consumer paper. Likewise, the volum e of real estate loans m ay experience an expansion in the first quarter of next year. Insurance com panies and other financial institutions are com m itted to take real estate m ortgages presently in an am ount in excess of their receipt of funds from savings and m aturing investm ents. Som e banks have substantial outstanding com m it m ents to warehouse these loans tem porarily. There m ay also be an increase in real estate loans because of agreem ents made directly by banks w ith contractors and m ortgage bankers whose borrowings are to be liquidated later under com m itm ents for perm anent financing m ade by insurance companies or other institutions. A lthough arrangem ents for new real estate financing are being curtailed, the financing of present com m itm ents will probably necessitate additional credit during the first quarter of 1956. Apart from the greater im portance of loans based directly and indirectly on consumer credit and for real estate financing, the C ouncil sees no im portant change in the com po sition of bank loans in the present period of high level econom ic activity. 2. The Board would appreciate the view s of the m em bers of the Council w ith respect to the System ’s current credit policies and w hat, if any, changes m ight be called for during the remainder of this year. A t the M ay m eeting, the Council responded to a similar question of the Board of Governors as follow s: “The effects of System credit policies since the last m eeting of the Council have been good. The Council believes that a policy of mild credit restriction should be continued for the near term if business continues to be buoyant. 22 Government financing for new money in substantial volume is inevitable in the last half of the calendar year. If, as seems probable, the banks must provide a considerable part of the new money required, and if business continues at a high level with an increasing demand for bank loans, the System must be prepared through open market operations or a reduction in reserve requirements, or both, to put more reserves into the banks. In view of the increasing activity of business and of the probability of an increase in loans in the months immediately ahead, it m ay become necessary to consider raising the rediscount rate. The use of the discount window by member banks should not be restricted or discouraged, as credit for good borrowers should continue to be available at reasonable rates.” The Council believes that the System’s credit policies since its last meeting have been well conceived and carried out. It believes that the objective of restraining the further developm ent of the present boom was and is correct. The System’s policies are having desirable effects which should become increasingly apparent. The conditions which the Council at the time of the M ay meeting thought might develop have now come about. In view of the imminence of heavy Treasury financing and with the increasing seasonal need for loans, the Council believes that the time has come when more reserves must be put into the banking system. The Council believes that this can be better accomplished through open market operations than through a reduction in reserve requirements. There is a growing concern among bankers that the use of the discount window may be restricted or severely discouraged. Unless the banks feel assurance that the discount window will be readily available, even though the cost of their borrowing may be higher, it is apt to create a panicky feeling which might lead to widespread liquidation of govern m ent bonds and undue restriction of credit to the banks’ customers. It would be very unfortunate if such a feeling of apprehension among bankers, as developed in the first half of 1953, should again occur. 3. Is there any legislation that the members of the Council feel the Board should support or sponsor in the forthcoming session of the Congress? The Council does not at this time have any suggestions as to legislation that the Board m ight support or sponsor in the forthcoming session of the Congress. If the Board has any questions about legislation now pending or suggested, the members of the Council will be pleased to discuss them. 23 MINUTES OF THE MEETING OF THE FEDERAL ADVISORY COUNCIL Septem ber 19, 1955 At 2:15 P.M ., the Federal Advisory Council convened in the Board Room of the Federal Reserve Building, W ashington, D .C ., the President M r. Brown, in the Chair. Present: Mr. Edward E. Brown, President; M essrs. W illiam D . Ireland, H enry C. Alexander, William R. K. M itchell, Frank R. D enton, Robert V. Flem ing, W allace M . Davis, W. W. Campbell, Charles J. Chandler, George G. M atkin, John M . W allace, and Herbert V. Prochnow, Secretary. Absent: Mr. Joseph F. Ringland. Dr. Winfield W. Riefler, A ssistant to the Chairm an of the Board of G overnors of the Federal Reserve System , discussed the subject of “M onetary D evelopm ents Since the War”. Dr. Woodlief Thomas, Econom ic Adviser to the Board of Governors, and Dr. Ralph A. Young, Director, D ivision of Research and Statistics of the Board, were present to answer questions. A copy of the charts used by Dr. R iefler was sent to the m em bers of the Council. The meeting adjourned at 3:15 P .M . HERBERT V. PROCHNOW Secretary 24 MINUTES OF JOINT CONFERENCE OF THE FEDERAL ADVISORY COUNCIL AND THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM September 20, 1955 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, W ashington, D.C. Present: M embers of the Board of Governors of the Federal Reserve System : Vice Chairman C. Canby Balderston; Governors M . S. Szymczak, A. L. M ills, Jr., J. L. Robertson and Chas. N . Shepardson; also Mr. M erritt Sherman, Assistant Secretary of the Board of Governors. Present: M embers of the Federal Advisory Council: Mr. Edward E. Brown, President; Messrs. William D. Ireland, Henry C. Alexander, WTilliam R. K. M itchell, Frank R. Denton, Robert V. Fleming, Wallace M . D avis, W. W. Campbell, Joseph F. Ringland, Charles J. Chandler, George G. M atkin, John M . W allace, and Herbert V. Prochnow, Secretary. President Brown stated that the Secretary of the Council, Mr. Herbert V. Prochnow, has accepted, for a lim ited period, the position of Deputy Under Secretary of State for Econom ic Affairs. The Departm ent of State has suggested that Mr. Prochnow might attend Council meetings. Vice Chairman Balderston and Governor Robertson said they could see no objection to Mr. Prochnow’s attendance, but would inform the Council definitely later. President Brown reported that Mr. William J. Korsvik has been appointed Acting Secretary of the Council effective October 1, 1955. The President of the Council read the first item on the agenda and the conclusions of the Council as given in the Confidential M e m o ra n d u m to the Board of Governors from the Federal Advisory Council as printed on pages 22 and 23 of these m inutes. A discussion followed in which members of the Board and the Council participated. President Brown read the second item on the agenda, and the conclusions reached by the Council, as expressed in the Confidential M e m o r a n d u m , previously mentioned. Pres ident Brown added that there is a danger of creating a panicky condition, if bankers be come apprehensive about the possibility of using the discount window. An extended discussion followed. The third item on the agenda and the conclusions of the Council as expressed in the attached Confidential M e m o r a n d u m to the Board were then read by President Brown. Vice Chairman Balderston stated that the Board has no legislation in contem plation. The meeting adjourned at 12:55 P.M. HERBERT V. PROCHNOW Secretary 25 This transcript of the Secretaires notes is not to be regarded as complete or necessarily entirely accurate* NOTEs The transcript is for the sole use of the members of the Federal Advisory Council® The concise official minutes for the entire year are printed and distributed later,. The Secretary’ s notes of the meeting of the Federal Advisory Council on September l8o 1955 at 2% 10 P«M0 in Room 932 of the Mayflower Hotel* Washington* D©Co All members of the Council were present,. The Council approved the Secretary8s notes for the meeting of the Council on May i$j> 16$ 1? 5) 1955 o * * * * * The Secretary $ Herbert V* Prochnow,, tendered his resignation as Secretary, to become effective October 1 , 1955o The Department of State has asked Mr. Prochnow to consider an appointment to the position of Deputy Under Secretary of State for Economic Affairs^ and he has indicated that he would accept the position, for a limited period, subject to the final clearance® The Board accepted the resignation with regret, and with appreciation for his noteworthy services as Secretary for the past ten years, and with best wishes for his success in his new position. Mr0 William J e Korsvik was elected Acting Secretary, with an annual salary at the rate of $1,800* ITEM I 1HAT ARE THE V IE W S CF THE COUNCIL WITH RESPECT TO THE PROSPECTIVE BUSINESS S IT U A T IO N DURING THE REMAINDER OF TH IS YEAR AND THE FIRST THREE MONTHS OF NEXT TEAR AND THE PROBABLE CHANGES THAT WILL TAKE P U C E IN THE VOLUME OF BANK LOANS IN EACH OF THESE PERIODS? DO THE MEMBERS OF THE COUNCIL SEE ANY SIGNIFICANT CHANGES IN THE COMPOSITION OF BANK LOANS IN THE PRESENT PERIOD OF HIGH LEVEL ECONOMIC A CTIVITY? _____________________________ BROWN reads Item I and asks the members of the Council for comments. He suggests that the members of the Council may wish to comment p r in c ip a lly on whether the b u s in e s s boom w i l l continue for the next s ix months and on the volume of bank lo a n s and th e ir composition* He believes everyone w ill agree that business a c t iv it y is a t a high level now. IR E L A N D . The f l o o d l o s s e s i n h i s d is t r ic t w e r e la r g e , with the u tilitie s ; r a i l r o a d s a n d m u n i c i p a l i t i e s the greatest lo s e rs . However, the recovery has b e e n r a p i d , a n d I r e l a n d d o e s n o t b e l i e v e the floods w ill have a major e ffe c t . The b o o m h a s b e e n a l i t t l e less in New England than it has in the country a s a w h o l e , I r e l a n d e x p e c t s some increase in business over the next six m o n t h s , b u t n o t a s g r e a t as the increase was in recent months. Bank l o a n s a r e h i g h e r a n d he e x p e c t s t h e y w i l l go h i g h e r i n t h e p e r i o d im m e d ia t e l y a h e a d ; b u t t h e i n c r e a s e w i l l n o t b e a s g r e a t a s w a s e x p e r i e n c e d in the e a r l i e r p a r t of th e y e a r . The s e a s o n a l in c r e a s e h as* i n p a r t , been a n tic ip a te d . T h e r e i s some c o n c e r n o v e r c o n s u m e r c r e d i t t e r m s . B o r r o w in g s at the F e d e r a l R e s e r v e a r e h i g h . He b e l i e v e s lo a n s w i l l f o l l o w the ■2- seasonal trend w it h in t h e f i r s t ALEXANDER® the c o u n t r y a s upsurge in In the f i r s t is boom ing, not q u it e s i m i l a r to t h e r e s t o f as good a s t h e y a r e o v e r s e e a n y t h i n g w h ic h w i l l also does not T h is y e a r i n C ity banks are t i g h t reserve p o s itio n in the th e g iv e the s e e a n y t h i n g to e i g h t m o n th s l a s t y e a r , $1 ^ b illio n * New York th e ir are from now o n , b u t he d e c lin ed up $1® 9 b i l l i o n s # net d e f i c i t d istrict A le x a n d e r does not cause a m a j o r d e c l i n e ® New Y o r k C i t y in the e co n o m ic c o n d i t i o n s a w hole® a real i n c r e a s e u p to D e c e m b e r a n d a s e a s o n a l d e c l i n e 1956o B u sin ess the co untry® b u t economy a m oderate quarter of lo an s same p e r i o d , in lo a n s are a n d t h e y are r u n n i n g a t a F e d e r a l R e s e r v e System # Alexander b e l i e v e s t h a t bank l o a n s w i l l i n c r e a s e more than s e a s o n a lly i n New Y o r k C i t y b e c a u s e (l) w a re h o u sin g (3 ) the fact t h a t even h i g h e r t h i s Fall, some b r a k e se aso n ally ® loans i n m illio n now<> C ity a ft e r t h e f i r s t t h a t m oney i s How ever, 1 9 5 6 )© B u sin ess accum ulation® In c r e a s in g ly red® u p fr o m $ 5 8 s o l d out T h is lo a n s w i l l p robably r is e situ a tio n more t h a n W a r e h o u s in g m illio n a year ago to o v e r $ 3 0 0 is is consum er, e v id e n c e stopped® M itc h ell un le s s t h e tig h t on t h e u s e o f 't h e sales bank in d u strial ago® a Fourth D is t r ic t the r e m a i n d e r of th is y ear firs t q u a rter of n e x t year® more m o d e ra te than those m a n u fa c t u r in g a b o v e to the b u sin e ss c r e d it r e l a x a t i o n th e is of not fie ld ), in in a topped first out are of seasonal pattern com m itm ents)® t h e d i s c o u n t w i n d o w )* a c tiv ity , c o n tin u a tio n rate of ne^r f u t u r e ® both gener to c o n t i n u e r i s i n g d u r i n g show a f u r t h e r r i s e however* are rise seem s u n t h i n k a b l e ® in The repeated t h is y e a r . to b e in c r e a s e s o f the u p tren d not be a fa c to r Bank lo a n s are to be R e sid e n tia l a u t o m o b ile s t im u l u s t o m od els a n d The m ain f o r c e s in (p a r t ic u l a r l y in the in p u b lic i n v e n t o r y a c c u m u la t io n ® i n th e lik ely h alf of 1955. an d a f u r t h e r lik ely comments of the y e a r M it c h e ll bu sin e ss u tility and c o n str u c tio n , D efense s p e n d in g on e i t h e r the u p sid e or l ik e l y to d u r in g m ost o f t h e r e m a i n d e r o f 1 9 5 5 s> a n d t h e n level n e x t s i x m onths (O f f - t h e - r e c o r d b u s in e ss the f i r s t a n d e q u ip m e n t and p r o b a b ly w i l l the in to be b u s in e ss the over t h e effect® l a s t y e a r ’ s s u b s t a n t ia l changes in lik ely rise and a f u r t h e r r is e in creases, Bank lo an s t e rm s on co n su m er c r e d i t h a s alm o st c e r t a i n 1 9 5 2 * °5 l e v e l new p la n t the d o w n s id e i n A fter and p ro b a b ly w i l l have e x p e n d it u r e s out of com m ents o n t h e u s e These a little a n d i n d u s t r i a l loans® l o a n s may f o l l o w a m ore is still n e x t s i x months® in cre ase an adverse re g iste re d be h in d a f u r t h e r for i n the se a so n a lly - a d ju ste d b a s i s , c o n s t r u c t io n a p p e a r s is ( O f f - t h e - r e c o r d com m ents o n l o a n DENTON, the it r e g i s t r a t i o n s a r e a t a high® e s t a t e ., b u s i n e s s ^ , has (O ff- t h e - r e c o r d m e r c h a n d is in g s e a s o n a l r u n - o ff o f l o a n s the d is t r ic t and auto lo an s w i l l ALEXANDER® On in a n tic ip a te d d i s c o u n t w in d o w )® a year the a u t o m o b il e some no e v i d e n c e o f s e r i o u s in v e n t o r y th a t t h e le n g th e n in g th in k s and but There is real m oney p o l i c y b e lie v es b u s i n e s s than t h e y d i d bo om ing, store good b u s in e s s som e ( O f f ~ t h « - r e c o r d com m ents o n a u t o m o b ile A le xan d e r expects a w h o l@ 0 Departm ent in c lu d in g has l e v e l e d The banks are i n the co m m ents o n w a r e h o u s i n g l o a n s ) ® banks are e m p lavm e nt® country as a lly and i n t ig h t ® are in v e n to r ie s an d; L o a n s w o u l d p r o b a b l y go o f t h e year® MITCHF.T.Lp There i s a c cu m u latio n o f C o n s u m e r c r e d i t w i l l -furobably c o n t i n u e t o i n c r e a s e b e c a u s e o f in s t a l l m e n t p a p e r i n are up * the n e e d m ore money® bond p o r t fo lio s o n loan s® high w a g e s a n d f u l l behind t h e except and the (O f f ~ t h e = > r e c o r d N ew Y o r k (2 ) in d u s t r y w i l l of s h o r t g o v e r n m e n t s w ill p u t o f? of m ortgages! o ff in c o n t in u e r i s i n g the f i r s t quarter -3~ of 199; (instead of showing the seasonal decline that is normal in a first narter'L Total loans in the Fourth District continue to rise but at a lesser rate than i n the f ir s t five months of 1955® The rise during the past three months has been princip ally in real estate loan sBbrokersf loans and consumer loans® The increase in brokers” loans reflects the "farming out*1 of loans of this character from certain New York banks to some of their corre spondents in the Fourth District,, Total commercial^ industrial and agri cultural loans have changed relatively l it t le since the end of May* At this time last year they were declining® The classes of industries showing the most pronounced changes from early May to early September this year in comparison with the same period last year are (a) metals and metal products^ (b) petrol eum* coaly chemicals and rubber^ and (c ) sales finance companies! all in the direction of a r is in g volume o f loans® Compared to a year ago total loans in the District are up m aterially! direct consumer loans are up 23 per cent; and direct real estate loans have increased 21 per cent® Commercial industrial and agricultural loans are up 12 per cent over a year agoe FLEMING® Business is boomingc, except in the cigarette industry® Hurricanes have injured tobacco and cotton to some extent® Coal production is up because of exports® The te x tile industry is down somewhat and is concerned about imports® Bank loans are higher® There is some evidence of a damping down of construction activity® The warehousing of loans continues in large volume5 but the banks probably are exercising greater caution now® Fleming expects loans to increase in the last three months of this year and believes there w ill be a little seasonal declin e a fte r the f ir s t of the year® He does not expect the seasonal dip to be large® Loans may be even higher in the spring® DAVIS® Business is very active® Loans are high,, partly because of the accumulation of inventories and the slowness of receivables® Davis doubts if the banks in the Southeast w ill acquire much paper of the Commodity Credit Corporation this year® He expects an increase in loan totals in the last quarter of the year and some seasonal decline in the fir s t quarter® Davis believes some banks w ill c all a halt on the warehousing of loans® BROWNo Business is booming and most persons expect a high level of business l o r the next six months® I f the tightness of money continues* Brown is not so certain business may not decline in the first three months of next year® He thinks loans w i l l increase more than seasonally until the end of the year and that there w ill be some seasonal decline after the end of the year® The greatest increase i n bank loans is due to consumer credit financing® Some of the large companies are carrying more consumer paper® Because of the greater cost of long-term financing^ the u t ilit ie s and railroads would like to borrow at the banks fo r two or three years® Brown believes loans w ill in crease more than seasonally up to the end of the year and that there will be a seasonal decline in the first q iarter of 1956# CAMPBELL® Business conditions in the district are much better than they were a few months ago® Industrial output is up® Bank loans are rising® The pressure on the reserve position of banks is increasing® Loans w ill probably be up more than seasonally in the next three months® Business also may be more active in the la st quarter® With good rains* crops w ill be better than they were in 195>h® Conditions generally are much better® The expansion of consumer credit i s sim ilar to conditions in the rest of the country® Private housing const ruction i s tending to decline® Loan demands w ill continue strong. There may be no increase in loans in the fir s t quarter but it is possible there may also be no real decline in loan volume® -a - RINGLAND* There is a strong are a c u t e heavy* fre ig h t almost e v e r y months w i t h car Crops no B u sin ess has b e e n a c o n s i d e r a b l e Money i s tig h t. There i s som e e v i d e n c e pates a seasonal M A T K IN . partm ent co tton c r o p is o nly to b e some g a i n i n v o lu m e lo an fu lly e v i d e n t . estate. Loans By the gone. end as in at th is fo r There lo an s in the next in it six heavy* the ago. of The is the m uch of the the De The exp ects b u sin e ss not quarter exp ect the of 1956 except m ay s h o w ago* in total n a tio n d e clin ed sharp ly copper are in crease lo an s a b ility of the starts expected to loan d istricts* 22 p e r c e n t of an tici dem and f o r c r e d i t , shutdow n are he som e d e c l i n e . does H o u sin g vo lu m e a larg e he a year a peak but that M a tk in but hold. 1956. other shows The f i r s t d istrict of co n tin u e * expects t h r e e m onths b u t in Los A ngeles* There tak in g C han dler is has b e e n . pattern* p o lic y is quarter mo n t h s * effects year, Federal probably w i l l first is expects the good n a tio n a l and next a s m uch a s in The be Reserve the as it h is heavy the to h is d is t r ic t sp o ttin e ss* dem and c o n str u c tio n . the six be not There of in good, great but in at little C o n stru c tio n a c t iv it y next are W allace in cent under a year June. th is y e a r . lo an s probably e sp e c ia lly the d e p o sits up i n the C o n stru c tio n is in J u l y co m pa red to may b e in a strong the F e d e r a l be very in as to a follow s bank re d u c tio n up* 8 per w ill q u arter o f a is are fo r c o n s t r u c t i o n , WALLACE. in B o rro w in g w ith is Banks dem and* good and loans greater advance a l, a n d .i t is lo an drop re d u c tio n sales a c tiv ity to b e rate o f and B u sin ess store in of loans. expects b u sin e ss C h an dler th in k s b u s in e s s a c t i v i t y excellen t There R in g lan d slac k en in g CHANDLER* are shortages* category. for ns e a s o n a l” m eans. no l o n g e r k n o w e x a c t l y w h a t Reserve b a n k i s dem and in not y et the last no w to c a r r y r e a l of the co nsum er to d e m a n d m ay l e v e l off in borrow the early p art o f n e x t y e a r . BROWN. c o n tin u e The C o u n c i l m ay at a h ig h months o f 1 9 5 6 . i t w as i n the lev el The first volume o f b a n k l o a n s months o f th is quarter o f but There of in crease quarters of m ay b e a in a n tic ip a te s of b u sin e ss 1955# some less fu rth er seasonal than in rep re se n te d both companies co m m ercia l c o n c e r n s c a r r y in g consumer p a p e r . T h e v o lu m e o f companies a n d o t h e r fin a n c ia l mortgages p r e s e n t l y in savings and m a t u r i n g real estate in s titu tio n s an a m o u n t i n in vestm en ts. commitments to w a r e h o u s e t h e s e and in three less b e lie v es the last than th e three loan s in th e there t h e v o lu m e lo an s first may a c t u a l l y of and b y lo an s be o u ts ta n d in g to fin a n c e a m a t e r i a l l y l a r g e r vo lum e o f l o a n s m ay a l s o a r e c o m m it t e d excess of th e ir Some b a n k s also in d e clin e usual, in crease by d ir e c t a c t i v i t y to a c t i v i t y may b e The C o u n cil consumer c r e d i t ^ and to b u s in e ss 1 9 5 5 and d u r in g the f i r s t m ore t h a n s e a s o n a l l y T h e r e m ay b e co n sid era b ly it balan ce m ay i n c r e a s e year. 1956, no d e c l i n e . rate three say that fo r the have expand. to t a k e In su ran ce real re c e ip t o f fu n ds su bstantial estate fro m o u tstan d in g lo an s tem p o rarily. There may a l s o b e a n i n c r e a s e i n r e a l e s t a t e l o a n s b e c a u s e o f a g r e e m e n t s made d i r e c t l y b y b a n k s w i t h c o n t r a c t o r s a n d m o r t g a g e b a n k e r s w h o s e b o r r o w i n g s are to be l i q u i d a t e d l a t e r u n d e r co m m itm en ts f o r p e r m a n e n t f i n a n c i n g m ade b y in su r a n c e c o m p a n ie s o r o t h e r in stitu tio n s. -5ITEM THE BOARD W O U LD A P P R E C I A T E II T H E V IE W S O F T H E MEMBERS OF THE COUNCIL W IT H R E S P E C T T O T H E S Y S T E M fS CURRENT C R E D IT P O L I C I E S AND W H A T , IF ANY, C H A N G E S M IG H T REMAINDER OF T H I S BROW N , System c r e d i t the b u s i n e s s boom i s the r e s t of 1955* BE C A L IE D FOR DU RIN G THE Y E A R ,___________________________________________________________ p o lic ies necessary* The h a v e b e e n g e n e r a l l y g o o d as some b r a k e on T h e r e a l q u e s t i o n i s w h a t s h o u l d be d on e d u r in g Governm ent i s faced w ith r e fin a n c in g and w it h r a is in g a substantial a m o u n t o f n e w m o n ey * F L E M IN G o W ith new money w i l l la t e r i n large BROW N * tax re ce ip ts, necessary the y e a r * bank l o a n s System* be In there debt p lu s to p r e s e n t it is e s t im a t e d a b o u t $ 2 j b i l l i o n O c t o b e r a n d a b o u t $ l j to $ 2 b i l l i o n a d d itio n , The m atu rin g c o m b in e in a is the th e r o l l - o v e r o f m a t u r in g d e b t * n e e d f o r n e w m oney and t h e of k e e p i n g t h e in cre ase i n c o n s i d e r a b l e p r o b le m to t h e F e d e r a l R e s e r v e Brown d o u b ts w h e th er th e ban ks can expect r e se rv e r e q u i r e m e n t s * of o f new money He b e l i e v e s th e d is c o u n t w in d o w o p en; C o u n cil any de cre ase i n sh o uld o th e rw is e , th e ir e m p h a s iz e t h e n e c e s s i t y t h e m a rk e t may becom e too t ig h t * C A M P B E LL* M ost of the fe a r by c o u n t r y b a n k s that s e r io u s t h a n in the f e a r n a t i o n ’ s banks are m oney i s b ig c ity banks clo se .M IT C P K LI, b e l i e v e s t h e t i g h t m on ey p o l i c y The F e d e r a l R e s e r v e country b a n k s* not a v a ila b le , to is If there is a i t w o u l d b e e v e n more t h e F e d e r a l R e s e r v e Sy stem * h a v i n g a c u m u l a t iv e e f f e c t n o w . S y s t e m m u s t b e p r e p a r e d to e a s e m o n ey , a s w e l l a s to t ig h t e n i t * F L E M IN G th in k s ease the m a r k e t System c r e d i t carefully p o lic ies o p e r a t io n s h a v e c a u t io n e d th e F e d e r a l Reserve through generally open m arket o p e ra tio n s* h ave b e e n good* t a k e n m oney out o f on t h e present S y s t e m m ust w a t c h th e the m arket* situ a tio n He b e l i e v e s On b a la n c e , He t h i n k s an d t h a t th e m arket s i t u a t i o n and op en m arket th e B o a rd s h o u l d be s h o u l d be e a s e d a little . BROWNo window i s It w o u ld be un fo rtun ate to have t h e w o rd s p r e a d t h a t th e d is c o u n t clo sed * IR E L A N D . (O ff- t h e - r e c o r d com m ents o n t h e r a t e s for some lo n ger- term lo a n s!* BROWN a s k s how f a r the id e a i s abroad that t h e d i s c o u n t w in d o w i s not re a d ily a v a i l a b l e * DENTON. (O ff- t h e - r e c o r d com m ents o n h i s own b a n k ’ s l o a n s and t h e u s e of the d is c o u n t w i n d o w )# R IN G L A N D reports that there is no e v i d e n c e o f a r e s t r i c t i o n o f the d is c o u n t w i n d o w . F IE M IN G reports window* there is no e v i d e n c e of a re strictio n o f th e d i s c a i n t -6- BROWN. (O ff-th e -re c o rd comments on the use of the discount -window). C H A N D LE R * (O ff- t h e - r e c o r d ALEXANDER th in k s aware o f t h e am o u n t that com m ents o n t h e u s e o f t h e d i s c o u n t w in d o w ) # t h e F e d e r a l R e s e r v e p e o p l e may n o t h a v e b e e n o f lo ans b e in g w arehou sed. T h i s d e v e l o p m e n t came su d d en ly . DENTON t h i n k s BROW N, The these loans loans co uld co uld ru n o f f run o f f ra p id ly . ra p id ly , if new com m itm ents w e re n o t c o n t i n u a l l y b e i n g m ade® ALEX AND ER o ( O f f - t h e - r e c o r d com m ents o n t h e r e s t r i c t i o n o f th e d i s c o u n t window)*» W ALLACE, ( O f f - t h e - r e c o r d com m ents o n t h e R IN G L A N D . B e lie v e s the tig h tn es s r e s t r i c t i o n o f the d is c o u n t w in d o w ). o f m oney may l e a d b a n k s to r e d i s c o u n t paper. A T EXA N D ER b u sin ess. reports One of to c u r b b u s i n e s s . str a in t. The The C o u n c il a p p r o p r ia t e e a s i n g BROW N. of the not b e r e s t r i c t e d for the l a s t in it thought a sharp r is e approves in r e d isc o u n t rate th e B o a r d 's p o lic y of re co n tin u e d but w ith needs. in the seem s i n e v i t a b l e to the on p r e s e n t t r e n d s in the t h i s p o l i c y be exp ected in c re a se Treasury, reserves PLfftfTro sch ools of suggest th a t seasonal supply a d d i t i o n a l or h a v e c o m m itm e n t s tw o C o u n c i l m ay s a y i t m ay a l s o of the are groups b e lie v e s due to In v ie w and the n e e d s there these banks. ban ks w h ic h have The u se seasonal that dem and f o r l o a n s th e S y ste m -will n e e d to o f th e d i s c o u n t w in d o w s h o u l d l e g i t i m a t e de m a n ds fro m t h e i r custom ers, o u t s t a n d i n g vfriich t h e y m ust m e e t . suggests that the C o u n c il rep eat the co n clu sio n s expressed at m e e tin g . BROWN, The C o u n c il C o u n c il * s a n s w e r a t m ay s a y t h i s that thought m i g h t o c c u r , tim e . have r e se rv e s i n th e b a n k , rather t h a n through sin c e and t h is to growing c o n c e r n am o n g b a n k s th e ir l e g i t i m a t e fe a r o f 1 9 5 3 . window w i l l be not b e in It is the open to th e ir it T h e d i s c o u n t w in d o w so m ew h at h i g h e r r a t e s . There i s a d i s c o u n t w i n d o w may n o t be o p e n t o m eet p o ssib le sh o uld n o t be c o n d itio n s now come to p u t o p e n m ark et o p e r a t i o n s , reserve req u irem e n ts. even a t that i n M ay a n d q uote t h e th a t the T h e tim e h a s s h o u ld be done through av a ilab le needs. Banks rates. come a b o u t . a re d u c tio n should c o n t i n u e q u e stio n was a sk e d The C o u n cil b e lie v e s t h a t we c o u l d h a v e p e rm itte d to b e l ie v e le g itim a te dem ands, a r e p e t i t i o n o f th e th at the d isc o u n t even at somewhat h i g h e r -7ITEM III. THERE ANY LEGISLATION THAT THE MEMBERS OF THE COUNCIL FEEL THE BOARD SHOULD SUPPORT OR SPONSOR IN THE FORTHCOMING SESSION CF THE CONGRESS?__________________________________________________________________________ IS Brown does not favor a new Regulation W . Alexander i s in c lin e d to favor it® Campbell is also in c lin e d to favor it * Fleming* Congress would not pass such legislation in an election year* Brown b eliev es it is be tte r to cover this question in a discussion with the Board. The Council may use the same language it used in answering a similar question a year ago® The meeting adjourned at £§20 P*M« * * * * * -8- THE FEDERAL ADVISORY COUNCIL CONVENED AT 10 A.M . ON SEPTEMBER 19, 1955, IN ROOM 932 OF THE MAYFLOWER HOTEL, WASHINGTON, D .C . ALL MEMBERS OF THE COUNCIL WERE PRESENT, EXCEPT MR. RINGLAND. The Council prepared and approved the attached Confidential Memorandum to the Board of Governors relative to the Agenda for the joint the Council and the Board on September 20, 1955. The Memorandum was delivered to M r. Sherman, A ssistant Secretary of the Board of Governors, a t 12 o ’ clock noon on September 19, 1955. I t w ill be noted that each item of the Agenda is l i s t e d together with the comments of the Council. to be sent m eeting of The meeting adjourned at llsUO A .M . CONFIDENTIAL MEMORANDUM TO THE BOARD OF GOVERNORS FROM THE FEDERAL ADVISORY COUNCIL RELATIVE TO THE AGENDA FOR THE JOINT MEETING ON SEPTEMBER 20, 195? 1, What are the views of t he Council with respect to the prospective business situation during the re mainder of this year and the first three months of next year and the probable changes that w ill take place in the volume of bank loans in each of these periods? Do the members of the Council see any significant changes in the composition of bank loans in the present period of high level economic activity? The Council expects a high level of business activity during the remainder of this year and through the first three months of next year. It expects that the rate of increase in business activity will probably be less than that experienced in the first three quarters of 19?5o The members of the Council believe that the volume of bank loan will increase more than seasonally in the last three months of this year, In the first quarter of 1956, the Council anticipates a seasonal decline in loans, but less than usual, There is a distinct possibility that no decline may occur due to a probable further increase in the volume of outstanding consumer credit represented both by direct loans and ty loans to finance companies and to commercial concerns carrying a materially larger amount of consumer paper. Likewise, the volume of real estate loans may experience an expansion in the first quarter of next year. Insurance companies and other financial institutions are committed to take real estate mortgages presently in an amount in excess of the.lr receipt of funds from savings and maturing investments. Some banks have substantial outstanding commitments to warehouse these loans temporarily. There may also be an increase in real estate loans because of agreements made directly by banks with contractors and mortgage bankers whose borrowings are to be liquidated later under commitments for per manent financing made by insurance companies or other institutions. Although arrangements for new real estate financing are being curtailed, the financing of present commitments w ill probably necessitate additional credit during the first quarter of 1956„ Apart from the greater importance of loans based directly and indirectly on consumer credit and for real estate financing, the Council sees no important change in the composition of bank loans in the present period of high level economic activity. -22, The Board would appreciate the views of the members of the Council with respect to the System's current credit p o lic ie s and what, i f any, changes might be called for during the remainder of t h is year,, At the May meeting, the Council responded to a similar ques tion o£ the Board of Governors as follows: "The e ffe c ts of System credit policies since the last meeting of the Council have been good. The Council believes that a policy of mild credit re stric tio n should be continued for the near term i f business continues to be buoyant * Government financing for new money in substantial volume i s in ev itab le in the last h alf of the calen dar y ear. I f , as seems probable, the banks mu3t provide a considerable part of the new money re quired, and i f business continues at a high level with an increasin g demand for bank loans, the Sys tem must be pi'epared through open market operations or a reduction in reserve requirements, or both, to put more reserves into the banks. In view of the increasing a c tiv ity of business and of the proba b i l i t y of an increase i n loans in the months imme d ia te ly ahead, it may become necessary to consider r a isin g the rediscount rate# The use of the dis~ count window by member banks should not be restricted or discouraged, as credit for good borrowers should continue to be available at reasonable r ate s ." The Council b eliev es that the System’ s credit policies since its last meeting have been w ell conceived and carried out. It believes that the objective of restraining the further development of the present boom was and i s corrects The System's p olicies are having desirable effects which should become increasingly apparent. The conditions which the Council at the time of the May meet ing thought might develop have now come about. In view of the imminence of heavy Treasury financing and with the increasing seasonal need for loans, the Council b eliev es that the time has come when more reserves must be put into the banking system. The Council believes that this can be better accomplished through open market operations than through a reduction in reserve requirements. There i s a growing concern among bankers that the use of the discount window may be restricted or severely discouraged. Unless the banks feel assurance that the discount window w ill be readily available, even though the cost of th e ir borrowing may be higher, it is apt to create a panicky fe e lin g which might lead to widespread liquidation of government bonds and undue restric tio n o f credit to the banks1 customers. It would be very unfortunate i f such a feeling of apprehension among as developed in the fir s t h a lf of 1953, should again occur. bankers^ 3„ Is there any le g is la tio n that the members of the Council f e e l the Board should support or sponsor in the forthcoming session of the Congress? The Council does not at th is tin e have any suggestions as to legislation that the Board might support or sponsor in the forthcoming session of the Congresso I f the Board has any questions about legislati now pending or suggested, the members of the Council w ill be pleased tc discuss them. -9- THE FEDERAL ADVISORY COUNCIL CONVENED IN THE BOARD ROOM OF THE FEDERAL RESERVE BUILDING, WASHINGTON, D .C . AT 2:15 P.M. ON SEPTEMBER 19, 1955. ALL MEMBERS OF THE COUNCIL WERE PRESENT, EXCEPT MR. RINGLAND. Dr* W in fie ld W . R i e f l e r , A ssistant to the Chairman of the Board of Governors of the Federal Reserve System, discussed the subject of ^Monetary Developments Since the W ar” . D r . Woodlief Thomas, Economic Adviser to the Board of Governors, and D r , Ralph A . Young, Director of the Division of R esearch and S t a t is t ic s of the Board, were present to answer Questions. A copy of the charts used by D r. R ie fle r is being sent to the members of the Council. The meeting adjourned at 3*15 P .M . -10- ON SEPTEMBER 2 0 , 1955, AT 1 0 :3 0 A .M ., THE FEDERAL ADVISORY COUNCIL HELD A JOINT MEETING WITH THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM IN THE BOARD ROOM OF THE FEDERAL RESERVE BUILDING, WASHINGTON, D .C . ALL MEMBERS OF THE COUNCIL WERE PRESENT. THE FOLLOWING MEMBERS OF THE BOARD OF GOVERNORS WERE PRESENTs: VICE CHAIRMAN BALDERSTON, GOVERNORS SZYJEZAK, MILLS, ROBERTSON AND SHEPARDSON. CHAIRMAN MARTIN AND GOVERNOR VARDAMAN WERE ABSENT. MR. MERRITT SHERMAN, ASSISTANT SECRETARY OF THE BOARD WAS ALSO PRESENT. Brown states that the Secretary of the Council, Mr. Prochnow, has been o ffe r e d the position of Deputy Under Secretary of State for Economic A ffa ir s , and has informed the Department of State that he would accept the position for a lim ited p eriod. The Department of State has suggested that Mr. Prochnow might attend Council meetings without having the title of Secretary and without remuneration. He would be available to assist in the preparation of the Council*s memorandums and the minutes. The Council would lik e to have the Board’ s permission for his attendance as suggested. Tice Chairman Balderston and Governor Robertson said they could see no objection to Prochnow*s attendance but would inform the Council definitely la te r . Brown reports that W illiam J . Korsvik has been appointed Acting Secretary-of the Council. ITEM I WHAT ARE THE VIEWS OF THE COUNCIL WITH RESPECT TO THE PROSPECTIVE BUSINESS SITUATION DURING THE REMAINDER OF THIS YEAR AND THE FIRST THREE MDNTHS OF NEXT YEAR AND THE PROBABLE CHANGES THAT WILL TAKE PUCE IN THE VOLUME OF BANK LOANS IN EACH OF THESE PERIODS? DO THE MEMBERS OF THE COUNCIL SEE ANY SIGNIFICANT CHANGES IN THE COMPOSITION OF BANK LOANS IN THE PRESENT PERIOD OF HIGH LEVEL ________ __ ECONOMIC ACTIVITY? Brown reads Item I and the conclusions of the Council as expressed in the Confidential Memorandum to the Board attached. The level of economic activity is high and looks high for the immediate future. Consumer credit, both direct and in d ire c t, has been one of the factors responsible for expand ing bank credit. Unless automobile production declines substantially, there is no evidence that consumer credit w ill decline. The other major increase in bank credit is represented by real estate loans. There are also out standing substantial commitments by banks to take up such loans. Some financing for new real estate construction is now being declined. There has been some checking and curtailment of new real estate projects. There is no present evidence of a substantial increase in loans for inventory. Balderston asks whether tightness in the money market has been more evident in New York and Chicago than it has been in the country generally. Borrowings at the Federal Reserve Bank of Boston have recently a peak. However, the d is tr ic t has had a s&aller increase in loans this year than the rest of the country. Money is tight. Irelan d. reached Mitchell. Money is tight in Philadelp hia. Borrowings are heavy. The banks are tending to up-grade their loans. There is a shortage of funds. Denton does not believ e money is as tight in his district as it may be in others. Consumer credit and real estate loans especially are higher. Deposits are up. Forty per cent of the loans in the d istrict are direct loans to consumers or fo r financing real estate. Brown believes that the s ta tis tic s of the Federal Reserve Board would be better, i f they d id not put finance company and other indirect consumer paper in the business loan fig u re s* Denton. Loans to finance companies in his d istric t increased about eight per cent la st year and thirty-one per cent this year. Fleming* Money is r e la tiv e ly tight in his d is t r ic t . Building permits are down somewhat. Coal production is up. Department store and furniture sales are higher. His bank has declined some finance company loans. Chandler. Money is r e la t iv e ly t ig h t . Ringland. Money is re la tiv e ly tigh t and it is expected it w ill become tighter! Crops are good and the demand for funds is strong. Matkin believes the Dallas d is t r ic t is as tight as the New York district. Some banks are short of b i l l s , and banks having a red figure in their bond accounts are slow to move these s e c u rities. Davis. The picture in his d is t r ic t is m ixed. In general, money is tight, although money is not as tight in New Orleans. The New Orleans banks are not generally loaned up over thirty per cent. The cotton crop is starting to move, and more credit w i l l be required. Wallace. In the P a c ific Coast states money is t ig h t. The Los Angeles area Is the largest of any area in the United States in terms of new construction. Campbell. Loans are up. The crop movement is beginning and money wi U Be needed fo r that purpose. Crops are good. The agricultural situation is better than it was a year ago. Alexander. The premise is correct that New York is tig h t. Loans last year went down. This year they are higher. The New York banks are borrowing a good deal of the $900 m illion being borrowed from the System. The New York banks are also adjusting their bond portfolios by se llin g , foreign time deposits have declined substantially and have gone into !j* S. government o b lig a tio n s . In addition to real estate loans, New York -12banks have large commitments for warehousing mortgage loans, A survey of Jhe real estate loans which are warehoused in New York City shows that they are up from $ 5 8 million to over $ 2 0 0 million. There are also conmitments to warehouse such loans totaling $ 6 0 0 million, Alexander expects total loans to rise, and the tightness in the money market to continue throughout the Fall. Robertson assumes that the Council believes that the present high level 0f economic activity can be maintaine-d. I f so, to what extent does this activity depend on an expansion of consumer credit and real estate financing? Brown states that the Council believes that the present rate of economic activity is too high to be maintained for as long as 18 months, and unless the boom is restrained, it could bust. Fleming. I f the census figures are correct, a high level of economic activity would be necessary to take care of the increase in population. There may even be a tightness in the labor market. ITEM I I THE BOARD WOULD APPRECIATE THE VIEWS OF THE MEMBERS OF THE COUNCIL WITH 32SPECT TO THE SYSTEM'S CURRENT CREDIT POLICIES AND WHAT, IF ANY, CHANGES MIGHT BE CALLED FOR DURING THE REMAINDER OF THIS YEAR. ___ _ Brown reads Item I I and the conclusions of the Council as expressed in the Confidential Memorandum to the Board attached. He states that each member of the Council feels some mild brake should be put on the boom, and the Council approves the policies the System has followed. The Government may need four or four and a half b illio n dollars in new money during the rest of the year, A seasonal increase in loans is anticipated in the last quarter, and banks raust meet their line requirements. Most banks, in the large centers at least, would sell government obligations in order to meet the credit needs of their customers. Unless money is put in the market, a panicky feeling may develop. Every member of the Council believes that the most serious mistake that the System can make would be to discourage the discount window. Well run banks do not like to be in debt. There is a danger of creating a panicky condi tion, if banks become apprehensive about the possibility of using the discount window. Brown estimates that 9 0 per cent of the banks have a red figure in their bond accounts. Fleming, The Government will need about $2 1/2 billion of new money by October 15, and perhaps $1 1 /2 to $2 billion more by the end of the year. In addition, there w ill be substantial refunds. It would be unfortunate if the banks became apprehensive about the use of the discount window. Brown. Aside from the war-time economy, the present situation is one ^ the most difficu lt ones with which the Federal Reserve System has been confronted. It would be possible to initiate a bust. Robertson, window^ There is no intention to restrict the use of the rediscount -13- Alexander a g r e e s with Bro w n. I t is a difficult period and the Council tf0Uld~"like to assist the B o a r d , The general policy of restraining the boom is d e sira b le , but no one wishes to bring on a serious decline. Consequently, it is n e ce ssar y to walk a tight-rope, In the absence of selective credit controls, A le x a n d e r believes it is proper for a Federal Reserve bank to call banks i n its district and say that credit in some areas has gone too far. The in te re st r a t e on bank loans should rise. This is the mildest move that can be made. Federal Reserve banks can use their influence in proper direc tions to r e s t r a i n the boom, Szym czak. The rediscount rate is n 't simply the rate on loans to banks. It also is reflected in a decline in bond accounts, Alexander, The money market should be placed in a position where the banks do not have to s e ll. The banks can have red figures, but it is not so bad if they do not have to s e ll. Funds should be available at the discount window. Everyone might like to have credit easy and bond prices up, but that obviously cannot be done at present. Szymczak. I f the discount rate is to be raised, when would you do it? Brown does not believe it should be done before October 15, when the Treasury w ill be raising new money. I t might be done nearer to November 15. Alexander does not favor the shock treatment of raising the discount rate to three per cent. Mitchell, Any raise in the discount rate might better come a couple of weeks after the October 15 financing. Balderston believes Szymczak*s question is the fundamental one, as it deals with timing. I f the rate is raised on November 1, will the markets have settled by the time of the December financing? Fleming, The situation must be watched very carefully as it is a very difficult one0 Brown. Seasonal loans reach their peak in December and then ease, feybe the rate should be raised when the situation eases. Brown believes reserves must be put into the banking system. He states the banks are apprehensive about the use of the discount window*, Balderston. The fact that the banks are borrowing from the System is the best evidence that the window is open, Balderston feels that the besfc way to conduct a central bank is in practice and not words. Brown, I t would not be advisable to issue a statement. Szymczak. The use of the discount window is a relatively new develop ment In recent years. Mitchell, Are the bank examiners putting any pressure on banks to Set out of debt? Alexander believes the bank lending rate is too low and moves too slowly" either™up or down. He thinks the lending rate and not the discount J.qte is what the customer looks to, and he believes it should go up. Szym czak. A high lending rate in a high level economy has little effect. Ringland. The lending rate has some effect on warehousing. R o b e rt so n . Has i t a f f e c t e d consumer c r e d i t ? Brown believes it has had some effect on consumer credit, but he believes it has had more effect on real estate and certain municipal financing. It has caused the postponement of large real estate projects, such as, community centers and large apartment buildings. Denton believes the effects of system policy are in the being felt. The building boom may have topped out. The New calling his bank and others to carry brokers* paper. Denton he is probably less sure than other Council members that the strong in the fir st quarter of next year. process of York banks are states that demand will be Alexander. Housing construction may have topped off, but there are large commitments outstanding for real estate loans. System policy is having some effects, but they are not so evident yet in consumer credit. Robertson. I f a good customer needs funds for expanding consumer credit, will you not have to give it? Browno Practically, a bank would find it very difficult to turn down a good customer. Brown states that in all the discussions the Council has tried to make clear its views on the discount window. Robertson replies that he is sure the Council has made its views clear. Brown. We are a ll delighted to hear Governor Robertson’s statement# ITEM I I I IS THERE ANY LEGISLATION THAT THE MEMBERS OF THE COUNCIL FEEL THE BOARD SHOULD SUPPORT OR SPONSOR IN THE FORTHCOMING SESSION OF THE CONGRESS? ________________________________________ _ _ Brown reads Item I I I and the conclusions of the Council as expressed in th/T Confidential Memorandum to the Board attached. The Council continues to favor a raise in salaries for the mentoers of the Board and Staff* Fleming explains the salary situation. He hopes to be helpful in •xplainlng the importance of the Board’ s functions and the desirability of paying higher s a l a r ie s . -15- grown discusses the Holding Company bill briefly. R aid e r s ton. The Board has no legislation in contemplation. Fleming b e l i e v e s that the i d e a o f t a k i n g up w i t h th e Department of o f m ergers w o u ld be "u n w o r k a b l e ". justice fo r a p p r o v a l q u e s t i o n s Brown. The danger of delay in the Anti-Trust division might be very jjre&t# Robertson. The testimony of the Chairman was not in favor of a fourth tody, the A n t i- Trust division, to pass upon mergers. The power of the Anti-Trust division would remain just where it is now. The testimony says that the Anti-Trust division could be asked for its opinion. The bill reported o u t is not one with which the Board would concur, and he thinks the bill is a dead issue. Alexander does not believe the test of competition should be the sole test in a merger. It should be on a much broader basis. The meeting adjourned at 12s55 P.M. * * * * * * * * * * The next meeting w ill be held November 13, ll± 15, 1955* cfWAR m o n e t a r y d e v e l o p m e n t s t °* PRF ACCORD TTJ I 1950 | | i 1951 I POST-ACCORD | ’ 53 1 ~P» MONEY POSITION IMPACT OF MONEY POSITION ON MARKET L O N G - T E R M YIELDS: CO RPORAT E Aaa /TV U . S . GOVTS. M A R G I N BETWEEN DISCOUNT A N D BILL RATES R AT I O M O N E Y SUPPLY TO GNP
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