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BDARD DF GOVERNORS • F THE FEDERAL RESERVE SYSTEM WASHINGTON July 9, 1945. Beaoitttt lam** Forrestal, Secretary of the Bavy t Is sh Log ton, D . C . M y dear lias M r . Snyder, Federal Loan Administrator, brought to my attention e short time »go © proposal, «hieh X understand you and Under Secret&ry of Var Patterson had discussed with hla, involving the transfer to the RFC of the guaranteeing functi ns of the lar and Savy Departments and Maritime Coralsalon under the *T* and *f* loan progr&a» v?itb the federal Reserve Banks dating aa the field agents for the RFC. Aftor looking Into this getter U h**ve discussed it with tbe a m b e r s of tbe Board of Governors and ¿ t g R w l t h the Presidents of tbe twelve Federal Reserve Bank«* T b e y j p M M p i y feel that tbe adoption of tbe proposal is unnecessary s B f ^ O j i be inadvisable. I f , when tbe *f* e n c L ^ S ^ l ^ e progrsas reach the stags of liquidation, a change is feltfio desirable, tbe programs could be there wouxd be more reason transferred to tbe I t d t w i l j b i q y a f a H s « for transferring tbe 11 ^ pbase of tbe prograas to tbe Haserve £7ate« than to the RFC, s i V W x f U Federal deserve Banks are entirely iaalliar with the loans anoTEre no* servicing thea* I f , however, it should be decided to carry out tbe present proposal to transfer tbe guaranteeing functions to tbe RFC, tbe ae»bers of tbe Board and tbe Presidents of tbe Reserve Backs all f e d that tbe entire prograa should be turned over to tbe RFC and tbe Federal Reserve Banks and tbe Board relieved of sll responsibility in tbe aatter* To have two different organisations handling tbe program In tbe field and two different boerds Handling It in Yashington would obviously Involve much duplication and would be most confusing and iapractieal* I discussed this aatter again with M r . Snyder this corning, aad I enclose herewith for your information a copy of a acacrandua which X gave to hia on tbe subject that states tbe position of tbe Federal Reserve By si em la tbe matter* Mr* Freak I . McKinney, Assistant Director Honorable Jasas Forrestal o f Contract Settle^e^t, aent to »a o n July 2nd a copy of a »«sorandu» which ha bad addressed to Colonel Paul Cleveland of the Ifir Dep&rteent with regard to this natter and I also enclose herewith a copy of that »«OrttMftMU Sincerely y o u r s . V* S . Iteloa, Chairman* Inclosures GBV:fee 7/9/45 BDARD DF GDVERNDRS • F THE FEDERAL RESERVE SYSTEM WASHINGTON July 9 , 1945. Honorable Robert P» Patterson, Under Secretary of l a r , Washington, B* C . M y defer Judge Patterson: A short tiste ago M r . Snyder, Federal Loan Administrator, brought to my attention a proposal, which X understand you and Secretary Forrestal had discussed with hi», involving tbe transfer to the RFC of the guaranteeing functions of the lar and Kavy Departsent» and If&rltiae Commission under the and T * loan program, with the Federal Reserve Banks acting a s the field agents for the I had not previously heard^SK thiw proposal, but we were later furnished with a oopy of a i ^ o W n d a E prepared by Colonel Paul Cleveland, Chief of the Advance Payraat and Loan Branch of the Special Financial Services D i v i a c i t e War Department, under date of June 1 3 , 1945, from which it m * a » that Colonel Cleveland bad bee* actively considering this mpjt v ^ t a ce February and had a i ecus sad it on numerous occasions witl/rej t\ sentfntives of other agencies including the RFC and the Havy Depai^t&gy. Colonel Cleveland*s ««aorandum contains a number of statements with respect to the Federal Reserve System which are inappropriate and uncomplimentary* Z think that these statements and his activities In making the proposal, without revealing it to the Federal Reserve Syate«, were most unfortunate because such actions cause unnecessary friction and misunderstanding* After looking into this matter I have discussed it with the members of the Board of Governors and also with the Presidents of the twelve Federal Heserve Banks* They unanimously feel that the adoption of the proposal is unnecessary and would be inedvtseble* I f , when the "V* and *T* loan programs reach tbe s t a e of liquidation, a change is felt to be desirable, the programs could be transferred to the Federal Reserve System. There would be more reason for transferring tbe liquidation phase of tbe programs to the 8eserve System than to the RFC,since tbe Federal Reserve Bank» ere entirely familiar with the loans and are now servicing tbem. Honorable Robert P . Patterson -2- If, however, it should be decided to carry out the present proposal to transfer the guaranteeing functions to the MFC, the jaetfib^rs of the Board and the Presidents of the Seserre Banks all feel thftt the entire program should be turned over to the RFC and the Federal Beaerre Bank» and the Board rell«Ted of all responsibility In the matter. To have two different organisations handling the progress in the field aad two different boards handling it in Washington would obviously involve much duplication and would be aost confusing and impractical. X discussed this »attar ¡¿gain *ith M r . Snyder this «crnlng, and I enclose herewith for your information a copy of a mee^randuM which I gave to hi» on the subject tbf-t states the position of the Fed« eral Reserve System in the natter. M r . I'ran* X . McKiauey, Assistant Director of Contract Settlm&ent, sent to me on July 2nd a copy of a memorandum which he had addressed to Colonel Paul Cleveland of the War Department with regard to this »att^r and I slso enclose herewith a copy of that memoranda*. Sincerely yours, Um S . Iccles, Chalrmaju Enclosures GBV:fee 7/9/45 C O P T 1 AUG 1945 Honorable Marrlner S . fccciee Chairaan, Hoard of Governors FederalfceserviciSystes V ashington 25, C* Denr M r . ?:celes: Your letter of July 9 relative to the possible transfer to the Reconstruction Finance Corporation of the Guaranteed Loan Program f the U r and 1 Havy lapart-iienta ha a bean carefully considered within the ¿ar Depart' ant and has been the subject of discussion between Brigadier General Kenneth C . fcoyall and John D . Goodloe of the Reconstruction Finance CorporationIt is understood that the Reconstruction Flnaace Corporation doss not furor a transfer of the Program at this time. The *ar Department concurs in this view. It is possible that there will be a discussion in the future of a plan for transferring to the keconstruct ion Finance Corporation new guaranteed loan business. In the event of such discussion the War Departrent will suggest that your office as well as the Office of Contract Settlement be asked to participate. I regret that you feel that Colonel Cleveland was uncoapliaentary to the Federal Meserve System, I m confident thst he did not intend to b e . The '¿ar '¿epartaent is aost appreciative of your eoopsratioa and efficiency in the entire Guaranteed Loan Program. Sincerely yours, (Signed) Kobert p . Patterson Kobert P . Patterson iJnder Secretary of War.
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