Full text of Mimeograph Letters and Statements of the Board : July - December 1940, [Volume 53]

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1.
BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

R-674

WASHINGTON
ADDRESS OF'F'ICIAL CORRESPONDENCE

TO THE BOARD

July 8, 1940 •

Dear Sir:

The Board receives a large number of special requests for articles appearing in the Bulletin, and it has
been found convenient to prepare reprints of material apt
to be of most general interest.

These reprints have also

been useful, where not specifically asked for, in answer-

•
ing inquiries on points which they cover.
The attached set of r•3prints includes all that
have been made so far this year.

Additional copies can

be supplied if' you desire them, and any suggestions as to
their usefulness will be appreciated.
Very truly yours,

Chester Morrill,
Secretary.
Enclosures

•.·
TO THE PRESIDENTS OF ALL FEDFRAL RESERVE BANKS

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2
BOARD OF GOVERNORS
OF" THE

FEDERAL RESERVE SYSTEM

R-675

WASHINGTON
ADDRESS OF"FlCIAL CORRESPONDENCE
TO·THE BOARD

July 1.3, 1940

..
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Dear Sir:
There is enclosed a copy of a letter dated July 9,

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1940, received by the Board from Mr. Louis F. Costuma, Chief
Inspector, Police Department, City of New York, regarding the
loss of twent.y $1,000 New York Federal Reserve notes, numberod B-00121446A to B-00121465A, inclusive •

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In view of tho largo denora.inaticn of the nbovementioned notes, it appears that it would not be burdensome

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to the Federal Reserve Brutks to comply with the request contained in Mr. Costuma*s letter and, accordingly, it will be
appreciated if you will notify his office if

of the notes

are located at your B.ank or branches, if any.
Very

L. P. Bethea,
Assistant Secretary.
•.·

Enclosure
TO THE PRESIDENTS OF ALL FEDERAL RESER.VE BANKS

R-675-a
POLICE DEPARTMENT
CITY OF NEW YORK

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Federal Reserve Board,
WashingtonJ D. C.
Gentlemen:

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This department is investigating the loss, b;yr
theft on July 2, 1940 of twenty (20) $1,000 Federal Reserve Notes, numbered from B-00121446A to B-00121465A
inclusive. These bills bear the head of President
Cleveland and were withdrawn from the Chase National
Bank on or about May 17, 1940.
We would appreciate your causing the Federal Reserve banks throughout the country to be circularized with a view of stopping any of these bills,
~~d notify this office should any be located.
Your cooperation is greatly appreciated and
we thank you for anything you might do to aid us rctrieva this money for the ormer.
Yours very truly,
(Signed)

•.·

Louis F. Costmna

Chief Inspector •

4
BOARD OF GOVERNORS
OF" THE

FEDERAL RESERVE SYSTEM

R-676

WASHINGTON

ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD

Dear Sir:
The Board of Governors of the Federal Reserve System ir3 advised
that the following holidays will be observed by Federal Reserve Banks and
branches during the month of August 1940:
Nashville
M8mphis
Denver

P:dmary election day

August 6 (Tuesday)

St. Louis
Kansas City

Primary election ciay

August 2L" (Saturday)

Dalla.s
El Paso
Houston
San Antonio

SGcond primary
election day

August 27 (Tuesday)

San Francisco
Los Angeles

Primary election day

August 30 (Friday)

New Orleans

Birthday of Huey Long

August 1 (Thursday)

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Colorado Day

On the dates mentioned the of':aces affected will not participate
in either the transit or the Federal Reserve note clearing through the
Interdistrict Settlement Fund. Please include transit clearing credits
for the offices concerned on each of the holiday·s with your credits for
the following business day. No debits covering shipments of Federal Reserve notes for account o: th<3 head offices concerned should be made in
your note settlements of August 6 and August 27.
Please notify bra.nches.
Ver>J tru.ly yours,

·-·

TO PRESIDENTS OF ALL
FEDERAL RESERVE BANKS

_/···;a··-·/}·
/'~
)
· / tt~W4-?· -:__-

c.;.x(-

"- F. A. Nelson,
Assistant Secretary.

R-677
BOARD OF GO'IlERNOHS

OF THE
FEDEHAL RESERVE SYSTI;M

STATI1ifEN'f FOR THE PRESS
For release in morning papers,
Thursday, July 18, 1940.

•

The following SUTilinary of general
business and financial conditions
in the United States, based upon
statistics for June and the first
half of July, will appear in t.he
August issue of the Federal Reserve Bulletin and in the monthly
reviews of the Federal Reserve
Banks •

Volume of industrial production increased rapidly during J1.me
and rose somewhat further in the first half of July.

Distribution of

commodities through retail and wholesale markets and by rail continued
active.
Production
The Board's seasonally adjusted index of industrial production

advanced from 106 in May to llh in June.

In the;.t month, as in May, in-

creases in activity were most marked in the iron and steel and textile
industries v;here declines earlier :i.n the year had been gren.test.
Steel ingot production rose from 60 per cent of capacity at
the beginning oi' May to 87 per cent in the latter part of June and was
maintaim:d at about that level :i.n the first three weeks of July.

Pro-

duction of coke and pig iron show:d similar sharp incre;=wes and iron ore
shipments down the Lakes were at near-capacity levels.

....

Demand for :Jteel

was general as most domestic steel-consuming industries were operating

R-677

-2at high rates.

Exports of steel, which had declined in April, rose to

earli.er high levels in May and June, amounting to about 10 per cent of
steel-producing capacity.
Automobil,3 production, which had begun to decline in May, continucd to decrease in June and the first half of July reflecting in
large part seasonal influences.

Retail sales of automobiles were in

large voh.une and dealers 1 stocks of new and used cars declined from the
high levels prevailing earlier.
In the textile industF.f there was a further sharp advance in

activity at woolen mills, and at cotton mills output was reduced less
than seasonally.

Rayon production was maintained at earlier high levels

while a.t silk wills activity remained near the unusually low rate reached

Coal production continued in large volume during June, but out-

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put of crude petroleu1n dedined in the latter part of the month, owing
to reduced production in Tex::'..S fields.
Value of construction contract awards showed little change from

Llay to June, according to F. W. Dodge ·Corporation figures for 37 eastern
States.

Awards for private residenti.:1l building decreased more than sea-

sonally, following a sharp rise in May, and contracts for private non•

residenti3.l building also declined.

Contracts for public construction

increased further in ,June, ovd.ng in part to expansion in the construe-

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tion of Arrrry and Navy air bases •

....

R---677

-3Di3tr:;_bution

Department store sales in ,June, wf're maintained a.t the
although usually there is a

considerabl·~

ally adjusted l_ndex a.clvanced

lvL<:'.~f

level,

decline, and the Board's season-

93 as corr.pa.r3d with 87 in May and rJ level

~:,o

of about 89 earlier in the year.

Sales at variety stores showed little

change .from },lay to June, continuing at the advanced 1evel t.hat hD.s prevailed since the beginning of tho year.

In the early part of July depart-

ment store sales declined seasonally from the June level.
F'reieht-car loadings i!lcreascd further in June.

co&l ;.:..nd miscellaneous merchandiGe continued to
coke, which usually c:ecline at

th~.s

exp~J.nd

Shipments of

and loadings of

season, showed a substantial rise.

Co!Ih'T!odity prices
Prices of a nwriber of industdal. materials, particularly steel
scrap, copper, rubber, and .silL, declin•::d from the middle of June to the
middle of July.

Wheat prices also showed decreases in this period, while

prices of U.vestock and products advanced owing partly to seasonal influences.
Agriculture
Production of major crops thj_s season, according to the cTuly 1
report of the Department of Agriculture, may be slightly lower than l<:tst
season.

Tobacco production will be dv1rply reduced from last ",y'ec.r, when

the crop was unusually la.rge.

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Domestic supplies of whe.<tt and other field

crops as well as of vegetables and fruit are expected to shovr little
change from la.st season.

Indicated

hof~~

production thi.s year will be

about 10 per cent smaller than last ye'lr.

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n-677

Bank credit
Total loans and investments at reporting member banks in 101
leading cities increased during the five weeks ending July 10, chiefly
as a result of increases in holdings of short-term United States Government obligations and in commercial loans.

Holdings of United States

Government bonds and loans to security brokers and dealers declined.
The monetary gold stock increased by $885,000,000 in this
five-week period, the largest gold acquisition for any corresponding period on record.

This inflm'l of gold was reflected in a grmvU1 of

$310,000,000 in foreign bank balances with the Federal Reserve Banks and
in increased deposits and 1·eserves of member banks.

On July 10, excess

reserves of member banks amounted to t>6,83J,OOO,OOO.
Government security market.
Prices of Government securities, which had advanced sharply in
June, showed further increases after July 8 when the Treasury announced
a new bond issue for cash subscription.

Between June 10 and July 15 the

price of the 1960-65 bonds rose about 3 points, and the yield on this

issue declined from 2.52 per cent to 2.34 per cent as compared with 2.26
per cent at the year's peak in prices on April 2 •

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....
,

BOARD OF GOVERNORS
OF" THE

FEDERAL RESERVE SYSTEM

R-678

WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD

July 19, 1940

Dear Sir:

There are enclosed for your information a
table showing applications for members!lip received
by the Board during 1940, ax1d a statement eontaining
excerpts from the bank relations reports submitted
by the Federal Rese.cve Banks for the month of J1me.
A representative of one of the Federal ReServe Banks recentl~r raist~d the question informally
whether these compilations are of sufficient interest and value to the Banks to justify their continuance. The Board has no inclination to continue the
distribution of ~~xcerpts from bank relations reports
unless they are of some value in appriaing your Bank
of conditions and dovelop!nents in the other Federal
Reserve Districts. It will be much appreciated,
therefore, if you will give the Board the benefit
of your frank opinion whether or not the present
practice should be contL~ued.

---h~
L. P. Bethea,
Assistant Secretary •

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Enclosures
.......

TO THE PRSSIDEN'l'S OF ALL FEDERAL RESERVE BANKS

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R-678-a

Applications for Membership Received
by the Board during 1940

June

District

Number

Deposits

This Year
Number Deposits

Boston
New York

1..)'".

1~~

Philadelphia

3 $ 3,000,000

Cl,weland

FU.ehmond

8,400,000

20,600,000

10,600,000

16,300,000

Atlanta

1,800,000

Chicago

7,600,000

18,800,000

St. Louis

1,ooo,ooo

7,200,000

2,800,000

Minneapolis

•·

Kansas City

200,000

1,100,000

Dallas

300,000

8,700,000

...1

2,000,000

San Francisco

-l~

Newly organized bank.

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=

R-678-a
July 18, 1940
Not for publication

EXCERPTS FHOM BANK RELATIONS REPORTS FOR THE
MONTH OF JUNE l9it0
BOSTON
During Jcme the annual meetings of bankers 1 associations of
Connecticut, Vermont and Maine were attended and visits were made to
twenty country member banks and four nonmember banks located in scattered sections of Masaachusetts and New Hampshire.
With two exceptions all member banks visited reported a better loan demand--the demand coming mostly from small borrowers. Most
of the banks are aggressively Sl:;eking to increase their loan portfolios
and the result in several instances has been the recapture of a considerable amount of local business that had been allo11'1ed to drift out of
the communi ties to neighboring bank.s or into the larger cities of the
district. One or two bankers, whose loan portfolios are increasing,
expressed the view that the cond.uct o.f an active campaign to increase
local loans is more profitable and perhaps more desirf.lble in the long
run for a country bank to pursue than to engage in corporate bond buying. The banks 1 loan rates are from 6% dOVI.'l1ward, most loans carrying
the former rate and few carrying a rate lower than 5%, excepting "town
loans" made in anticipation of tax receipts.
In one corrununity, conversation with a local banker led to
the inquiry as to what Reserve Bank or governmental .financing facilities are available to small concerns which might secure Government
contracts. In cases of this character it is urged that the matter be
taken up promptly with Federal Reserve Bank officials.
Retail trade throughout the sections visited was reported
to be only fair with the exception of two corrununi.ties benefiting from
large Army and NaVY pay rolls. In the<;e communUies retail trade was
reported as being brisk with prospects of it continuing so for the
next year or two :Ln view of the increased activities at the Goverrunent
bases in connection vvith the national defense progr.s.m. In the opinion
of the bankers, past experience of these comrr,unities with fluctuating
Government pay rolls precludes any likelihood o.f a considerable expansion of existing business plants and housing facilities.
NEW YORK

During the month of J1me, our officers and representatives
visited 136 banl<::s--96 member and 40 nonmeiD~ber institutions--located in
various sections of the distrjct. The following is a resu:ne of the reports o.f visits to banks in sixteen counties in New York State.

P-678-a

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Albany, Fulton, Hamilton, Montgomery, Rensselaer, and Schenectady
Counties, New York
Even though the continued increase in savings deposits is represented largely in idle cash, a nwnber of commercial bankers report
that earnings for the first half of the year have been about the same as
during the first half of 1939, chiefly because of a further lowering of
the interest rate paid on savings deposits and the curtailment of other
f;xpenses.
The loan accounts of a majority of the commercial banks have
decreased in the past six months due largely to repayments of' State of
New York obligations. Many bankers commented that their advertisements
for rJersonal, automobile, and other installment loans have resulted in
a substant:i.al increase in the~ volume of this class of paper. One of the
largest banks in this area advertised during the last week in June that
i t is prepared to assist industries participating in the national defense
program in every way possible. The officers of a number of savings banks
say they are not able to obtain enough new mortgages to offset the amount
of amortization payments now being made.
Broome, Ch\;mung, Cbanango, Cortland, Delaware, Tioga, and Tompkins
Countie~.>, New York
Some ban..k:s have disposed of their longer term Government obligations in recent months, and in most instances the proceeds remain uninvested in the expectation that the time is not far distant when lower
prices will prevail in the Government bond market. There is a disposition on the part of many bankE.:rs to either stay out of the market entirely for the prr,::sent or to conf'im' their security investments to short
term Government issues. A fei'v say they are adding an occasional high
grade corpore:1.te issue to their portfolios. There appears to be some
hesitation at this time to continue the lir:p1idation of railroad is::mes,
especially where such compe>.nies show signs of improved business, the expectation beinr, that this condition will be reflected later in higher
prices for railroad securities.
The demand for credit is sai(i to be somewhat better and a nwnber of banks report higher loan totals. In the larger centers the increa:3ed demand is said to be chiefly due to the growth of personal and
other types of installment loans, although a few b:mk0rs say they have
had a better demand for business loans. In the rural area which was
rk':l..rd hit by the drought last summer, farmers started borrowing in the
early winter for the purchase of feed and hay to carry through until swnrnc:r. This borrowing ha.s been in addition to the usual spring seasonal
requirements for crop purposes <-J..nd cattle replacements. During the spring
months, there was also quite a demand for loans by the school districts

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in anticipation of their clllotments of State funds. WhHe tho 6 per cent
interest rate is still a fixed policy with some of these banks except on
school and other public loans, the tendency of fixing rates according to
the risk involved is spreading.
Summarx of Preferred Capital Issues

In the sixteen <.:ountics covered by this report, there are 103
corrunercial banks, 66 of which have issued preferred stock or capital debentures aggregating ~b14,119 ,2go par value. Up to the present time 25
have paid off their entire issues an1ount:ing to $:,6_,350,000, 32 have made
partial redemptions aggregating ~?2, 307,555 and 9 have not retired any-leaving 41 banks with a total still outs·~.anding of $5,461,725 par value,
retirable at $8,071,945 reflecting a redemption premium of $2,610,220.
PHILADELPHIA
During June representative::; of th:Ls department IIk'lde visits to
55 member and 10 nonmember banks.
The four counties covered in this report comiJrise 1,959 square
miles w.ith a population of 515,900. The total banking resources of
~0225,f308,000 are distributed among 50 members, wh:lch hold :!~204,824,000,
and 8 nonmembers, which hold $20,98h,OOO; an increase of :J$5,838,000 since
the previous visits last year.
Conditions show an improvement over those of a year ago. Industrial activity has been slackening since January in several communities,
but at Berwick, the plant of the American Car and Foundry Company has been
operating steadily and this has kept business conclitions st.able in that
vicinity. l'he company is producing tanks for the United States Army. It
was reported that the plant .is being prepar8d to ::'ncrease its output.

'·

The anthracite industry experienced good buslness last viinter
and in most sections operations have been fairly well m<-Lintained. The
stock of coal ca.rri.ed above ground at this season of the year has b(::en
greatly depleted, principally because of a heavy clermmd from Canada.
Operators are confident that markets once lost to Russia will be regained
and thus provide another outlet for their product. Most of the mines are
operating three d;ws a week, but operDtors in the Hazleton district report a five day week schedule.
Conditions jn the agricultural sections are fairly satisfactory. Dry weather had an adverse effect upon crops last year, while
prices generally did not sho'i'T much improvement over those of the previous year. Potato prices advanced somewhat but the crop vras short and

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R-67H-a

of an inferior quality. Crops generally appear satisfactory this year
to date, despite the delc:.y in planting because oi' the late season.
T':1e dem"lnd for credit has L':':prcved since last year
extensions being for small arr.ounts. Ea.rnJ.ngs continue to be
problem for the bankers. /wtomooile financing is being done
creas::.ng number of institutiom;, and FH:\ mortgag9s are being
in effort,s to bolster earnings.

with most
the chief
by an inpurchased

Rec.dty values have shmvn little advance, but holdings of real
estate by the banks :Ln this section show a reduction from last year.

A visit was made to one nonmember bank concerning membership
and as a result that bank is expected to apply for membership shortly.

During the month of tTune 81+ banks were visited, of which 33
were member c..nd 51 were nonmember.
Most of the bmks visited during the month are located in
main office terri tor.r and in areas where a large nu.mber of nonmember
banks may be fot:nd. Usually these areas are close to Reserve cities
where the principal banks have been a.ctive in soliciting correspondent
accounts. This is especially true of the territory lying southvvest of
Toledo and the area inur:ediately surround::_ng the city of Columbus.
Special efforts were made in the territories covered to interest banks in rnembel~si1ip in the System. In no caG<O' has there been
an indication of unfriendliness to the System although the majority of
the norilllember banks arJpeared indifferem:; to meJl1bership. They maintain
that correspondent banks can furnish every service tl-:at a. Reserve Bank
can furnish; tllE'Y insist that mainten.::.nce of the required :;:eserve with
the Federal Reserve Brn.'!.( would necessitate closing of accounts with
corresponc1ents vih:ich have been es-!-,ablis:led and maintained over long periods of time, and which thc_:y are reluctant to do. They exyJress a fear
of additional supervision and regulation; in other cases a certain
amount of' "house cleaning!! is needed before banks feel that they can
qualify for rne::1ber·ship.
Ger..erally speaking_, earnings of banks in this district for the
first six months of the year will be satj sfactory, and in many cases
will establish new high records. This appears to be the net result of
the institution of service charges, reductions in the rate of interest
paid on tim·:; and savings depo3i ts, the installation of personal or installment loan departments, and an increase in high-rate real estate

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mortgage loans, or a combination of these factors. Banks in the smaller
manufacturing centers visited during June l'eport either an increase in
loan totals or no difficulty in maintaining loan accounts at present levels.

RICHMOND
During the month of Ju.ne 27 banks werg visited, of which 16
were member and ll nonmember banks.
Carroll, Cecil, and Harford Counties, Mnryland
The primary income of these counties is derived almost wholly
from agriculture. Cecil and Harford Counties have become important locations in the sununer resort trade.
The agriculture of the counties is predominantly livestock
and dairying and the supplementary crops that go along with them. Grain
and forage crop outlooks indicate a proauction somewhat larger than last
year. Truck and canning crops (com in particular) are of considerable
importance.
Banks in these counties have become largely deposit institutions instead of lending institutions. Deposits of all banks interviewed were at or near their all-time high level. Time deposits in
these banks constitute over 65 per cent of all deposits on which interest j_s paid at the rate of 2 per cent per annum. There is some agitation, however, for reducing this rate to l-l/2 per cent. Service
charges in the major.it.y of banks consist of a f'l~c t charge of 2 cents
for each check debited by the banks.
Agriculture no longer contributes any :i.rnportant volume of
loans to bank portfolios, and this is attributed to the development o.f
the dairy industry. Monetary returns from dajrying are in good volume
and are paid at frequent intervals. From these returns farmers are
able to finance the crops of a more seasonal nature without recourse
to bank credit.
Canneries now under local control offer a good seasonal loan
business, but frequently loan demands of t.he canners are greater than
local banks can legally extend. At s~1ch times local banks convey the
excess of loans to their correspondents.
Halifax, Mecklenburg', and Pi ttsylV3...Ylia Counties. Virginia
These counties, located in the southern part of Virginia, on
the gorth Carolina border, are predominantly agricultural (about 70

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R-678-a

per cent of the employment comes fr~m this source), but llunber, textile,
and tobacco manufacture afford important sources of income in some localities. To these counties some importance must be attached to dairying, poultry raising, sweet potato and fruit growing, and cotton, but
the important source of farm income in this area is tobacco.
Present indtcat.ions point to a large tobacco crop despite the
20 per cent curtQiL~ent in acreage. Opinion is ~~despread that tobacco
farmers in these counties will vote aLl!lost unanimously in favor of the
proposed three-year AAA control program.
The reduction of tobacco acreage finds a good deal of land
lying fallow, but many more grain and corn fields are to be found than
usual. Every farm now seems to have a t~1ck garden, and a great deal
more self-sufficiency is in evidence.
ATLAl.JTA
During the month of June 72 banks were visited, of which 32
were member banks and 40 were nonmember banks.
Central Florida
The main purpose of this trip was to discuss with officers of
several eligible banks the question of membership in the Federal Reserve
System and although no definite co1mnitments were made, the managements
of these banks agreed to give the matter serious consideration. All of
the banks visited reported increases in deposits and satisfactory earnings during the past season and look forward to increased activities and
continued gro1~th of their corrununities. From reports, the cold weather
last -;,rinter and early spring had some sericus effects on the vegetable
and citrus crops and in some instances considerably damaged the citrus
groves. The crops throughout this section have suffered from a drouth
o.f several weeks 1 duration, but it is thought that rains early in June
carne in time to prevent serious damage. None of the banks visited had
any criticisms or suggestions to make regarding the Federal Reserve System.
Eastern Central Georgia
Bankers in all the communities visited reported good business
in the spring and early surmner. During the past thirty days,
however, business has registered the usual surruner slu1np characteristic
of farming communities. Bank deposits are generally higher than a year
ago and vrhile most bankers reported satisfactory earnings, the common
complaint of lack of investment for idle i\mds was voiced. Bankers in
activit;~r

17
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13 of 21 counties visited complained of keen competition from governmental lending agencies in the agricultural field. Most of this complaint was directed at production credit associations which are said
to '.Je becoming more aggressivE each year. In a number of counties,
bankers claL11ed that these orga.'1izations are getting as high as 50
per cent of all agricultural loans made.
No criticisms of the services of the Federal Reserve Bank
were offered by any of the member banks visited. i'Jhile the nonmember
bankers were very cordial and apparently ap?reciative of a visit from
our representative, none of them expressed any parttcular interest in
membership. Exchange on :incoming checks at many of these banks was
reported to range from "30 per cent to 50 per cent" of the total net
income and none of them feel that they can afford to give up this
source of revenue under present conditions.
CHICAGO

During the month of ,June 36 banks were visited, of which 10
were member banks and 26 were nonrnember banks.
A few of the banks have expressed some intGrest in the proposed Mead Bill and have inquired as to the likelihood of Government
contracts being n~de available as collateral for loans.
The president of one of the State bankers associations in
this District in his address to the convention recormnended membership
in the Federal Reserve System for all banks that could qualify. 'l'he
president of another State association is planning a campaign on service charges and will attempt to ~Lndu.ce the nonpar banks who do not
have a service charge to install such a ch'lrge and to par their o-wn
checks. He also stated that the dual banking system vrould more likely
be preserved if all banks were to ,join the Federal Reserve System, and
that he will give consideration to stressing this during his administration.
In the last full week of June, Chicago district steel. mills
continued to operate for the third consacuti ve vreek at practically capacity levels--92 per cent. Ntunerous orders for all kinds of steel
were still being received by sales offices, and new business exceeds
production despite the maintenance of the high level of operations.
Although mill backlogs, as a result, are being built up, deliveries on
most products are not yet very slow. B.:-;;.rs, sheets and strip, and semifinished steel, as j_n other rf3cent weeks, are contributing most to the
volume of incoming business. Tin plate mills continue to operate at
near capacity, as do machine tool plants. In the case of the latter,

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backlogs in some instances are the largest since 1929. The railroads
have made further purchases of rails and cars. It is the general feeling that considerable buying is for inventory purposes.
Production of 1940 ;nodel automobiles was nearing an end as
June came to a close, and output in the current week probably will
cover only three days, as most plants will close over the July It holiday tl'..rough the end of the week. Aggregate production of automobiles
for Jm1e, though falling below May as expected, nevertheless held up
relatively well and was much above that for last June. Sales for the
first two-thirds of the month compared favorably with the corresponding May volume. Retooling for 1941 models is now nearing completion
at several companies.
The new corn crop has progressed under favorable conditions,
a.nd cash corn prices have held fairly firm in the face of a confused
weakness in the wheat market. Prices of hogs have been unusually weak,
holding around the five dollar level at Chicago, although within the
last few days these prices have strengthened slightly. VITi th cash corn
at around 65 cents at Chicago, feeding of corn to hogs still remains an
unprofitable operation. Prices of fed cattle have held fairly firm and
higher than last June.
ST. LOUIS
During the month of June 142 banks were visited, of which 53
were member banks and 89 were noruncmber banks.
Illinois banks are paying up to 2 per cent on time deposits
and their loan rates are from 5 per cent to 7 per cent with a light demand for credit. Earnings are off compared vrit.h last year. A member
banker stated that he is hesitating about buying additional Governments,
because of the European war situation.
In the Missouri banks visited, interest rates of from 1-1/2
per cent to 2-1/2 per cent is credited on time money. The loan rate
varies from 5 per cent to 8 per cent, with a fair demand for credit.
In response to inquir;J by our representatives, the member
banks uniformly reported that their relations ;vith the Federal Reserve
Bank were entirely satisfactory. They had no suggestions as to how we
could be of greater service to them.
The cashier of a Kentucky nonmember has been connected with
the bank for 37 years and has not forgotten what he claims to have been
unfair methods used by the Reserve System years ago to enforce par collection of checks. He said this enforced method of collections caused

19
-9-

R-6?8-a

an exchange loss to his bank of about ;t$1,200 per yea:c and that no other
form of iLcome had been found to replace this loss. He was ver;r much
opposed to t,he application of the Wage and Hour Law and thought that
generally, the Go'~rernment was interfering too rr.uch with private business. Membership was discussed, but he sai.d that he had never given
it serious consideration.
The cashier of anot!'1e:r Kentucky nonmember referred to vrhat
he called stern tactics used by the Reserve System in tbe par campaign
some years a.go and said that he was glad to note the more frie:ndly attitude of the System during tl1e past few years. He appc,ared somewhat
interested in membership and inqu:i.red as to what services he could get
from the Reserve Bank that he could Got get through his correspondent.

MINNEAPOLIS
During the month of June 256 banks viere visited, of which

103 were member banks and 153 were nonmember banks.
Eastern South Dakota
Banks wlthin this distd.ct generally received as high as 8
per cent on their loans. Most of the banks hold fe>Y or no farm real
estate loans. Generally there is little F. H. A. financing. There
was not much repairing or repainting. Not much fam. land was being
sold, except that the Federal Land Bank and the South Dakota Rural
Credit Board had made some sales at what were said to be low prices.
Mostly, the banks carry more or less installment paper on
cars, tractors, etc., make barnyard loans and to quite an extent make
advances against assignments of conservation payments. !)ne banker
said he thought banks should be more careful on tractor lJaper; he
thought i t veF;f probable that some banks would suffer losses on such
paper.
Most of the banks did not appear to feel that Postal Savings
or Production Credit Associations offered much competition. One banker
indicated that the local demand for loans was such that he turned some
of the larger loarJ.s to the Produetion Credit Associa.ticn.
Western South Dakota
Most of the bani~:ers are concerned about the high cattle prices
and fear a violent drop. J', few weeks ago eastern ;;ool buyers commenced
to contract for wool at 28 to 30 cents a pound, good ,>.>rices. Then came
the blitzkrieg in Flanders and the buyers withdrew. Consequently, those

20
-10-

R-678-a

with wool to sell are disturbed about the situation. Sheep shearing
is well under way and the wool crop is expected to be at least an
average one. Proceeds of the sale of the wool clipped in the next
thirty days will reduce loans somewhat. Several bankers said they are
unable to acconunodate many ranchers and farmers in their territory because they are so involved with Federal advances for seed and feed
that the status of the security is uncertain. They do not want to
take the risk which may attach in such cases.
There has been a fair demand lately for loans, mostly on
sheep and cattle. A number oi' bankers spoke of the futility of the
Government making rehabilitation loans. Although the idea of such
loans is conunmdable, it was stated that almost without exception the
recipients of Federal money were the shiftless, lazy individuals who
had always been failures and who regard tht: funds as Santa Claus money.
The bankers who mentioned this matter said that very heavy losses appear to be a certainty.
West Central Hinnesota
The subject uppermost in the rrd.nds of the bankers visited is
the European war sitt:ation and its probable effect on conditions in
this country. The territory visited is essentially agricultural and
the bankers feel a deep concern as to the effect of the war on prices
of agricultural products. They are also very much interested in its
effect on bond prices and the probable trend of interest rates on new
security offerings b;y the Treasury Department. A few bankers displayed
some concern as to the gold holdings of the United States Govermnent
and are hopeful that such holdings can be used advantageously. These
bankers are strongly in favor of the immedi3.te adoption of a preparedness program by the United States Government which will insure adequate
protection for the people of this country regardless of any eventuality.
Real estate loans by the banks, usually on a very conservative basis, are made in most instances at interest rates of 5 per cent
or 6 per cent. Chattel mortgage loans and installment paper for farm
equipment and household appliances ordinarily bear a 7 per cent or an
8 per cent rate, the latter being the most common. In some conmmnities,
the banks are experiencing keen competition from individuals who are
lending money directly to other individuals. 'I'his is sometimes referred to as 11 sandbagging 11 and constitutes a real problem for some banks
in the small communities.
KANSAS CITY
During the month of June 80 banks were visited, of which 37
were member banks and 43 were nonmember banks.

21
-11-

R-678-a

The visits to banks in .June were confined, for the most part,
to southeastern Nebraska and northeastern and north central Oklahoma.
Bankers complained in mo.ny colTllliUnities that people have the
war jitters. A good many cases were found where bankers said they were
making loans with much more care and caution due to the rapid change in
the war situation following the invasion of the Low Countries. A good
deal of concern is met with regarding general conditions in this country as a result of the European war. . The opinion was expressed that
the . armament program will be financed vd th cheap money. Some bankers
express great faith in long-term Government bonds, yet few care to buy
them at present prices. Other bankers just "wonder" what Governments
will do. One banker thought the Federal Reserve System was getting
rich manipulating the Government bond market.
The membership situation has changed l:Lttle. On the whole,
bankers ask many questions about the System and membership. In Nebraska
a number of good prospects said they ·would join the System :if' they did
not have to go on the par list. Others say they will join when their
earnings get to the place where they will not need exchange charges.
Some overbanked communities were found and tht; eligible State banks,
while friendly, said they would not think of momb ership until satisfactory consolidations could be worked out. In other cases, capital structures block rnembersh_:i.p.
Several of the banks in eastern Nebraska that were visited
were 1nsitutions where depositors had waived a part of their deposits
some years ago when banks were in difficulty. A few banks are h;wing
a real struggle with these obligations, but in most cases gratify:Lng
progress is being made in paying· back these dr:posi ts.
A variety of opinion is still found regarding the competition
of governmental agencies. A Nebraska banker complained that these
agencies were running many small banks out of business, while a banker
in Oklahoma said this competition was becoming less severe as many of
his former customers who hnd been borrowing from the Production Credit
Association were coming back to him.
Great differcmces are found in hank loans. In some instances
nearly half the note case is made up of FHA loans, while other banks
have none of this paper. Some banks make no personal loans on 2. timepayment basis, while others are increasingly expanding this business
and finding it veF;J profitable. Ther0 are banks in rural communities
that still lend the bulk of their funds to farmers in much the same 'Nay
as they did two decades ago. A Nebraska banker was found who actively
solicits clerks and salaried persons, urging them to buy homes. He
loans 75 per cent of the purchase priee at 5 per cent.

22
-12-

R-678-a

DALLAS
During the month of June 65 banks were visited, of which 58
were member banks and 7 were nonmember banks.
West Texas
Banking conditions in this region are satisfactory and steadily improving. Loa~s, deposits and earnings are, on the whole, showing
a steady growth, largely because of the progress made in the development of a better balanced and more diversified agricultural system,
aided by the surprising stability and high levels of cattle prices.
One banker told our representatives that the farmers of west
Texas are in better financial condition than they have enjoyed for many
years. He attri.buted this happy situation very largely to the Government's crop control progrc>...m which, b:r reducing the production of cotton
and wheat, has forced farmers into new avenues of productive effort,
principally livestock raising.
Banks throughout the territory reported a sharp expansion of
loans and a consequent increase in earnings over last year. The growth
of the loan volume was caused in a large meastrre by an increasing demand for credit to finance purchases of calves and stock cattle, the
farmers being anxious to utilize lands withdrawn from cultivation and
also to take advantage of the abundant rains that have recently fallen
in west Texas and made possible exceptionally fine pasturage and feed
crops.
Another factor which has aided the growth of bank loans and
earnings in this region is the determined efforts that many banks are
making to recapture a portion of the business which the-y had lost to
Government lending agencies, particularly the Production Credit Associations. The banks are at last beginning to meet this competition
successfully by lowering interest rates, a step whi.ch most of' them vvere
at first slow and reluctant to take.
Against the background of generally favorabls reports in regard to agricultural and banking conditions in west Texas, there is an
increasing sentiment of uneasinP.ss and pessimism a.m.ong the interviewed
bankers in regard to the continued high market prices of cattle. Beef
prices, in their opinion, are undu~ high in relation to the price of
hogs, and are due for a d(;jcline. Although the persistently high level
of cattle values is not fully understood by the banks that are financing
the cattle raisers, it is felt that it may be accounted for, in no small
measure, by heavy and widespread buying of cattle by farmers for the
purpose of shifting a. large part of their production program from cotton
or wheat to liYestock.

-13-

R-678-a

SAN FP.ANCISCO
During the month of June 17 banks were visited, of which 15
were member banks and 2 were nonmember banks.
PUBLIC RELATIONS ACTIVITIES OF FEDEfi.AL RESF..RVE BANKS
June 1940
Federal
Reserve
Bank

Visits to Banks
Member I Nocinember I Total

Addresses Made
Attended
Number !Attendance Number !Attendance

Meetin~s

390

2,320

128

2,91+7

210

3,736

516

Chicago

1,192

115

St. Louis

142

2,020

Minneapolis

103

153

256

6,450

370

Kansas City

923

135

Dallas

2,445

1
......

1,600

San Francisco

2,364

Boston

New York

'-~-o

136

Philadelphia

Cleveland

Richmond

Atlanta

Not reported

24:
BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
R-679

WASHINGTON

ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

July 20, 1940

Dear Sir:
There is attached a cop,y of the report of expenses of the main lines of the Federal Reserve Leased Viire System for the month
of June 1940.
Please credit the amount p~able b.1
your Bank to the Board, as shown :in the last
column of the statement, to the Federal Reserve
Bank of Richmond in your daily statement of
credits through the Interdistric:t Settlement
Fund for the account of the Board of Governors
of the Federal Reserve System, and advise the
Federal Reserve Bank of Richmond qy mail the
amount and purpose of the credit.
Very truly yours,

~~
0. E.
Foulk,
Fiscal Agent.

Enclosure
TO PRESIDENTS OF ALL FEDERAL RESERVE
Ti~JCCEPT RICHMOND

B&~S

R-679-a
REPORT OF EXPNqSES OF MAIN LINES OF FEDERAL RESERVE
LEASED WIRE SYSTEM FOR THE MONTH OF JUNE 1940

Words Sent
by N.Y.
Chargeable
to Other
F.R. Banks

Total
Words
Chargeable

Expenses
Paid
by Ba..'1kS
and
Board(2)

Pro Rata
Share of
Total Expenses (l)

Federal
Reserve
Bank

Number
of Words
Sent

Boston
New York
Philadelphia
Cleveland

25,011
66,821
16, 7/+2
30,425

849
827

25,827 $ 468.65 $
66,821
1,212.52
319.20
17,591
31,252
567.09

Richmond
Atlanta
Chicago
St. Louis

24,400
38,765
59,839
41,059

815
815
882
815

25,215
39,580
60,721
lrl_,874

457.55
718.21
1,101.83
759.84

212.56
239.76
1,225.58
240.59

Minneapolis
Kansas City
Dallas
San Francisco

20,333
40,306
34,070
46,179

814
815
845
822

21,147
41,121
34,915
47,001

383.73
746.17
633.56
852.87

198.91
2?3 .06
273.39
418.01

374,426

6,794.25

10,180.81

327,491

15,015.47

Board of
Governors

374,426

Total

818,376

816

9,115

Payable
to
Board
of Governors

288.37 $ 180.28
952.75
259.77
249.17
70.03
262.51
304.58
244.99
478.45
123 .75(a)
519.25
181~.82

47.3.11
360.17
434.86

3,510.31
123 .75(a)
3,386.56

(1)

Based on cost per word ($.018145780) for business handled during the month.

(2)

Pa,yments by Banks are for personal services a..'"1d suppli•3S and payments by Board
are for personal services and supplies (:~1,1..95 .ll) and wire rental ($8,685. 70).
Personal services include salaries of main line operators and of clerical help
engaged in work on main li.'1e business, such as counting the number of words in
messages; also overtime and supper money and Retirement System contributions at
the CliTrent service rate.

(a)

Credit--reimbursable to Chicago.

BOARD OF GOVERNORS
OF' THE

FEDERAL RESERVE SYSTEM
R-630

WASHINGTON

ADDRESS OF"FICIAL CORRESPONDENCE

TO THE BOARD

July 20, 1940

Dear Sir:
In accordance with the customary procedure, there is transmitted herewith, for your
information, a copy of the certificate of the
auditor of the Federal Reserve Bank of Atla.11ta
in connection with his audit of the accounts and
records of the Board's Fiscal Agent for the period January 1 to June 30, 1940, inclusive.
Very ~ly y~~

~?/?-~--,.

JU_.-~-

L. P. Bethea,
Assistant

Secretar~.

Enclo~mre

TO THE PRESIDENTS OF ALL FEDERAL RESERVE B.ANKS

27
R-680-a

I, E. P. Paris, hereby certify:
(a)

That a complete audit has been made of all entries in
the account - 11 Board of Governors of the Federal Reserve System - General Fund Account 11 for the period
January l, to June 30, l%0, inclusive.

(b)

That all cash received b;y the Board as shown by the
Cash Receipts Book has been deposited by the Fiscal
Agent and properly credited by the Federal Reserve
Bank of Richmond.

(c)

That all remittances made direct to the Federal Reserve Bank of Richn1ond by the Federal Reserve banks,
in compliance 11;"1. th the Board 1 s instructions, have
been properly placed to the credit of 11 Board of Governors of the Federal Reserve System - General Fund
Account 11 •

(d)

That each expendit.ure made by the Fiscal Agent was
properly authorized by an administrative officer of
the Board.

(e)

That the i terns of receipts and expenditures shovm by
the books of the Fiscal Agent have been reconciled
with the items shown in the statements of the Board's
account prepared by the Federal Reserve Bank of
Richmond.

(f)

J.'hat the balance as shmm by the books of the Fiscal
Agent has been reconciled with the balance standing
to the credit of the Board of Governors of the Federal Reserve System on the books of the Federal
Reserve Bank of R:i.chmond as certif1ed to by the
Auditor of that bank.
Respectfully submitted,
c.
J)
( .::>lgnea

E. P. Paris

E. P. Paris,
Auditor.
July 17, l9L1-0.

28
R-681
BOARD OF GOVERNORS
OF T:IE
FEDERAL RESERVE SYSTEM
STATEMENT FOR T;IE PRESS
Fo1· release in morning papers,
Tuesday, July 23, 1940.
The following ruling will appear i.'1 the Federal Reserve
Bulletin:
Obtaining Pa,ymont for Purchase of Securities in Cash
Account Under Regnlation T
'l'he Board

recentl~t

considered several questions regarding

the provisions of .ilcgulation 'I' which relate to tho maximum time permitted for obtaining paymont in a sped.al
/1-(c) of the r0gulation.

car~h

account under section

The gonoraJ. rule on this subject is stated

in subdivision (2) of the section.

Subject to a number of exceptions

stated in subsequent subdivisions of the section, this subdivision
provides that:
11 (2)
In case a customer purchases a security (other
than an exempted security) in the specis.l cash account and
does not make full cash payment for the security within 7
days after the date on which the security is so purchased,
the creditor ~>hall, except as provided in the succeeding
subdivisions of this section Me), promptly caneel or othervrise liquidate the transaction or the unsettled portion
thereof. 11

Paying gy sale of another securit:z. - One inquiry related
to the application of this provision to a question that may be described as follows:
A customer effects a purchase :Ln a 0pecial cash account established pursuant to section 4(c) of the regulation. On the same day the customer sells in the account

H-681

-2-

another security Which he ovms but which ht3 has not yet deposited in the account. The proceeds of the sale, which
was effected "seller 10", are sufficient to make full cash
payment for the purchase, but such proceeds will not be
available to the broker until after the time applicable
under section 4(c) for obtaining peyment for the purchase.
May the sal13 bo considered to constitut~ payment for the
security purchased, and thus make it U.."lnecessary to take
alternative action?
It is to be noted that a similar question was considered by
the Board in the ruling published at page 10/+3 of the Dec:ember 1938
Federal Reserve Bulletin on the subject of "Paying for Purchase in
Special Cash Account

Selling .Another Security".

In that case the

security sold was deposited in the acco1.mt prior to the expiration of
the time permitted for obtaining payment of the securities purchased.
In the present case, although the sale was made within the required
period, the securities so sold were not delivered into the acconnt
within that time.
It is recognized that such transactions might be evidence
of an effort to evade the regulation in violation of section /+(a)
which provides that:
A special account established pursuant to this section shall not be used in any wa'.;r for the purpose of evading
or circumventing any of the provisions of this regulation."
11

Naturally,

a~-

such tranGaction should be carefully scrutinized for any

such possibility, and any repetition of such a method of making payment
by a customer would be especially subject to question.

Assuming, how-

ever, that there is no such evasion or circu:nvention of the regulation,
i t is the view of the Board that the broker raay, at his option, treat

30
-3-

R--681

the customer as having mad8 payment for the rmrchased. security at
the time when the other security was sold, and that this would be
permissible even though the secur.ity sold had not bls:en deposited in
the account.

The same conclu8ion would, of course, follow if the se-

curity sold had been deposited in the account but happened not i:.o be
in form for "good delive:r.r 11 •
Delayed offer of payment. - An inqui:rJ vJe.s presented as to
a situation in which a broker or deale1· does not obtalP full cash
payment within the period

applL~able

to the transaction but is offered

payment promptly after the period and before he has cc:tncelled or oth•.::rwise liquidated the transaction.

The qu8:o>tion was whether the broker

or dealer in such circumstances may accept such payment and consider
the provisions requiring cancellation or liquidation for failure to
obtain pa:yment to have been met.
The section provides veriuus exceptions for cases whore a
period other than the

sev-en--cla~r

period rruuld be more appropriate.

These exceptions do not include any provisicn for e. payment which is
offered pror1ptly after the period applicable to the transaction, and
it does not appear why any additional time should be permissible in
such circumstances if there is no other ground for additional time.
The provision for cancelling or otbarvrise liquidating the transaction
when payment has not boen obtained within the applicable period is
explicit.

There ar·e vario1 lb ex.cey)tions, includint; p:-covision for an

extension of time under cel't,ain conditions tw an appropriate committee

31
R-681

-4-

of a national securities exchange, and it is the view of the Board
that i:.1 the circumstances described

th(~

de1ayed payment by the cus-

tomer may not be accepted as a substitute .for the cancellation or
liquidation of the transaction.

This would be the case whether a

brokerage or a dealer transaction was involved.
Additional time for shipment of securities. - Subdivision

(4) of section 4(c) provides that:
(4) If any shipment of securities is incidental to
the consummation of the transaction, the period applicable to the transaction uncle1· sul:xiivision (2) of this section 4(c) shall be deemed to be extended by the nwnber of
days requir•3d for all such shipments, but not by more than
7 days • 11
11

questions were rnis8d as to whether certain periods required
for the shipment of securities were covered by this provision, and
whether they might be added together (to a total such extension not
exceeding the seven days specified in the provision).

Such questions

were presented as to the time of shipment from the place of purchase
to the broker, from the broker to the customer, and to and from the
transfro~r

office.
Assuming that such shipments are not a subterfuge but actu-

al~

are

L~cidental

to the consummation of the

tr~~saction,

it is the

view of the Board that each such period is covered by the provision.
In addition, all such periods may be added together, provided, of
course, that the total ::Tu.ch extension for any transaction does not
exceed the

sr~ven-day

maximum specified i::-1. the provision.

32
BOARD OF GOVERNORS
OF' THE

FEDERAL RESERVE SYSTEM

R-682

WASHINGTON

ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD

July 25, 1940

Dear Sir:
Referring to the Board's letter of July
19, 1940 (R-678), there is enclosed, for your information, a copy of the Board's letter of this
date to all Class A, B, and C directors of the
Federal Reserve Banks advising them that in future
copies of the material showing applications for
membership received and excerpts from the bank relations reports submitted b,y the Federal Reserve
Banks will be forwarded to them individually.
Ver;_r truly yours,

Chester Morrill,
Secretary.
Enclosure
TO

TIE~

PRESIDENTS OF ALL FEDERAL RESERVE BANKS

33
BOARD OF GOVERNORS
OF" THE

FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE

TO THE BOARD

July 25, 1940

Dear Sir:
It has occurred to the Board that Class A, B,
and C directors of the Federal Reserve Banks may be interested in receiving regularly copies of the material
prepared each month showing applications for membership
received and containL~g excerpts from bank relations
reports submitted by the Federal Reserve Banks during
the previous month. Accordingly, there is enclosed,
for your confidential use, a cop,y of the Board's letter R-678 dated Ju~v 19, 1940, together with its attachments.
Although it is probable that copies of these
reports are being made available to you by the Reserve
Bank, it was thought that there would be some advantage
in forwarding copies to you directly. In the event you
prefer not to receive further copies of this material,
or desire them forwarded to you. at a different address,
it will be appreciated if you will so advise us. In
the absence of such advice, future copies will be forwarded to you at the above addrvss aach month until
further notice.
Vert truly yours,

Chester Morrill,
Secretary.
Enclosure
TO THE DIRECTORS OF ALL FEDERAL RESERVE BANKS

34
BOARD OF GOVERNORS
OF" THE

FEDERAL RESERVE SYSTEM

R-683

WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

July 26, 1940

Dear Sir:
Under date of June 20, 1940, we transmitted to you a copy of a letter dated June 19, 1940,
addressed by Chairman Eccles to the Chairman of the
Banking and Currency Committee of the United States
Senate and also a letter addressed to the Chairman
of the Committee by Mr. Jesse Jones, Federal Loan
A&ninistrator, under date of June ll+, 1940. For
your further information in this connection there
is enclosed herewith a copy of the printed hearings
before a subco~~ittee of the Committee on Banking
and Currency of the United States Senate on June l2
and June 14, 1940, on the subject of business loans
by Federal Reserve Banks, in which Chairman Eccles•
testimony is included, beginning at page 14, and iilr.
Jones' testimony is included, beginning at page 44.
Very truly yours,

Chester Mottill,
Secretary.

(Enclosure sent only with addressed copies)
TO THE CHAIRMEN 0 F ALL FEDERAL RESERVE BANKS Ai.~D
THE PRESIDENTS OF ALL FEDERAL RESERVE 13ANKS

BOARD OF GOVERNORS
OF" THE

FEDERAL RESERVE SYSTEM
WASHINGTON

R-684
ADDRESS DF"F"ICIAL CORRESPONDENCE

TO THE BOARD

July 30, 1940

Dear Sir:
On August 8, 1939, the Board vrrote a letter (R-518) to
all Federal Reserve Banks requesting that it be furnished with
certain information with respect to the various classes of insurance carried, premiums paid, losses incurred, etc., since the
establishment of the Federal Reserve System.
Replies to this letter have been summarized for the information of the Board of Governors and a copy of the summary is
enclosed. It will be noted from the summary that the ~~stem has
paid insurance premiums, other than those on ~roup life insurance, since its establishment of approximatel7 $17,200,000 and
that claims collected from insurance cor;1panies on such insurance
have aggregated about $5,100,000, an excess of premiums paid of
over $12,000,000. In 1938, the last year for which figures were
obtained, total premiums paid for such insurance aggregated
$553,800 and claims collected from insur~~ce companies, $139,300,
the premiums exceeding claims collected qy over $400,000. The
ratio of claims collected to premiums paid for all types of insurance, other than group life, has averaged approximately· 30
per cent. As will be noted from the attached memorandu.'l'l, the
Government's experience under the losses in shipment act has
been favorable.
An analysis of these figures indicated to the Board
that substantial savings could be offcccGed if the Federal P.escrve
Banks l:zy- contractual ag::.1 ee~:1ents absorbed certain System losses
instead of carrying insurance against them. While the Board has
not attempted to work out any plan for +.;his purpose, its General
Counsel has advised it that, in his opinion, it is possible to
work out an arrangement for this purpose whicl:1 woulJ. be lawful.
A copy of Counsel's opinion is enclosed for your information.

-2-

R-684

In these circumstances, the Board would favor the adoption of such an arrangement and is suggesting to the Chairman of
the Presidents' Conference that he appoint a committee at his ear~
convenience consisting of operating men and counsel to work out a
plan under which insurance now carried against certain losses may
be discontinued and such losses absorbed Q1 the Federal Reserve
Banks under contractual agreements entered into with each other.
The Board will designate a representative from its operating staff
and one f1·om its legal staff to serve with the committee. Such a
plan when worked out would, of course, be submitted to the directors of each Federal Reserve Bank, and to the Board of Governors,
for their consideration and approval before becoming effective.
Very truly yours,

Chester Morrill,
Secretary.

(Enclosures sent only vrith addressed copies)

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

37
BOARD OF GOVERNORS
OF" THE

FEDERAL RESERVE SYSTEM

R-685

WASHINGTON

ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD

August 2, 1940

Dear Sir:
To assist us in determining Vi·hether
our present stock of the booklet, "The Federal
Reserve System- It.s Purposes and Functions",
should be replenished at this time and in what
amount, it wHl be appreciated i f you will inform us how many copies you have on hand for
distribution and what demand you anticipate
this fall.
Very truly yours,

Chester FAorrill,
Secretary.

TO THE PRESIDENTS OF ALL FEDE..'i.AL RESERVE BANKS

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

R-686

WASHINGTON
ADDRESS OF"F'ICIAL CORRESPONDENCE

TO THE BOARD

August 5, 1940

Dear Sir:
Reference is made to our letter (S-221) of
June 3, 1940, regarding the a~~inistration of Regulation U with respect to noninsured State banks. We
are pleased to report that v;e are informed that the
four States that had not been heard from have indicated their willingness to cooperate in the matter.
In other words, all 48 of the State Bank Supervisors
have now agreed to cooperate in the program, as outl~led in the attacr~ent to our letter of June 3,
1940, for the administration of the :cegulat.ion with
respect to noninsured banks.
The Board is very glad to see these arrangements completed and it ve17 much appreciates
the good offices of Mr. White and the cooperation
of the State Banking Departments. As indicated in
our letter of .Tune 3, 191;..0, it is assumed that the
Reserve Banks ·will cooperate fully with the State
Banking Departments along the lines indicated.
Very truly :rour·s,

Chester iViorrill,
Sec:~etary.

TO THE PRESIDENTS OF ALL FEDERAL RESERVE Bi\.NKS

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

R-687

WASHINGTON
ADDRESS CFF"ICIAL CCAAESPCNDENCE
TC THE BCAAD

August 8, 1940

Dear Sir:
There are enclosed herewith copies of statement rendered by the Bureau of
Engraving and Printing, covering the cost
of' preparing Federal Reserve notes from July
1 to July 31, 1940.
Very

tru~y

yours,

~~
0. E. Foulk,
Fiscal Agent.

Enclosure

TO THE PP..ESIDENTS OF ALL FEDERAL RESERVE BANKS

R-687-a
Statement of Bureau of Engraving and Printing
for furnishing Federal Reserve Notes,
July l to July 31, 1940.
Federal Reserve Notes, Seri.es 1934
$10
Boston
New York
Philadelphia
Cleveland

70,000
53,000
21+,000

5,000

$20
12.,000
3,000
4,000
20,000

$50

$100

16,000
31,000 104,000
25,000 13,000
27,000
5,000

$500
800
500

$1,000 $5,000
650

$10,000

100

500

Total
Sheets

Amount

99,650
191,000
66,100
58,000

$ 9,237.56
17,705.70
6,127.47
5,376.60

Richmond
Atlanta
Chicago
St. Louis

28,000 11,000
17,000
2,000
75,000 42,000
9,000
7,000

18,000
6,000
54,000
5,000

8,000
7,000
31,000
7,000

65,000
32,000
202,000
28,000

6,025.50
2,966.40
18,725.40
2,595.60

Minneapolis
Kansas City
Dallas
San Francisco

7,000
13,000
10,000
20,000

1,000
4,000
2,000
15,00Q

1,000
6,000
4,000
13,000

18,000
26,000
22,000
53,000

1,668.60
2,410.20
2,039.40
4.913.10

860 2 720

~ :Z22 721.22

9,000
3,000
6,000
5,000

331,000 124,000 188 2 000

212 2 000 12200

, ....!

1,150

120

860,750 sheets@ $92.70 perM •.•....... $79,791.53

41
BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON

R-688

ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD

August 9, 19.40

Dear Sir:
The Presidents' Conference Committee on Member Bank
Operating Ratios has recommended that ratio analyses covering
the year 1940 be made along substantially the same lines as for
1939. Accordingly a revision of form F.R. 456, used at most
Federal Reserve banks last year as a co~bination work sheet and
reporting form, is being prepared and a supply will be sent you
under separate cover. A speci:nen copy is enclosed. It will be
appreciated if, as soon as the tabulations usually made from the
work sheets l:1ave been completed, you will return the forms to
the Board for its temporary use.
Several Federal Reserve banks, to avoid the inconvenience of lending the completed 1939 forms to the Board, prepared
duplicate copies of the desired figures on additional forms provided for that purpose. If it appears desirable at your bank to
use duplicate copies of the form in supplying the requested data,
please let us know in the nee.r future approximately how many
additional forms will be needed.
It is anticipated that th-2. Board will again be in a
position to supply aggregates of tl1o operating ratios, by size
groups and States or part-States within districts, to any Reserve
bank which requests them. The data c&."l c.lso be furnished by
various other groupings if desired. As nearly as can be foreseen now, it will take from four to six v;eeks from tlle time the
work sheets are received to supply such aggregates.

Enclosure.

http://fraser.stlouisfed.org/
TO THE PRESIDENTS
Federal Reserve Bank of St. Louis

OF ALL FEDERAL RESERVE BANKS.

4.2
BOARD OF GOVERNORS

R-

OF" THE

689

FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE

TO THE BOARD

August 12~1940

Dear Sir:
There are being forvrarded to you toc~ay
under separate cover
copies of pa;e 37 of the
'~. ~e.nual of Instructions Governinrr: thr; Prenaration
of Function!? l Expense Reports (F~nn .E:) 11 , ;evised
as of August 15, 1940. This par~o was r :vised in
order to clarify the operations of the registered
mail and expross section of tho l\:ail and .c;xpress
uni t 1 particularly vri th respect to shipments of
currency and coin. An additional copy of page 37
is enclosed for your information.
Very truly yours1
...........

.···.\

1. .-'

'·>{ ' ·

. . , //

)

;

I /

\ (/ c/&-Yl

~---·-

///

v· ·

:H &--~-

J. R. Van Fossen1 Assistant Chief,
Division of Bank Operations.

Enclosure

TO TFE PRESIDENTS OF ALL FEDEF'AL RES::CPVE B.': FKS

43
BOARD OF GOVERNORS
OF" THE

FEDERAL RESERVE SYSTEM

R-690

WASHINGTON

ADDRESS OF"F1CIAL CORRESPONDENCE
TO·THE BOARD

August.15, 1940

Dear Sir:
On Monday, SepteiJber 2, Labor Dey, the offices of
th8 Board of Governors of the Federal Res<?rvo System and all
Feder&.l He serve Banks and branches will be closed.
The Board is advised that thG following holidays
also will be observed by Fodoral Hcserve Banks and branches
during Septemb~r:
September 9
(Monday)
September 12
(Thursday)

San Francisco
Lor? A11geles

Baltimore

Admission Day
in California
Defenderd 1 Day
in !',1a:::y land

On the dates given th3 offices concerned will not
participat'J in either the transit or the Federal Rcf;erve note
clearing through the Interdh,trict Sdtlement Fund. Please
include transit clearing credits for the offices mentioned on
each of the holidays with your' Cl'edits for the next business
day. No debits covering shipments of Federal Reserve notes
for account of the Fed0ral Heserve Bank of San Francisco
should be included in you.r note clearings of Septemr.. cr 9.
Please notify branches.
Very truly yours,

,__../}?; /) // /
)
~.(./!. / ( itrCUJ-? t.
F. A. HeLJon,
Assistant Secretary.

TO THE PHESIDii:NTS OF ALL FEDEHAL RESERVE BANKS

44
R-691
BO.AHD OF GOVFllJ\lOHS
OF TilE

FEDERAL RESERVE SYSTEM
Statement for the Press
For rr.dease in morning papers,
Monday, August 19, 1940.

Volume of industrial output

The followLng summary of general
business and financial conditions
in the United States, based upon
statistics for July and the first
half of August, will appear in the
September issue of t,he Federal Reserve Bulletin anci in the monthly
reviews of the Federal Reserve Banks.
WiiS

steady during July and the

first half of August, after a rapid expansion in May and June.
ment continued to increase.

Employ-

Reflecting mainly awards for national de-

fense projects, construction contracts rose to the highest level in ten
years.

Prices of basic cormnodi.ties declined somewhat further.

Production
In July the Board's revised index of industrial production stood
at 121 per cent of the 1935-39 averag-e, according to :)reliminar.f data.
This is the same as in June and 17 points above the level prevailing a
year ago before the outbreak of war.

In rnost lines activity was main-

tained at the levels reached in June or increased .further.
Steel production in JuLy was at about 85 per cent of capacity
and in the fir.st half of August there was an increase to about 90 per
cent.

Production of pig iron and coke and output of nonferrous metals

Nere also in large volume.

In the machinery, shipbuilding, and aircraft

industries, where new orders had been large during tht:: first half of the

45
R-691

-2-

year and a considerable backlog of unfilled orders h3.d accumulated, activity was maintained at high levels in July, although ordinarily there
are declines at this season.

LUJTl]Jer production declined sharply early

in July but has subsequently increased accompanying a considerable rise
in new orders.
In the automobile incl.ustry output declined sharply in <July and
the first half of Auguct as plants were closed to prepare for the shi"ft
to new model production.

The decline was greater than at this season in

other recent years, reflecting the fact that production had been at high
levels during the first half of 1940 and large stocks had accumulated.
These stocks were reduced considerably in July as production was curtailed and retail sales continued large.
Textile

pro(~uctioll

increased considerably further in <July, re-

flecting chiefly a marked rise in activity at woolen mills where output
is still below the levels of a

~"ear

textiles was maintained in July and

ago.
VJes

Production of cotton and rayon
in larger volume than last sum-

mer, while activity at silk mills increased somewhat from the exceptionally low level reached in June.

Shoe production increased seasonally,

while output of manufactured foods, iYhich in June had been unusually large
for that time of year, showed less than the customary increase in July.
Coal production has risen further and shipments of iron ore
down the Lakes have continued at near-capacity rates.

Petroleum produc-

tion has been curtailed sharply, however, reflecting partly a continued
high level of stocks of petroleum products.

46
R-691

-3-

Value of new construction work undertaken increased sharply in
July, owing mainly to a further rise in p..;blic construction, and was at
the highest level in the past decade, according to reports of the F. VV.
Dodge Corporation and the Federal Reserve Banlc of San Francisco.

Awards

for both residential and nonresidential private building increased somewhat, although some decline is usual at this season.
Increases were most pronounced .in the Atlantic, Gulf, and Pacific Coast States, reflecting awards of additional contracts for naval
air station and shipyard construction.

In the central portions of the

country there were generally small increases, although in some areas awards
w·ere lower.
Distribution
Distribution of commodities to consumers was sustained in July
at about the levels prevailing in the first half of the year.

Sales at

department stores declined more than s easonal}.y, while sales at variety
stores showed little ch::mge, although a decline is usual in July.
Total freight-car loa.dings increased seasonally in July.

Ship-

ments of grain showed a considerable rise ru1d loadings of coal cmd coke
continued to advance, while shipments of miscellaneous freight, which include most manufactured products, declined by soraer<hat more than the
usual seasonal amount.
~odity

Drices
Prices of basic cormnodi ties declined somewhat further from the

middle of July to the middle of August, with decreases chiefly in prices
of comrnodities influenced by foreign supplies, such as lead, rubber, cocoa,

.. '
R-691
and coffee.

Prices of steel scrap and zinc, on the other hand, advanced

somewhat in this period.
Agriculture
Prospects for most crops showed little change in July, according
to the Department of Agric11lture.

Production this year is expected to ap-

proximate the 1929-38 average and, considering carryovers, supplies of
most crops will be large.

Conditions for wheat and oats improved during

July, while the corn crop showed some deterioration.

A cotton crop of

11,429,000 bales was indicated for this season as compared with 11,817,000
bales last season.
Bank credit
Total loans and investments at reporting member banks in 101
leading cities increased substantially during the five weeks ending August

14, owing rne.inly to purchases of direct and guaranteed securities newly issued by the United States Government.

Sale of these securities caused a

large increase in Treasury balances with the Federal Reserve Banks.

As a

result of this temporary developnl.ent, excess reserves declined LJ

$450,000,000 in this period despite an increase of over $500,000,000 in
monetary gold stock.
Government securiti( market
Prices of United States

Gover~ment

securities were relatively

steady during July and the early part of August but declined slightly
around the middle of August accompanying news of intensification of European warfare.

The yield on the 1960-65 bonds increased to 2.39 per cent

on August 14 compared with 2.34 per cent on July l and 2.26 per cent on
April 2 at the year's peak in prices.

48
BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

R-692

WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE

TO THE BOARD

August 20, 19/,.0

Dear Sir:
There is attached a copy or' ti1e roport of expanses of the main lines of the Federal Reserve Leased VJire System for the month
of July 19~~.0.
P~.easo credit the amoun·c uuyable ll'J
your Bei.nk to bhe Boa-:·d, as shown in the last
colunm of the statem(mt, to t:ne ~\:d.::Jral Reserve
Bank of Richmond in your daily stttsment of
credits throu~;h the lnterdistrict Settloment
Fund for the account of the Board oi' Governors
of the Federal Reserve System, and advise the
Federal HeservG Bank of Richmond by mail the
amount and purpose of the credit.

Very truly yours,

~,·;mv G. J~,
Josephine E. Lally, ·
Deputy Fiscal Agent.

Enclosure
TO PRESIDENTS OF' ALL FEDERAL RESBHVE BANKS
EXCEPT RICHMOND

49
R-692-a
REPORT OF EXPENSES OF MAIN LINES OF' FEDERAL R.ESERVE
LEASED WIRE SYSTEM FOR THE nmNTH OF JULY 1940

Words Sent
by N.Y.
Chargeable
to Other
F.R. Bru:.ks

Total
Words
Chargeable

Expenses
Paid
by Banks
and
Board{2l

Pro Rata
Share of
Total l!:xpenses (1)

Federal
Reserve
Bank

Number
of Words
Sent

Boston
New York
Philadelphia
Cleveland

29,518
83,116
21,474
34,01.4.

804
815

30,310 $ 527.97 ~
83,116
1,41+7 .80
388.06
22,278
606.69
34,829

Richmond
Atlanta
Chicago
St. Louis

31,241
44,906
64,28/j.
46,983

793
792
856
790

32,034
45,693
65 ,lL.o
47,773

558.00
796.01
1,134.67
832.16

211.19
242.04
1,2314-.70
257.18

Minneapolis
Kansas City
Dallas
San Francisco

22,300
42,686
37,888
49,672

794
793
883
807

23 ,091~
/+3 ,4'79
38,771
50,479

402.27
757.36
675.35
879.29

187.17
273.01
272.49
411.89

360,955

6,287.47

10,381.69

Board of
Governors

360,955

Total

869,037

792

8,919

Payable
to
Board
of Governors___.

338.52 $ 189.45
496.90
950.90
248.67
139.39
283.65
323.04
346.81
553.97
100.03(a)
574.98
215.10
484.35
402.86
467.40

8'77,956 $15,293.10 $15,293.10 $4,194.25
100 &.2,(a)
$4,094.22

(1)

Based on cost per word ($.017418982) for business handled during the month.

(2)

Payments by Banks are for personal. services and supplies and payments cy- Board
are for personal services and supplies ($1,476.78) and wire rental ($8,904.91).
Personal services include salaries of rnain line operators and of clerical help
engaged in work on main line business, such as counting the number of words in
messages; ulso overtime and supper money and Retirement System contributions
at the current service rate.

(a)

Credit--reimbursable to Chicago.

BOARD OF GOVERNORS
OF" THE

FEDERAL RESERVE SYSTEM

R-693

WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

August 21, 1940

Dear Sir:
There are enclosed for your information a table showing applications for membership received "tzy- the Board during 19/+0, and a
statement containing excerpts from the bank relations reports submitted by the Federal Reserve Banks for the '1lonth of July.
In response to the inquiry made in the letter accompanying
last month's summary of bank relations reports (R-678) as to whether
the summ~J was useful to Federal Reserve Bru1ks and should be continued, replies have been received from ten of the Federal Reserve Banks,
copies of which are attached. It will be noted that of these ten all
but three appear definitely interested in having the report continued.
The two banks from which roplies have not yet bGen received indicated
in response to a similar inquiry a year ago that they favored .the continuance of the report and copies of the lotters written at that time
are also attached.
The few suggestions made as to methods of improving the report seem to tend in different directions·--in some cases there is interest primarily, if not exclusively, in relations with member and
nonmember banks. In other cases the interest seems to be very largely in the general conunent on business and banking conditions. In
maki.IJ.g up the su..'lli!lary, we are, of course, limited by the nature of
the material submitted b,y the Federal Reserve Banks. In the absence
of any suggestion that this mute:).~ial be submitted in a uniform manner,
the reports come to the Board var-ting widely from one another in nature. Some of the Federal Reserve Banks submit a brief comprehensive
statement, sometimes comprising less than a page, which is used practically in entirety in the summary. Other Reserve Banks submit long
detailed reports of many pages from which paragraphs here and there
are selected. The majority of the banks submit a single report for
the month, but one of the Federal Reserve Banks submits copies of the
separate reports of each bank representative making a visitation trip.
Accordingly, whereas the report of onG bank may be quoted almost in

51
R-693

-2-

entirety, only a small fraction or fractions of what another bank
reports may be quoted.
In compliance with the expressed wishE":S of the majority of
the Federal Reserve Banks, the summary will be continued.

Very~-;;?1.~__.
.

L. P. Bethea,

Assistant Secretary.

Enclosures

TO THE PHESIDENTS OF ALL FEDERAL RESERVE BANKS

FOR FEDERAL RESERVE 1IRtlB:2:ESHTP JN DECEviBER 31,
1939, AND BANKS VIHICH APPLIED FOE l1lEMBEHSHTP DUP.ING 1940

BAI~KS ELIGIBLE'~

Federal
Reserve
District

Nu.r:,ber of Nonl"!lemt·,er Commercial Ba'1ks EJi.g:ible::- for
FederRl Reserve Membership
on December 31, 1939

--------~--T_o_t_a_l_
Boston
York
Philadelphia
Cleveland

I·~ew

nichmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total

~:-

Nu1rb er of Bc:cnlcs
Which Applied for
Federal R. :::servc
llaiDcrship fu-ing-

Deposits of l'Jo:wember
Banks Eligible-l~
:for Federal Reserve Membership on Do~embor 31, 1939

I Commercial

_._l_c_n_p_a_r_l_i_s_t_ _..___J_u_l_y_ _,__T_h_i_s_Y_t:_'a_r--'1'--___T_·o_t_a_l__
j;

l.__o_·n_P_a_r_Li~t

H-693-a

Deposits of Bar~s
Which Applied for
Federal P..cserve
_;,lembership Dur'"",g-

J 'Ily
This Year
(In thousands of dollars)

469,330
981,529
550,836
577,670

256,010
956,374547,781
524,789

28
12

481,555
302,A55
1,114,286
428,385

313,805
70,881
970,388
296,810

4
4
14
2

189,225
198,993
154,549
545,398

53,167
154,327
97,609
508,733

0
2,300

2,800
1,600
8, 700
4,300

5,994,411

4,751,174

15,800

98,100

141
224
225
475

107
2l4
218
455

0
0
0
3

394
484
1,219
664

220
49
1,024
412

l
0

420
487
282
194

74
334

155

163

5,209

3,425

Q
.,

_v_:.~.

...L"\.1\

3
16
l

0
5,000

3,000
25,600

300

16,600
1,800
26,100
7,60r)

7,300
400
0

500

By eligible banks is meant banks with sufficient capital stock to meet the minimum statutory capital requirements for Federal Reserve membership.

~H~Newly

organized bank.

53
R-693-b
August 21, 1940
Not for publication

EXCERPTS FROM BANK RELATIONS HEPORTS
J'OR THE MONTII OF JULY 1940
BOSTON
During July 35 member bankn were visited, 31 in New Hampshire, 2 in Connecticut, and 2 in Vermont. Many of the New Hampshire
banks occupy banking quarters .iointly with affiliated mutual savings
banks and this afforded in a number of instances the opportunity of
joint conferences with officerf3 of both banks.
With one or two exceptbns--Berlin, New Hampshire notably-the communities visited are tradi.'1.g centers of various sizes and the
sites of small manufacturing plants making either textiles, shoes or
paper products. The pri.ncipo.l source of income in most of these communities is the sw1unGr trade of vacationists and tourists. The pay
rolls of the large paper mills at Berlin, New Ha~npshire, employing
several thousand workors, arG o.t present larger than at any time in
the past several years. All other paper mills in the section visited
are operating full time. t;.c:tivity ru:1ong the woolen mills and shoe
factories was reported as being "spotty".
Tho summc~r or vacati.un trade throughout the entire section
was not up to an average normal. Adverse weather conditions and the
almost entire cessation of Ca::1adian tourist trade into New England
were said to have destroyed the hope of a profitable season at many
points.
At practically all of the ban~<S visited deposits and loans
showed some slight increase, the loan increase being almost entirely
due to the demand from small borrowers. Two member banks had borrowed recently, one from a Boston correspondent and the other from a
local savings bank. Loan rates at practically all of the banks range
fron 5% to 6~;, Gxcepttng loans to municipalities which have been made
at ratos ranging from .067b to 3!%.
There was some complaint in certain localities in New Hampshire of outside bank competition for local business. There was no
complaint of competition from governmental lending agencies--on the
other hand several bankers referred to the friendly spirit of cooperation with thr.::ir institutions which the management of governmental
lending agencies wure manifesting.
The situation abroc.:d and its por5sible effect upon business
and banking in this country v;as the principal topic of interest on

54
-··2·-

the part of many of tho

l;a~1kers

R-693--b

visited.

Ho ncmm8r1h:r ~Jan::er nw 1if:)sted any interest in membership
in the Fode.:.·a.l Hecer-:re ;·;ys GeLt cnJ. n·:; c.;.·i.tici . ~m \laS of£'er·:;d by anyone
intervimved 17ii:.h respect tu t;l.e opercttion3 aacl polir~L:s of the System. T:1e few complaints heard were of a routine natur•? and had to
do with tha attitud'" of individual examine:c·s 1rit~1 regard to some
tech~1icall,y slow loan, lacJ~. of borrmver 1 s Gtatements, etc.

NEW YORK
During the month of July, our of'ficer;3 and representatives
visited 131 banks--72 member e.nd 59 nonmember institutions--located
in various sections of the district. The following is a resume of
the reports of visits to banlw in one county in Connecticnt and seven countief:> in New York State.
Fairfield County, Connecticut
Most of these banks appear· to bG :b."!sitant about purchasing
securities at this time, pre.fe:;rring to maintain a high cash position
in view of uncertainties in eonnection with the Eu.copean war, ol.U' national defense program, and tbe cGming presidential election. One of
the largest banks in the county vihieh sold most of its investment
portfolio (chiefly United States Governments) has approximately 59
per cent of its total deposits ((?26, 100,000) in cash and bank balances. The pn;sident oi' another institution vthich has a bond account
of only $29,000 continues to hold more than half of hi[; bank's deposits ($2,200,000) in cash. In general the bankers appear to have
adopted a ver<J conservative policy with respeet to high quality low
yield securities and have :i.n nany instancf)S Dliminatecl most of the
longer maturities from their portfolios.
The demand for cred.H is so.:i.d to have improved slightly,
especially for small insta.ll:aent loans and mortgages, and three in-stitutions have established 11 broker" rGlationships vdth insurance
companies for the purpose of arranging mortgage loans for them.
Several of the larger bonks in the county have advertised that they
are prepared to cooperate fully with local firms participating in
national defense projects, althou&;h as yet few a}lplications have
been received.
The subject of membership wa~:; again discuS~-l<:Jd o.t all sixteen nonmemb2r banh; with the result that six intend to review the
matter at an early date, fou:· indicate thd, they n,:,ed more time to
"clean hmwe", and six appear i21different, iHcluding one v:hlch is

55
R-693-b

-3not a member of the Federal Depor3i t Insura'1ce Corporation.

Gene::;ee, Monroe, and Ol. .leans Counties, New York (Buffalo Branch
Territory)
1

The demand for loEms, particularly in the larger institutiom3, continues very light, witl1 total loans of $100,081,000, a reduction of about 4 per cent since January 1. Several bankers situated
in the agricultural sections mentioned that the Production Credit
Association is actively solicitbg loans and, 1::lf offering lower rates
than those prevailing L1 the banks, has taken a number of desirable
borrowing accounts from these institutions. One bank officer remarked
that the critical attitude of the examiners has prevented h:i.m from
r;ranttng a number of loans which he otherwise would make.
Our member banks appea:cod well satisfied with our services,
and no complaints or criticisms in com1ection with the Federal Reserve SystetJ. were expressed. As our member bank representation in
this area is small, the following information is submitted with relation to the nonmember institutions.
l_if..2.!__of Banks

n~a:sons

fo;r Not

~foining

the System

Menbnrs of a bank holding £;roup, so that apparent:cyany decision as to membership rests with the holding
cowpany affiliate.

Bank will shor·tl;y be taken ov<'lr by another bank and
<J;)crated as a branch, the Federal Deposit Insurance
Corporati,Jn to pm'•::!hase unacceptabl(; assets.

Apparently cou.ld not qualify d.uc to various unsatisfttctor~;r

i~eutu1\es.

These banks aru apparently in satisfactor-y condition
and eotJ.ld probably qualify; howev,;:r, they are all
s:nall institutions and give as th(.;:ix reasons for not
.io:Lning tho 2-~r:>tom:
(a) Correspondent banks are adequately serving their
needs.
(b) They ce..n see no advantages to be gained, while
on the other hand they would be subject to additLmal ruJ.o~3 and regulations.

This institution is friendly to the System and would
JOln except that the provisions of the Clayton Act
prevent l t fro;n so doing at this time.

56
-4Reasons for Not Joining the System

No, of Banks
2

R-693-b

These are fairly large banks, whj.ch, although commercial institutions, do only a limited volume of com-·
mercial banking business; in practical effect, the,y
are savings banks. The managements of these institutions feel that they would gain very little by becoming
members.
PHILADELPHIA

During July 53 banks were visited, of which 29 were member
banlcs and 24 nonmember institutions.
Central Penn§Ylvania
Industrial conditions in the area covered b,y this report
are somewhat better than a year ago. All nine furnaces at the Steelton plant of the Bethlehem Steel Company are in operation and at present this plant is working five days a week, employing about J ,800
workers.
The anthracite industry experienced good business last
winter and in some sections operations have been fairly well maintained thus far this year.
Conditions in farming conununities show little .change during
the past twelve months. Returns for milk are higher but prices for
other farm products are considered low and profits generally are small.
The 1940 props, while lute becau::::e of excess rain during the planting
season, appear to be in good condition.
The real estate market is quiet, Desirable homes and apartments are well occupied at satisfactory rentals, but there is only a
limited amount of new construction and few sales are being made. Several bankers in the larger mining towns reported that real estate prices
in their respective communities are depressed because of the increasing
number of homes being sold by the Sheriff at unusually low prices.
There is only a limited demand for credit and small loans
constitute the principal credit ext1.mded. The executive officer at a
nonmember bank with resources slightly in excess of $1,000,000 stated
that loans at his institution continue to decline in spite of the fact
that the lending policy is much less rigid than it was a few years ago.
Investment accounts, principally because of holdings of railroad securities, are worth less than book value. At most institutions

57
-5-

R-693-b

a definite bond policy· has been adopted and, Ylith the aid of supervisory st:rvices, deterr:1ined efforts are being made to eliminate all
holdings of substandard c.nd defaulted securities. Several bankers
reported that new purchases are being confined almost entirely to
Government obligations.
The president of a nonmember bank with deposits of approximatel,y $1,900,000 complained about the R.F.C. increasing the interest rate from 3-~ per cent to 4 per cent on preferred stock purchased
from banks, on which no reductions have been made. He contends that
earnings are meager because of low yields on the higher grade securities and that this increase in rate is a. serious drain upon income at
his institution. This same complaint was expressed by tho executive
offieer of a nonmember bank with deposits of about ~900,000. That
officer stated that he fails to see how the Government is aiding
banks which are in difficulties by adding this burden.
In discussing membership with the board of directors of a
nonmember bank having deposits of $2,100,000 our representative was
advised that one of the objections was that, because of differences
between State and System regulations, the published reports would
not be in conformity. To date the Department of: Banking of Pennsylvania does not requi::·e reserves against depreciation or loans not
charged off to be deducted when reporting at the call period. Our
representative stated that we ·were endeavoring to have the Department of Banking of Pennsylvania adopt a uniform form and llad hopes
that this would soon be done.

During the month, 31~ banks were visited, of which
me.raber banks and 37 nonmember ba..11.ks.

L~7

were

With few exceptions, visits to member and nonmember bonks
in the Cleveland office territory were in agricultural communities,
and very little of pr·imary interest to the Board was developed from
conversations with officers of these banks. Quite naturally, the war
situation and the defense progra..T. were favorite topics for discussion,
and it is impossible to avoid spending a comlidero.ble amount of time
listening to different points of view wit~1 relation to national politics.
The only major criticisr;1 respecting SJstem matters relates
to the failure of banks in certain sections to receive notices of
Treasur-J offerings in time to enter subscriptions before the books
have closed. In connection with the recent offering of the 2! per

58
R-693- b

-6-

cent issue of 1954-56, our Pittsburgh bra.nc:n reports that banks in
Washington, Butler, Punxsutavmey, Somerset, Waynesburg, Pennsylvania,
and others, reported at thE: close of business July 11 th<..>.t they had
received nothing on the offering. On the mo:rning of the 12th, banks
in Elizabeth, Kittanning, Scottdc..le, Parnassus, Export, and Zelienople,
all in Pennsylvania, reported receiving subscription blanks and sale
closing notices in the same mail. This has happened many times before,
both in Pittsburgh and Cincinnati areas, as well as in 1nain office
territory, and introduces an elenent. of dissatirlfaction which can
easily offset a subGtantial amount of constructive bank :::·elations
work.
This will continue to be a
stantial size, where mail service h:
as banks so situated have at learJt a
subscriptions before annmmcement is
have been closed.

problem even in cities
not of the be::;t, until
reasonable opportilllity
made that subscription

of subsuch time
to enter
books

During Ju1,y 95 ba:1k~; were visited, of which 47 were Elembers
and /}8 were nonmember banks.
The economic consequences of the war upon the Fifth District
have been quite uneven. As n result, there are both dark and bright
cpots so far as business eondi tioas arG concer:::1ed. With respect to
t1e former, there are two importo.nt aspects---cotton and tobacco.
The price for the 1940 c;c~op will depend to a large extent
upon the ammmt of Uw Government loan. Trade circles ant:i..eipate a
loan on 8.90¢ basis, but it is known that Senators from cotton p:::-oducing States have sought to induce the Departlilcnt of AGriculture to fix
the basis at 10.25¢. The new crop ha;; made up some or its earlier
backwardness and it is expected that production will run close to
11,100,000 bales as aga:bst 11,817,000 bale:;; last season. The outlook for cotton prices is quite obscure because of the export situation. However, tr<tde ci:ccl~s hold that, if present expectations are
met with respect to production, com3wnption, a'·ld exports, prices will
necessarily reach the loan level, or insufficient cotton will be
available to meet current requirements.
As for cotton textiles, operations were reduced in the latter part of July and the outlook ar:J u whole is quite uneven. The
J~uture will depend largely upon the extent to which purchases for
preparedness purposes offset the loss of export m~:rkets.

59
-7-

R-693-b

The outlook for tobacco is by no means satisfactory. The
crop is likely to be about 40 per cent under that of 1939 because of
compliance vvi th the crop control program, but the diminished supply
does not assure prices equal to those of 1939 without increased Government support. The Commodity Credit Corporation purchased 177,000,000
pounds last year and is now holding the bulk of that amount on option
for foreign buyers. It is believed that, if the Corporation purchases
about one-third of this year's crop, prices should approximate those
of 1939. The tobacco market anticipates Commodity Credit Corporation
purchases again this year, but with allowance for these and Government
payments to planters under crop control programs, farm incomes from
tobacco are likely to fall short of 1939 results.
Fortunately, there are some bright spots in the Fifth District
partly due to international conditions. Shipbuilding and repairs have
been going ahead at a high level both at Baltimore and in the area of
Hampton Roads. Substantial amounts will also be expended by the Federal
Government in connection with barracks, av.iation fields, etc. In the
first half of 1940 employment in Baltimore was at the highest level
since 1937 and pay rolls were higher than at any time in the last decade. However, the situation has been and is developing unevenly, for
19 industries reported gains in both employment and pay rolls, May-June,
19L.O, while 16 reported declines. Among the latter are several adversely
affected by loss of export markets.
The chemical industries have been stL~ulated in West Virginia
because of war developments, and conditions in Kanawha County are considered quite favorable. Other industrial centers of West Virginia
have also expanded production or anticipate such expansion and the production of coal has increased substantially over 1939 levels, with
stimulating effect upon retail trade.
Taking the situation as a whole, with allowance for better
than ten-year average yields for other crops as an offset for the unfavorable outlook for both cotton and tobacco, farm purchasing power
should, in the 1940-41 season,come close to average. With this as a
basis, when allowance is also made for increased industrial activity in
lines other than cotton textiles sufficient or more to offset declines
in the latter, one may safely say that the outlook for the District may
be regarded as favorable, considering the unsettled national and international situation.
ATLANTA
During the month
bers and 31 norunembers.

l+O

banks were visited, of which 9 were mem-

60
-8-

R-693-b

Bankers in the sections visited generally reported favorable
earnings during the first six months of this year. Although deposits
of most banks are higher than a year ago, demand for credit is said to
have been very favorable since the first of the year and very few bankers complained of excess idle funds. Although agricultural loans constitute the bulk of the business of most of these banks, many of them
are devoting more attention to personal, automobile, and other installment loans which they are finding a splendid source of revenue.
Several of the banks visited have disposed of their Government securities since the first of the year and in most cases have not
reinvested the proceeds. Officers of these banks stated that they are
hesitant to purchase bonds at the present market since they expect to
see bond prices decline before the end of the year.
Most of the banks visited have a good volume of savings accounts on which 2 per cent interest is paid. Although many of them
stated that they would like to reduce the rate or discontinue savings
acco~Dts altogether, they hesitate to do so because of the fact that
many of their depositors are young people, who are learning the value
of thrift, or elderly people who have no other source of income, and,
consequently, they feel that they are under obligation to their commLmity to continue to carry these accounts. In most banks new savings
accounts are only accepted from local people who are custo:T.ers of the
bank.
The average rate charged for agricultural loans by the banks
visited is 8 per cent, while 6 per cent is charged on personal and consumer loans.
All nonmember bankers visited were found very courteous and
appeared to regard the Federal Reserve System veiJr highly. However,
none of them showed any real interest in membership. Without exception
nor~ernber bankers, when approached on the subject of membership, stated
that the loss of exchange which would result from remitting at par was
their principal objection to membership. A nu~ber of nonmember bankers
stated that they are at present enjoying most of the benefits of Federal Reserve membership through the facilities offered by their city
correspondents. All member bankers visited appeared to be highly appreciative of the attention sho¥m them by our visits and all expressed entire satisfaction with the services of the Federal Reserve Bank.
CHICAGO
During the month of July 55 banks were visited, of which 19
were member banks and 36 nonmember banks.

61
-9-

R-693-b

Deposits continued to increase. In the larger cities there
is some slight inquiry for loans. However, the manufacturers as a rule
are only discussing the possibility of borrowing; they are not yet actually borrowing in any substantial amount. There has been some increase in loans in country banks, but this has been more than offset
by the Government taking up the corn loans. Some of the banks are
evincing interest in term loans. A group of bankers in one of the
larger cities recently made a loan of $18,000,000 due serially over a
period of ten years. A number of the outlying banks in Chicago have
shovm a substantial increase in mortgage loans. This is a result mainly
of the purchase of F.H.A. mortgages. Banks with substandard bonds continue in their efforts to dispose of them whenever practicable.
The question of bank offices is still one of current interest.
An officer of a national bank with something over a million of deposits
stated that they recently had an opportunity to establish a branch in
a community where a former bank had approximately $400,000 in deposits.
As they were reluctant to give up their national charter and their membership in the System, he said, 11 We were forced to sit by and see our
State bank competitor get it • 11 The President of a State bank with
$1,250,000 deposits operating an office asked us within the last week,
"When will a way be opened for us to join the System and retain the office?" He stated the office has $250,000 in deposits which he feels is
not enough to justify the organization of a bank at that point.
ST. LOUIS
During July 130 banks were visited of which 35 were member and
95 were nonmember banks.
FJJCcept in the new oil fields, where banking--along with other
business--is relatively active, general banking conditions in Illinois
shmv little change from those obtaining a year ago. Demand for credit
is described as fair, with the trend of personal loans continuing upward. There was a fair vol~me of wheat production loans this season,
much of which has been liquidated since harvest. Elevators, wheat handlers and mills apparently are borrovving less than is usual at this time
of year, because much grain is goine into storage on farms or into the
Government loan. Interest rates on time deposits range from l per cent
to the legal lL~it. In a number of instances banks are limiting the
amount of time rnoney on which th~f will pay interest. Rates received
from customers range from 5 per cent to 7-l/2 per cent. There were the
usual polerr~cs on competition of Government loan agencies, severity of
supervision, increasing costs of operation, taxes, etc. As elsewhere
in the District, bankers in this area a.re becoming increasingly financial statement conscious. It was found that credit files are generally

62
-10-

R-693-b

in good shape, with •.rirtually all lines of $500 or over supported by
statements. Nowhere was there a complaint heard of services rendered
by the Federal Reserve, either from member of nonmember banks.
Taken as a whole, the status of banks visited in Missouri
was somewhat more favorable than a year ago. Earnings in munerous instances are better, and der:1and for credit is slightly larger and more
diversified. Rates paid on time deposits range from l per cent to
2-l/2 per cent, and on loans to customers from 5 per cent to 8 per cent
is charged. Credit fil-es were found to be in good shape, except in a
lL~ited number of cases.
Some months ago an Illinois State bank was examined for mem...
bt;;rship but the necessary transactions were never completed. It now
develops that several of the bank's older directors decided against membership on the ground that Federal authorities may exercise undue control over merriber banks. The bank's cashier is still interested in
membership and expressed the hope that eventually his board will see fit
to join the System.
When the lack of membership signs was mentioned to the cashier
of an Illinois national bank, he emphatically indicated that he was not
interested and gave as his reason that he felt the public had not forgotten that membership had not helped his bank to take c::tre of its depositors following the banking holiday. He did not, however, in any
way indicate that he felt this was a criticism of the System.
MINNEAPOLIS
During the month of July 218 banks were visited, of which 117
were member banks a..."1d 101 were nonmember institutions.
A departmental head of our bank vms appointed chairman of the
Minnesota Bankers Association 1 s Ainericc;m Institute of Banking Committee,
the activities of wh1ch are the extension o.f A.I.B. study groups into
the less populated cormnunities of the State. In additj_on to organizing
the study groups throughout the sectional clearing house association, it
is planned to stage a number of meetings of county key bankers in the
L.1.rger centers (exclusive of Minneapolis, St. Paul, and Duluth) for the
purpose of explaining thoroughly the facilities of the American Institute of Banking which are available to baDkers and bank employees.
Through personal contacts with banks in this district, we have
finally consummated arrangements to obtain immediate exchange from a
group of banks Vlhich heretofore have always given us out-of-town exchange
in payment of our cash letters.

63
-11-

R.-693-b

Southern and Vvestern. Montana
Calls were made on the editors of all weekly and daily newspapers with a circulation of ?.,000 or more, of which there were 15. To
assist in making these cal1.s, some of the bankers introduced our representative but in other instances, calls were made direct. Usually the
call was explained on the basis that our representative was in town
gathering statistics from the merchants and bankers and thought the
editor might be int·3rested in seeing some of our news releases that he
h~d not been receiving in the past.
Samples of these releases were
left with him for his later inspection but in some instances, h8 insisted on discussj_ng them in detail on the spot. If he decided that
he wished to see copies of any of these releases regularly, he was requested to drop a line to our Minneapolis office. To date, four requests for additional material have been received.
In a few instances, an editor commented on some of our releases that he had seen occasionally in the past but had not understood
:_heir import and consequently had made no use of them. In such cases
our representative explained in detail how these figures were collected
and how the reports were prepared, in such a way that the editor might
see some possible news value to the material but without any suggestion
that any of it should be published. In evern.; instance, the editor was
invited to feel free to write us regarding the significance of any figures in any of our reports and to call on us at any time that he might
want any special information regarding business or banking conditions
or about the Federal Reserve System.
North and South Dakota
The Bank of North Dakota is said to be the only State O'l;"ffied
bank in the United States. It now has d8posits of $23,000,000, making
it the largest ban...l<: in this district west of Minneapolis. Most of its
deposits represent public funds, but demand, time, and savings deposits
of individuals are also rece:Lved. It appears that most of the bank's
activities center in the la:..'ld department which handles State Rural Credit
mortgage loans and. operates farms ovmed by the State. Approximately
6,000 farms are so ovmed with total acreage of approximately 1,500,000
acres. The sales department in 1939 disposed of 266 farms, 57,000 acres,
at an average price of $10.25 per acre.
Northeastern Minnesota
The bankers invariably are deeply concerned over the European
situation, and many of them are ver>J reluctant about employing their
idle funds until the situation becomes more stable. Deposits have increased in virtually every bank visited, while the bankers as a whole

64
-12-

R-693-b

have increased their loans. Most of the increases in loans have come
from advances on automobiles, tractors, washing machines, radios, etc.,
and, in addition, many banks have gone in for Federal Housing Administration mortgages, which they have not heretofore regarded with much
favor. All banks visited have had good experience to date on all such
loans. Earnings in most of these bar~s have shown an increase in 1940
to date over the same period in 1939. In fact, but very few bankers
had much of anything to complain about.
Central Minnesota
In two or three of the banks carrying substantial volumes of
automobile paper, the officers are seriously considering withholding
loans from young men who \"lill be among the first called for military
training. It seems to be an accepted conclusion that there will be a
peacetime draft, and the bankers are worried about defaulted automobile
payments by those called into service.
KANSAS CITY
During July 91 banks were visited, of which 47 were member
banks and 44 were nonmembers.
Visits to barLt{s in July were confined largely to northern and
western Oklahoma but scattered calls were made also in other parts of
the District.
Out of B4 banks called on in the Oklahoma wheat belt, only 5
were found not making wheat loans at l-l/2 per cent. Wheat loans entail a great amount of work and little profit, yet bankers feel an obligation to farmers and to their communities to make them. If the
farmer sold his wheat, he would get about 55 cents a bushel while with
a loan approximately 62 cents can be secured. Bankers feel that the.y
should. help farmers get these additional few cents. While nearly all
banks are mc>king these loans out of a feeling of obligation to their
communities, they report that farmers are taking the funds secured at
these abnormally low rates of interest and paying off bank loans that
are very profitable to the banks. It is said that many of these loans
are sold to city banks, the local bank retaining.l/4 of 1 per cent. ,.City
banks prefer these loans to any other available short time paper.
Many cases were
wheat and then depositing
need the money, a loan is
above the market price.
redeem his whe~-:.t <md take

reported of farmers getting a loan on their
the mone-.r in the bnnk. Although they do not
the only wc:.y farmers ccm 11 sell 11 their wheat
If the price of wheat advances the farmer can
the profit, while if i t falls below the loan

65
-13-

R-693- b

rate, the Government gets the wheat. This practice is an iuportant
factor in increasing bank deposits. It is also responsible for an
abnormally large amount of wheat going into storage with a consequent
restriction of the supply for milling purposes.
In the sections of Oklahoma visited, most vf the bank earnings usually come in the last half of the year. But nearly '"ill banks
have had very satisfactory earnings so far this year. Ba11kers are
showing enterprise in developing new outlets for loans. Time payment
loans nearly everywhere are on the increase. One banker was found
who specializes in making loans on wheat warehouse receipts to nonceoperating farmers. He lends up to 60 per cent of' the market value at
6 per cent. Many banks want more bonds but hesitate to buy at present
prices.
During ,July population figures were released for Oklahoma and
these figures were a'::.tracting much attention. A decrease of nearly
75,000 in the ten-year period was shovm, and a. decrease in population
is something new to Oklahoma people. In the for+,y years bet1ireen 1890
and 1930, the population of that State increased more than nine fold,
the increase between 1910 and 1930 alone being nearly three-quarters of
a million. The population decline occurred for the rc,ost part in the
central and western counties of the State, extreme eastern and southeastern counties rather 1.mif'ormly shmJing an increase. This population
change, however, is not peculiar to Oklaho.::na G.S Kansas and Nebro.ska experienced very similar declines. The number of farms in OklahoiTk1. decreased 24,890 in the ten-;year period.
DALLAS
In July 38 banks were visited, of which 30 were member banks
and 8 nonmember banks.
North Louisiana
Among the signific3.nt tJrends in bank credit policies noted in
this section of the district is a tendency on the part of many memner
banks--even in the smaller cor:::'1lUI1it:ies--to withJrc:w from or greatly restrict lEmding operations for the purpose of fin::mcing cotton farming.
The banks are either finding comp,;;t:Ltion from Governmt::nt lending agencies for this class of loans too strong to cope vrith or have decided
that tenant farmers are too hazCJ.rdous as credit risks.
One member bank, which bas
these deterrent factors and continut:'S
'.'3.rmers, has inaugurated a unique and
self against the abnormal risks which

so far successfully withstood
to lend liberally to the cotton
succes.sful scheme to protect itsuch loans involve. It hccs

66
-14-

R-693-b

induced its farmer customers to form themselv~;s into a private cooperative bank credit associaticn. By mutual agreem~nt the bank deducts 6
per cent of the proceeds of each of its loans to members of the association and sets this amount aside in a reserve fund to cover (or be applied on) any member's indebtedness that the bank is unabl8 to collect.
In this way the bank hcts been able to minimize its losses on agricultural loans. Th~ plan was put in operation originally as the only
available means of making bank credit available to certain irnpoverishr-;d
tenant farmers whom the better class of farmers were willing to assist
by pooling their credit resources in a cooperative organization.
A great many of the mnmber banks were found to be carrying
only nominal amounts of Governrnent bonds in their portfolios, although
substantial holdings of municipals were in evidence, Some banks sold
:)ff their Governments last fall when the war flurry occurred, others
toolc profits by selling this yer-Lr, and in both types of these C<'~Jes
therfO is evident a reluctance to repurchase pending further dev . . lopment.s
in the Europet..n vvar.
Southeast TeXr::ts
Earnings for banks in this section range from the break-even
point to excellent, depending largely upon the amount and ma.tur1 ty of
investment securities being carried. I~one ol' the 5nstitutions visited
has made any recent addition to long-term bond holdings. On the other
hand, a number of them have recently ei thcr actU'o>lly 3hortened maturities or are giving serious consideration to such a move. This action
was motivated by the extremely low yields nov; obtaining and the increased offerings which defense costs a.nd other Govc:rtU1wnt expenditures
vdll necessi t::,te.
Loan demand continues at abnorm.l:t.lly low levels with the usual
indications of an enlarged participation in the installment and personal
category. No instance of the need for additional or outside eredit to
handle defense or Government orders was revealed. In fact, no definite
information was obtained of any successful bids for Government orders.
Except in an isolated case, no more than 1 per cent is ;.xdd on time or
savings dt;posits with several banks re~orting no interest-bearing deposj_ts whatever.

SAN FRANCISCO
During· the month of July 36 banks werEo visited, of which 17
were member be>.nks :ind 19 were nonmember ba:nks.

... 6?
-15.,..

R-693-b

PUBLIC RELATIONS ACTIVITIES OF FEDJ:tmL RESERVE BAI\IKS

.Tu1y 1940

Federal
He serve
Bank

Visits to Banks
Meetings Attended
Addresses Made
Member Nonmember Total Number Attendance Number Attendance

131

Cleveland

8L~

550

Richmond

1,580

Atlanta

125

Chicago

St. Louis

130

Lt50

Minneapolis

117

1.01

218

350

11
11

Kansas City

l;.h

Dallas

San Francisco

196

Boston

New York

Philadelphia

Not reported

... 68
R-693-c

August 21, 1940

REPLIES HECEIVED FROM TEN OF THE FEDERAL RESERVE BANKS
TO BOARD'S LETTER R-678 OF JULY 19, 19i±Q., MAKING INQUIRY
CONCERNING THE DESIRABILI1'Y OF CONTINUING
THE MONTHLY BA.UK RELATIONS REPORTS

(Replies to the above-mentioned letter have not yet been
received b-.f the Board .from two of' the Federal Reserve
Banks, but capias of their resporwec to letter R-506 of
July 19, 1939, which contained a similar inquiry, are
attached hereto as pages 11 and 12.)

69
R-693-:!
Page 1
FEDERAL

~mSERVE

BANK OF BOSTON

July 23, 1940

Mr. L. P. :Sethea, Assistant Secretary,
Board of Governors of the Federal Reserve System,
Washington, D. C.
Dear Mr. Bethea:
This will acknowledge receipt of the Board's letter R-678, dated July 19, 1940.
iThile I attempt to keep our Directors thoroughly
informed about everything, nevertheless I do not feel that
I am justified with burdening them unduly, with the result
that I spend no small portion of my time centering upon
those things I believe our Directors would be particularly
interested in. The details of the bank relations report
I have not passed on to our Directors. I have, however,
on different occasions mentioned things that I thought
might be of interest to them.
Personal~r, I read the report and know that I
profit by it, and would prefer to have it continued. However, at one Conference at least, there seemed to be a
majori~ opinion of the Presidents that tne report be
discontinued. I know that the compilation of the report
involves labor and must be expensive, and if the replies
to your inquiry should disclose that only a few of us
want this information, I think it can be properly discontinued.

Yours very truly,
(Signed)

R. A. Ynung

President.

R-693-c
Page 2
FEDKR.AL HESERVE BANK OF NEVJ YORK
July 24, 1940

Board of Governors
of' the Federal Reserve s-.:rstem,
Washington, D. C.
Gentlemen:
In the absence of Mr. Harrison, I wish to acknowledge receipt of the Board's letter of July 19, 1940,
R-678. The Boa:;.nd asks whether, in our opinion, the present practice of distributing exeerpts from bank :celatio.s
reports should be continued. We assmne that the Board
will wish to continue to receive monthly reports from
the Federal Reser-ve Banks and, if this is the case, vre
are definitely of the opinion that the STh~aary prepared
from these reports is worthv;hile. A number of our officers look over the reports each month, and those having to do with the Bank Relations Department give them
close study. I think it is quite desirable to have our
men b~ow how similar activities are conducted in the
other Federal Reserve Banks and what the trend of banking opinion is in other parts of the country, and we
have felt that the swnmaries give us some very interesting light on these subjects.

Very truly yours,
(Signed)

R. M. Gidney

R. l\1. Gidney,
Vice President.

R-693-c
Page 3
FEDERAL RESERVE BANK OF' PHILADELPHIA
August 1, 1940

Board of Governors of the
Federal Reserve System
Washington, D. C.
Dear Sirs:
Reference is made to your letter of .July 19,
1940, R-678, in which you request an opinion from this
bank as to whether or not the Board should continue its
present practice of sending monthly to each Reserve
Bank a statement containing excerpts from the bank relations reports submitted b.Y the various banks for the
previous month and a table showing applications for
membership received by the Board during the current
year and in the preceding month.
We have found these compilations quite informative and of value in helping us to keep posted
on developments in the other districts and we should
not like to see them discontinued or made too brief.

V0ry tr-uly yours,

(Signed)

Jo~~

S. Sinclair

72
R-693-c
Page /._
FED~BAL

RESERVE BANK OF CLEVELAND
August 19, 1940

Mr. Chester Morrill, Secretar"'J
Board of Governors of the
Federal Reserve ~Jstem
Washington, D. C.
Dear

~1r.

Mor'rill:

Consideration has been given to the request contained in letter R-678, dated July 19, 1940, regarding the
distribution of exc3rpts from monthly reports of bank relations activities of the Federal reserve bar~s.
7he subject was also discussed at a meeting of our
board of directors held on August 15, 1940. It is the opinion of the O.irectors a~d officers of this bank that the detailed reports are not of sufficie:1t val~e to ju~1tify their
preparation except for the tables showing the applications
for membership received and the public relations activities
conducted qy each Federal reserve bank.
The excerpts i'r0m reports of visitations by representatives of Federal reserve banks are pri.tilaril~~ of local
interest and it is believed they could be discontinued. We
are interested in the information regarding applications
for membership and the number of vicitations ~~d addresses
made by representatives of the banks, also the number of
meetings attended.
In the report of bank rele.tions activities for
June 1940, this information is shown on t~1e first and last
pages of the report designated R-678-a.
Ver-;[ truly :rours,

(Signed)

M. J. Fleming

President

73
R-693-c
Page 5
FEDERAL RESERVE BANK OF RICHMOND
July 27, 1940

Board of Governors of
the Federal Reserve System,
Washington, D. C.
Dear Sirs:
Referring to yotU' letter of July"25, 1940,
R-682, relative to material showing applications for
membership received and excerpts from the bank relations reports submitted qy the various Federal Reserve banks, I think your practice of sending copies
to the Federal Reserve banks is well worth while and
should be continued. For some t irne I have been sending a COP,Y to each of the directors of this bank and
its two branches, as well as to certain members of
our staff. I always read the sumr:1a!j:- with interest,
as do some of our other officers and some of' our
directors.
It is my intention to study the reports
that are sent to you (lf this bcnk to see if they can
be improved.

Very truly yours,
(Signed)

Hugh Leach

Hugh Leach,
President.

74
R-693-c
Page 6
FEDERAL

R~SERVE

BANK OF

ATLM~TA

July 2.3, 1940

Mr. L. P. Bethea, AssistBJ."lt Secretary,
Board of Governors of the
Federal Reserve System,
Washington, D. C.
Dear Mr. Bethea:
Reference is made to the Board's letter of July

19, 1940 (R-678).
We at this bank are of the opi:.1ion that the distribution of excerpts from bank relations reports serves a
useful purpose. The compilations are read by all of the
officers, and they are careful.l.v studied by those who are
the more actively engaged in bank relations work, such as
visiting member and nor.Jllember banks. We think that we are
benefited by information concerning conditions and developments in other Federal Reserve districts. THe also feel
that we are better able to do the work in this district
through reports of what is being done by other Federal.
Reserve "banks.
Mr. Malcolm H. Bryan, Vice President, who has
immediate supervision of our bank relations work, concurs
in what is said herein.

Very truly yours,
(Signed)

Robt. S. Parker

Robt. S. Parker,
President.

75
R-693-c
Page 7

FEDERAL R.ESER.VE BANK OF CHICAGO
July 22, 1940

~.lr. L. P. Bethea,
Assistant Secretary,
Board of Governors of
the Federal Reserve 8,ystem,
Washington, D. C.

Dear Mr. Bethea:
In answer to your letter of the 19th instant, R-678, concerning the value of a monthly
statement showing excerpts from bank relations reports, would state that we in Chicago question very
much the value of this release, with the exception
that we do find the statement of applications for
membership received 1zy" the Board from the various
districts, both for the current year and the last
preceding month, of great interest; also the statement on the last page giving the public relations
activities of various Federal Reserve banks, including visitors to the banks, meetings attended,
and addreszes made.

Sincerely
(Signed)

yoQ~s,

Geo. J. Schaller
President.

76
R-693-C
Page 8
FEDERAL RESERVE DANK OF MINNEAPOLIS
July 22, 1940

Mr. L. P. Bethea, Asst. Secretary
Board of Governors of the
Federal Reserve System
Washington, D. C.
Dear Mr. Bethea:
I have considered t:1e suggestion made jn your letter of
July 19, 1940. I find that the excerpts from bank relations reports
which you have been accustomed to send us have some value. I am
particularly interested in those hints which creep into the reports
dealing with public relations methods in the different banks. Possibly the report could be further condensed with little loss if more
public relations matter were inserted.

Every now and then I find some bank has an idea whicl-;. is
well worth adopting. It occurs to me that the reports might be of
even more value if each bank were encouraged to insert in its report
those definite actions which it may have taken to encourage good
will, increased membership, or additional services in its district.
You might well consider the possible advantages of reporting on a
separate sheet such procedures, without naming the individual banks
reporting. This would give every Federal Reserva bank a chance to
digest the ideas and would eliminate the feeling that any individual
bank was unduly aggressive in presenting its case.
It even occurs to me that it might be desirable to have
each Federal Reserve bank make a sepc.rate report on each item of
this character that it has tried, with u resQ~e of the results.
Each bank could digest such a resume with the view of adopting
feasible ideas. I do think it is highly essential that the name
of the individual Federal Reserve bank be withheld in such original resumes.
Please take this in the spirit in which it is intended-merely a reaction to your inquiry.
Regards,
(Signed)

J. N. Peyton

President.

77
R-693-c
Page 9
FEDERAL RESERVE BANK OF DALLAS
August 2, 1940

Board of Governors of the
Federal Reserve System
Washington, D. C.
ATTENTION:

Mr. L. P. Bethea
Assistant Secretary

Gentlemen:
The Board's letter R-678, ciated July 19, 1940, has
been carefully considered and it is the U.."l.animous opinion of
the officers of this bank that excerpts from the bank relations reports of the various Federal Reserve banks are of
considerable interest and value and that their distribution
to the Reserve banks should be continued.
The only suggestion we have to offer is that the
reports be condensed still further, if practicable, qy excluding information and comments that are of a pure~T local
nature.
I find the reports ve~J helpful, as they keep me
aJvised about things that are happening and being discussed
in other districts, and I am sure the other officers of the
bank feel the same way about them.

Very truly yours,
(Signed)

R. R. Gilbert

E.. R. Gilbert
President

78
R-693-c
Page 10
FEDERAL RESERVE BANK OF S.fu.\1 FRANCISCQ

July 25, 1940

Board of Governors of the
Federal Reserve System,
V!ashington, D. C.
Dear Sirs:
In its letter of July 19, 1940, R-678,
the Board invited our opinion as to whether or not
the compilation and distribution of excerpts from
the bank relations reports of the twelve Reserve
banks is sufficiently interesting and L~formative
to justify its continuance.
In answer to a similar inquiry on July
19 a year ago, v;e expressed our views in a letter
dated August 3, 1939. A current review of the situation finds us in an unchanged state of mind, and
we suggest that the bank relations report, as well
as the Board's dissemination of excerpts from such
reports, be subject to trial of suspension.
For convenience, a copf of our letter

Au~~st

J, 1939 is enclosed.

Yours very truly,
(Signed)

Wm. A. Day

President.

79
R-69.3-c
Page 10-a
F,;,;;DERJ',.L HESERVE BANK OF SAN FRANCISCO
August 3, 1939

Air Mail
Board of Governors of the
Federal Heserve System,
Washington, D. C.
Dear Sirs:
I{eceipt is aclr..:cwv:ledgBd of your letter R-506,
which was l1eld ponding my return to San Francisco.
On many occasions, our officers have attempted
to appraise the value of the summaries of the bank relations reports. The consensus seems to have boen that
most of tho important facts presented are repetitions of
what has been learned through other channels.
On occasion we have found that it was not until a report had bc;en discontinued that its usefulness
was properly measured. iv1e.y v:e 1wt suggest that the bank
relations report be subjected to the trial of suspension?
If its need subsequently should becor:~e apparent, thero
would be no difficulty in renewing its pre pant tion. In
the meantime, so that the Board could know vJhether ot~ not
Reserve banks were maintaining appropriate public relations activities, i t might be desirable to have the Federal Reserve examiners review the activities of the
respective banks when they are under examination.

Yow~s

very t1·uly,

(Signed)

VI. A. Day

W. A. Day
President

80
R-69.3-c
Page 11

FEDERAL RESERVE BMJK OF ST. LOUIS
August 7, 1939

Board of Governors of the
Federal Reserve System,
Washington, D. C.
Attention:

Mr. S. R. Carpenter, Asst. Secretary

Gentlemen:
Replying to your letter of July 19, I believe
the surrunSJrJ of bank relations reports submitted by the
several Federal Reserve ba..1.ks, which is sent to us each
month, is of considerable interest and value, and I am
decidedly in favor of its continuance.
It gives us, and doubtless the other Federal
Reserve banks, a vivid picture of what is transpiring
among member ba.nks in all parts of the country. We have
gotten many useful suggestions and much information from
reading the swnmary, which material is available from no
other source.
You ask whether
ened to the length of the
sive. Personally I would
form of previous issues.
ployees of this bank find
informative reading.

we would rather have it shortJlli~e issue or made more inclulike it in the more comprehensive
A number of officers and emthe su1nmary interesting and

Very truly yours,
(Signed)

F. Guy Hitt

F. Guy Hitt,
First Vice President.

81
R-693-c
Page 12
FEDERAL RESERVE BANK OF KANSAS CITY
July 25, 1939

Mr. S. R. Carpenter
Assistant Secretary
Board of Governors of
the Federal Reserve System
Washington, D. C.
Dear Mr. Carpenter:
I certainly think that the su.,:nmary of
bank relations reports which the Board has been
sending to the several Federal Reserve banks are
very much worth while and should not be discontinued.

The swn;nary which accompanied your letter of July 19 (R-506) is sufficiently brief and
should not be shortened further, but on the whole
I believe it is better in this form tha>'1 in the
more comprehensive report which you formerly issued.

Yours very truly,
(Signed)

Geo. H. Hamilton

Geo. H. Hamil ton
President

82
BOARD OF GOVERNORS
OF" THE

FEDERAL RESERVE SYSTEM

R-694

WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE SOARD

Aur;ust 22, 1940.

Dear Sir:
For your information there is enclosed a recapitulation of
an audit submitted to the Secretary of the Treasury by Mr. IJI. R. Loa.fman,
Chief, Division of Public Debt JJ.ccounts and Audits, showing the stock
of incomplete face printed Federal Reserve notes, Series of 1928 and
Series of 1934, and of urrl.form backs allocated to FederD..l Reserve notes,
on hand at the Bureau of EP""L;ravi:ng £l.J.'1.d Printing at Washington as at the
close of business June 30, 1940.
In his letter trru1smitting the report to the Secrcto~ry of the
Treasury, Mr. Loa.fman stated. that r "The audit extended from June 27 to
July 1, 1940, inclusive. Except for the greater portion of Federal
Reserve notes of Series 1934 of the $5.00 denomination whici1 l1ad previously
been placed under Auditor's seal, all stocks of notes of this series, including those held for S])Ccimen purposes by the Bureau, were piece counted.
The snall quantity of the $5.00 denomino.tion which had not been previously
placed under Auditor's seal, was placed under such seal i.l:lnediatoly after
being piece counted during the audit. This resulted in all stocks of the
$5.00 denomination (ex:cept those held for specimens) being placed under
Auditor's seal. f~l seals previously placed were properly inspected at
that time. PJ.l stocks of Federal Reserve notes of Series 1928, except
those held by the Bureau for specimen purposes, had previouslj' been placed
under .Auditor 1 s seal. ~~1 inspection was made of the seals on the various
bins containing such stocks and the seals were found to be intact. The
notes of this series held for specinen purposes, were piece coQ'1.ted,
11 In view of the fact that a recent piece count has been made by
this office of the entire stock of each denonination of uniforn backs on
hand in the Bureau, a p<1ckage count and an inspection for denonino.tions
of the uniforo backs allocated to Federal Reserve notes was deemed suSficient at this time.

83
-2-

11 The total sheets of oll denor.inntions on the whole o::
Federal Reserve notes, feces m1d backs were found to be in e)~ess
of the total required reserve of 4,2.50,000 sheets."

Very truly yours,

\ /' ~.·.f.---z-1 _/-/ ---;;;-·:) .:::.---;;....-\
J. R. v~~ Fossen, Assistant Chief,
Division of B~ Operations.

Enclosure

TO ALL FEDERAL RESERVE l•GElJTS

R~QA£1.1.U1A11.QN

FEDERAL RESERVE NOTES AND ffiUFOHM BACKS ALLOCATED 'ID FEDERAL RESE...~VE HOTES, SHEETS OF 12 SubJECTS EACH
AS AT THE CLOSE OF BUSINESS JUNE 30, 1940
Series of 1928

Federal Reserve

Bfu~

Faces:
Boston
New York
Philadelphia
Cleveland
Ric:b~!Jlond

Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total Faces

$10

68,660-2/3

28,0L!J-2/3
27,871
27,872

30,105-1/3
24,026
15,448-2/3
8,000
3,743
61,358-1/3 36,341-2/3
5,423
4,546
4,1:65
23,712-1/3 2,989-2/3
92,731-1/3 8,922

9,974
12,_306
8,12lt
5,851-1/J
30,66o
3,98.2-1/3
5,024-1/3
7,582-1/3
3,001
12,251

-----·

186,303

$500 1$1,000 [s5,ooo
1,535
300
399
30
170
200
698
474
245
152
60

200

293
345
100
252
224
402

$10,000

?--4

50
24
34
79

lJ.
9
40

13
7

25
34
32

300

68
102
250
226

--~---··----

1;3

Total
88,5:;5-·2/3
645
40,578-1/3
113 , L!Ol-l/.3
58,706-1/3
17,862-1/3
130,072
10,179-1/3
9,883-1/3
40,366
57,900
114,418-1/3

------------·--·-----·-

142,674
ll0,099-2/3
Series of 1914

L,,l.eh3

2,562

262

260

682]548

8,714
52,940-1/3
1,150
1,359
8,794-2/3
1,055
12,270-1/3
2,400
1,/;74
300
778
2,083
93,31&.1/3

191
307
80
100
400
4oo
502
400
200

197
993
100
100
230
L:.Ol
400
230
100
300
200
300
3,551

46
182

/;.1
llO

25
99
90
90
90

25
51
46
90
49

195,/;00-1/3
571,11_1-1/3
203}316-2/3
149,550
111,859-2/3
97,742
365,300
107,187
71 :~.3?8
53,618
61,356-2/3

744,088-1/3

656,500

630,500

36~860

$100

11(343-l/3

46,277-J/3
158,495-l/3
48 ,;85
85,253
4_3,633-1/3
23)800
79,866-2/3
20,366-2/3
23,300
21,166-2/3
6,833-1/3
9,6oo
566,977-1/3

125,931-2/3
1.58,83.3-?/3
75,857-1/3
52,788
39,500
32,900
132,141
21,906-2/3
19,866-2/3
22,036-2/3
25,46fr2/3

6,663-2/3
1

208,052·-l/3

$50

76,711-1/3
34,638-2/3

Facesr
Boston
12,841-l/J
New York
14Lt,966-2/3
Philadelphia
76 ,6J.J-l/3
Cleveland
7' 966-·~/3
Richmond
7 ,766··2/3
Atlanta
31,675
Chicago
128,066-2/3
st. Louis
57,342-2/3
Minneapolis
269132-1/3
Kansas City
s;;,Gfr-2/3
Dallas
27,166-2/3
San Francisco
35 ,J.GO
Total Faces
564,024-2/3
Backs:
Uniform.Backs allocated to
the various denominntions
of Federal Reserve notes
568,500

$20

R-694-n

1,161
54,285-1/3
1,111
1,933-1/3
11,_385
7,375
11,873-1/3
4,402
325
901
377
10)1:52-1/3
l05p81-l/3

106,000

120,500

L:oo

400
401
3,781

99
90
100
911

46
551

94~942-l/3

2,682/784 - -

2,082,000

BOARD OF GOVERNORS
OF" THE

FEDERAL RESERVE SYSTEM

R-695

WASHINGTON

ADDRESS DF"F"ICIAL CDRRESPDNDENCE
TD THE BDARD

August

;~3,

1940

Dear Sir:
There is enclosed for your information a copy of
H.R. 10365, "A bill to facilitate preparation for national
defense by amending section 3477 of the Revised Statutes",
which was introduced in the House of R.epresenta.tive.s on
August 15 "b.r Mr. Sumners, Chairman of tho Judiciary Committee; together with a colJ.Ir of the Beard's letter of August

21, 1940, to Mr. Sumners expressing the belief that the enactment of the bill is desirable and in the public interest
for tho reasons stated therein and calling attention to the
fact that tho Federal Advisory Council ha.d advised the Board
prior to the introdud,ion of this bill that i t favored a
proposal of this character.

Ver; truly yours,

~m~
Chent0r N!orrill,
Secretary.

Enclosures 2
(Copy of bill sent only with addressed copies)
TO THE PRESIDE.t\fTS AND CHAIRMEN OF ALL FEDEHAL RESERVE BANKS
AND THE MEMBERS AHD SECHETARY OF THE FEDERAL ADVISORY COUNCIL

86
H-695-a
August 21, 1940
Honorable Hatton W. Su.·nrwrs, Chairmar1,
Committee on the Judiciary,
House of RepreseJ.ltatives,
Washington, D. C.
Dear Mr. Sumnel's:
This is lll
requesting the views
Reserve System on H.
for nationl.'~ defense
Statutes".

reRponse to your letter of August 19, 1940
of the Board of Governors oi· the F'e1eral
R. 10.365, "A bill to facilitate preparation
by amending section .3!~77 of the Revised

The bill ~vould Ulnend soction .3477 of the Revised Statutes so as to permit the assignment of the entire amcunt of anf
claim of ~10,000 or more upon the United States to a bank or ·
other lend~1g agenc,y as security for a loan or credit whenever
such claim is based up.:m a c:)ntract entt:;red into on behalf of the
United States by the w~~.r Department, the Ne.vcJ Department or the
Procurement Division o1 the Trcasur.r Do:partm~mt.
Section .3477 of the Revised Statutes makes assignments
of claims against the 1Jnited States null and void unless the,r are
made after the claims have been allowed and warrants iesued. This
statute, which dates back to 1846, was enacted solely for the pro~
tection of the Government; but it is so strictly worded and has
been so strictly construed that an attempted assignment which does
not comply with the exact terms of the statute has been held void
even as between the assignor and the assignee, so that it confers
no rights in the assignee as against a truf.l·tee in be..'"lkruptcy of
the assignor. National Bunk of Commerce v. Dovtnie, 218 cr. S. 345.
As a consequence, banks and other lending agencies which might
otherwise be willing to extend credit to finance the performance
of contracts with the Gover.i.1.IIlent are unable to rely upon assignments of amounts p~able under such contracts as security, because
they would find themselves in the position of general creditors
of the contractors in the case of bankM1ptcy even though the funds
which they advanced may have made the fulfillm.;;nt of the contracts
possible.
There are !lllll\Y manufo.ctur.ers and other businesses, particularly the smaller ones, which m~ be deterred from bidding on

87
R-695-a

-2··

contracts arising out of the pro&ram for national defense because
they have inadequate amounts of working capital a..'YlC: mey encount.er
difficulties itl financing the performance of such contracts. If
such businesses could 0f'fer cecurity in the form of assignments of
clai.ms against the Goverill!lent growing cut of such contracts, they
would in ma.zw instances be able to obtain the necessary credit from
their own local banks and other financing i.'Ylotitutions, which have
large amounts of idle funds awaiting employment. In maqy h1stances
su.ch credit could be obtained more sirnpzy and quickly from local
hlstitutions thnr1 from the l~nding agencies of the Government,
whose commitr.1ents usually t:.ave to be passed upon in Wnshington.
The Federal Advisory Council, establisheJ "lUld.er section
12 of the Federal Resarve Act,, ndvised the Boo.rO., prior to the introduction of this bill, in reglll'd to a proposr..l •)f this chllracter,
as follows:
"The Cotmcil boJ.ievos this suggested o.rnendment to the
law especial]J importnnt at ·t;his time, si::1ce th0 Government's prepnrednet=:s rrogrnm when..:ver put into e!'f&ct will
result in the nem;ssit-y of placing large orders for muterials of all kinds. Mnrzy- $mull und med:!uia sized buriuoss
enterprises would. h.; i•:l a. bet"'~.~,~r pooitic:::1 to c.cccpt and
execute Govern.'ll.ont ord·:::rs if they vmrr.: r-!:>1.; tv u:.::e c.ssignments o1' their claims a;-so.in.st th0 G:Y\ie:rn;:,ant o.s col.latoral
for loru1s. 11
It is believed, therefore, trw:(, the enactment of this bill
would facilitate financing the peri'orme:ace of Governmemt contracts,
would encourage additional business ~on-Jer~ls to bid for such contracts and, by increasing the number of' bidders, would tend to expedite, and reduce the cost of, the dc,feuse program.
For these reasons, the Board of Governors of the Federal
Re3erve System believes tha~~ the enactment of the till H. R. 10365
is desirable and in the public interest.
Ver,r
( Sj.g11ed)

t~y

yours,

ChestGr Morrill

Chester Morrill,
Secrctar-.r.

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON

R-

696

ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD

August

;e,

1940

•

Dear Sir:
There is enclosed a copy of a "Proposal for
a More Economical Method of Effecting the I:nterdistrict

Settlement Fund Transit Clearing 11 , which has been received from the Federal Reserve Rank of San Francisco.
It will be appreciated i f

~rou

will have the

plan reviewed e.ncl advise us whether you would favor its
adoption.
the

plan~

Any comments or suc,gestions with respect to
or any modifics.tion thereof, 11rhich you desire

to submit will also he appreciatod.
Very truly yours,

E. L. Smead, Chief,
Division of Bank Operations.
Enclosure

TO THE PRES ID::NTS OF AIL FEDEHLL
EXCEP'i' SAN FRANCISCO

ESERVE BANKS

89
R-696a
Proposal for a More Economical Method of Effecting the Interdistrict Settlement Fund Transit Clearing

•

The mothod heroin proposed for reducing tho cost of effecting the
daily transit clearing through the Interdistrict Settlement Fund is predicated on a reduction in the number of telegrams, l~,oth outgoing and return
wires, and the elimination of the detail now incorporated in the Board's
return telegra~ms. In lieu of individual wires now sent to the Board by each
of tho 29 parent banks and direct settling branchcs, the amounts credited by
participating offices in each district would bo combined and one wire dispatched to the Board by tho head office; return telogran1s would be sent by
tho Board to each parent bank only, advising tho amounts of credits duo it
and oach of its direct settling branches, if any, from all other districts.
The proposed method of settlemont is as follows:
Each direct settling branch would wire its ovm head office tho amounts
credited to each parent bank and direct settling branch of other districts in the same manner as this information is now furnished to tho
Board.

Each head office having direct settling branches would combine tho
branch credits with its own credits and wire tho Board tho amounts
credited by all offices in the district to each participating bank
and branch of other districts, This wire vmuld be in the same form
as tho present "EXNAG" but would show amounts credited by tho district instead of by an individual office •
Statements of credit would be mailed as at present.

•

Upon receipt of the 12 incoming tologro.ms tho Board would effect tho
settlement and dispatch a return telegram to each of tho 12 parent
bo.nks. ('l'his could be dispatched by mc.il if it will urrivo in time.)
Each such telogrmn would contain tho aggregate o.mount credited the
parent bank and tho aggrogc.te amount credited G£>.ch of its direct settling bro.nches by all other districts combined, and for proof, (as code
BABE), tho closing balo.nco in tho Intordistrict Settlement Fund, after
completing tho transit clearing. A specimen wire is attached. (If it
would not be practicable for tho Bonrd to include tho closing balance,
tho ba1o.nco of tho previous day would suffice, as at present.) Tho
Board would also airmail to ec.ch parent bt:.nk a sta temont showing sep•
aratcly tho rumounts credited to it and to oach of its diroct settling
branchos by oc,ch of tho other districts. Such a statement, while not
absolutely necessary, would facilitate tho locnlizntion and adjustment
of any discrepancies developing between statement totnls and amounts
wired. If desired, in order to further isolate such n difference to
the individuo..l office concerned, statements of credit mailed by each
parent bunk to participating offices of other districts could include a
memorc.ndum of o.mounts croditod by each of tho.t bank's direct settling
branches. but this additional 1ivork is not believed justified in view of
the infrequency of such discrepancies •

• for FRASER
Digitized

- 2 -

Upon receipt of the return telegram froo1 the Board~ each parent bank
would wire each of its direct settling branches the total credited it;
appropriate entries would be passed by all offices to take up the
amounts credited.
No attempt is made herein to suggest an accounting procedure for the
various Federal Reserve Banks, as each bank would undoubtedly wish to adjust
its procedure to its own accounting system. However, at the Federal Reserve
Bank of San Francisco it is proposed that Head Office and each branch would
clear the individual statements as received and~ when all statements of a
specified date received by any office are cleared, the grand total of all the
statements of that date would be proved against the amount of credit wired
by tho Board for that office in the return settlement telegram of tho corresponding date.

•

Under tho above procodure a bank having no direct settling branchos
would send tho same out~oing wire as at present, but the Federal Reserve Bank
of San Francisco, with 4 direct settling branches, would send 1 instead of 5
settlement wires to tho Board. This decrease, based on an average of about
75 words per message and tho Juno per word cost of $.018145780, would approximate 7500 words, or $136.00 per month. For all banl::s, tho reduction from 29
to 12 outgoing wires av0raging 80 words each would amount to 34,000 words, or
$617.00 per month •
It 1'rould appear that tho f;oo.rd would derive a bencfi t from tho proposed
procedure by reason of a more simplified settlement (12 incoming wires instead
of 29) and tho reduction in thu numbor o.nd content of the return tolegrams •
It is csti.'Tlatod that tho return tclegrruns under this proposal would range from
about 10 words for a bank having no direct settling branches to about 27 words
for a wire to San Fro.ncisco with 4 such branches. One vrirc; to San Francisco
with 27 words, compared to 5 messages to tho 'l'wolfth District at prosont averaging about 83 words each, would effect a reduction in the return telegrams of
9~700 words per month, or~ at the per word cost for June~ of $176.00.
While the saving computed on the basis of the current cost per word
would not be fully realized~ since the reduction in leased wire costs would
not follow in direct proportion to a decrease in number of words 1 it is believed the ultimate saving would be in substantial amount and that the above
proposal merits consideration as a means toward further economy.
SPEC ThmN RETURN TELEGRAM

Ex nov

8.,110~451.24

SF
LA
Ptld
SLC
Seatl
Babe

5, 198.,532.41+
729 795 0 61+
1.,247 ,263.98
484,201.38
450,657 .eo
507,407 ,4a2,72
I

91
BOARD OF GOVERNORS
OF' THE

FEDERAL RESERVE SYSTEM

H-697

WASHINGTON

ADDRESS DF'F'ICIAL CORRESPONDENCE
TO THE BOARD

.,
August 30, 1940

•

Dear Sir:
Recently one of the Federal Reserve Banks
submitted certain changes in discount rates applicable to industrial advances under Section l3b. The
changes recommended were approved, but during their
consideration there was suggested the desirability
of a review of the existing schedules of rates of
all the Federal Reserve Banks under Section l3b for
the purpose of ascertaining, first, whether th~
were justified in the light of existing conditions
and, second, whether the schedules of rates for all
districts should be made uniform.

•

The Board, therefore, is suggesting that
the Chairman of the Presidents' Conference place
this subject on the program of the forthcoming Conference, which, it is understood, has been called
for September 27, 1940. It is hoped that the discussion will bring out fully the reasons for the
conclusions reached on both of these questions as
to which the Board desires to be advised for its
information in passing upon the rates.
very tey y~~

-----

~
c.---~
L. P. Bethea,
Assistant Secretary.
TO THE PRESIDENTS OF ALL FEDERAL RESE.B.VE BAl'l'KS
Copy to all Chairmen of Federal Reserve Banks

92
BOARD OF GOVERNORS
OF" THE

FEDERAL RESERVE SYSTEM

R-698

WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD

September 9, 1940

•

Dear Sir:

•

The Judiciar1 Committee of the House
of Representatives on September 6, 1940, made
a favorable report to the House on H.R. 10464,
"A bill to assist in the national defense program by amending sections 3477 and 3737 of the
Revised Statutes to permit the assignment of
cla:Uns under public contracts", which is a substitute measure for H.R. 10365, a cop,y of which
was forwarded to you with the Board's letter
dated August 23, 1940 (R-695).
A cop,y of H.R. 10464, together with
a covJ of the Committee Report, is transmitted
herewith for your further information on this
subject.
Very truly yours,

Chester Morrill,
Secretary.
Enclosures 2
(Enclosures sent only with addressed copies)
CHAIRMEN OF .AL~J FEDERAL
MEMBERS AND SECRETARY
OF THE FEDERAL ADVISORY COUNCIL.
TO

T'H~

RESFR~7 E

PRESIDENTS AND
BPIES Am:; THE

93
BOARD OF GOVERNORS
DF" THE

FEDERAL RESERVE SYSTEM
R-699

WASHINGTON

ADDRESS OFFICIAL CORRESPONDENCE
TD THE SDARO

•

September 10, 1940
•

Dear Sir:
There is transmitted herewith, for your
information, a coP,r of a press release of September
9, 1940, containing a statement of Chairman Joseph
C. O'Mahone'.f of the Temporary National Economic Com-

•
mittee on 11 The Financial Problem of Small Business",
a report prepared b,y the Investment Banking Section

•

of the Securities and Exchange Commission under the
direction of Peter R. Nehernkis, Jr.
Very truly yours,

Chester Morrill,
Secretary •
•

•

Enclosure.
(Enclosure sent

on~

with addressed copies)

TO THE CHAIRMEN OF .ALL FEDERAL RESERVE BANKS .li.ND THE
~mMBERS AND SECRETili1Y OF THE FEDERAL ADVISORY COUNCIL.
(CovJ to the Presidents of all Federal Reserve Banks)

94
BOARD OF GOVERNORS
Or THE

FEDERAL RESERVE SYSTEM

R-700

WASHINGTON

ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD

Septerrtber 10, 1940

Dear Sir:
There are enclosed herewith
copies of staten:ent rendered llf the
Bureau of Engraving and Printing, covering the cost of preparing Federal
Reserve notes from August l to August

29, 1940.
Very truly yours,

Q\.>\0 r.1~r
~ ;)~/
'(f'"' )'"'"' ~ fUll l::J . ~·
0.
Josephine E. Lally,
Deputy Fiscal Agent.

Enclosure.

TO TEE PHESIJENTS OF ALL FBDEEAL

K~SEHVE

BANKS

F.-700-a
Statement of Bureau of Engraving and Printing
for furnishing Federal Hoserve Notes,
August 1 to August 29, 19/"0.

Federal HGserye Notes, Se:r_ies 123..4
$~20

___jJ._Q_

Tot_~.

Sheet;_Q_

AI:1ount

83,000

13,000

C)6,00Q

$. 8,899.20

150,000

4.5,000

195,000

18,076.50

Philadelphia

53,000

18,000

71}000

6, 581.70

Cleveland

45,000

1.8,000

63,000

5,840.10

Hichmond

36,000

25,000

61,000

5 ,65/t• 70

Atlr:mta

~~8,000

9,000

37,000

3 ,L~29. 90

Chicago

135,000

67,000

~:02,000

113,725 .L,O

23,000

7,000

30,000

2, 781.00

Minneapolis

9,000

6,000

15,000

1,390.50

Kansas City

15,000

10,000

25,000

2,317.50

Dallas

13,000

6,000

1<),000

J.' 761..30

San Francisco

35,000

_n:...t..:::.:._
000

5G 2 Q.OO

5.376.60

625,000

24'J.JQ00_

oar··~

~}80 2 83£t .itO

Bo~;ton

New York

St. Louis

•

872,000 sheets

@ ~~92.70

S"''~

:_ ""· 2

per M• • • • • $80,.834 ••~0

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

R-701

WASHINGTON

ADDRESS OFFICIAL CORRESPONDENCE

TO THE BOARD

September 16, 1940

Dear Sir:
On Saturday, October 12, Columbus Day,
there will be neither transit nor Federal Reserve note clearing and the books o.f the Board's
Interdistrict Settlement Fund will be closed,
The offices of the Board and the following Federal Heserve Banks and Branches will be open for
business as usual on thftt day:

•

Charlotte
Nashville

St. Louis
Littlt: Rock
Mornphis

Detroit

Minneapolis
KansaE: City
Oklahoma City

Please notify branches.
Very truly yours,

cdzJ/) Ze/it.~-; J

F. A. Nelson,
Assistant Secretary.

TO THE

•

PHE.SIDFl~TS

OF' ALL FEDERAL RESF.RVB BANKS

97
BOARD OF GOVERNORS
OF" THE

R-702

FEDERAL RESERVE SYSTEM
WASHINGTON

ADDRESS DF"F"ICIAL CDRRESPDNDENCE
TD THE BDARD

September 17, 1940
•

Dear Sir:
There is enclosed for your information a copy
of the Board's Functional Expense Exhibit for the first
half of

•

1~~0,

which has been compiled from the semi-

annual functional expense reports (Form E) received
from the Federal Reserve Banks and branches.

Additional

copies are being forwarded under separate cover.
Very truly yours,

E. L. Smead, Chief,
Division of Bank Operations.

Enclosure •

•
TO THE CHAIRMEN AND PRESIDENTS OF ALL FED1'RAL RESERVE BANKS

98
R-703
BO&~D

OF GOVERNO~S
OF TH.f!

FEDF.RAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For release in morning papers,
Wednesday, September 18, 1940.

The following summary of general
business and financial conditions
in the United States, based upon
statistics for August and the first
half of September, will appear in
the October issue of the Federal
Reserve Bulletin and in the monthly
reviews of the Federal Reserve
Banks.

Production and employment in August showed a further rise from
the level maintained in June and July and distribution to consumers also
increased.

Prices of industrial materials were somewhat higher in the

middle of September than a month earlier.
•

Industrial production
The Federal Reserve index of industrial production is estimated
at 123 in AUE,"USt as compared with 121 in June and July and 111, the lovJ
point for the year, in April.

This rise has reflected chiefly the direct

and indirect effects of the defenGe program on industries producing durable goods and textiles.

Steel production rose further in August as new

orders for steel continued in large volume, and for the month as a whole
mills operated at 90 per cent of capacity.

Following a temporary decline

over the Labor Day week, tho rate of output advanced to 93 per cent of
capacity in the third week of September.

In most branches of the muchin-

ery industries activity showed a continued expa11sion in August and there
were further sharp increases in shipbuilding and the manufacture of

99
R-703

-2aircraft.

With the growth in production of finished durable goods, con-

swnption of nonferrous metals advanced to the highest levels since last
winter.
Output of automobiles was in small volume in August owing to
the seasonal change-over to 1941 model cars.

The low point :in production

was reached early in August; there was a gradual rise later in that month
followed by a sharp advance in the first two weeks of September as most

C<)mp<mies began volume production on new models.

Lumber production,

which had declined in July, rose considerably in August.
Textile mill activity continued to increase in August and was
at the highest level since last January.

Cotton consumption advanced

considerably further and silk deliveries rose from the small volume of
recent months.

Activity at wool textile mills increased seasonally·, fol-

lowing a sharp rise in July, while at rayon. mills activity sho·;-ved a less
than seasonal increase but continued at a high level.
Mining of bituminous coal in August was maintained in large

...

volume for the se&<son, while production of anthracite declined.

Output

of crude petrole1.un declined somewhat further.
Value of new constructi<m work undertaken in August was at
about the same level as in July, according to reports of the F. W. Dodge
Corporation and the Feder&l Reserve Bank of San Francisco.

The volume of

contracts for publJ.c pro,jects continued unusually large and the amount of
new private work started vvas larger than in July.

Residential building

was at the highest level in recent years, on a seasonally adjusted basis,

101

........R-703

-3-

•

reflecting further increases in both private and public contracts.
Distribution
Distribution of commodities to consumers increased considerSales at department stores and qy mail order

ably from July to August.

houses showed a sharp rise and there was a less than seasonal decline
in variety store sales.
'•

In tho early part of September depart.ment store

sales continued to increase.
Freight-car loadings advanced from July to August when little

change is usual.

Shipments of coal and miscellaneous freight :increased

while loadings of grain showed more than a seasonal decline.

Commodity prices
Prices of several industrial materials, including c'opper, zinc,

steel scrap, lumber, hides, and print cloth, advanced somewhat from the
middle of August to the middle of September and, owing partly to seasonal
developments, prices of foodstuffs were also higher.

Prices of most

other commodities showed little change :in this period, although some
paper items were reduced and several new models of automobiles were announced at advanced prices.

Agriculture
Production prospects for most major crops increased during
August, according to the

Depart~ent

of Agriculture.

On the basis of

September 1 conditions the cotton crop was estimated at 12,772,000 bales,
about 1,340,000 bales more than was indicated at the beginning of August.

•

Preliminar;- esti;:w.tes by the Department indicate that cash fcrm income,

R-703

-4including Government payments, will be about

~~i8,900,000,000

for the

calendar year 1940 as compar8d with $8,540,000,000 last year.
Bank credit
Commercial loc:ms increased somewhat at banks in New York City
and in 100 other leading cities during the fm.i.!' •weeks ending
11, while their holdings of

inv;~strnents

s(~ptember

showed little change.

United States Government sccuri!Qr prices

United States Govm·nment sc>curity prices increased in the last
half of August and the first woek in September and were steady in the

•

second week in September .

101

102

BOARD OF GOVERNORS
OF" THE

FEDERAL RESERVE SYSTEM

R-704

WASHINGTON

ADDRESS OI'I'ICIAL CORRESPONDENCE
TO THE BOARD

September 17, 19/1.0

..
•

Dear Sir;
There is attached a cop_\r of the report of expenses of the main lines of the Federal Heserve Leased Wire System for the month
of August 191+0.

•.

Please credit the amount payable by
your Bank to the Boa1·d, as shmvn in the last
column of the statement, to the l"ederal Reserve
Bank of Richmond in your daiJ:y statement of
credits through the Interdistrict Settlement
F'und for the aceount of the Board of Governors
of the Federal Hesorve SystGm, and advise the
Federal Reserve Bank of Richmond 1:zy" mail the
amount and purpost:; of the credit •
Vr:.:ry truly yours,

0. E. Foulk,
Fiscal Agent.
Enclosure

•

TO PRESIDENTS OF ALL FEDERAL HEE·K1VE BANKS
EXCEPT tUGHIICJND

103
R-704-a

REPORT OF EXPENSES OF MAIN LINES OF FEDERAL RESERVE
LEASED WIRE SYSTEM F'OR THE MONTH OF AUGUST 1940

Words Sent

..
~

Federal
Reserve
Bank

Number
of Words
Sent

Boston
New York
Philadelphia
Cleveland

24,651
67,221
16,500
31,154

Richmond
• Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
•- Board of
Governors
Total

by N. Y.

Chargeable
to Other
F,R. Banks

Total
Words
Chargeable

Pro Rata
Share of
Total F..xpenses (1)

Expenses
Paid.
by Banks
and
Board (2)

Peyable
to
Board
of Governors

$ 460.28

$ 265.36

$ 194.92

762
774

25,402
67,221
17,262
31,928

1,218.04
312.79
578.54

965.69
251.03
329.62

252.35
61.76
248.92

36,209
40,880
59,304
42,953

752
751
822
751

36,961
41,631
60,126
43,704

669.73
754.35
1,089.48
791.92

385.65
237.91
1,242.57
222.64

23,152
39,8.37
35,112
48,637

7L~9

751
779
763

23,901
40,588
.35,891
49,400·

433.09
735.45
650.35
895.13

191.37
273.01
268.30
411.89

362,291

6,564.72

10,108.83

751

362,291
827,901

8,405

284.08
516.44
153.09(a}
569.28
241.72
462.44
382.05
483.24

836,306 $15,153.87 $15,153.87 $3,697.20
122-09(a)
$3,544.11

..
(1)

Based on cost per word ($.018120006) for business handled during the month.

(2)

Payments by Banks are for personal services and supplies and payments by Board
are for personal services and supplies ($1,170.36) and wire rental ($9,380,08)
less amount ($441.61) representing reimbursement for the cost of sending messages between the Washington office of the Leased Wire System and the local
telegraph offices of the Treasury, Reconstruction Finance Corporation, and the
Con~odi~- Credit Corporation.
Personal services include salaries of main line
operators and of clerical help engaged in work on main line business, such as
counting the number of words in massages; also overtime and supper money and
Retirement qystem contributions at the current service rate.

•

- (a)

Credit--reimbursable to Chicago.

104

BOARD OF" GOVERNORS

OF" THE

FEDERAL RESERVE SYSTEM

R-705

WASHINGTON

ADDRESS DF"F"ICIAL CORRESPONDENCE
TD THE BOARD

September 17, 1940

...
Dear Sir:
There is enclosed a copy of a letter
dated August 21, 1940, which the Board has received from the Treasury Department, transmitting a copy of Report No. 2783 of the House of
Representatives, dated July 11, 1940, with respect to the destruction of certain Fiscal
Agency records, and a form for reporting to the
Treasury Archivist the disposition made of the
records on the list.
Any questions regarding the disposition of the useless records should be taken up
with the Treasury Department.

ours,

:::-:.--:1>_
-----·
T/~A~·
L. P. Bethea,
Assistant Secretary.
Enclosures
(House of Reprooentativ8s Report sont only with
adc.lressod copies.)

TO THE PRI:SIDENTS OF ALL FEDERAL HESERVE BANKS

105

R-705-a
TREASURY DEPARTMENT
Washington
August 21, 1940
AUTHORIZATION FOR THE DISPOSITION
OF USELESS RECORDS
TO

Board of Governors of the Federal Reserve System
Attention:

Division of Bank Operations

Pursuant to the terms of the act of Aub~lst 5, 1939, concerning
the disposition of certain records of the United States Government,
permission has been granted in House Report No. 2783, 76th Congress,
Third Session, dated July 11, 1940, for the disposition of the records
described in the following list of useless papers:
Various Federal Reserve Bar~s - January 23, 1940
Federal Reserve Ba~~ of New York,
Goverr~ent Bond Department - February 6, 1940
Under the terms of section 5 of the act of August 5, 1939, disposition may be made by one of the following methods:
(a) By sale, upon the best obtainable terms after
due publication of notice inviting proposals
therefor;
(b) By causing them to be destroyed;
(c) By transfer (without cost to the United States
Government) to any State or dependency of the
United States of America or to any appropriate
educational institution, library, museum, historical, research, or patriotic organization
therein, that has made application ~HH!- therefor, through the Archivist of the United State~.

You are hereby instructed to dispose of the records described
in the lists referred to above, by one of the methods indicated in the
preceding paragraph. Records containing confidential information should
not be disposed of by sale as waste paper unless their character as records has been destroyed, nor should they be transferred to another institution ¥uthout the consent of the Administrative Assistant to the
Secretary •

-2-

R-705-a

If records are to be transferred to another institution pursuant to a.n application received through the Archivist of the United
States, arrangements for such transfer should be made through the
Treasury Archivist,
If records are to be sold, a separate account should.be kept
of the cost of the sale and the amount of the purchase price received,
and the moneys derived from the sale should be paid into the Treasury
of the United Stat6s,
A report of the disposition of the records on the list indicated above should be made on the attached form in duplicate, and
should be submitted to the Treasury Archivist not later than November

1, 1940.
(Signed) C. R. Schoen6nan
Acting Administrative Assistant
to the Secretary.

Enclosures

..
..
Field Offices Form

•

106

{

107

R-705-b
REPOHT OF THE DISPOSITION OF USELESS RECORDS

To the Treasury Archi.vist:
The records described in the following list:
Various Federal Reserve Banks - January 23,

approved for disposition by authority of House Report No. 2783,
76th Congress, Third Session, dated July 11, 1940, have been
disposed of by the following method (except as indicated under
the item "Remarks" below):
_ By sale:

Cost of sale:
Purchase Price:

.
_ By destruction:

...

19~.0

(Indicate rHanner of destruction)

_By transfer to-----,----~-------~-----
(name of institution)

(post-office address)

Date of disposition:
Remarks:

..
Field Office Fonn

108

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

R-7~

WASHINGTON

ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

September 19, 1940

...

Dear Sir:

There are enclosed for your information a table showing applications for

•

membership received qy the Board during

1940, and a statement containing excerpts
from the bank relations reports submitted
by the J<·ederal Reserve Banks for the month

of August •

L. P. Bethea,
Assistant Secretary.

Enclosures

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

R-706-a·
BANKS ELIGIBLElc FOH FEDERAL RESERVE MEMBERSHIP ON DECElABEH ..J.L.
1939, AND BANKS WHICH APPLIED FOR i.l:EMBEH.'3HIP
.
DURING 1940
-----------.~~-----~~--~--~-----=~:~~--~~~----.-~~--~----------------~-

Federlll
Reserve
District

Number of Nonmember Com- i
mercial Banks El_igible-lc for
Federal Heserve Membership I
On December 3l.L...lli.2
! Total ! On Par List·:HH~- I

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Fr'lncisco
Tote>.1

141
221.

225
475
394
484
1,219
664

141
224
225

4?4
2')"
..)"52
1,079
434

1~20

487
282
194

/+02

5,209

Deposits of Nonmember
~· Deposits of Ba.nks
Commercial Banks Eligible·:~Wrd.ch Applied for
Federal Reserve
for Federal Reserve MemberFederal Reserve
i·;iembershi p DurinR'-_--+-s=h=i_:2....21} December _31 1 1939 ~mbershiJ2... During--A11£?Ust I This Year
Total 1 On Par I,.ist>HH: 1 August I This Year
(In thousands of dolJa rs)
Number of Banks

V.i'hich Applied for

0
2
0
2
")

'·

6
1

469,330

981,529

3,200

5:50,836
577,670

550,336
577,367

0
4,600

0
3,200
3,000
30,200

10
2
34
13

4En, 555
302,655
1,114,286
1~28, 385

396,/+47
70,987
1,054,464
309,111

1,100
1,000
6,200
600

17,700
2,800
32,300
8,200

2,800
3,200
10,700

0
3.)UJ_

469,330

HI\

189,:225
198 ;?93

53,439
l7t3,372

0
1,600

174
182

0
l
4
1

13
3

154,549
545,393

110,025

2,000

768

700

3,69'7

113

5,994,411

5,293,675

21,000

51~1,

ll9,100

By eli[~ible banks is meant bCt. nks with sufficient capital stock to rrteet tl1e minimum
requirements for Federal Reserve membership.

~He

Includes one newly orgE•.nized bmk having no deposits.

~HH~-

Revised. Figures shown in lc:.st month 1 s st;::.tement did not include uninsured nonmember banks on the
Par List which were eligjble for Federal R.eserve membership on December 31, 1939.

st~.tutory

5,0QQ_

C[:pital

110

R-706..()

September 19, 1940
Not for publication
f~PTS

FROM BANK RELATIONS REPORTS
FOR THE MONTH 01<"' AUGUST 1940
BOSTON

Durlng the month of August visits were made to 27 member
banks and branches and 8 nonmember banks, the majority of banks visited being located in the State of Maine.

•

....

Production, employment, and p~ rolls were reported to be
increasing at the mills and factories (woolen, paper, and shoe) scattered throughout the sections visited and retail trade in these sections reflected this movement. The improved condition was more marked
in and around Bath, Maine, than in any other section visited. Here
the shipyards a..."l.d plants manufacturing marine equipment and operating
almost entirely· against Government orders, have combined pay rolls of
more than $100,000 a week. One concern is erecting and equipping a
large new factory. This activity is said to have resulted in a shortage of small residential properties and a mark-up of anywhere from
ten to thirty pe:c cent in sales values of this type of property.
There is no speculative building going on and bankers report very few
inquiries from builders of this type of property. A few small houses
are being built by ir.dividual shipyard and factory workers and some
are said to be financing the building through the Federal Housing
Administration. It is understood that this type of Government loan
is readily available through banks of the loeality.
In farming districts the canning crops are reported to be
good and early prices were said to be satisfactory to the growers.
The summer tourist trade throughout the sections visited, while reported exceptionalzy light during June and July, was well above the
August average at some points •
Loans and deposits were up slightly better than seasonally
at mos.t banks visited although many bankers complained of their inability to lend a greater volume of their available funds. Lending rates
at most of ·the bunks ranged from 6 per cent to as low as 5 per cent,
excepting lom1s to municipaliti0s which ranged from 3-1/2 per cent
downward. Mortgage loans throughout the oection carry 5-l/2 per cent
rate. Several bankers referred to the possibility of reducing the interest rate on time deposits at the end of the present year. Reductions in the interest rate had been made blf several banks.
serves.

Several bankers expressed concern over mounting excess reAt one or tv10 points reference was rnade to the alleged

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practice of certain outside banks coliciting local business, the competition r::oming from tvvo of the larger Maine banks and one large bank
outdde the Sta-t.e.

During the month of [l.ugnr::t, om· officers and representatives
visjted 99 brmlu:;--56 mem'oer e.nJ 43 nonmJmber insti tutions--1ocatecl in
various sectior.s of trw district. The follovd·.g is a resur:w of the
repo.t·ts of visi"i:;e. "to ba~1ks in SuffclK Co1..mt~y, New· York, whic.:h comprises
more than two-thi·2ds of thG area of Long Is1a.nd and cx.t,mdu easbrf.:.rd to
the end of the Isl~:md.
Invest~nent portfolios o:~' tJ.1e corruaercial banks total $25,600,000
showin_g a decreuso of ;~n,2oo)ouo since las:~. April,, the holdings oi'
United States Gov~;rn:nent obli:;atiors havin,~ declir~ed abo'.lt ~H;OOO,OOO
to the present a.ggregate of C",lJ, 200,000. 'The banl:.erG continue to be
hesit<.mt about purcha::;iag securities in view of the ws.r developments
and prefer to retain their large rcmotmts of idle funds. A number of
bank officers are Bhowing a,J. iucruasl:d interest in their railroad securities, particularly their speculative holdings, in view of the reports of better railroad earnings.

Loans and discounts a.ggregate $21,600,000, reflecting little
chan.:re in the total since l&.st AprLL. A number of bankers state that
the :Lncome of their institutions is J"lOW so low that they intend to improve the earning capac:i.t;y by endeavoring to obtain more loans from
farmers through personaJ. solicitation, a good man,y of such loans having gene in the past to the Governmmrt' s ~redi t agencies, and produce
dealers.
The sub,ject of membership in the Federal Reserve System was
brought up for discussion with officers of eight of tho eleven nonmember banks and in cases in which interest was stimulated, fellow-up
visits were made, with the result that three hmre since filed applications with us and three are planning to ta·,:e fc.vorable act.Lon within
the next few weeks. The officers of the other tvm banks .:nclicate that
they will discuss the :natter with their directors at an earlJ· date.
The :cemaining three nom:1ember institutions appe:;.r to have problems to
overcome, such as large holdings of other real estate and substandard
bonds, before they will be in a position to quali(l for membership.

Agriculture is the most important industry in the county .
Largo quantities of early potf'_toes have alr·eady been exported to for--·
eign cou.."l'lt:cieo and shipped to distant points in tb~ Unit;)d States.
The combined production of early and late potatoes is said to be

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R-706-b

slightly in excess of last year 1 s .:;rops. During the la::;t two weeks
the price of late potato~3s has increased from sixty-five to eighty
cents per hundredweight. Approximately 1,080 farmers have enrolled
in the 1940 Federal agricultural conservation program as compared
with 1,047 last year. The Long Island Cauliflower Association, which
in the past has imported cauliflower seed from Holland and Denmark,
is now planning to grow seed in this country for the first time as
its s-u.pply of seed on hand is only sufficient for next year 1 s crop
and it is believed im:.)robable that seed mey be secured from abroad
in the ne1,1r future. The duck farmers in the county expect to raise
about 5,500,000 pounds of ducks this year and if current prices of
thirteen and fourteen cents a pound prevail, a fair profit will be
made.
This county is also otV3 of the largest and best known
oyster growing regions in the eow1try and i t is busHy preparing for
the season which starts tb.e last weel~ in August. Reports indicate
that there will be a. norme.l suppJ..y of oysters of excellent quality.
The summer resort areas report one of the best seasons since

1929, the two best known summering plac2s, Southampton and East
Hampton, enjoying an excDllcnt seo.son.
During the month of August, the brenk relations work was
concentrated to some extent on visit~' to nml.IDember ban1w in various
parts of the dioti·ict in an effort to intGrcot t:.1l'1m in membership in
tho Federal Reserve Systc:m. In addition to the three applications
received fror:: ncnmembcr i:·anks in Suffolk County, four banks in other
sections of t0e district have filed. applicatio:·1s, making a total of
seven, and five others c:xpect to adopt resolutionc to apply for membership within the next month. Sevor&l nonmember ban}::ers ~ while giving no definite an~~wer regarding the course they may pursue with
respect to filing an c.ppl~Lco.tion, have ohoiil1 enough :interest to arrange for a further discussion of t;1e subject at our bunk.

During August repre;:;cntatives of this Bank visited 73 banking offices, comprisir:g 43 member banks and ;2 brrmches, ~md ;:8 nonmember banks. Seventee.~t s:Jecir,;,l vL>its c. re included of whieh 12 were
for the purpose of' discussi.ng me:mbe:vship.
The urea. (in sout.heust,3rn PojmsyJ.v-aniu) covered l~y- this report is served by 36 me1nter b0.nks anci tv1o ·branches having total re·sourees of ~~96,4.+8,00C, and 15 nor:>.tnembers v.ith total resources of

$26,204,000.

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Agricultural conditions are disappointing; ~leve:re dry
weather in part of the area se~ciously reduced corn production while
prevailing low prices for farm products are greatly curtailing farm
lm~ome in general.
A slightly higher price for milk only partially
offsets the losses resulting from low prices of other products.
Industrial conditions are very good. Much of the increase
in activity results from Government orders and the volume has necessitated expansion of some plants. A considerable increase in the
nu.rnber of workers employed eithG:r has taken place or is expected in
the near futm·e.
Retail trade is uneven.
Real estate conditimu; are fairly good. Considerable new
co,lstruction is reported in progress with sales being made be foro
completion of the structures.
Bank deposits, particularly of interest bearing classifications, continue to increase.
A majority of the banker;~ reported depreciation of investments but few stated that it was suffieient to cause impairment of
capUaL Loan demand is improving slightly, chi.efly as a result of
demand for small loans. Liquidation i~o> considered satisfactory,
particularly on the sr:1all loans whtch are usually made on a monthly
amortization basis. Bankers stated t~~nt they were in a position to
tuke car•3 of a11y credit demand which might m'ise, even that from an
unusually large increase in business.
The officers of twelve banks, r;elected beeause of their
probable acc:eptabili·b.r, wore :Lnterview1;.;d spc,cially in a..11 effort to
influence a favorable decisio~.1 toward membership in the J<,ederal
Reserve System. In most cases the subject has been u..11der discussion for the past several years but no definite action has been
taken. Several rather promising situations were developed cmd it
is believed that applications will be received from somn of these
bankiJ. All seemed interest,;d in the discussion and wero frank in
their cormnents on the subject.
The president of an institution with deposits of about
$1,300,000 said he wan a gr•Jat belj_ovor in tho Ft;d.eral Res0rve Systam but cou.ld see no advantage to be gained for his institution
through joining. His institution has nev::.:r borrow·ed money and ho
feels it is a practice which should not be follov1ed except in emorgoncios.

113

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The chief executive offjcer of a bank nit}J l1f;;arly ~~3,000,000
on deposit has been irreconcilable on the sub;ject oi' membership. His
U..J.friendliness apparently results from his l't3action to Sy::;tern efforts
to enforce par clearance and direct remittanc<;;. He says iw does not
like vrhat was done in the !Jast and docs not trust the Syst,;m for the
future.
The cashier of GJJ.cther i.nsti tution vrJ. "LG dt::posi ts of
{'il,850, 000 said his directors d.id not feDl that membership would be
of particular adventnge to the bank inasmuch as it had always been
able to get all neceDsa:::y assistance: from correspondents. It was
pointed out to this officer that correspondents were able to help
largely bDcause of their membership in tha 8-.fiJtom, which made available to them the facilities of the System and that membernhip of t!;e
subject institution would. make these same facilities available to it
at first hand. 'rhis apparently was a new id.ea and seemed to impress
him considerably.

During the month of August 111 banks were visited, of v;hich
61 were member and 50 were nonmembe:r·.
During the m'mth, fou.r Ohio State bm1ks, having resources
in excess of 1,;5 ,821,000, were admitted to membership in the System.
A small manufu.cturing town, in the westG:,·n c:entral part of
the State, reports that two years ago 276 people were on relief at
that point, and that ect the present time thel'e are no local peo}lle
receiving relief chocks. In this particular instance, the change in
conditions is due to the ·3Dtablishment of <l factory by the Good;y"ear
Company, absorbing all lo8al unemployment.
Another city in the same section raports thut inclustr.f is
going at top speed, with bonuses pClicl montr~ly to employees in some
plants.

•

In tho city of Dayton, om; bank noted an J.ncroase in loans
of fair size for plant expcmsion, traceable directly to the Natio;ml
Defc.mse progran. Another Dayton bank, based on infor:::ation secured
from the National Defense Procuremc.mt Bulletin, is visiting certain
customers and no:1Custo::K.:rs h:-:.ndling active lines dcccribod in tho
bullotin, which they hope will r:Jsult in their making some loans in
the reasonably ncar :!'u-Lurc .

•

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F.-706-b

In the City of Springfield, industry continues to show
activity against a seasonal trend, despite the fact that industry
there has not received much stimulus from orders related to national
preparedness~

RICHM01TD
During the month of August 69 banks were visited, of which
39 were member and JO nonmember banks.

Industrial and mining activities in the Fifth Federal Reserve District are continuing to move toward higher levels. The
cotton textile industry, after a period of curtailment, is again
pointing upward. Rayon progress has been uninterrupted, and several
new plant extensions are in prospect. Coal mini.."lg is unseasonally
high, and still better levels are expected through the first quarter
of 1941.
The cotton crop in North Carolina will be considerably
larger than last year, but the tobacco crop in that State will show
a greater loss than in other tobacco-growing States of this District.
Despite a marked fall in gross income, the improvement in
tobacco prices will give the average grower about as ~uch net profit as last year when production costs rose to a new high record.
Considerable damage b,y storms and high water was suffered
proper~J in the Caroli.."las, which da~ge in South Carolina has been estimated at $5,000,000 for crops alone.

qy crops and

Construction is running at the best levels experienced
since the late 1920 1 s.
Deposits of banks in Allegheny, Amherst, Giles, Nelson, and
Rockbridge Counties, Virginia, are at their seasonal low, but are
higher than a year ago in most banks.
The new loan volume in several banks has been running somewhat higher than maturities, and in other banks new louns and maturities are about equal. The traditional 6 per cent lending rate has
given ground for some borrowers in a few communities as a result of
outside competition, and selected loans are made as low as 4 per cent.
There is still fear of extending this practice, lest the entire loanrate structure gravitate to the lower level. In ~"l attempt to get

•

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new loans and at the same time avoid the general lowering of customer rates a.t home, some banks offer to lend in cor.ununities other than
their own.
Bank deposits (Union, West Virginia) are somewhat higher
than usual at this time of the year, but there is not much demand
for loans. Many of the farmers in this cow~unity were referred to
as L~ the hands of the land banks, and it was stated that the Production Credit Corporation was constuntly bidding for seasonal loans,
in both instances at rates below the bank rates. Bankers say farmers are willing to pledge chattel liens on all s·~ock and equipment
to Government lending agew~ies, yet take exception to pledging the
same collateral to the local bank. Loan demands are considerably
better at Peterstovrr1, where the people have better outlets for employment.
ATLANTA
During the month of August 61 banks were visited, of which
18 were member banks and 43 noTh~ember banks.
In the area (in Southeastern Mississippi) bounded by"
i11eridian on the east, Philadelphia on the north, Jackson on the west,
and McComb on the south, i t is estiraated that the current year's cotton crop will not exceed 50 per cent of normal. This area experienced six weeks of rain from the latter part of June until early
Augtl.st and it is reported that many farmers were u...··mble to enter
their fields for five consecutive weeks. As a consequence, the cotton fields are extreme~v gras&y, and the cotton that will be gathered will be tras:b.y and of the lower grs.des. In the main the corn
crop is good. and the farmers are also hc.r-vesting mmsually large hay
crops.
At Meridian the bankers advised that the farmers in that
vicinity would probably not be as seriousl:r affected b;,' the poor
crop conditions as might be expected because of the fact that many
of them had surplus cattle to sell. Additional cash income will
also be derived shortly from the sale of pulp wood. This is normally a quiet season for banks in the fe.rming ar.::as tut merchants
and bankers were unanimous in their reports of unusual}¥ good retail
trade during the months of July and August.
Southeastern Alabama. and southwestern Georgia are devoted
largely to agricultural activities which provide the principal source
of income to most of the communities visited. Cotton and peanuts are
the principal money crops throughout this sectio11 and in several of

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R-706-b

the southwest Georgia cm.<nties visited the tobacco crop is o.f considerable importance. Hog and cattle rai.s:lng in r:J.oGt of the corrununi ties
visited is also reported to be developing rapidly into an irnport<~nt
source o:f fa.rm income.
Bankers generally reported that business last year was con3id.erably below normal because of poor crop conditions that prevailed
throughout most of the area. Fall collections are said to have been
only fair and in most communi ties banks vrerE: required to earry over
considerable agricultural paper. Present crop conditions, however,
are ver:1 favorable and bankers expressed considerablE: optimism over
prospects for fall business. In several communities cotton :1nd peanuts have begun to move and consider<cblc agricultural paper is being
liquidated. In a numbc;r of southwest Georgia counties vitli ted, a
marked improvement in business a~tivity was reported since the tobacco markets opened early in August. Officers of two banks located in
one of the principal market d.ties informed our representative that
around 50 per cent of their f,•J.rm loans had already been liquidated
from the procGecls of tobacco sale:3 alone.
With few exceptions ba;1kcrs reported that demand for loans
this year had been very sat:isfactory 0.nd earnings of most of the banks
visited rcre said to be consider0-bly br~tter tlnn n. year ago. Very little complaint of competition from gov<orrun<.Jnt~ll L:mding agencies
wns heard--on the otller Land a nUJriber of bankers commented on the
friendly, cooperative spirit existing betNc:en their institutions and
these agendes.
CHICAGO
During the month, calLs vvere made on 58 banks, of which 45
were member o.nd 13 ncruncmib er.
Two State banl',s were admitted as members of the System in
August, and six applications were received. Permission was granted
for the organization of a new nntional bank :Ln Illinois, for the conversion of one State bank to a n::ctional in Michigan, :o. nd for the conYersion of one national to a State bank in Iowa. Two applications
are pending for permission to organize m.tiom:l banks in Chicago.
Several national banks have indicated their intention to surrender
their rights to exercise fiduci.sry powers.
Excess reserves cc,nti:aue to be a problem. At present, the
largest percentage in this district is shown in the countr<J banks,
which carry $204,000,000 against a requirement of $90,000,000. Pres-sure of idle money is being felt more and more through banks soliciting loans outside of their ovm territory; this, in addition to tho

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118

usual competition for loans from the Goverrunent lending agencies.
Some country banks report a slight increase in loans. One l<1rge bank
in Detroit sb.tes that its loans have increased $2,000,000 in the last
week or ten days, due principally to loans made to subcontractors for
defense projects. Othor banks in Detroit report that they are receiving inquiries from subcontractors and '~xpect E!. loan increase in the
future as a result. Banks in Indianapolis and Milw-aukee report inquiries rather than actual loans. None of the bankers interviewed ex-·
pect the demanci for money to be sufficient to affect the prevailing
interest rates. Four outlying bR-rLI<.s in Chicago report that they are
making some term loans in small am.otmts. In view o.f the proposed conscription bill, banks are carefully scrutinizing insto.llment paper
si&;ned by makers under 31 years of a.ge.
There is apparently a disposition on the part of some of the
member ban.l<s to give prominence in their local advertising to their
membernhip in the Federal Reserve System. In at least three instances
that have come to our attention rt::;centl,y, ref.~:rence W9.S ;nade by the
member banks to tho facilities and protection provided for their patrons as a result of memb·2rship.
Fi.eports from the district c>how that normal trade is holding
up very well, and it is expected tl"Jat this will continue if present
prices for agricultural products are mn.intainc;,d. Trade should also
receive an added stLuulus from defense needs.
Employment has shovm some incre'lB(3 in the last month. At
one plant manufactu:ci.ng a.irplanc Emgines, 5,000 people are now employ•.;;d
:Js compared vdth only a few hundred a year ago.
There is considerable
eomplaint in some sectiom;, however, because relief rolls have not decreased as employment increased.
Production of 194.1 model automobile~> h<'tS been expanding ;~r!ld
ually in recent weeks and is somewhe.t ahe:J.d of the same time a yeG.r
ago. There has been a moderate der::line in residentiEtl building.

ST. LOUIS
During the month o£' August 157 banks wcro vi::.:;ited, of which

39 were member banks and l.lS v;ere norunomber bn.n1<:3.
During August, visits made by the field representative vrore
principally to ba.nk::J locatou :Ln northern ArkansaD o.n.d :::outhern Missouri. Agricultural activities and conditions in this general region
are very simila.r in both Status. The:r·3 is rolo.tively little industrial

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activity in th(' area, and the population relies very largely on agriculture for its support. 'l'h-Ls year early crops, wheat, barley, oats,
rye, hay, etc., were unusually favorable. The wheat harvest turned
out better than expected, both in point of quality and quantity. Furthermore, weather was ideal .for harvesting and threshing the crop.
Considerable quantities of the wheat produced have gone into the Government 71 cent loan, so +,hat the movement to market has not been as
heaV'J as is ordinarily the case. Drouth and heat somevrhat redueed
prospects .for corn, hay, and some other crops in J1me and late July,
but rains since ha.ve served largely to correct this situG.tion.
Accounts given by bankers, merelnnts and others interviewed
indicate that general business at this thte is better than a year ago,
and best since 1937. VJhile the number of industri:::Jl plants i.s limited
and scattered, they ht:we for the most part been operatine on high
schedules since late spring. Most of the plant.~' are branches of large
companies with headquarter~< :Ln St. Lo1.tis or elsewhere. It bas been a
particularly fnvor:.1.bl<~ se!l.son for dairying. All whoh; milk produced
has found ready sale :::1-l:, cr•::;ameries ~:.nd cheese fc:;ctories. In the hilly
sections there is a large lumbering industry, and demand for hu:1ber
has been tbe best in a nwnber of year.:;. Hural electrification is
rapidly extending, 1.s fer eY.;illtple, more th<>.n 31,.0 Htiles will be in service in Dall.1.s County and adjacent counties within the next few weeh:s.
Taken as a whole, bankin(t rondi tion;;; were found to be satisfactory, rrl. th general improvement over a ye:u· ago. Demand for credit
is more active, and ti""tere were fewer complaints of Government lendine
agencies. Quite general :.y there has been ·3X[-ansion in demand for funds
to finance livestock operation3. In many communities it was reported
that farmers had quite thoroughly cleared up their 1939 indebtednees,
and payments this year are expected to oe stiLL better. One Arkansas
banker s.-:J.id. that 96 per cent o.f his 1.939 loans to farmers had been
liquidated, and that he expected the 191.0 payoff to be about 100 per
cent.
In Arkansas there are many banks not on the par list. In
discussing this phase a majority of bankers indicated that they could
not at this tir;w sacrifice revenue derived from c::.tsh letter exchange.
Apparently the par collection factor is tbe ;n:dn barrier o.gainst certain banks joining the System. Univers:\lly complete satisfaction vm.s
expressed relative to services rendered by the Federsl Heserve Bank.
It vns found that even in small country banks cred.i.t files are quite
complete and adeque.te. Gcmer:1lly banks visited are using the Federal
Reserve Bcmk statement forra. Interest rates charged on custol!ter loans
were reported from n. minimum of 6 per cent to a maximum of 10 per cent.
On time deposits interest rat,,,s p:d.d vary from nothing to 2-l/2 per
cent.

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MINNEAPOLIS
During the month of August 101 banks were visited, of which
48 were member and 53 were nonmember banks.
Editors of 42 newspapers in southeastern Mirmesota were visited and offered the Monthly Review and other press releases issued by
the F'ederal Reserve Bank of Minneapolis.
The personal call on the editors of the daily papers and the
le.rger weekly papers is effective. Editors of these p<;1.pers took t~'i.me
to sit down and discuss whatever subjects occurred to them and, in
several cases, became intimate enough to offer constructive criticism
and suggestions on presentation of our material to newspapers. Most
of these editors seemed to enjoy the visit and were grateful for the
call and the offer of our services. Most of them have business men's
viewpoints and with a little cultivation they could bB made real
friends of the Federa.l Reserve Banks.
The personal call on the small weekly paper editor, on the
other hand, often appeared to be of little value, if it was not actu-·
ally harmful. In the first place the small paper editor is a very
busy man. He usually has learned bls business through apprenticeship
and has the viewpoint of a craftsmn.n, mec:·nni.c, or manunl worker more
than that of a business man. He does not care :1bout sitting do~m and
spending ten, twenty, or thirty minutes tnlki.ng about anything. To
him, that time is wnsted. B8cn.use he is c;. pro~iuction m.::.n, however, he
would be grateful for well prepared news releases that would have news
value to his readers providing the relen.ses were all ready to run.
Without a single exception, cditqrs were prim.ari.ly interest-ed in local information. They are eager to get information, statistical or otherwise, about their ovm city or county. Occasionally they
can use State, or section-of-State, figures such as southeastern Minnesota, but such information very seldom r-.'l.tes the front page.
In general we have adequate :Ln.furm<ltion for whieh the papers
are hungry. We have been publishin£· a good part ol' j_t, but it has not
been in the proper .form. It was suggested frequently that we prepare
subjective, newspaper-style releases from the information we have in
our office and send them to the papers that might be interested. The
newspaper man is busy Emd he does not have U111e to sit dovm ~;.nd dig
out a story from o. mass of ste.tistics. The story must be edited or
he will throw the materi.3.1 in the waste basket. If we want editors
to use our material and give us crGo.it for it, beth in their minds and
in their colunms, it must be set up in such form that it can be used
V'Jith a minimum of effort.

121
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Newspaper men are highly apprE;ciative of stories that furnish them with good copy. If the Federal Reserve Bank vmuld furnish
t!-1em with edited releases 7 they vmuld bE: grateful to the Reserve Bank.
The editor of one of the lc-.rgest dailies in the State (outside the
Twin Cities and Duluth) said: nyou have ®limited possibilities in
getting publicity and good will out of this material if you just wanted to." He then went on to enumerate some of the reasons why the material we ·:rere now offering could not do the job. Every poi:nt hinged
on the fact that the info:r'nk'lt:ion was not presented in a usable form
and the news man was not grateful for "data" but for J. "story".
KANSAS CITY
During the month of Augu.st 61 bA.nks were visited, of which
32 were member banks and 29 were nonmember banks.
Visits were made in August, to b:mks in nearly every State in
the District. The largest number, however, were in Colorado and Ko:msas.
In the western section of the Jistrict the favorable livestock
situation is the principal factor accour:t.::.ng for the generally good condition found in those States. The crop situation is :auch less favorable
than tha.t of livestock as rainf:J.ll be.s C1::en deficient and irrigation
water is short. In sections of the northeastern part of Colorado it is
said that the grain cr:.:.•ps ar·3 only 25 per cent and other feed crops 50
ner cent of normal.
The eastern section of Wyoming has also been dFJ, but again
it is the livestock situation that is the dominating one in most sections of that State. In a general way, bankers seem to be advising
livestock men to take advantage of present good prices of cattle and
steep to reduce their indebtedness. There is a tendency to fe'::l that
feeder cattle are too high. This is attributed in part to the fact
that buyers from Illinois, Iowa, rmd other Stat.;~s that have an abundance of corn and other feed are seeking li'restock to utilize these
products. Because of this situation, some bankers in Colorado feel
tha.t feeding operations may be curta.iled.
vVyoming banks as a rule do net have large holdings of Government bonds as judged by standards in other parts of the couctr~/· These
banks are interested in higher rates than found in Government securities
and there has been a good demand for livestock lo:ms. Some V.!yoming
btJnks are holding municipal obligati::;ns -::.hat are giving them a faj_r return and these banks ·;;vuld be glad to get rid of all their GovE:rnments
in favor of municipals if they could find them.

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R-706-b

Govern.:nent lending agencies ir" Wyo:nJ.ng are reported much
less competitive than in some places and bankers in that State are
not greatly concerned about them. A. very different situation, however, seems to exist in western riebraska. Considel~able complaint was
heard rsgarding the position of FSA borrowers. It is said that everything such borrowers have is tied up by these loans with the result
that bank loans go unpaid. In some cases these borrowers cannot pay
the taxes on their real estate and, where banks h.ave loa..'1s secured by
such asset2, the banks find it necessary to [:Jay the taxes to protect
themselves.
A good deal of apprehension is found regar'ding the war situation. The drift toward war is deplored but, at the sarne ti,ne, a
condition of helplessness so far as doing anything about it is felt.
Considerable concern is expressed about the amount of skillad labor
that is being draV'm awB.y from m:my co:rnraunities to other centers.
Ban.l.(s called on in ColorOtdo appear to be rn.aking all of the
wheat loans being placed in their communities. The banks, however,
as a rule do not retRin. these loans but tend to send them either to
their co:r·respondents or to a Goverrunent agency. Deposits nearly
eve:rJ'1"1"here seem to be increasing. A good many small tovvns were visited that seem gradually to be giving way to county seat tovms. Automobiles and good roads are concentrating retail trade in the larger
centers and the town with ::>.. population of less than 1,000 is losing
ground. The future of banks in such coromunities se~ns a ve~J uncertain one as rural people tend also to do their banking where they do
their shopping.
DALT,AS

During AuP,Ust 30 banks were visited, of which 23 vvere member
and 7 nonrnember banks.
Southwest Texas
Visits vvere made to 19 banks in the 9 counties of southvmst
Texas which are tributary to S?.n Angelo, the '1sheep and wool capi t<tl'l
of the State of Texas.
This rich agricultural region, which is one of the most important centers of wool and mohc:d_r production in t~e United States, is
enjoying o.n unusuc:.lly prosperous year which is uttribut.able in a large
measure to the heavier-than-nori!lCcl r:1.inf;:1.ll which its ranges and pastures have received in recent months. Sheepmen are reported to be i.n
excellent financial condition, although the unsettled conditions that

122

123
-14-

R.-706-b

have recently prevailed in the wool marl:~et have :"lowed up the sale of
the spring wool clip and a large portion of it is being held in warehouses awaiting a more active I!iarket demand.
Seve~al of the banks in this section of the State are using
the credit facilities of the Federal Reserve Bank. Every member bank
wl1ich was visited expressed complete satisfaction with Federal Reserve
services and relationsbips. Even the subject of the competition of
GoverP.ment lending agencies, which has been a favorite target of criticism heretofore, came in for ver;r little adverse comment on the part
of this group of member banks. The president of one such institution
did say that the local Production Credit Association had captured some
of his bank's choice a.ccor;.nts. His complaint, howe•rer, lost some of
its force when, a few minutes later, in recounting some of his personal farming operations, he inadvertently mentioned that he himself ha.d
obtained a produc:-ion loan from that agency this year.

A g-.ceat marzy- of the banks 17Cr's foun·i to be carr.:ring red.uced
holdings of Government :securities. One institution ;vi th cash resources
of $750,000 and deposits of $l,COO,OOO, is car:r-Jing no securities whatever. The general at,titude of these banl<:ers, with regard to the GoYermnent bond market, is one of caCLtious waiting to see how the market
wiil ree1.ct to developments in the i:r.r.:ediate future in connection with
the fall elections, the ·gar in Europe, a.nd :,he n:ttional defense program.
One banker expressed the l1ope t~1at the Feder:=tl Reserve System
would permit Governmr;;nt bonr.: ra:t.es to find a level vrhere the yield would
be attractive to the smsl:!..er ocmks.
N8w :Mexico and Arizona

One banh:er expressed satisf<::.ction over the prospect of a comprehensive revision of banking laws c;.nd banking supervision as a result
of the Wagner Committee 1 s hearings. He deplored the piecemeal type of
banking legislation that has been enact•::;d in recent years, saying that
the frequent revisions and amendinents of exis-Gir:g laws have tended to
confuse r;:-,ther than strengthen the barJ.-'!.(ing situation.
One nonmember explained its failure to join the System by referring to its operation of a profitable out-of-tovm branch, vrhich it
would .tave to close if it jcined the Feclerccl R-eserve S;:,rstem or be forced
to increase its capital to such an extent that the additional t'3.xes on
its capital structure vvould be prohibitive. The ether nomnember intimated that its prd'erence for remaining outside the Sy·stem was bc.sed on
its fear of Government controL

124
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R-706-b

SAN FRANCISCO
During the month of August 104 banks were visited, of which
73 1vere member and 31 nonmember institutions.
Santa Barbara County
Business in Santa Barbara is reported to be as good as could
be expected, considering present conditions and agricultural prices.
The "tourist" crop has not been up to expectations, although a number
of wealthy refugees have taken up residence.
Of the orchard crops in the county, lemons constitute the
bulk. This county is noted for the quality and high yie1d of its lemons, and the growers should make sorr;e money. Not a great many ora,nges
are raised, and the results to the growers, due to disappoihting prices,
are problematical. A considerable quantity of sugar beets, of high
sugar content, are raised, and the growers should have a successful
year. Growers of mustard seed are contracting at high prices, due to
the war abroad. Beef cattle are bringing fair prices. Lima bean growers will probably break a little better than even. Growers of flower
seeds should have a good year. Growers of vegetable crops on the whole
are receiving poor prices.
A considerable arn.ount of housing is in evidence, and the banks
are beginning to participate in F.H.A. loans. Heretofore, most housing
operations have been financed through building and lo.:m associa ti1x.cs,
as there apparently was an aversion on the part of builders to build
under the auspices of the F.H.A.
San Diego County
This COUi!ty has enjoyed a healthy increase in population over
the last ten years. San Diego City itself increased 36 per cent, to
202,000, and the beach and. inland towns :..~eport moderate gro1"lth in a
very desirable type of people.
Agriculturally, the county did only n.oderately well. The
avocado crop this year was larger than 1939, and better prices were obtained, so the grow·ers should make some money. However, increased acreage is coming in each year. Orange growers sho~ld break better than
even, but results to lemon growers are problematical. Grape acreage
is decreasing yearly. Bean growers should. do fa.irly well. Haising of
thoroughbred horses is developing on a smalJ. scal12.
There is consider.<:1bl(~ acti v:i.ty :in building throughout the county,
building operations in 1940 to date greatly exceeding lust year. There

125

R-706-b

-16-

is a shortage of low income houses in San Diego, a.Yld it is reported
that the Government intends to erect a large number of' houses for families of enlisted men.
The three plants in San Diego manufacturing airplanes and
parts are operating at capacity, with personnel at a. peak and backlog
of unfilled orders amounting to many millions. Extensive additions
are in progress. It is estimated that Govern.rnent e:A-penditures for
milita:rJ purposes in the San Diego area, not including those for airplanes, ·will run up to $25,000,000, and the expenditure of these vast
sums should be of great benefit to the area during the next few ye::Jrs.
Absence of the Fleet, which normally has an expenditure of $2,500,000
a month, has quite an effect upon the merchants.

The tourist crop this year has been disappointj_ng, although
at the presEont tirr~e the hotels, etc., are doing a large business due
to the current racing season at Del Mar.

PUBLIC K:.-:LATIONS AC'.l·:::VITIES OF FSD:SR4.L HtSERVE BANKS
r.ugr~st

19i../J

Federal
Reserve
Visits to .Bant_§__ _d.setin .·s ~.::i~pd•c;d_ _.:\ddJ;'..§:.§.Ses Made
Jjs.nk::;.._______~Me;:,be:r· Nomtl0'il~JCl' r~~)t.S.l : :unioc-r .A-. t':ncl::uwe Ll.lt":.1ber Attendc!.l'l££
L

Boston
New York

Philadelphia

L15

4:3
r,, ...

Cleveland

?•:C.

99
73
lll

1
4

290
110
1120

69
f.,

--4--'

Richmond
1\tlanta
Chicago
St. Louis

]>)
.. u

45
39

Minneapolis
Kansas City
Dallas
San Francisco

43
32
23
73

Q_!_

u
2

110

58
157

lOl

0
0

190

0
0

~
__,

162

112 I
26i3b

990

2'"7

()

30
104.

J..

100
1.54

0
0

(

.-'/

lJot ·::ompletely reported

126

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON

R-707

ADDREIIII OFFICIAL CDRRESPDNDENCE
TD THE IIDARD

September 23, 1940

Dear Sir:
Your advice will be appreciated as to vvhether
the infonnation contained in the monthly statement rendered by the Bureau of Engraving and Printing, covering
the cost of printing Federal Reserve notes, is of sufficient value to warrant furnishing your Bank a copy
theroof, as is the present practice.
It is understood tho Federal Reserve Baru~s receive currently from the Office of the Comptroller of
the Currency bi-monthly statements showing by denomtnations :H'ederr;ll Hosorve notes printed, and the Board. lvires
each Federal Resorv0 Bank on the last day of each month
the amount payable to th.e Bureau of Ent_~ravinr, and Printing for the printing of Fedore.l Rosnrvu noteG during the
calendar month.
A copy of our lettur, R-700, of September 10,
a copy of this statement for the month
of August, is attached.

1940,

cnclosir~

Very truly yours,

F. A. Nelson,
Assistant Secretary.

Enclosures 2
(Enclosures sent only with addressed copies.)
TO 1'HE PRESIDENTS OF ALL

FED&~AL

RESERVE BANKS

12?
BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

R-708

WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE

TO THE BOARD

September 27, 1940

Dear Sir:
As you know, section 2l(a)(2) of the Banking Act of 1933
makes it unlawful for persons and certain organizations to engage
in the business of receiving deposits unless such person or organization (1) is incorporated. and authorized to engage in such business b<J the laws of the United States or of any State, territory,
or District, or (2) shall be permitted b'.f any State, territory, or
District to engage in such business and shall be subjected by the
laws thereof to examination and regulation, or (3) shall submit to
periodic ex~~ination Qy the banking authority in the State, territory, or District where such business is carried on and shall make
and publish periodic reports of its condition in the same manner
and under the same conditions as is required by law in the case of
in corpora ted banking institutions.
For your information in connection with this subject, the
Board has been advised by the Department of .Justice that there is
pending in one of the judicial districts of Illinois a case brought
under the provision of law referred to above against a so-called "currency exchange". This case is regarded cy the Department of Justice
as a test case to determine whether prosecutions will be had of other
currency exchanges operating in such State. We will advise you of
the outcome of this case upon receipt of such information from the
Department of Justice.
For your further information, it has come to the attention
of the Board that in certain sections of the count:Iy orga.nizations
known as 11 F~xchange-Trusts 11 have been established in small tovms having no bankine facilities} which organizations purport to be members
of the "National Exchange-Trust System" located in Washington, D. C.
It appears that in some cases the "Exchange-Trusts" accept deposits
withdrawable by check and savings deposits evidenced by pass books.
They conduct a "general exchange business" for the member-patrons,
cashing checks, receiving money, drafts, checks and other exchange
i terns for the account of their ::.)atrous. Their income is usually derived from service charges on checking accounts and corrunissions on

128
-2-

R-708

loans which purport to be made from one customer to another rather
than direct from the 11 E:x:change-Trust 11 to the customer. These socalled "Exchange--Trusts" may, possibly, be operati11g in violation
of section 21 of the Banking Act of 19.'?3, depending on whether they
comply with the provisions of such section.
In a case involvinc; an "Exchange-Trust'' which was recently
brought to the attention of the Board by one of the Federal Roserve
Banks, the Federal Resorve Bank contacted the State ba.nking authorities to determine whether the "Exchange-Trust" was being operated
under the State law. It was found that it was not being so op<~rated
and the State authorities took steps to have the "Exchange-Trust"
terminated. We understand that the Federal Bureau of Investigation
has conducted an investigation of the National Exchange-Tru:3t System
and hus been unable to establish its exh;tence in Washington. We
are advised, however, that th.-, title "National Exchange-Trust System 11
and also a charter, constitution, and by-laws of a so-called "Exchange-Trust" have been copyrighted by Elman Armstrong and Co. As
you know, of course, the copy-right laws do not grant authori t'.i to do
business.
The above is written solely as a matter of information and
it is not intended to suggest any departure from tho prr.'lSent practice
of reporting apparent violationn of section 21 of the Banking Act of
193.3 to the appropriate authori tiet'~.

L. P. Bethea,
Assintant Secret::try.

TO THE PRESIDENTS OF ALL F.L:DEHAL HESE.RVE BANi\S

129
BOARD OF GOVERNORS
OF" THE

FEDERAL RESERVE SYSTEM

R- 709

WASHINGTON

ADDRESS OrF"ICIAL CORRESPONDENCE

TO THE BOARD

September 30, 19LLO

Dear Sir:
It will be appreciated if you will advise the Bo8.rd the number
of copies of the forms listed below that will br;, required by your bank
(including branches, if any) during the calendar year 191,1:

Title

Form
F. R~
F. R.

3h
38

F. R,
F'. R.

95
96
F~ R~
96a
F. R. 160
160A
16oB
16oC
E

Daily balance sheet
Classification of discounted and purch£~sed bills held
at the end of the month
1/lonthly report of current earnings
Monthly report of current expenses
Monthly report of reimbursable expenses
Monthly report of ruceiptsand payments of paper currency

Semiannual functional expense report.

Please show separately tho number of copies of each form, except
Form F. R. 3L, required if revised and the nun:ber if not revised.
In the case of Form F'. R. ~~. please state the number of forms
required for the head office and for each branch, if any, separately,
and indicate whether you desire forms ruled vri th double or with single
columns on the asset and liability sides. Unless othe~~se instructed
all forms wi 11 be punched as heretofore wi t.h four round, slotted holes
with four-inch spacing. As it is understood that the usual papGr stock
is not suitable for Ditto machine usc and some of tho Federal Reserve
Banks desire to make copies of the statement by that process, arrangements
wi 11 be made on request to have any specified portion of the forms printed on Ditto Longrun ledger or similar stock.
Vory truly yours,

v;:-·

jfH\~!#1~

J. R. Van Fossen, Assistant Ch1ef,
Division of Bank Operations.

http://fraser.stlouisfed.org/
THE PRESIDENTS
Federal Reserve Bank of St. Louis

OF A:SL FEDERAL RESERVE BANKS

R 710

' 13O

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

October 2, 1940.

Dear Sir:
It m i l be appreciated if you m i l advise the Board
the nunber of copies of the f o m s listed below that m i l be
required at your bank (including branches, if any) during the
calendar year 1941:
Pom
F. R.

Title
5

Federal Reserve notes - Daily statement of
Federal Reserve Agent.

F. R, 44

Monthly report of Federal Reserve notes
showing the nunber of each denonination
and aggregate amount received, issued to
bank, and returned to the Comptroller of
the Currency,
Very truly yours,

J. R. Van Fossen, Assistant Chief,
Division of Bank Operations.

TO ALL FEDERAL RESERVE AGENTS

131
BOARD OF G O V E R N O R S
OF THE

*******

FEDERAL RESERVE SYSTEM

R-711

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

October 7, 1940

Dear Sir:
When Congress enacted the Banking Act of 1933, it
placed upon the Federal Reserve System a responsibility for
the examination and supervision of holding company affiliates of member banks. This responsibility was emphasized by
Congress recently when it enacted the Investment Company Act
of 1940 and included therein the following exemption:
"SEC. 3.

"(c) Notwithstanding subsections (a) and (b),
none of the following persons is an investment company within the meaning of this title:

" ( 4 ) Any holding company affiliate, as defined
in the Banking Act of 1933, which is under the supervision of the Board of Governors of the Federal
Reserve System by reason of the fact that such holding company affiliate holds a general voting permit
issued to it by such Board prior to January 1, 1940 j
and any holding company affiliate which is under
such supervision by reason of the fact that it holds
a general voting permit thereafter issued to it by
the Board of Governors and which is determined bysuch Board to be primarily engaged, directly or indirectly, in the business of holding the stock of,
and managing or controlling, banks, banking associations, savings banks, or trust companies. The Commission shall be given appropriate notice prior to
any such determination and shall be entitled to be
heard. The definition of the term 1 control1 in section 2(a) shall not apply to this paragraph."

R-7H

- 2 -

A similar exemption from, the Investment- Advisers Act
of 1940 is contained in section 202 of that Act.
For your information in connection with the above exemptions, the Board has requested me to forward to you the enclosed copy of certain testimony submitted to the Subcommittee
of the Committee on Banking and Currency of the Senate during
hearings on the Investment Company and Investment Advisers Acts
This enclosure includes a report which the Board made to the
Senate Committee on Banking and Currency and certain correspond
ence between the Board and the Securities and Exchange Commission relating to the exemptions above referred to.
Very truly yours,

Chester Morrill,
Secretary.
Enclosure

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

133
R-7-ll-a.
EXC'ERPT FROM HEARINGS BEFORE A SUBCOMMITTEE OF THE COMMITTEE
ON BANKING AND CURRENCY. UNITED STATES SENATE,SEVENTY-SIXTH
CONGRESS, THIRD SESSION, ON s 7 3580. A BILL TO PROVIDE FOR
THE REGISTRATION AND REGULATION OF INVESTMENT COMPANIES AND
INVESTMENT ADVISERS. AND FOR OTHFITPURPOSES •
(Page 925 and .following)
"Senator HUGHES. While you are looking up that, I do not want
to take you away from the subject of the audit, but I should like to say
at this time that Senator Wagner has sent over to me correspondence that
has passed between the Federal Reserve Board and the Commission, with
respect to duplication of Federal supervision. There are letters and
answers5 and I suggest that they be put in the record for our information.
"(The letters referred to are as follows:)
"BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,
Washington, April 22, 1940.
"Hon. Robert F. Wagner,
Chairman, Committee on Banking and Currency,
United States Senate, Washington, D. C.
"DEAR SENATOR WAGNER: This refers to your letter of March 15, 1940,
requesting^a report from the Reserve Board on the bill, S.358O, relating
to the registration and regulation of investment companies.
"The Board is advised that the evidence submitted to your committee
discloses the desirability of legislation which will provide for adequate regulation of investment companies in the interest of the public
and in the interest of investors. It is understood that representatives
of the Securities and Exchange Commission and of investment companies
are submitting detailed comments to your committee with respect to the
various provisions of the bill, and the Board will not undertake to comment on all of these provisions.
"The Board has noted that enactment of the bill in its present form
might result in duplication of Federal supervision of banks and holding
company alfiliates of banks. The Board feels that such duplication of
supervision should be avoided and to that end representatives of the
Board have discussed the matter with representatives of the Securities
and Exchange Commission, and the Board and the Securities and Exchange
Commission are in agreement that certain, amendments should appropriately be made to the bill to avoid such additional duplication of supervision.

134
R-7H-a

-2-

"These amendments are described, in some detail in the attached copies of correspondence between the Board and the Securities and Exchange
Commission and are to the following effect:
"Amend section 3(c) of the bill by adding an additional paragraph
as follows:
'"Any holding company affiliate, as defined in the Banking Act of
1933> which is under the supervision of the Board of Governors of the
Federal Reserve System by reason of the fact that such holding company
affiliate holds a general voting permit issued to it by such Board prior
to January 1, 1940; and any holding company affiliate which is under
such supervision by reason of the fact that it holds a general voting
permit thereafter issued to it by the Board of Governors and which is
determined by such Board to be primarily engaged, directly or indirectly,
in the business of holding the stock of, and managing or controlling,
banks, banking associations, savings banks, or trust companies. The
Commission shall be given appropriate notice prior to any such determination and shall, be entitled to be heard.1
"Make such amendment as may be necessary to exempt from the 'investment adviser1 provisions of the bill those holding company affiliates which are exempted from the provisions of the bill relating to
investment companies.
"Make an appropriate amendment to section 26(a) of the bill to make
it clear for the purposes of such section that at least in the case of
any trustee which is a member bank of the Federal Reserve System the
statement of the trustee's combined capital and surplus in its most recent published report of condition shall be conclusive.
"The Board recommends that such amendments be made to the bill.
"Very truly yours,
CHESTER MORRILL, Secretary.

"SECURITIES AND EXCHANGE COMMISSION,
Washington, April 18, 1940.
"Re Investment company bill (S.3580).
"BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,
Washington, D. C.
"GENTLiMEN: The Securities and Exchange Commission is prepared to
recommend to the subcommittee of the Banking and Currency Committee of

-3-

R-711-a

the Senate, before which hearings on the above bill are currently being
held, that the bill be amended in the following respects:
"1. By adding to section 3(c) an additional paragraph which will
exclude from the definition of 'investment- company1 those bank holdingcompany affiliates which hold general voting permits issued by your
board and which are primarily engaged in bank holding-company activities
"The necessity of distinguishing between investment companies on
the one hand and those companies which are primarily holding companies
on the other is, of course, recognized in the bill. Section 3(b) of the
bill is particularly addressed to this problem, various phases of which
are also dealt with in sections 3(a)(2) and 3(c)(4). The Commission
understands, however, from conversations between members of its staff
and members of the staff of your Board, that the exceptions provided in
section 3(b) may not in all cases be adequate to exclude bank holdingcompany affiliates of the type above referred to. The Commission also
recognizes that the determination of border-line cases, which under section 3(b)(2) of the bill is committed in the first instance to the Commission, can more appropriately be made a function of your Board when
the company involved is a bank holding-company affiliate.
On the
other hand, the Commission feels that in any proceeding of this character before your Board, the Commission should be entitled, if it desires,
to appear as a party and present evidence and advance arguments bearing
upon the question at issue.
"The Commission also deems it of the utmost importance that only
those bank holding-company affiliates which are primarily engaged in non
investment company activities be excluded. In other words, although the
letter of section 3(b) may not be applicable in all of these situations,
the Commission feels that the principle of that section should apply.
In particular, it is important that the amendment be so drafted that it
will not be possible for an investment company to escape the bill by the
simple expedient of using a relatively small, portion of its assets to
acquire control of two or three banks.
"2. By making such amendment of paragraph (16) of section 45(a)
as may prove necessary in order to make it clear that, the term 'investment adviser' does not embrace bank holding-company affiliates of the
type above referred to.
"3. By .amending paragraph (1) of section 26(a) to make it clear
that, at least in the case of any trustee which is a member bank of the
Federal Reserve System, the statement of the trustee's combined capital
and surplus in its most recent published report of condition shall be
conclusive.
It is expected that the specific language which will be
recommended will closely follow that of paragraph (2) of section 310(a)
of the Trust Indenture Act of 1939.

136
—Z^.—

R—yil—a

"We should appreciate being advised whether, in principle, the
above recommendations meet with your approval. We shall also be glad
to consider any precise language to accomplish the above objectives
which you may care to suggest.
"Very truly yours,
ROBERT E. HEALY, Commissioner.

"BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,
Washington, April 19, 1940.
"Hon. Robert E. Healy,
Commissioner, Securities and Exchange Commission, Washington, D. C.
"Dear Mr. Healy: This refers to your letter of April 18, 1940, advising that, in accordance with conversations between representatives of
the Board and members of your staff, the Securities and Exchange Commission is prepared to recommend to the subcommittee of the Banking and Currency Committee of the Senate, before which hearings are being held on
the investment-company bill, S.3580, that the bill be amended in certain
respects in order to avoid additional duplication of supervision by Federal agencies of banks and holding-company affiliates of banks.
"The Board considers appropriate the suggestion that holding-ccmpany
affiliates of member banks which obtain and hold voting permits issued
by the Reserve Board under the provisions of the Banking Act of 1933 and
which are primarily engaged in the business of holding the stock of and
managing or controlling banks be exempted from the provisions of the
proposed Investment Company Act, since these companies are subject to
examination and supervision by the Reserve Board.
"As you know, from the information which has been submitted to representatives of your Commission during the conferences which have been held
with members of the Board's staff, there are a number of holding-company
affiliates of member banks which now hold voting permits issued by the
Reserve Board. When it granted these permits, the Board, pursuant to authority given in the statute, in effect determined that such companies
were engaged as a business in holding bank stocks and managing and controlling banks. If the Board should be required to make a determination
in these cases, it would, on the facts now in its possession, determine
that they are primarily engaged in the business of holding bank stocks
and managing and controlling banks. Accordingly, the Board feels that it
would involve unnecessary consumption of time and expense, both to the

137
-5-

R—711—a

Federal Government and the holding-company affiliates, and would not
serve any useful purpose, for such a determination to be made in each
of these cases. For these reasons, the Board suggests that these holding companies, a list of which has been furnished to your staff, which
now hold voting permits and are therefore under supervision, and examination by the Board be exempted from the provisions. of the proposed
investment company act by the terms of the act itself. The Board believes that such an exemption would be in conformity with the suggested
principle under which only companies which hold voting permits and are
primarily engaged in holding the stock of and managing or controlling
banks would be exempted from the provisions of the proposed investment
company act. (In addition to the holding-company affiliates to which
reference is made above, there are a few banks which control other banks
and hold voting permits issued by the Board. However, these are already
exempted from the provisions of the bill under exceptions relating to
banks.) In order to accomplish the exemption which the Board has in
mind, it is suggested, that section 3(c) of the bill, S.3580, be amended
by adding an additional paragraph as follows:
111

Any holding company affiliate, as defined in the Banking Act of
1933, which is under the supervision of the Board of Governors of the
Federal Reserve System by reason of the fact that such holding company
affiliate holds a general voting permit issued to it by such Board prior
to January 1, 1940j and any holding company affiliate which is under
such supervision by reason of the fact that it holds a general voting
permit thereafter issued to it by the Board of Governors and which is
determined by such Board to be primarily engaged, directly or indirectly,
in the business of holding the stock of, and managing or controlling,
banks, banking associations, savings banks, or trust companies. The Commission shall be given appropriate notice prior to any such determination and shall be entitled to be heard.1
"You will, observe that under this proposed amendment any holdingcompany affiliate of a member bank which hereafter desires to obtain a
voting permit from the Reserve Board and be exempted from the provisions
of the Investment Company Act must, after your Commission has had an opportunity to be heard, be affirmatively determined, by the Board to be
engaged primarily in the business of holding stock of and managing or
controlling banks. It is believed that this procedure would effectively
prevent evasion of the Investment Company Act by investment companies
which might attempt to evade it by using a relatively small portion of
their assets to acquire control of two or three banks.
"It is understood from your letter that the Commission will recommend such amendment as may be necessary to exempt from the 'investment
adviser1 provisions of the bill those holding company affiliates which
are exempted from the provisions of the bill relating to investment companies. It is also understood that the Commission will recommend that

138
-6-

R-711-a

an appropriate amendment be made to section 2.6(a) of the bill to make it
clear that at least in the case of any trustee which is a member bank of
the Federal Reserve System the statement of the trustee's combined capital and surplus in its most recent published report of condition shall
be conclusive.
"As representatives of your Commission were advised by members of
the Board's staff, the Board has felt for some time that the statutes relating to the supervision of holding company affiliates of member banks
should be strengthened. The Board feels that it would be more appropriate to consider these matters in connection with a broad investigation
of banking and credit matters such as that which the Banking and Currency
Committee of the Senate has been authorized to undertake under the provisions of Senate Resolution 125.
"The Board and its staff appreciate the cooperation of the representatives of your Commission in working out this problem.
"Very truly yours,
CHESTER MORRILL, Secretary.

"SECURITIES AND EXCHANGE COMMISSION,
Washington, April 20, 1940.
"Re Investment Company bill (S. 3530).
HON. CHESTER MORRILL,
Secretary, Board of Governors of the Federal Reserve System,
Washington, D. C.
"DEAR SIR: This will acknowledge receipt of your letter of April
19) 1940, regarding the above bill.
"The Commission understands from your letter that, if the Board were
now required to determine whether those holding company affiliates referred to therein, which hold general voting permits issued by the Board
prior to January 1, 1940, are primarily engaged in the business of holding bank stocks and managing and controlling banks, the Board would make
an affirmative determination with respect to each of such holding company
affiliates.
"From information which the Board has made available to the Commission, it appears that the bank-holding company affiliates referred to in

139
R-711-a

-7-

your letter are the following: BancOhio Corporation; Bank Shares Corporation; Barnett National Securities Corporation; Citizens & Southern
Holding Co.; First Bank Stock Corporation; First Security Corporation
of Ogden; Florida National Group, Inc.; Marine Bancorporation; Marine
Midland Corporation; New Hampshire Bankshares, Inc.; Northwest Bancorporation; Old Colony Trust Associates; Shawmut Association; Transamerica
Corporation; Trust Co. of Georgia Association; Trustees, First National
Bank, etc.; Union Bond & Mortgage Co.; United States National Corporation; Wisconsin Bankshares Corporation.
"In view of certain financial information regarding these companies
(which the Board has made available to the Commission in confidence),
the Commission, with two possible exceptions hereinafter referred to,
readily accepts the Board's conclusion that these holding-company affiliates are primarily engaged in the business of holding bank stocks and
managing and controlling banks.
"The two possible exceptions to which reference has been made are
Transamerica Corporation and Shawmut Association. It is understood that,
as of December 31, 1939, the former company had approximately 40 percent
of its assets invested in stocks of banks which it controls, and that
approximately one-third of its assets consisted of securities of nonbanking subsidiaries, most of which were wholly-owned and operated almost exclusively as adjuncts or virtual departments of controlled banks,
Shawmut Association, as of the same date, had approximately one-fourth
of its assets invested in stocks of a number of banks; such investment
was equal to approximately one-third of its investment in stocks of other
corporations; and the total assets of banks controlled by Shawmut Association, consisting substantially of investment securities which are under
the control and management of the Association, aggregated several times
as much as the amount of its investment in stocks of nonbanking corporations. The Commission recognizes that, despite the fact that a considerable portion of the assets of these two companies is invested in securities
other than those of controlled banks, various other factors may properly
be considered in determining whether they are companies primarily engaged
in the business of holding bank stocks and managing and. controlling banks.
In view of the Board's familiarity with the operations of both of these
companies, it is felt that it is appropriate for the Commission to accept
the Board's judgment in this matter.
"Accordingly, the Commission will recommend to the subcommittee of
the Banking and Currency Committee of the Senate before which hearings on
the above bill are now being held that the bill be amended as suggested
in your letter. The proposed wording of the amendment is likewise agreeable to the Commission.

"Very truly yours,
ROBERT E. HEALY, Commissioner.

140
-8-

R-7H-a

"Mr. SCHENKER. Senator, with respect to that correspondence,
this point is involved: There are certain companies which hold stocks
of banks. For instance, take one of the Shawmut trusts: It has 20 percent of its assets consisting of majority holdings of a number of banks,
and 80 percent of its assets consist of diversified securities. That
investment company has qualified for a voting permit as a bank-holding
company and, therefore, had to enter into an agreement with the Federal
Reserve Board with reference to its supervision of its activities. That
is one extreme example.
"On the other extreme you have the Transamerica Co., out on
the coast, which has a great deal of its assets in banks but which does
not own a majority of the outstanding; it owns only 40 percent of the
Transamerica Bank. However, it has qualified as a bank-holding company,
with a voting permit, with the Federal Reserve Board.
"Our purpose by this exchange of letters is to make it clear
for the record that these are two situations which exist, that you have
the problem, When is it a bank-holding company and when is it an investment company?
"We want specifically to call attention to the fact that if
bank-holding companies are exempt, that exempts the type of situation
such as Transamerica and exempts the Shawmut situations."

141

BOARD OF G O V E R N O R S
OF THE

R*712

FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

October 10, 19li0

Dear Sir:
Referring to the Board's letter R-593 of
January 10, 1940, following is a statement of changes
during September in the list of nonmember banks
that have in force agreements with the Board pursuant to the provisions of Section 8(a) of the
Securities Exchange Act of 1934:
Addition
Wisconsin
Milwaukee

http://fraser.stlouisfed.org/
TO
Federal Reserve Bank of St. Louis

Northern Bank
Very truly your^

S. R. Carpenter
Assistant Secretary.

PRRSTDRNTS OF ALT. FRTflERAT. BRSRRVR RANKS

BOARD

R-

BOARD OF G O V E R N O R S
*******

OF THE

FEDERAL RESERVE SYSTEM

Ite.

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

October lk> 19^0

Dear Sir:
It has been proposed by one of the Federal Reserve Banks that
a new unit be established in the Functional Expense report, Form E, to
which would be charged the following types of expense:
1. Salaries of employees who are being trained for positions
other than those to which they have been assigned and, during the
process of training, carry no responsibility, (The case was cited
of a department head being trained to supervise another department.)
2, Salaries of employees who are being trained for technical
positions, such as operation of teletype, telephone, and I.B.M,
equipment, and, in the process of training, carry no responsibility
for the operation of equipment, (it was noted that the training
for operation of teletype and I.B.M, equipment was conducted outside the Bank.)
3# Portions of (salaries of employees who have been loaned by
one department to another which are in excess of the maximum
salary permissible under Form A for the position in the borrowing
department to which the employee has been assigned*
It will be recalled that under a former provision of the Manual
Governing the Preparation of Functional Expense Reports (Form E) charges
such as described above under Number 1 and Number 2 were made to and remained in an educational and training unit. This provision was later
changed to provide for the distribution of such expenses to the units for
which the employees were being trained, because the fact that most of the
Reserve Banks did not have special training classes made it difficult to
obtain uniformity,
I should like to have your comments and suggestions with regard
to the above-mentioned proposals.

http://fraser.stlouisfed.org/
TOBank
THEof St.
PRESIDENTS
Federal Reserve
Louis

Very trul

ours

E, L, Smead, Chief,
Division of Bank Operations.
0F ALL FEDERAL RESERVE BANKS EXCEPT CLEVELAND.

R-714

BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM

143

Statement for the Press
For release in morning papers,
Thursday, October 17, 1940.

The following summary of general business and financial conditions in the
United States, based upon statistics
for September and the first half of
October, will appear in the November
issue of the Federal Reserve Bulletin
and in the monthly reviews of the Federal Reserve Banks.

Volume of industrial production increased sharply in September, owing mainly to a continued rise in output of durable manufactured
products, and this month a further increase is indicated.

Prices of bas-

ic industrial materials advanced in September and the first half of October.
Production
The Board's seasonally adjusted index of industrial production,
which for three months had been at a level of 121 per cent of the 1935-39
average, advanced to about 125 per cent in September.
goods industries increases in output were general.

In the durable

Steel production rose

to 93 per cent of capacity, and in the first half of October the rate was
slightly higher as new orders continued in large volume both from domestic and foreign sources.

Steel exports amounted to about 20 per cent of

ingot-producing capacity in August, the latest month for which data are
available, with nearly three quarters of these shipments going to the
United Kingdom and Canada.

Activity in the machinery, aircraft, and ship-

building industries advanced further in September following considerable

R-r/3-Zt-

—2—
increases in August, and automobile

144

output increased sharply as volume

production of new model cars was rapidly attained.

Plants producing

railroad cars and locomotives also showed an expansion in activity. Lumber production continued to rise under the impetus of a growing volume
of demand for defense program purposes.
Changes in output of nondurable manufactured goods and minerals in September were mixed.

At wool textile mills activity advanced

sharply further to near the peak reached last autumn, reflecting in part
expanding production on Government orders.

At cotton mills, however,

activity showed less than the usual seasonal rise, following a sharp increase in August, and rayon deliveries declined somewhat owing partly to
a strike at plants of one large producer.
in September.

Shoe production also declined

Paper production remained in reduced volume following a

high rate of output during the early summer accompanying some inventory
accumulation at that time.
September.

Output of most metals continued large during

Crude petroleum production, which had been curtailed sharply

during the summer, rose considerably, but coal production, which for
several months had been maintained at high levels, showed a smaller increase than is usual at this season.
Value of new construction work started in September was lower
than in July and August, according to reports of the F. W. Dodge Corporation and the San Francisco Federal Reserve Bank.

The decline occurred

chiefly in contracts for defense projects which had been large in the
previous two months.

Awards for private residential building showed

145
—3 —
little change from recent high levels.

R—714
Awards for other private work de-

clined somewhat but continued considerably above the level of a year ago.
Distribution
In September and the early part of October department store
sales showed somewhat less than the usual seasonal increase from the exceptionally high level reached in August.
Freight-car loadings rose somewhat more than seasonally in September, reflecting to a large extent increased shipments of miscellaneous
freight.

Loadings of coal, which have been large in recent months, showed

less than the usual seasonal rise.
Commodity prices
Prices of most industrial materials, particularly lumber, steel
scrap, nonferrous metals, hides, and wool, continued to advance from the
middle of September to the middle of October, and there were also increases
in some manufactured products, notably cotton and woolen goods.

Wheat

prices were higher while prices of most other foodstuffs showed little
change.
Bank credit
Commercial loans at reporting member banks in New York and 100
other leading cities continued to increase during the four weeks ending
October 9, reflecting in part seasonal demands.

Holdings of United States

Government obligations decreased further with the result that total loans
and investments of these banks showed little change.
United States Government security prices
Prices of United States Government securities advanced in the
second half of September and the first week in October, rising close to
the high level of the year reached early last April.

R-715

146

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS

OFFICIAL
TO THE

CORRESPONDENCE
BOARD

October iJt, 19ho

Dear Sir:
The Board* s Manual of Instructions Governing the Preparation
of Functional Expense Reports (Form E) contains the following provision
on page 20:
"Charges for cash and security vault space (not book
vault space) should be at the uniform rate of
12-l/2^ per month per cubic foot of vault space
occupied by compartments, chests, lock boxes or
filing cabinets."
One of the Federal Reserve Banks has raised a question as to
the interpretation of this provision in respect to overnight storage
of busses or trucks containing fiscal agency securities, etc, used in
current operations. At this Reserve Bank the vault space is divided
into sections commonly termed "compartments11, some of which contain
safes, lockers or cabinets in which securities are stored under combination or lock control. The smallest of such compartments, which are
without additional equipment, are used for the overnight storage of
busses or trucks containing securities, gtc. used in daily operations,
and those so utilized for fiscal agency functions are assigned on a
permanent basis under combination control and are not available for
other purposes* This Bank has inquired whether the term "compartments"
as used in the Manual is interpreted as applicable to such individual
sections of the vault used exclusively for fiscal agency storage purposes and whether rental charges should be computed on the total space
enclosed.
It will be appreciated if you will advise us whether your
Bank makes a charge for such space and, if so, how the charge is
determined; also, what changes you would recommend in the Manual to
obtain uniformity in this regard.

TO THE PRESIDENTS

Very trulvvours

Em L. Smead, Chief,
Division of Bank Operations,
OF ALL FEDERAL RESERVE BANKS

147

B O A R D OF G O V E R N O R S
OF THE

ifSSS&

FEDERAL RESERVE SYSTEM
R-716

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

October 18, 194-0

Dear Sirs
There is attached a copy of the report of expenses of the main lines of the Federal Reserve Leased Wire System for the month
of September 194-0.
Please credit the amount payable by
your Bank to the Board, as shown in the last
column of the statement, to the Federal Reserve
Bank of Richmond in your daily statement of
credits through the Interdistrict Settlement
Fund for the account of the Board of Governors
of the Federal Reserve System, and advise the
Federal Reserve Bank of Richmond ty mail the
amount and purpose of the credit.
Very truly yours,

7
0. E.
4.J •
F
x uo
u iu
j - zl
v k
j " ^
Fiscal Agent.
w •

Enclosure
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
EXCEPT RICHMOND

R-71o-a
REPORT OF EXPENSES OF MAIN LINES OF FEDERAL RESERVE
LEASED WIRE SYSTEM FOR THE MONTH OF SEPTEMBER I960

Federal
Reserve
Bank

Number
of Words
Sent

Words Sent
ty N. Y.
Chargeable
to Other
F.R. Banks

Total
Words
Chargeable

Expenses
Paid
by Banks
and
Board (2)

Pro Rata
Share of
Total Expenses (1)

Boston
New York
Philadelphia
Cleveland

25,182
70,765
17,109
33,403

453
455

25,634
70,765
17,562
33,858

Richmond
Atlanta
Chicago
St. Louis

35,392
37,603
58,629
38,487

452
452
492
452

35,844
38,055
59,121
38,939

462.95
491.50
763.58
502.92

306.26
232.66
1,254.34
257.18

Minneapolis
Kansas City
Pallas
San Francisco

20,583
39,747
34,184
49,714

452
452
515
453

21,035
40,199
34,699
50,167

271.68
519.19
448.16
647.94

191.37
273.01
272.64
411.89

717,200

9,263.07

10,308.17

1,183,078

$15,280.16

Board of
Governors
Total

452
—

717,200
1,177,998

5,080

331.08 |
913.97
226.82
437.30

Payable
to
Board
of Governors

277.17 $
878.08
337.95
279.44

53-91
35.89
111.13(a)
157.86
156.69
258.84
490.76(b)
245.74
80.31
246.18
175.52
236.05

$1,646.99
111.13(a)
490.7603
$1,045.10

(1)

Based on cost per word ($.012915598) for business handled during the month.

(2)

Payments ty Banks are for personal services and supplies and payments by Board
are for personal services and supplies ($1,451.98) and wire rental (-$9,333.67)
less amount ($477.48) representing reimbursement for the cost of sending messages between the Washington office of the Leased Wire System and the local
telegraph offices of the Treasury, Reconstruction Finance Corporation, and the
Commodity Credit Corporation. Personal services include salaries of main line
operators and of clerical help engaged in work on main line business, such as
counting the number of words in messagesj also overtime and supper money and
Retirement System contributions at the current service rate.

(a)

Credit—reimbursable to Philadelphia.

(b)

Credit—reimbursable to Chicago.

149

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM

R-717

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

October 19, 1940

Dear Sir:
You will find enclosed copies of two memoranda
designated as follows:
(1)

Duties of Advisory Commission under Section
.12/+ of the Internal Revenue Code;

(2)

Analysis of Memorandum Entitled "Duties of
Advisory Commission under Section 124 of
the Internal Revenue Code".

The first of these memoranda refers to a procedure which has been approved by the National Defense Advisory Commission and the second is an analysis prepared
in the office of the General Counsel of the Board of
Governors.
These memoranda are sent to you for your information at this time but, pending such announcement as the
Commission may make, the information contained therein has
not been released for publication.
Very truly yours,

i W " 1
Chester Morrill,
Secretary.

Enclosures 2
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS AND THE
MEMBERS AND SECRETARY OF THE FEDERAL ADVISORY COUNCIL.

150
R-717-a

DUTIES OF ADVISOR COMMISSION
UNDER SECTION 124 OF THE INTERNAL REVENUE CODE
(Title III, Section 302 of the Second Revenue Act of 1940)
Sections 23 and 124 of the Internal Revenue Code allow a taxpayer a tax deduction for amortization over a 60-month period of facilities constructed or acquired after June 10, 1940, if the facilities are
certified by the Advisory Commission to the Council of National Defense
and either the Secretary of War or the Secretary of the Navy as necessary
in the interest of national defense during the emergency period. This
certificate will hereinafter be termed the "Emergency Facilities Certificate", In the event that the entire cost of the construction or acquisition of a particular facility is not necessary, the Commission may certify
the percentage of the cost necessary.
Second, if the taxpayer, pursuant to any contract with the
United States, has been or will be reimbursed by the United States for
the cost of such facilities either (l) directly by a provision dealing
expressly with such reimbursement or (2) indirectly, because the price to
be paid by the United States is recognized by the contract as including
a return of cost greater than normal depreciation, the amortization deduction is not allowed unless the Advisory Commission and either the
Secretary of War or the Secretary of the Navy also certify that the contract adequately protects the United States with reference to the future
use and disposition of the emergency facilities. This certificate will
hereinafter be termed the "Certificate of Government Protection" and is
applicable principally to the Emergency Plant Facilities contract.
Third, to conclusively establish that a Certificate of Government Protection is not required, provision is made for certification by
the Advisory Commission and either the Secretary of War or the Secretary
of the Navy that a contract between the taxpayer and the United States
does not reimburse the taxpayer for the cost of facilities either (l)
directly, by a provision dealing expressly with such reimbursement or
(2) indirectly, because the price to be paid by the United States is
recognized by the contract as including a return of cost greater than
normal depreciation. This certificate will be termed, the "Certificate
of Nonreimbursement". Taxpayers who have supply contracts will seek it.
It should be noted that this certificate will issue on determination of
what reimbursement of cost is recognized by the contract to be included
in price. Thus it would seem appropriate to issue a Certificate of Nonreimbursement if a contract for supplies is negotiated in good faith
without the intention to include in price a return of cost of facilities
greater than normal depreciation.

-2-

R-717-a

The operation of the three certificates may be illustrated
as follows.
A taxpayer who finances the construction or acquisition of
facilities, without seeking reimbursement from the Government is allowed the 60-month amortization deduction if an Emergency Facilities
Certificate is secured. When he later contracts with the United States
for supplies, such a taxpayer will ordinarily also seek a Certificate
of Nonreimbursement. Without such a Certificate the Commissioner of
Internal Revenue may thereafter conclude that the price charged was
recognized fcy the contract as including a return of cost greater than
normal depreciation, whereupon the amortization deduction will be disallowed for failure to secure the Certificate of Government Protection.
A taxpayer who has an Emergency Plant Facilities Contract is
allowed the 60-month amortization deduction if an Emergency Facilities
Certificate and a Certificate of Government Protection are secured. To
be protected with respect to his supply contract with the United States
such a taxpayer will also seek to secure a Certificate of Nonreimbursement.
The amortization deduction is not a tax advantage to a taxpayer who has an Emergency Plant Facilities Contract but only the means
ty which the taxpayer insures himself against paying income tax on Government reimbursements for plant costs.

152
R-717-b
ANALYSIS OF MEMORANDUM ENTITLED "DUTIES OF ADVISORY
COMMISSION UNDER SECTION 12/, OF THE INTERNAL REVENUE CODE"
In order that a person, who has constructed or acquired emergency plant facilities in carrying out a contract with the Government,
may be allowed a tax. deduction for amortization over a 5-year (sixtymonth) period, as permitted by the new excess profits tax law, he must
obtain certain certificates from the Government. The certificates in
question are termed "Emergency Facilities Certificate", "Certificate
of Government Protection" and "Certificate of Nonreimbursement". Each
of these several types of certificates is addressed to the Commissioner
of Internal Revenue and. executed by both the Advisory Commission to the
Council of National Defense and either the Secretary of War or the
Secretary of the Navy.
Emergency Facilities Certificate. - This certificate must be
obtained in every case to enable the contractor to avail, himself of
the tax deduction based on a 5-year amortization of his emergency plant
facilities instead of the longer amortization period normally applicable. It certifies that the facilities in question are necessary in the
interests of national defense during the emergency period. If the entire cost of the construction or acquisition of a particular facility
is not so necessary, the Commission may certify the percentage of the
cost necessary.
Certificate of Government Protection. - In addition to the
Emergency Facilities Certificate mentioned above, if the United States
reimburses the contractor for any part of the cost of the emergency
plant facilities, either under direct contract provision to this effect or ty inclusion of the cost in the price of the supplies which
the contractor is to furnish the Government, he must, in order to be
able to amortize the facilities over a 5-year period for tax purposes
obtain also a Certificate of Government Protection. This certifies
that the contract adequately protects the United States with reference
to the future use and disposition of such emergency facilities. In
other words, the certificate evidences the judgment of the Advisory
Commission to the Council of National Defense and of the Secretary of
War and the Secretary of the Navy that ty appropriate contract provision the Government will eventually obtain title to the emergency plant
facilities or be paid for them by the contractor or is protected in
some other adequate way in the future use of such facilities. This
certificate is needed only where the Government pays the entire cost
of the facilities or pays a part of such cost in excess of normal depreciation.
Certificate of Nonreimbursement. - If reimbursement of cost
of the facilities by the Government is not contemplated, either by

R-717-b
direct contract provision or by inclusion of part or all of the cost in
the price of the supplies to be furnished the Government, a Certificate
of Nonreimbursement in addition to the Emergency Facilities Certificate
may be obtained. This certifies the fact that reimbursement of the cost
of the facilities ty the Government is not provided, for and under the
law conclusively establishes that a Certificate of Government Protection
is not required in order for the contractor to obtain the benefit of the
5-year amortization period for tax purposes. While this certificate is
apparently not strictly required in any case, it is desirable for the
contractor to obtain it because of its value as conclusive evidence.
Illustrations of Certificates Necessary for
Particular Types of Contracts
(1) If a contractor has contracted with the Government to furnish certain supplies and the contract contemplates that such additional
plant facilities as are necessary are to be constructed at the contractor's expense and at no cost to the Government, an Emergency Facilities
Certificate and a Certificate of nonreimbursement are both needed in order that the contractor may amortize the cost of the plant facilities
over the 5-year period for tax purposes.
(2) If the contractor has contracted with the Government to
furnish certain supplies and also has an Emergency Plant Facilities Contract under which the Government is to pay the cost of the construction
or acquisition of plant facilities, the contractor will wish to obtain
all three certificates mentioned, in order to have the benefit of the
5-year amortization period. He must, of course, have the Emergency
Facilities Certificate because this is necessary in every ca.se to obtain
the 5-year amortization; he must have the Certificate of Protection with
respect to the Emergency Plant Facilities Contract because of the fact
that the Government reimburses him for the cost of the plant facilities;
and, with respect to his supply contract as distinguished from the Emergency Plant Facilities Contract, he will also wish to have a Certificate
of Nonreimbursement.
(3) If a contractor has contracted with the Government to furnish certain supplies and. the price of these supplies includes as one
factor the cost of the construction or acquisition of the necessary plant
facilities, the contractor must have an Emergency Facilities Certificate
and a Certificate of Government Protection in. order to obtain the benefit
of the 5-year amortization period. The Emergency Facilities Certificate
is necessary in every case and the Certificate of Government Protection
will be necessary because the Government reimburses the contractor for
the cost of the plant facilities. It is understood, however, that there
will in the future be few supply contracts which include facilities costs
in the price of supplies, as the "Emergency Plant Facilities Contract"
will be used instead.

154
~3~

R-717-b

(4) If a contractor has a contract for supplies with no need,
for any additional plant construction of any kind, it appears that none
of these certificates are necessary because they are all related to
amortization of the cost of emergency plant facilities completed or acquired after June 10, 1940.

155

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM

R-718

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

October 23, 194-0

Dear Sir:
There are enclosed for your information a table showing applications for
membership received by the Board during
19AO, and a statement containing excerpts
from the bank relations reports submitted
by the Federal Reserve Banks for the month
of September.
Very truly you;

S. R. Carpenter,
Assistant Secretary

Enclosures
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

BOARD

R-718-a

BANKS ELIGIBLE-" FOR FEDERAL RESERVE MEMBERSHIP ON DECEMBER 31,
1939, AND BANKS WHICH APPLIED FOR MEMBERSHIP DURING I960

Federal
Reserve
District

Number of Nonmember ComNumber of Banks
Deposits of Nonmember
Deposits of Banks
mercial Banks Eligible* for Which Applied for
Commercial Banks Eligible*
Which Applied for
Federal Reserve
Federal Reserve Membership
Federal Reserve
for Federal Reserve MemberMembership During— ship on December 31, 1939
on December 31, 1939
Membership During—
Total
j On Par ListSeptember1, This Year
September[This Year
Total
On Par List
(In thousand.s of dollars)

Boston
N evr York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total

Hi
224
225
475

141
224
225
474

0
4
0
1

394
484
1,219
664

232
52
1,079
434

420
487
282
194
5,209

0
6,200
0
800

0
9,400
3,000
31,000

396,447
70,987
1,054,464
309,111

1,800
0
7,300
1,000

19,500
2,800
39,600
9,200

189,225
198,993
154,549
545,398

53,439
178,372
110,025
541,768

400
0
1,500
0

3,200
3,200
12,200
5,000

5,994,411

5,293,675

19,000

138,100

3
19

469,330
981,529
550,836
577,670

469,330
981,529
550,336
577,367

2
0
8
2

12
2
42
15

481,555
302,655
1,114,286
428,385

78
402
174
182

1
0
1
0

5
5
19
3

3,697

132

By eligible banks is meant banks with sufficient capital stock to meet the minimum, statutory capital requirements for Federal Reserve membership

-;b:

~ Includes one newly organized bank for which no deposits are shown.

01
0)

R-718-b
October 23, 1940
Not for publication
EXCERPTS FROM BANK RELATIONS REPORTS
FOR THE MONTH*OF"SEPTEMBER 1960
BOSTON
Only 13 banks were visited during September—8 member banks
and 3 nonmember banks in the State of Maine and 2 member banks in Rhode
Island.
Bankers in the summer resort towns of Maine reported a considerable pick-up of tourist trade during the month of August, offsetting to some extent the unfavorable outlook held during the early weeks
of the summer season. Loss of the Canadian tourist trade was felt
heavily at some points along the Maine coast. One banker stated that
he usually handled something over $100,000 of Canadian exchange during
the summer season and that this year he cleared less than 25 per cent
of that amount.
The potato crop was being harvested in Aroostook County during the time the banks in that section were visited. The outlook appeared to be unfavorable. While the yield in Aroostook County was
expected to be somewhat less than last year's yield, it was believed
that the total yield for the country would not be below normal. Current price was 98 cents a barrel and expectation was that it would
gradually decline and settle around 70 cents. Potato growers in
Aroostook County are said to be financed largely by the production
Credit Corporation. Few, if any, bankers in the section lend generally on the crops.
No complaints were heard with respect to the operations and
policies of the Federal Reserve System. Loans and deposits showed
slight increases at most of the banks visited. Practically every banker visited called attention to his holdings of excess reserves.
NEW YORK
During the month of September 83 banks were visited—50 member and 33 nonmember institutions—located in various sections of the
district.
Allegany, Cattaraugus, Chautauqua, Livingston and Wyoming Counties,
(Buffalo Branch Territory), New York
These five counties, situated in the western part of New
York State, are served ty 64. banking institutions—4-5 members and

158
R-718-b
19 nonmembers, including cne private bank. In addition 5 branches
are operated, making a total of 69 banking offices in the territory.
Bank officers report that there has been little activity in
their bond accounts for some months and that the few purchases which
have been made have been confined largely bo United States Government
direct and guaranteed obligations, and to municipal securities. Several banks in this territory have followed the policy of maintaining
bond accounts of rather small proportions and carrying sizable investments in insured mortgages.
Loan demand, except in a few isolated cases, is reported to
be light, with total loans of $38,877)000 showing a reduction of about
2 per cent during the past six months. In spite of increased industrial activity in a number of communities, bankers report that loan
demand has reflected little improvement.
Officers of three of the nonmember institutions expressed
some interest in membership and may take steps in this direction at
some later date. One nonmember banker is favorably inclined toward
membership, but his bank (deposits $2,000,000) is prevented from joining the System because it operates a branch in a nearby town, and does
not have $500,000 in capital.
Sussex and Warren Counties. New Jersey
The general tendency is to continue liquidation of corporate
bonds, many of the banks showing reductions in their holdings of such
issues. There is some hesitation, however, to sell railroad bonds at
present because much of the investment advice being received by the
banks is to the effect that these bonds have good prospects of improved market value in view of better earnings and prospects of continued good business for the railroads.
Loans of the banks in this group include a goodly proportion
of mortgages. A better demand for credit is reported, chiefly, however, for mortgage money, although in a few institutions the improvement is due to personal loans or automobile financing. Little comment
is heard with respect to commercial loans and only one banker reports
an increased demand for farm credit which he says is being used largely
to purchase tractors and other equipment.
The officers of both member and nonmember banks in these
counties made no adverse comments with respect to the policies of the
Federal Reserve System or their relations with this bank.

-3-

R-718-b

PHILADELPHIA
During September representatives of this bank visited 54
member and 22 nonmember institutions, chiefly located in the western
part of this District.
Industrial, conditions in the area covered show a noticeable
improvement as compared with a year ago. At present the Bethlehem..
Steel Company's plant at Johnstown is operating at about 95 per cent
of estimated capacity and further increases in operation are expected
in the near future as a result of heavy expenditures by the Federal
Government in connection with the national defense program. Although
operations at the Lorain division of the Carnegie-Illinois Steel Company are none too steady, the company has received several sizable
orders for mine cars and has shown some increase in activity in recent weeks. To date there has been no evidence of any increase in
production at the brick mills as a result of increased steel operations but the large companies such as Harbison-Walker Refractories
Company and the North American Refractories Company are reported to
have rather large orders on hand. The Silica Fire Brick Company and
the Alexandria Fire Clay Company are reported to be unable to fill
current orders at this time.
Activity at the bituminous mines has been improving in recent weeks and indications are that most mines will soon operate on a
full time schedule. While a part of this increase in operations is
reflecting seasonal, demand, a part no doubt can be attributed to the
increase in activity at the steel plants. It was also reported that
shipments of coal to New England points are heavier than at any time
in recent years.
Increased activity by both the Pennsylvania Railroad and the
Baltimore and Ohio Railroad has resulted in the reemployment of many
furloughed workers and indications are that the present rate of activity will continue for some time to come.
The various farm crops yielded well but prices have been low
with the result that farmers will make little, if any, profit this
year. While much of the fruit and grain remains to be sold, prices to
date permit little, if any, profit.
Banking conditions reflect the increased industrial activity
by higher deposit totals and a greater demand for credit, much of which
is for consumer loans. The bankers stated that there are ample funds
available for any probable demand arising as a result of the defense
program.

R-713-b
Requests were received from two nonmember banks to conduct
the necessary examination preparatory to membership, and the desirability of having their institutions affiliated with the System was
discussed with several officers during the month either in their offices or at bankers' association meetings. The revival of interest
in membership continues in evidence as can be observed in the comments of bankers today as compared with their remarks when the subject was discussed with them previously.
CLEVELAND
During September 201 banks were visited, of which 143 were
member banks and $8 nonmember institutions.
One State bank having resources in excess of $2,600,000 was
admitted to the System.
Some banks are concerned with the problem of what to do with
personal loans or chattel instalment loans made to individuals subject
to draft under the conscription bill.
A report from a small manufacturing town in Western Pennsylvania indicates that a bottle company is building a new addition to a
plant, which is intended for the production of beer bottles cheap
enough to be thrown away after using. These are intended to compete
with tin beer containers. In the same general section another bank
reports that manufacturing in that locality is the best of any time in
the past twenty years.
The first use of a Federal Reserve facility made by a new
State member bank was to send a cash letter containing forty-eight
nonpar checks. These checks were all drawn to the order of the same
payee—a fair-sized organization with a. nationwide market. The following day an officer of this bank called upon the member bank for the
purpose of explaining the par check situation. The conversation was
had with two officers of the bank—one an executive officer and one an
operating officer. The operating officer could see in Federal Reserve
membership only an additional burden to the volume of work. The executive officer could see advantages in membership other than the collection of checks.
Many banks, particularly in Ohio, during the past year have
installed service charges of one type or another. A good-sized bank
in the City of Akron mentioned the other day that service charges are
producing more income than is their loan account at the present time.

161
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R-718-b

In a large industrial city a majority of the commercial banks
recently reduced the rate of interest paid on deposits to 1 per cent
from the 2 per cent rate previously paid; one bank maintained the old
rate; and one bank increased the rate from 2 to 2-1/2 per cent. This
is the first instance we know of in the district where a bank has increased the rate of interest on savings accounts, and it will be interesting to observe what transpires in connection with changes in
deposit accounts in these institutions.
In some sections of the State of Ohio, particularly in the
southwestern portion, deposit accounts, loans, and earnings are showing substantial increases. A large part of the increase in loan account is attributed to commodity loans, especially on wheat.
Some banks are concerned about the Government's program for
financing national defense and. its effect upon present and future bank
investments. A rather surprisingly large number find themselves concerned with meeting the provisions of the forty-hour week law.
RICHMOND
During the month of September, 6? banks were visited of which
31 were member and 36 nonmember banks.
Influences of the national defense program, both direct and
indirect, are being felt throughout the Fifth Federal Reserve District.
Up to the 31st of August, Virginia alone had received $259,996,000 of
contracts, of which the bulk was for shipbuilding. This business is
concentrated in the Norfolk-Newport News area, and has already exerted
great stimulus there. In addition to the general business stimulus
there has been a notable migration of skilled and semiskilled workers
to the shipbuilding area. In fact, some comments are already heard
that the surrounding communities are being drained of their skilled
mechanics. Other States of the Fifth District have received national
defense contracts in the amount of $69,161,000, of which the shipyards
in South Carolina received $46,845,000.
September rayon production declined about 5,500,000 pounds between August and September, largely because of a strike at Cumberland,
Maryland, and flood conditions at Pearisburg, Virginia. These disturbances have been eliminated and capacity output is expected to continue
for some months. An embargo on silk, which might become a reality at
any time, would favorably affect the rayon industry of the Fifth District.
Enough Army and Navy business has been awarded in cotton textiles to create a firmer price situation. The prevailing idea that

163
-6-

R-713-b

national defense will rate priority over ordinary business has also
stimulated some inventory accumulation in wholesale and retail channels .
The September cotton crop forecast raised production to a
point where the probable carryover will be near the all-time record
of 1939• The cotton export outlook may be further diminished should
trouble intensify in the Far East. Domestic consumption, however,
looks better for the rest of the season than it did a short time ago.
Tobacco prices have shown further improvement and are now
above 20 cents a pound. It is estimated by bankers in growing areas
of the Carolinas that production costs will range between 14 cents
and 16 cents a pound, which will give farmers fairly good net returns.
All States in the Fifth District had population increases in
the last decade ranging from 10 per cent to 12 per cent, while that of
the District of Columbia rose 36 per cent.
ATLANTA
During September 84 banks were visited, of which 29 were member and 55 nonmember institutions.
In northern and northeastern Alabama cotton, which is the
prevailing crop, is some two to three weeks late this year because of
unfavorable weather conditions during the planting and early growing
season. In spite of this fact, however, production estimates range
from 85 per cent of normal to a normal crop. Good corn and hay crops
were reported. In most of the communities in these sections bankers
are cooperating with the county agents in encouraging the farmers to
raise more poultry and livestock, which endeavor is meeting with considerable success. Business in general is considered favorable and
bankers appeared very optimistic over the fall outlook.
A very friendly feeling toward the Federal Reserve System
exists among all the bankers interviewed. Membership was mentioned to
a number of nonmember bankers and without exception loss of exchange
revenue was the only reason given for not considering the question.
Bankers visited in southeast Georgia appeared to be highly
pleased with business conditions in their respective communities. Crops
as a whole, throughout the area, were said to be excellent and farm income is expected to be the best in years. Retail trade is reported to
have substantially improved during the past thirty days and merchants
look forward to an exceptionally good fall trade. Banks reported good

-7-

R-718-b

progress in the collection of farm loans and in most instances show
very favorable earnings for the year.
Crop conditions in northeast Georgia are considered only
fair. Planting of all crops was delayed because of an unusually late
spring and later, during the growing season, heavy rains caused appreciable damage. The cotton crop is estimated to be only around 60 to
6 5 per cent of normal. While feed crops are short, it is thought
that production will be adequate to meet local needs. The apple crop
is said to be splendid and a good return is expected by the growers.
Considerable farm income is also derived from dairying and beef cattle
raising, which activities are reported to be annually growing in importance in this section. Most of the bankers interviewed reported a
favorable loan demand and despite current crop conditions expect a
good fall business and satisfactory earnings for the year.
All nonmember bankers approached on the subject of membership gave as their sole objection the question of par clearance. Several of them informed our representative that without exchange income
they could not show a profit.
Pascagoula (southeastern Mississippi) is continuing its progress as an industrial center but is handicapped greatly by a shortage
of housing facilities. A large shipyard located there has launched
two new vessels in recent months and is preparing to .launch a third
within the next several weeks, while a fourth is well on the way to
completion. The other industries of the city are likewise prospering
and are continuing their full schedule of operations.
Bankers in Baton Rouge, Louisiana, advised that business has
been very good all of the current year including the summer months
which ordinarily prove to be a dull period.
The Managing Director of our Nashville Branch called on two
banks during the month for the purpose of discussing with them the
question of Federal Reserve membership. The Cashier of one of these
banks said that he and other officers of the bank had gone into the
matter of membership thoroughly and had about made up their minds to
file an application for membership some tirr.e before the first of the
year. Although the President of the other bank visited did not commit himself, he showed some interest in membership and appeared to be
thoroughly sold on the Federal Reserve System.
CHICAGO
During the month 71 banks were visited, of which 28 were member and 43 nonmember banks. Six banks were admitted to membership.

-8-

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164

There has been a noticeable increase in loans in some of the
country banks. Some of the banks in Chicago have written to all of
their industrial accounts soliciting loans for defense purposes. Others
are using newspaper advertising to encourage borrowers to come to them
for such loans. All of the larger banks are actively soliciting them.
Banks visited in Wisconsin report excellent crops of all
kinds. Small grains were harvested in good condition and the corn is
largely out of danger from frost. There is a large amount of hay, and
pastures have been unusually good, with the result that there is abundant milk production. Prices have continued firm for various dairy
products. In Vernon County, Wisconsin, the tobacco crop estimated at
$2,000,000 has practically all been harvested. There is lack of sufficient shed room to store one of the largest tobacco yields in history.
Ample moisture, sufficient hot weather, and other factors contributed
to these splendid results. There are approximately 3,000 tobacco raisers in Vernon County and several thousand more growers in neighboring
counties, about 7*500 acres being under cultivation.
The extreme western part of Iowa will have the best corn crop
that has been experienced for several years. In the northwestern part
of the State, although some of the c o m has been damaged by frost, the
results will be satisfactory. Government agencies are reported quite
active in a number of towns in this part of the State, but the banks
generally do not seem to be greatly disturbed by this, as the agencies
make many service charges in connection with loans which the better
farmers do not like. The country banks do complain that commission
firms take cattle loans direct from the farmers and rediscount them
with larger banks. One representative reports that in some instances
the Government agencies afford difficult competition with banks due to
the hours in which they operate. Banks in order to meet the requirements of the Wage and Hour Lav/ keep shorter hours than in the past and
miss opportunities to make some loans, while the Government agencies
do business at all hours and meet most of their prospective customers
in the evening. The fact that the bank is open to the public so few
hours during the day is one of the main reasons that Government agencies have been successful in obtaining good loans from bank customers.
Farm income is still reported as fairly satisfactory, notwithstanding the fact that hogs are down about 50 cents a hundredweight
from the peak of late August and cattle prices have declined slightly
in the last two weeks. An unusually tight situation continues in the
cash wheat market; with large amounts of wheat immobilized by Government loan, excessive premiums prevail for cash wheat and, although
prices for the spot commodity are now running from four to eight cents
over the loan basis, farmers have continued their holding policy. Somewhat the same situation has prevailed in the cash corn market. However, country marketings have increased notably whenever the market has
turned strong.

-9-

R-718-b

Definite figures are not yet available to show the trend in
employment and pay rolls for September, but the impression we get from
all available reports is that employment trends have continued upward,
not only in durable goods manufacture which has been led by the iron
and steel industries, but also in consumer goods.
ST. LOUIS
During September 234 banks were visited, of which 6 4 were
member and 170 nonmember institutions.
Banking in the Illinois towns showed no significant changes
as contrasted with a year ago. The ratio of member banks to total
banks there is high, and numerous encomiums regarding the services
rendered by the Federal Reserve Bank were heard. Reflecting the generally prosperous status of trade, industry, and crops, demand for
credit was reported fair to good, and in some instances, excellent.
As a whole, credit files were found to be in good shape, and generally
the Federal Reserve Bank form is in use. On time deposits 2 per cent
is the universal rate. Interest charged on customer loans ranges from
4-1/2 to 7 per cent, with bulk of loans bearing 6 to 7 per cent.
In Kentucky the attitude toward the System was found to be
universally favorable. Interest rates paid on time deposits range
from 1 to 2 per cent, and there is a disposition to further reduce
the rate. Customers pay from 5 to 6 per cent on loans, and demand was
reported slow.. However, both deposits and demand for credit are expected to rise presently with movement of the crops.
Prior to the A.B.A. Convention at Atlantic City, a card
signed jointly by Presidents Martin and Hamilton was mailed to about
250 delegates from the Eighth and Tenth Federal Reserve Districts,
inviting them to visit the new building of the Board of Governors in
Washington on September 21, 1940, between 9 a.m. and 5 p.m. Supplies
of the cards were furnished to the secretaries of the State bankers
associations represented, and were also distributed on the special
train carrying the delegates. A large number availed themselves of
the opportunity, and much favorable comment was heard regarding the
invitation and visit.
We have about 460 names of newspapers and financial publications on our list to receive the Monthly Review of Business Conditions and other press releases. This includes not only bankers'
magazines and daily newspapers in the larger centers, but also one or
more daily or weekly newspapers in practically every county in the
district. Early this year, when we prepared the schedule of visits

-10-

R-718-b

to be made by the officers to the member and nonmember banks, it was
decided to visit the editor of every paper on our list located in a
town where a bank was to be visited. It was felt that this would not
only build additional goodwill for the Federal Reserve System, but
also promote use of the material sent to the newspapers.
Wt# have not yet completed the visits to all of the newspapers
in the district, but the reports thus far indicate favorable results.
In many cases the local banker introduces our representative to the
editor. As a rule the editors have welcomed our officers, expressed
appreciation of the call, stated that they are glad to receive our
Monthly Review and other press releases, and often afford opportunity
for discussion of the Federal Reserve System. Our visiting officer
always invites the editor to call on the parent bank or branch, and
he usually promises to do so at the first opportunity.
MINNEAPOLIS
During the month of September 309 banks were visited, of
which 105 were member banks and 204 were nonmember banks.
West Central Minnesota. Southeastern North Dakota, and Northeastern
South Dakota
The banks visited (16 national, 1 State member, 24 nonmember)
are situated in a diversified farming area in which crops generally were
fairly good this year. It is generally felt that considerable recovery
has been made during the past two or three years from the drouth conditions which prevailed over a period of years prior to that time. There
is a general feeling of optimism regarding future prospects. Many of
the bankers are following quite closely developments in the European
war situation.
September and October are ordinarily two of the busiest.
months of the year for the banks in this section due to marketing of
crops and seasonal demands. Most of the banks report that they are
making some profit on their operations.
In the larger cities such as Fargo, North Dakota, the banks
are paying 1-1/2 per cent on time deposits, while the smaller country
banks are paying 2 per cent or 2-1/2 per cent on such deposits, the
rate being 2 per cent in most instances. Many of the banks, particularly those in North Dakota, are receiving 7 per cent on their chattel
mortgage loans, the legal rate in that State, while banks in South
Dakota are receiving 8 per cent in most instances, which is also the
legal rate in that State. The banks quite generally are handling a

R-718-b

167

considerable volume of wheat loans. The number and amount of these
loans apparently are much heavier than those made during 1939. Although a part of this area is not in the so-called "corn belt", many
corn loans are being made elsewhere. Most banks are making a service
charge for handling wheat or corn loans. In some instances this
charge is $1.00 on each loan plus 10 cents per $100, while in other
instances the banks are making a flat charge of 50 cents or 75 cents.
Many banks are having a good local demand for money. A few
of them are handling all of the "feeder paper" available, that is,
loans covering advances which are made to cover needs while cattle are
being fattened. These banks find such paper very desirable and other
banks in that part of the district visited where such loans are comparatively scarce do not overlook any opportunity to acquire them.
Some banks are also handling installment loans which have been made
for the purchase of tractors and automobiles and their experience in
handling such paper is uniformly satisfactory. Several bankers were
extremely critical. of the aggressive efforts made by a nearby Production Credit Association in handling loans which the banks felt they
should have handled themselves. There was no criticism of this nature,
however, in other parts of the territory visited.
Many banks are writing a considerable volume of general insurance and find this a profitable side line. Income from other sources
such as rental of building space is a matter that some banks do not feel
they can afford to overlook.
Many banks in this region are paying overtime to employees for
hours worked in excess of the work-week prescribed by the Federal Wage
and Hour Act. Considerable interest was shorn by these bankers in arrangements which might help them to reduce such overtime, particularly
in view of the reduction in the standard work-week from 42 to 40 hours
next month.
Tenant farming has been quite common here, but in view of the
fact that many farms have been sold this fall, tenants are finding it
necessary in many instances to purchase land in order to avoid being
placed in the position of not having land to farm. Many sales of land
to tenant farmers on a long-term basis at low prices were reported.
At New Effington, South Dakota., as well as at other points, it was
claimed that tenants could no longer find farms to rent as heretofore
and as a result will probably dispose of their farming equipment. This
demand for land was considered by many bankers as a very healthy sign.
Inquiries are being received from individuals in Iowa, with respect to
the purchase of farm property and it is the general belief that land
prices will advance. One banker gave the following reasons for this
conclusion:

-12-

(1)
(2)
(3)

R-718-b

The last few years have shown that money could be
made from farming in this district.
As a result of the war, there will be a world
shortage of foodstuffs.
The belief that farmers may not be conscripted
for military service.

This banker stated that he had received more inquiries for the purchase of land during the last thirty days than for the past five years.
Land sales to date have largely been to local buyers.
KANSAS CITY
During September 109 banks were visited, of which 43 were
member banks and 66 nonmembers, located in Kansas, Nebraska, Colorado,
New Mexico, Missouri, and Oklahoma.
In northwestern Missouri, northeastern Kansas, and southeastern Nebraska farm conditions from a physical standpoint could
scarcely be improved. This region had a good corn crop and sorghum
and other feed crops are in great abundance. Bankers report the best
demand since 1933 for money to buy cattle—especially young cattle—
to utilize grain and feed supplies. To take care of this demand,
banks are selling some of their CCC loans. As an illustration, one
bank with $290,000 deposits and $269,000 loans made advances amounting to $50,000 to farmers to buy cattle in the two weeks preceding our
visit. This bank had previously ma.de $80,000 CCC loans ar>d in this
two-week period sold $25,000 of them to city banks. This bank may
have to borrow. A State nonmember bank in this region that had made
$60,000 CCC loans had sold $35,000 worth of them and, if the demand
for cattle loans keeps up, they expect to sell the remainder of this
paper. This bank has a considerable amount of Government bonds yielding from 3 to 3-1/4 per cent and, rather than dispose of these investments, they are thinking of taking advantage of the recent rate
established for loans to nonmember banks and borrowing at the Federal
Reserve Bank on the security of these bonds.
Banks nearly everywhere have made a large number of CCC loans.
In numerous instances a good many of these loans have been resold to
city banks, the bank making the loan retaining 1/4 of 1 per cent. City
banks regard this type of short-term paper highly and two cases were
found where city banks were so eager for these loans that they were
giving the selling banks 1/2 of 1 per cent.
A large number of calls was made on banks in the dry region
of Nebraska. This section extends west from Highway 81 for a considerable distance and north to the Platte River. This part of Nebraska,

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169

without a crop for years, is in a desperate condition and the great cry
now is for drouth relief. A 400 acre farm, with about $'12,000 worth
of improvements and valued at $2.00 an acre in the 1920's, was sold recently for $15 an acre, or a total of $6,000. A six room house in
good condition in a relatively small well-known town in this area sold
for $66. Five acres of land adjoining the townsite with a large modern house, barn, garage, and other outbuildings sold for $280. Crops
this year are again virtually a complete failure. Certain influential
persons in Nebraska are sponsoring a plan that would have the Government take corn under Government loan and lend it to farmers in this
drouth stricken area on the basis of 10 bushels for every acre of corn
planted in 1940. The loan would not bear interest and the farmer would
repay in corn, bushel for bushel, within the next five years. This
project has much support from nearly all interests in the State.
In Colorado bankers generally were found to be in a good
frame of mind, largely because livestock has done very well and prices
are excellent. The onion crop is good but melons and sugar beets are
below standard. Some banks are borrowing from their correspondents
on cattle paper at 1 per cent.
DALLAS
In September 53 banks were visited, of which 47 were member
banks and 6 nonmember banks.
West Central Texas
Visits were made to 16 member banks and 1 nonmember in west
central Texas.
The section visited is an important producer of cattle, sheep,
and goats. Some bankers in the visited area believe cattle prices are
too high and they are becoming increasingly cautious in making loans on
cattle. There are others who believe that prices will continue relatively high for at least another year.
Deposits show, an increase over
ume of loans is about normal, although it
steady and increasing demand for loans to
goats, which is doubtless attributable to
currently in the wool and mohair markets.

last year's figures. The volwas reported that there is a
finance purchases of sheep and
the high prices prevailing

North Texas
Eighteen member banks and four nonmember banks in north Texas
reported business conditions as being generally good. Favorable weather

-14-

R-718-b

170

conditions have resulted in a larger-tban-usual cotton crop and an
abundant production of wheat, oats, and other grains, although excessive rains during harvesting operations damaged the quality of the
grain crops to some extent.
The banks reported that fall collections are coming in nicely,
that many farmers have been turning their attention to livestock raising as a means of offsetting their loss of income resulting from curtailment of cotton acreage, and that the high cattle prices now
prevailing are aiding materially to reduce the debts and strengthen
the financial position of the producers.
Of the four nonmember banks visited, one has certain asset
problems which it desires to adjust before considering the subject of
membership; two are ineligible on the basis of present capital, but
expressed a strong desire to join the System when this obstacle is
overcome; and. the fourth is both ineligible and uninterested at this
particular time.
SAN FRANCISCO
During the month of September 27 banks were visited, of which
17 were member banks and 10 were nonmember banks.
PUBLIC RELATIONS ACTIVITIES OF FEDERAL RESERVE BANKS
September 1940
Federal
Reserve
Bank

Visits to Banks
Member Nonmember Total

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

10
50
54
143
31
29
28
64
105
43
47
17

3
33
22
58
36
55
43
170
204
66
6
10

13
83
76
201
67
84
71
234
309
109
53
27
1/

Meetings Attended
Number Attendance
1
1.2
4
6
11
0
8
6
3
5
6
9

Not reported

1/
6,630
3,400
1,710
4,208
0
5,174
3,215
4,191
3,453
3,800
400

Addresses Made
Number Attendance
2
0
0
0
0
4
5
1
3
1
2
1

170
0
0
0
0
680
315
30
314
150
264
200

171

B O A R D OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM
**
Sa
-s c
•P -

R-719

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

October 23,

1940

Dear Sir:
In the past few months there have been
a number of references in the newspapers to the
question whether national banks may lawfully establish branches in the State of Michigan.

this connection, you may be interested in seeing
the enclosed copy of an opinion rendered fcy the
Attorney General of the United States with regard
to this question.
Very truly yours,

I ' D O i A U f
Chester Morrill
Secretary.

Enclosure
(Enclosure sent only with addressed copies)
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

BOARD

172

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM

R-720

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

October 25, 1940

Dear Sir:
On Monday, November 11, Armistice Day, the offices of the
Board of Governors of the Federal Reserve System and all Federal Reserve Banks and branches will be closed.
The Board is advised that on Friday, November 1, the New
Orleans Branch of the Federal Reserve Bank of Atlanta will be closed
in observance of All Saints Day. Please include transit clearing
credits of November 1 for the New Orleans Branch with your credits
of the following day.
On Tuesday, November 5, General Election Day, there will be
neither transit nor Federal Reserve note clearing through the Interdistrict Settlement Fund. The Board is advised, however, that the
following Federal Reserve Banks and branches will be open for business on that date:
Boston
Cleveland )
Cincinnati)

until
1 p.m.

Atlanta
Birmingham
New Orleans

Little Rock
Omaha
Salt Lake City

Since the President has not as yet issued his Thanksgiving
proclamation, advice with respect to that holiday is held in abeyance
awaiting the proclamation and action by the authorities of the respective States.
Please notify branches.
Very truly yours,

^ F. A. Nelson,
Assistant Secretary.
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

R-721
BOARD OF GOVERNORS

"or THE

FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For release in morning papers,
Tuesday, October 29, 1940.
The following ruling will appear in the Federal Reserve
Bulletins
"Gash on Delivery" Transactions Under Regulation T
The Board has recently considered certain questions involving the special cash account under section 4(c) of Regulation T, and
especially the provisions of section 4(c)(5) relating to so-called
"cash on delivery" or "C.O.D." transactions. For convenient reference,
the relevant portions of section 4(c), particularly of 4(c)(5) are set
out below:
"(c) Special cash account. - (1) In a special cash account, a creditor may effect for or with any customer bona
fide cash transactions in securities in which the creditor
may—
"(A) purchase any security for> or sell any
security to, any customer, provided funds sufficient for the purpose are already held in the account or the purchase or sale is in reliance upon
an agreement accepted by the creditor in good
faith that the customer will promptly make full
cash payment for the security and that the customer does not contemplate soiling the security
prior to making such payment;
"(2) In case a customer purchases a security (other than
an exempted security) in the special cash account and does not
make full cash payment for the security within 7 days after
the date on which the security is so purchased, the creditor
shall, except as provided in the succeeding subdivisions of
this section 4(c), promptly cancel or otherwise liquidate the
transaction or the unsettled portion thereof
"(5) If the creditor, acting in good faith in accordance
with subdivision (1) of this section 4(c), purchases a security

1 7 8

- 2 -

Ii-721

for a customer, or sells a security to a customer, with the
understanding that he is to deliver the security promptly to
the customer, and the full cash payment to be made promptly
by the customer is to be made against such delivery, the
creditor may at his option treat the transaction as one to
which the period applicable under subdivision (2) of this
section 4(c) is not, the 7 days therein specified but 35 days
after the date of such purchase or sale: Provided, however,
That the creditor shall not so treat any purchase by a given
customer if any security has been purchased ty such customer
at any time during the preceding 90 days in a special cash
account with the creditor, and then, for any reason whatever,
without having been previously paid for in full by the customer , the security has been sold in the account or delivered
out to any broker or dealer: Provided, That an appropriate
committee of a national securities exchange, on application
of the creditor, may authorize the creditor to disregard for
the purposes of the preceding proviso any given instance of
the type therein described if the committee is satisfied that
both creditor and customer are acting in good faith ana that
circumstances warrant such authorization.
" (6) If e.n appropriate committee of a national securities exchange is satisfied that the creditor is acting in
good faith in making the application, that the application
relates to a bona fide cash transaction, and that exceptional circumstances warrant such action, such committee, on application of the creditor, may (A) extend any period specified
in subdivision (2), (3), (4) or (5) of this section 4(c) for
one or more limited periods commensurate with the circumstances,
"
In general. The problems were ones relating, under section
4(c)(5), to the time of delivering a security to a customer and obtain
ing cash payment against the delivery. The rulings on the particular
cases may be understood more readily in the light of certain general
principles which apply to section 4(c) and particularly to the 0.0.D.
transactions under section 4(c)(5).
It should be noted at the outset that it is not the purpose
of section 4(c)(5) to allow additional time to customers for making
payment. The "prompt delivery" described in section 4(c)(5) is delivery which is to be made as soon as the broker or dealer can reasonably
make it in view of the mechanics of the securities business and the
bona fide usages of the trade. The provision merely recognizes the
fact tnat in certain circumstances it is an established bona fide
practice in the trade to obtain payment against delivery of the

K-721
security to the customer, and the further fact that the mechanics of
the trade, unrelated to the customer's readiness to pay, may sometimes
delay such delivery to the customer.
The customer should have the necessary means of payment readily available when he purchases a security in the special cash account.
He should expect to pay for it immediately or in any event within the
period (of not more than a very few days) that is as long as is usually
required to carry through the ordinary securities transaction.
Such an undertaking is a necessary part of the customer's
agreement, under section 4(c)(1)(A), that he "will promptly make full
cash payment". Furthermore, any delay by the customer may cast doubt
on the original status of the transaction and should be explainable by
exceptional circumstances that justify the delay. Repetition of delays
by the customer would be especially hard to justify. Such repetition
would almost conclusively label his transactions as unable to qualify
as bona fide cash transactions and would almost conclusively disqualify
them for inclusion in the special cash account.
These general principles are illustrated ty the specific
cases to which the Board has given consideration.
Broker "failed to receive" security. A typical example of
a case in which the delivery to the customer is delayed because of conditions in the trade is one in which tne broker has "failed to receive"
the security which the customer has purchased. Assuming that no evasion of the regulation is involved and that the failure to receive the
security is an ordinary incident to the usual operation of the securities business, section 4(c)(5) would cover the time, not exceeding the
35-day maximum specified in the provision, reasonably required for the
broker to obtain the security and deliver it to the customer.
Purchasing for delivery security already sold to customer.
It sometimes happens that a dealer will sell a security to a customer
although the dealer does not have the security on hand for delivery and
expects to purchase it in the market in order to make delivery to the
customer. A special case of this type is one in which an institutional
investor such as an insurance company, trust fund, or the like, will
purchase a block of a particular issue of securities—usually bonds—
as a unit, and will request that the entire block of securities be delivered at one time in order to avoid unreasonable duplication of
clerical or administrative operations.
Questions as to the time allowed the dealer to acquire the
securities in the market for delivery to the customer under section
4(c)(5) are essentially questions of reasonableness, and must

175

~4~

8-721

176

necessarily depend on the circumstances of the particular case.
„

•

As indicated above, the dealer could not delay acquiring the
securities he did not have on hand if such delay was for the purpose
of giving additional time to the customer. Assuming, however, that no
such evasion is involved and that there is complete good faith, the
dealer would have a reasonable time for acquiring the securities and
could take into account the general state of the market, the effect of
forcing a sudden purchase of the securities, and similar factors. He
would not have to force through a sizeable purchase in a market that
is temporarily thin or disorganized. But on the other hand he should
proceed to acquire and deliver the securities with all reasonable dispatch.
Unissued securities. The question was raised whether section
4(c)(5) applies to securities which at the time of the transaction are
unissued. The answer is that it does, but that, as in other cases, the
broker should deliver the security and complete the transaction as soon
as he can in view of the mechanics of the trade. This being the case,
it seems that there would be very few instances in which section 4(c)(5)
would, in practice, authorize any more time for delivering such a security and obtaining payment therefor than would section 4(c)(3) which,
in the following terms, specifically provides for most situations involving unissued securities:
"(3) If the security when so purchased is an unissued
security, the period applicable to the transaction under subdivision (2) of this section 4(c) shall be 7 days after the
date on which the security is made available by the issuer
for delivery to purchasers."
Securities purchased with proceeds of securities called for
redemption. Sometimes a customer wishes to purchase a security and to
pay for it with the proceeds of another security which the customer
holds and which the issuer has called for redemption. Occasionally the
proceeds of trie called security will not be available for some time,
perhaps 30 days, and the customer would like to delay payment for that
time.
Such a circumstance would not justify delay in obtaining payment under section 4(c)(5), since the delay would not arise from the
mechanics of the trade as they affect the broker or dealer, but merely
from the customer's desire for delay in making payment.

.«

In the particular case presented to the Board, however, the
customer deposited the called security with the dealer with definite
instructions to deliver it for redemption and apply the proceeds to
payment for the purchased security. This made the situation similar

to that considered in the ruling at page 1043 of the December 1938 Federal Reserve Bulletin, which was to the effect that in certain circumstances the sale of a security held in the special cash account may
serve as payment for a security which has been purchased in the account
even though the proceeds of sale have not yet been collected.
Although the security had not actually been sold in the present case, the Board expressed the view that, if the necessary requirements of good faith were met and there was every reasonable probability
that the called security actually would be paid according to the call
for redemption, the same principle would apply. In such circumstances,
therefore, payment for the purchased security may be considered to have
been made for the purposes of section 4(c) at the time when the called
security is deposited with the dealer for the indicated purpose.

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM

R-722

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

October 29, 19i|0

Dear Sir:
Referring to the Board1 s wire of October 2^, quoting a
letter from the National Defense Advisory Commission and a copy
of a press statement released by the Commission with respect to
the obtaining of Defense contracts by small business enterprises,
there arc enclosed for the information of the officer' at your
head office and the officers at your branches, if any, designated
as field and technical representatives, the following memoranda:

1. Plan to increase the participation of small
business enterprisesin the national defense
program. This plan was adopted by the National
Defense Advisory Commission, October 2R, 19^-0•
2, Letter, dated October 25, 19ii0, to the Board
of Governors from the National Defense Advisory
Commission, requesting the cooperation and
assistance of the Federal Reserve System in
carrying out the program,
3- Army purchase information bulletin of I9I4.O•
This bulletin is a guide to manufacturers who
are interested in placing their facilities at
the disposal of the government in connection
with the defense program.
1+. A circular issued by the Navy Department, outlining in brief the purchasing system, of the Navy,
5* August, 19l|0, revision of a bulletin issued by
the Bureau of Foreign and domestic Commerce, compiled as a guide to businessmen desiring to cooperate in the national defense program.

179
R-722
- 2

At the conference to be called in Washington in the
near future detailed information will be made available with
respect to the part the field and technical representatives
are to take in the phase of the National Defense Advisory
Commission' s program in which the System*s cooperation and
assistance have been asked. The conference program will be
mailed to you within the next few days,
Very truly yours,

Chester Merrill,
Secretary,

Enclosures
TO THE PRESIDENT CF EACH FEDERAL RESERVE BAi\K
>

ENCLOSURES SENT ONLY WITH ADDRESSED COPIES

180
BOARD OF G O V E R N O R S
OF THE

*******

FEDERAL RESERVE SYSTEM
R-72?

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

October 29, 19U0»

Dear Sir:
There are being forwarded to you today under
separate cover

copies of page 53~a (and revised table

of contents) of the "Manual of Instructions Governing the
Preparation of Functional Expense Reports (Form E)" relating
to expenses incurred by Federal Reserve Banks in rendering
services for the Advisory Commission to the Council of National
Defense.

Expenses in this connection should be reported in

Form E, until reprinted, on the bottom of page 10.
Very truly yours,

E, L. Smead, Chief,
Division of Bank Operations.

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

181

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM
R-724

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

October 30, 194-0

Bear Sir:
It is expected that the conference with
representatives of the Federal Reserve Banks and
their branches which is to be conducted under the
general direction of Mr. Donald M. Nelson, Director of Small Business Activities for the National
Defense Advisory Commission, and Governor Draper
on behalf of the Board of Governors, regarding
the participation of small business enterprises
in the defense program, will bo held in the Board
Room of the Board of Governors beginning at 9:30
a.m., Tuesday, November 12, and extending through
a morning session on Wednesday, November 13.
I sin transmitting herewith a number of
copies of the tentative agenda for this meeting.
Such other information as may become available
will be forwarded to you from time to time.
Very truly yours,

Chester Morrill,
Secretary.
Enclosures
(Enclosures sent only with addressed copies)
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS

BOARD

R—724—3' ^ g g
TENTATIVE AGENDA FOR CONFERENCE OF FEDERAL RESERVE
OFFICERS, SERVICE PROCUREMENT OFFICERS AND DIRECTOR OF
SMALL BUSINESS ACTIVITIES, TO BE HELD AT WASHINGTON
NOVEMBER 12th AND 13th, 1940
FIRST DAY
Morning Session
9:30 A.M. - 12:30 P.M.
I

Introductory statement by Governor E. G. Draper as Chairman of
meeting.

Opening remarks by Chairman Marriner S. Eccles of Board of Governors, Federal Reserve System.

Ill

Statement by Donald M. Nelson, Director of Small Business Activities, on the purposes, objectives and organizational setup of
the plan; and suggestions as to functions to be performed by Federal Reserve Banks and their branches in carrying out the plan.

Statement by representative of War Department on methods used by
the War Department in making purchases of material and supplies;
location of Army procurement centers; methods by which procurement officers can cooperate with Federal Reserve officers.

Similar statement by representative of Navy Department.
Afternoon Session
2:00 P.M. - 5:00 P.M.

Statement by Stacy May, Director of Bureau of Research and Statistics, National Defense Advisory Commission, on the geographical location of concerns now holding defense contracts; volume
and type of such contracts, et cetera.

Statement by David Ginsburg, Legal Adviser, Price Stabilization
Division, National Defense Advisory Commission, on the nature of
the supply and plant facilities contracts; legal aspects of the
assignment of claims against Government resulting from defense
contracts.

Ill

Statement by staff member of Office of Director of Small Business
Activities, on methods by which office of Director and Member of
Board of Governors will keep field officers supplied with current
information, and discussion as to best means of using questionnaire.
SECOND DAY
Morning Session
9:30 A.M.

Round Table Discussion.

183

BOARD OF G O V E R N O R S
OF T H E

FEDERAL RESERVE SYSTEM
^
^ ^

WASHINGTON

NB^llllllifeSy i f ^

R„725

ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE BOARD

October 30, 194-0

Bear Sir:
For your information there is enclosed
a copy of a letter of October 25, 194-0, from the
President of the United States to the Chairman
of the Board of Governors of the Federal Reserve
System in regard to a system for the assignment
of preference ratings to contracts placed by the
War and Navy Departments for items listed as
critical .in the defense program.
The President has been assured try the
Chairman of our intention to cooperate fully
should any occasion arise for the consideration
of this matter.
Very truly yours,

Chester Morrill,
Secretary.

Enclosure
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

THE WHITE HOUSE
Washington
October 25, 3.940

dear Mr. Eccles:

At the suggestion of the Advisory Commission to the Council
of National Defense and of the War and Navy Departments, a voluntary
system has recently been instituted for the assignment of preference
ratings to contracts placed by the War and Navy Departments for items
listed as critical in the defense program. The preference rating requests that the contractor give to the contract, in so far as necessary to assure delivery on the dates specified, the indicated degree
of preference over other contracts which have an inferior or no preference rating and over contracts for private account or for export.
Instances have arisen where potential contractors have been
hesitant to accept Arny and Navy preference rated contracts because
such contractors are already working on other Government contracts
which contain liquidated damage clauses. Unless industry is assured
that delays caused by the acceptance of and compliance with preference
rated contracts will not result in attempts by the Government to collect penalties, the procurement of materials necessary to the defense
program may be unduly retarded.
Accordingly, you are requested to instruct the appropriate
members of your staff, including any contracting officers subject to
your jurisdiction, to cooperate fully with the War and Navy Departments with reference to the operation of the preference system. They
should be specifically instructed to refrain from taking any action
pursuant to the liquidated damage clause of any contract over which
they have supervision whenever they find that delay in delivery by the
contractor became necessary in order to meet delivery dates on Ariry
and Navy contracts bearing preference ratings. Likewise, the Secretaries of War and Navy are requested to inform their respective staffs
that they are to oe guided by this general principle with respect to
delays which result from the operation of the preference system.
Identical letters are being transmitted to the heads of the
appropriate executive departments, independent establishments, and
other agencies and instrumentalities of the United States. I am also
requesting the Attorney General and the Comptroller General to take
appropriate steps to comply with this policy.
Very sincerely yours,
Honorable M&rriner S. Eccles
Chairman
Board of Governors
Federal Reserve System
Washington, D. C.

(Signed)

Franklin D. Roosevelt

185

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM

R-726

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

November 1, 1940

Dear Sir;
With letter R-72/+, of October 30, I
sent you copies of the tentative agenda for the
meeting to be held in Washington on November 12
and 13 regarding the participation of small business enterprises in the defense program.
The agenda has now been revised and
there are transmitted herewith a number of copies of the revision.
Very truly yours,

Chester Morrill,
Secretary.

Enclosures
(Enclosures sent only with addressed copies)
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS

BOARD

186

B O A R D OF G O V E R N O R S
OF THE

tV*/L

FEDERAL RESERVE SYSTEM
R-727

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

November 2, 1940

Dear Sir:
Through the courtesy of the office
of Mr. Donald Nelson, the names of the officers at all Federal Reserve Banks and branches
who have been designated to handle the project
with respect to small business enterprises have
been placed on the mailing list of Robert W.
Morton, Director of Information, and Frank Bane,
Director of State and Local Cooperation, for
press statements, publications, etc., as they
are released by the National Defense Advisory
Commission.
Very truly yours,

Chester Morrill,
Secretary.

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

BOARD

187

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM

R-728

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

November 8, I9I1O

Dear Sir:
It will be appreciated if you will furnish us, not later
than January 15, 19h-l, with the following data for use in the
Board1 s forthcoming annual report:

l e Statement showing the number of member banks in
each State (or part of State in the district)
accommodated through the discount of paper
during each month of the calendar year 19u0 and
during the year as a whole.
2 # Statement showing the following information as of
December 31, 191+0.
Number of member banks in operation
Nationa1 banks
State bank members
Number of nonmember banks on the par list
Nonmember State banks (exclusive of mutual
savings banks)
Private banks under State supervision
Private banks not under State supervision
Number of nonmember banks not on the par list
Nonmember State banks (exclusive of mutual
savings banks)
Private banks under State supervision
Private banks not under State supervision

R-728

188

3# Statement showing the names and locations of banks
(including private banks) not on the par list on
December $1, 1939, which during 19lf-0,
(1) went out of existence (other than through conversion into or succession by national banks)
(2) were converted into or succeeded by national
banks
(3) were admitted to Federal Reserve membership
(h) were added to par list (other than through
membership)
( 5 ) changed title or location
U# Statement showing the names and locations of banks
(including private banks) which became non-par banks
during lOLO through
(1) primary organization of non-par banks
(2) conversion of national banks into or succession
by nonmember non-par banks
( 3 ) withdrawal of State banks from Federal Reserve
membership
(b) withdrawal of nonmembcr banks from par list
The figures of banks on the par list and not on the par list
on December Jl, 1 9 W , should include all banks on which checks are
drawn# Banking institutions on which no checks are drawn should not
be included. Statement- No* 2 should show separate figures for each
State or part of State in the territory assigned to the head office
and to each branch, if anya The total figures for each State or part
of State should be reconciled with the latest State banking department
abstract of condition reports and the Board advised of the names and
locations of the banks which account for any differences between the
number of banks shown in your statement and in the State banking
department abstract* A copy of the reconcilement should accompany
the statement showing the number of nenmember banks on par list and
not on par list, unless the reconcilement would delay the furnishing
of the statement beyond January 15* in which case the statement should
be forwarded before the reconcilement is effected and the Board advised of any necessary changes in the statement at the time the reconcilement is furnished.

TO THE PRESIDENTS

Very truly yours,
w'
E. L. Sine ad, Chief, ~
Division of Bank Operations.

OF ALL FEDERAL RESERVE BANKS

189
R-729
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Statement for the Press
For release in morning papers,
Monday, November 18, 1940

The following summary of general
business and financial conditions
in the United States, based upon
statistics for October and the
first half of November, vrf.il appear
in the December issue of the Federal Reserve Bulletin and in the
monthly reviews of the Federal Reserve Banks.

Industrial output rose sharply in October and the first half
of November and prices of basic commodities advanced further.

New or-

ders both for defense purposes and for civilian needs continued in
large volume.
Production
Volume of industrial production, as measured by the Board's
seasonally adjusted index, rose further in October to about 128 per
cent of the 1935-1939 average as compared with 125 in September and 126
at the peak reached last December.
Increases in output were marked in the automobile and textile
industries.

In the rayon industry, where production in September had

been curtailed by a strike, activity increased considerably and cotton
textile mills were also more active. Mill sales of cotton goods have
been large since the middle of August, reflecting increased civilian
and military demand, and have been in excess of production during most
of this period.

At wool textile mills, where activity had risen sharply

-2-

R-729

in September, there was a further increase in October.

Backlogs of or-

ders in this industry are now of considerable size owing to a large
volume of orders received during the past two months, particularly from
the Government.

Automobile production rose to about 500,000 cars and

trucks, the largest monthly total since the spring of 1937, and retail
sales of both new and used automobiles were reported to be large for
this time of year.
In the steel and machinery industries activity continued at
a high rate in October.

In the first half of November steel ingot pro-

duction advanced slightly further and was at about 96 per cent of capacity.

This high rate of output is expected to be maintained for some

time to come, according to trade reports, as new orders for steel have
continued large.

Lumber production, which had risen sharply since mid-

summer, declined less than seasonally in October.

New orders for lumber

were somewhat below the high rate of August and September but remained
above production, reflecting in part continued Government demands.
Bituminous coal production declined sharply in October but in
the first half of November showed some increase.

In this industry out-

put had been maintained in large volume during the summer owing in part
to considerable stocking of coal in anticipation of higher prices.

An-

thracite production also declined in the first half of October but rose
sharply in the latter part of the month owing in part to seasonal influences . Crude petroleum production, which had been curtailed during
most of the summer, increased further in October.

-3-

R-729

191

Value of construction contract awards increased in October,
following a decline in the previous month, according to figures of the
F. W. Dodge Corporation and the Federal Reserve Bank of San Francisco.
Changes in the amount of contract awards in recent months have reflected
principally fluctuations in contracts for public projects.

Awards for

private construction have shown about the usual seasonal changes, following a sharp rise in July and August.
Distribution
In October department store sales declined considerably from
the advanced level of the two preceding months, while sales at variety
stores, which also had been large in August, and September, increased
seasonally.

In the early part of November department store sales in-

creased somewhat.
Total loadings of revenue freight in October were maintained
at about the level reached in September.

Shipments of miscellaneous

merchandise increased further, while loadings of coal showed a sharp
decrease.

In the first week of November freight-car loadings declined

by less than the usual seasonal amount.
Wholesale commodity prices
Prices of basic commodities continued to advance from the
middle of October to the middle of November, with the chief increases
in industrial materials, particularly lead, hides, wool, and textile
yarns.

The general index of wholesale commodity prices rose further

by about 1 per cent in this period, reflecting increases in prices

192
R-729
of some finished goods as well as of materials.
Bank credit
Total loans and investments at reporting member banks in 101
leading cities have increased substantially since the end of September.
Commercial loans showed sizable increases both in New York City and in
other leading - cities.

Following reductions during August and September,

holdings of United States Government obligations at these banks also increased.

Federal Reserve System holdings of Government obligations were

reduced by $180,000,000 between September 25 and November 13.
United States Government security prices
After rising moderately during the latter part of October
prices of United States Government securities advanced sharply in the
early part of November.

The quotation on the 1960-6$ bonds reached a

new high level at about 110-1/4, and the yield on this issue declined
to 2.12 per cent compared with 2.25 per cent in October and 2.26 per
cent in June 1939 and again in April 1940.

The average yield on 3 to

5 year Treasury notes declined to less than 3/8 of 1 per cent.

193

BOARD OF G O V E R N O R S
OF THE

B-750

FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

November 16, 19k0

Dear Sir:
As you were advised in the Board1 s letter of October 29, 19 W ,
the National Defense Advisory Commissi on has requested the Board of
Governors to cooperate with it in carrying out the Commission's program
for dealing with the problems and interests of the smaller business
establishments in relation to the defense program,. It is hoped that the
joint Defense Commission--Federal Reserve System machinery (which decentralizes this phase of the defense program) will enable business men
in your District to obtain immediate information on defense order matters
from your Bank and its branches without coming to Washington.
In conformity with the undertakings reached during the conference held in Washington November 12 and 13, it is deemed desirable
for the Federal Reserve Banks to inform the banks in their districts of
the program being undertaken by the Federal Reserve System at the request
of the Defense Commission. As a first step in carrying out this program,
it is suggested that a letter along the lines of the attached draft be
addressed promptly to the banks in your District,
In the proposed letter to the member and nonmember banks there
arc indicated briefly the services which the Federal Reserve Banks are
in a position to render in connection with the defense program. It is
contemplated that this letter will also request the banks to furnish,
from time to time, for the use of the Director of Small Business Activities of the National Defense Advisory Commission, certain information
which he desires relating to business establishments which are not now
on the invitation bid lists of the War and Navy Departments but which
would like to furnish needed supplies and are in a position to do so.
The enclosed draft of the proposed letter indicates the method by which
it is hoped the information will be obtained, and, for the assistance
of the banks, there is enclosed a brief report form for use in this connection. You will note that the information is to be supplied by the
banks directly to you and is in the nature of a confidential report such
as is referred to in sub-paragraph numbered 1 of the Defense Commission's
letter of October 25, 19/'.0.

R-730

To expedite the carrying out of this program, it is suggested
that your Bank have the necessary number of report forms for use in your
District printed on a good grade of paper, size 8-1/2 x 11, containing
exactly the same questions, and in the same order, as set forth on the
sample form attached. Two copies of each completed report should be
mailed promptly to the Board's Division of Bank Operations.
You will probably find it desirable to have a representative
of your Bank call upon banks located in the larger business centers for
the purpose of soliciting their cooperation in dealing with the problems
and interests of the smaller business establishments in relation to the
defense program.
As stated at the round-table conference on November 13, all
financial problems in your District with respect to which you need information or assistance from Washington should be taken up with the
Board's Division of Bank Operations. All problems relating to purchasing
of materials and supplies by the armed services, bidding procedure, War
and Navy Department contracts, and the like should be taken up directly
with the office of the Director of Small Business Activities of the
National Defense Advisory Commission.
It is my understanding that the Office of the Director of Small
Business Activities will send to the officer of your Bank and of each of
its branches, if any, designated as field representatives a sample set of
(a) A m y Purchase Information Bulletin, 19li0, (b) Navy Department bulletin
"Selling to the Navy", (c) bulletin, "Value of Defense Contracts Awarded,
by Federal Reserve Districts and Industrial Areas, June 1 to October 31,
19^0", prepared by the Bureau of Research and Statistics, National Defense Advisory Commission, (d) explanatory statement describing the plant
facilities contract, (e) explanatory statement describing the assignment
of claims procedure, (f) "Notice of procedure for certification under
section 12h. of the Internal Revenue Code", and ( g) "Instructions for the
preparation of applications for certification under section 12ii of the
Internal Revenue Act", This material will supplement material furnished
you with the Board's letter of October 29, 19^0.
It is desirable that the press in your District be kept informed of developments in this field, and I should appreciate it if you
will furnish it with such information as you think would be helpful in
furthering this program.
In undertaking this joint program with the Defense Commission
the Board of Governors believes that the Reserve System is afforded a
splendid opportunity to place its facilities among the national defense

195

R-7?0;.
- 3 forces, "Whether or not we succeed in our undertaking will depend in
large part upon our mutual efforts. We here in Washington stand ready
at all times to be of assistance to you# The Director of Small Business
Activities and his entire staff are at your complete disposal for such
problems as you may find it necessary to refer to them.
Very truly yours,

Ernest G* Draper
Board of Governors, Federal Reserve System

Enclosures - 5

TO THE PRESIDENTS OP ALL FEDERAL RESERVE SAMS

DRAFT OF LETTER FROM FEDERAL RESERVE BANKS
TO COmHRCIAL BANKS

E-730a

1 9 6

Dear Sir:
In order that the smaller business concerns in every part of
the country may participate more fully in the National Defense Program,
the National Defense Advisory Commission has designated Mr, Donald M,
Nelson, Coordinator of National Defense Purchases, as Director of Small
Business Activities. In order to decentralize its activities in this
respect the Commission in its letter of October 25, 19<!l0, a copy of which
is enclosed, asked the Board of Governors of the Federal Reserve System
to act as its operating agent in carrying out this purpose* The Board of
Governors has designated Governor Ernest G. Draper to supervise the
activities of the Reserve System and to serve as its liaison officer with
the Director of Small Business Activities,
The Board of Governors and the Federal Reserve Banks have
assured the National Defense Advisory Commission of their desire to cooperate with it in its endeavor to spread orders for defense needs to
the extent practicable among the smaller business enterprises throughout
the country• The purpose of this letter is to solicit your cooperation
in carrying out the program.
In each of the twelve Federal Reserve Banks and the twenty-four
branches an officer has been designated to serve as the field representative
of the Director of Small Business Activities and of the Board of Governors.
The officers designated for this purpose in this District are
These officers will be ready at all times to consult with business men and bankers with respect to the procedure to be followed in
obtaining Government contracts and sub-contracts, and to advise with them
as to means of obtaining needed credit if it is not available from the
''usual sources. By the use of the services of the Federal Reserve Banks
and their branches in their own trade territories, it is hoped that the
convenience of small business enterprises throughout the country will be
greatly facilitated and that business men will find it unnecessary to make
trips to Washington to obtain information with respect to defense contracts.
The office of the Director of Small Business Activities will
serve as a clearing house for information for the National Defense Advisory
Commission and the -A'ar and Navy Departments, as well as for the smaller

197
R-730a
- 2 -

business enterprises themselves. It will endeavor to assist business
men to learn of the future needs and requirements of the military and
naval branches of the Government, At the same time it will endeavor to
assist primary contractors who have been awarded defense orders to get
in touch with the smaller business enterprises which can furnish special
types of goods and services needed by the primary contractors. The
Director of Small Business Activities also desires to encourage the use
of the customary banking channels to finance the credit needs of the
smaller business enterprises that participate in meeting the requirements
of this program.
It is the intention of the Director of Small business Activities
to inform the Federal Reserve Banks from time to time of the material and
supply needs of the armed services so that this information may be made
available to prospective bidders in each Federal Reserve district, There
will also be made available to the Federal Reserve Banks information with
respect to the last bidders on supply contracts for the War and Navy Departments so as to enable potential supply and material men to establish
contact with the usual and established primary contractors,
To obtain needed information the Federal Reserve Bank of
has been requested to solicit your cooperation in obtaining
the data called for by the enclosed report form, copies of which will be
sent to you under separate cover. The information furnished us on these
forms will be kept confidential. It will be necessary to rely upon your
bank for assistance in carrying forward this program, and it is hoped
that you will be able to furnish most of the information called for by
the form from your own files, and that you will call upon your customers
for only such of the information as is not now readily available to you.
Among your customers there are no doubt some concerns which are
already on the invitation bidding lists of the local army procurement
officers, the Navy Department, or other branches oi the armed service,
Information with respect to such concerns should not be supplied on this
form. It is the purpose of the present inquiry to reach only those smaller
concerns who are not on the invitation bidding lists of one or more
branches of the armed services, and who have not previously participated
in Government contracts, but would like to .furnish needed• supplies either
as primary or subcontractors and are in position to do so.
It is our hope that you will not hesitate to call upon this
bank or any of its branches for information with respect to any phase of
the defense program.
Federal Reserve Bank of
Enclosures 2

198
COPY

B-730b

October 25, 19^0

Board of Governors
Federal Reserve System
Washington, D, C.
Gentlemen:
The National Defense Advisory Commission believes that
small and medium sized business enterprises, along with the larger
business enterprises, occupy a place of vital importance in the
national defense program. So that these small and medium sized
concerns may participate more fully in the program, the Commission
has designated the C.O.N.D.P. as its Director of Small Business
Activities#
The Office of the Director of Small Business Activities
will serve as a clearing house of information for the National Defense
Advisory Commission, the War and Navy Departments as well as for
the smaller industries themselves. It will endeavor to assist the
smaller enterprises in obtaining defense contracts and advise and
assist them in obtaining such financial aid as may be required in
the execution of defense orders.
If this program is to be carried out successfully the
Commission believes that the cooperation and assistance of the
Federal Reserve System is desirable. In this connection it is
thought that the Board of Governors might act as operating agent for
the National Defense Advisory Commission, designating one of its
Board members to have charge of this work and that the Board request
each Federal Reserve bank to designate a senior officer in each
Reserve bank and branch to serve as field and technical represents ti ves.
The Commission believes that the officers so designated
can effectively participate in this phase of the defense program
if they might assume the following duties:

To make confidential reports from time to time concerning business enterprises located in their
respective districts desiring to obtain defense
orders;

To acquaint local banks with the procedure to
be followed in accepting assignment of claims
against the government resulting from government contracts, as security for loans;

199
S-750b

To encourage local banks to make loan commitments on condition that borrowers obtain
government contracts and assign claims against
the government resulting from such contracts as
Security for loans;

lj.e

To furnish business enterprises with information on the procedure to follow and proper
C0HA&&4 oontyaotc to make relative to obtaining defense
contracts;
5#

To assist business enterprises which have obtained defense orders and are unable to obtain
necessary credit from local commercial banks, to
obtain loans from the Federal Reserve Banks or
R.F.C.

It is contemplated that Krf Donald M. Nelson, Coordinator
of National Defense Purchases, and Director of Small Business Activities,
will meet in Washington with the designated officers of the Federal
Reserve banks at a date to be announced shortly, in order to fully
acquaint them with the details of this program.
It will be appreciated if you will advise the Commission
at your earliest convenience whether the facilities of the Federal
Reserve System can be so utilized.

Very truly yours,

William H. McReynolds
Secretary

200

Form No.
FACILITIES FOR DEFENSE SUPPLIES
This form should not be filled out for any concern
that now receives invitations to bid from the Army,
the Navy, or any other branch of the armed services
TO TEE FEDERAL RESERVE BANK OF
1.

Name of concern

Address of concern

State principal articles or products now manufactured or processed

1l.

What kinds of defense articles would the concern be interested in supplying?

State approximate or estimated number of persons employed

(a) State the total approximate value of sales for the year 1939

(City)~

(Street)

(State)

(b) At what per cent of maximum capacity did concern operate in 1939?
(c) At v/hat per cent of maximum capacity is concern now operating?
7,

If the concern should obtain a defense contract in reasonable relation to
present or expandable capacity, would it require additional financial aid for
(a) Working capital purposes?
(b) Fixed capital purposes?

Could reasonable financial aid be obtained from local banks?

Name of bank submitting report
Signature of officer
Please type answers

R-730c

201

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM

R-731

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

*******

November 18, 1940

Dear Sir;
Reference is made to the report dated June 11, 1936, of
the Committee on the Destruction of Records maintained by the Federal Reserve Banks. Beginning on page 6 of this report there is
quoted a letter, dated May 16, 1935> from the Under Secretary of the
Treasury to the Chairman of the Committee, paragraph 5 of which reads
as follows:
5.

Records, documents or other papers having historical
interest should be preserved. Liberty Loan posters
are of this class. In all probability matter of this
class ultimately should be forwarded to the Treasury
Department.

On page 10 of its report the Committee, referring to the
above-quoted paragraph, recommended that when application was made
for authority to dispose of certain Fiscal Agency records, a list of
material on hand relating to Liberty Loan and War Savings activities
likewise be submitted with a request that the Treasury Department
issue specific instructions for its disposition. However, when application was made in 1939 for authority to dispose of certain Fiscal Agency records, informal advice was received from the Treasury
Department that it would prefer to consider the disposition of the
above-mentioned material at a later date. Recently the Department
advised us informally that it was now prepared to act upon the disposition of such material.
It will be appreciated, therefore, if you will furnish the
Board with four copies of a tabular statement listing any forms,
records, literature, posters, correspondence, advertising material,
etc., you may have on hand relating to Liberty Loan and War Savings
activities, except data specifically recommended for permanent retention in the report of the Committee on Destruction of Records.
The statement should be as specific as possible, indicating the nature of the material and, in the case of correspondence, the period

-2-

covered.

R-731

The approximate bulk of the material should also be given.

The Treasury Department prefers to consider the disposition
of the above-mentioned material at all Federal Reserve Banks at the
same time and in order to avoid any undue delay, particularly since
the Department has shown a willingness to consider the matter at this
time, it will be appreciated if the above-mentioned statement is compiled and furnished the Board as soon as convenient.
Very truly yours

S. R. Carpente;
Assistant Secretary.

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

303
BOARD OF G O V E R N O R S
OF THE

E-732

FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO-THE

BOARD

*******

November 18, 19li0

Dear Sir:
It will be appreciated if you will mail to the Board as
soon as practicable after January 1 a copy of the budget approved
by your bank for its head office and each of its branches, if any,
and for the head office and branches combined, for the calendar
year I 9 I 1 I .
It will also be appreciated if the I9J1I budgets furnished
to the Board are prepared along functional lines in accordance
with the sample form, R~732a, attached, totals for each function
being shown as in the functional expense report, Form E.
Please also submit statements on Form R-7?2b and R-732c
showing the itemization of the budgets of the statistical and
analytical and bank examination functions.
In addition kindly prepare and
statement a memorandum setting forth in
principal increases and decreases in the
as compared with actual expenses during

submit with each budget
general the reasons for the
budget estimates for 1 9 I 1 I
19l'.0,

A supply of forms R»732a, R-732b, and R~732c is enclosed.
Very truly yours,

L. P. Bethea,
Assistant Secretary.

Enclosures

TO TEF PRESIDENTS OF ALL FEDERAL RESERVE BANKS

SUMMARY OF BUDGET ESTIMATES, 1941
Federal Reserve Bank of

Function
General overhead - Controllable
General overhead - Noncontrollable
Provision of space (less income and
distribution)
Furniture and equipment
Provision of personnel
General service
Postage
Insurance
Failed banks
Loans, rediscounts, and acceptances
National defense
Securities
Currency and coin
Check collection
Noncash collection
Accounting
Legal
Bank and public relations
Auditing
Bank examination
Federal Reserve note issues
Statistical and analytical
Securities exchange
Fiscal agency, custodianship, and
depositaryJ
,iM.peusti uub remourSSDXe
Foreign
TOTAL (column 1 must agree
with Form E)

(indicate whether head office,
branch or "combined" report)
Expenses,
Year 1940

Budget,
Year 19-41

205
R-732b
STATISTICAL AND ANALYTICAL BUDGET, 194-1
Federal Reserve Bank of
(indicate whether head office,
branch or "combined" report)

Expense Unit

Year 19/0

Budget,
Year 1941

1. Statistical:
a. Salaries - Officers*
b. Salaries - Employees
c. Retirement system contributions
for current service
d. Traveling expenses
e. Printing, stationery, and supplies
f. Telephone and telegraph
g. Postage and expressage
h. All other
TOTAL
2. Monthly letter:
a. Printing and stationery
b. Postage and expressage
TOTAL
3* *• Library:
a. Salaries - Officers*
b. Salaries - Employees
c. Retirement system contributions
for current service
d. Traveling expenses
e. Printing, stationery, and supplies
f. Telephone and telegraph
g. Newspapers, periodicals, books,
binding, clipping service, etc.
h. All other
TOTAL
TOTAL, STATISTICAL AND
ANALYTICAL
Number of copies of Monthly Letter
printed for month of December 1940
•^Indicate in a footnete the complete allocation of the time and salary
of each officer whose salary is charged in whole or in part to this
unit.

206

R-732c

BANK EXAMINATION BUDGET, 1941

Federal Reserve Bank of
"(indicate whether head office,
branch or "combined": report)

Bank Examination Function

Expenses,
Year 1940

Budget
Year 1941

a. Salaries - Officers*
b. Salaries ~ Employees
c. Retirement system contributions
for current service
d. Traveling expenses
e. Printing, stationery, and supplies
f. Telephone and telegraph
g» Copies of bank examination reports
h. All other
TOTAL
DEDUCT - EXPENSES CHARGED AGAINST
BANKS EXAMINED
NET TOTAL, BANK EXAMINATION

^Indicate in a footnote the complete allocation of the time and
salary of each officer whose salary is charged in whole or in
port to this function.

207
BOARD OF G O V E R N O R S
»»»»»»»
/jgSSSk-

OF THE

FEDERAL RESERVE SYSTEM

R-733

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

November 19, 194-0

Dear Sir:
There is attached a copy of the report of expenses of the main lines of the Federal Reserve Leased Wire System for the month
of October 1940.
Please credit the amount payable ty
your Bank to the Board, as shown in the last
column of the statement, to the Federal Reserve
Bank of Richmond in your daily statement of
credits through the Interdistrict Settlement
Fund for the account of the Board of Governors
of the Federal Reserve System, and advise the
Federal Reserve Bank of Richmond ty mail the
amount and purpose of the credit.
Very truly yours,

0. E. Foulk,
Fiscal Agent.

Enclosure
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
EXCEPT RICHMOND

208
R-733-a
REPORT OF EXPENSES OF MAIN LINES OF FEDERAL RESERVE
LEASED WIRE SYSTEM FOR THE MONTH OF OCTOBER 194-0

Words Sent
ty N. Y.
Chargeable
to Other
F.R. Banks

Total
Words
Chargeable

Pro Rata
Share of
Total Expenses (1)

Expenses
Paid
by Banks
and
Board. (2)

Payable
to
Board
of Governors

347.79
916.66
239.93
253.43

1£ 100.45
309.17
62.21
320.04

Federal
Reserve
Bank

Number
of Words
Sent

Boston
New York
Philadelphia
Cleveland

26,900
76,486
17,774
34,695

1,068
1,078
1,087

2.7,968 :
I
448.24 1
1,225.83
76,486
18,852
302.14
35,782
573.47

Richmond
Atlanta
Chicago
St. Louis

39,184
42,208
64,585
42,881

1,060
1,057
1,136
1,059

40,244
43,265
65,721
43,940

644.98
693.40
1,053.30
704.22

310.96
228.81
1,273.71
257.80

Minneapolis
Kansas City
Dallas
San Francisco

22,213
47,937
37,317
54,832

1,057
1,059
1,133
1,077

23,270
48,996
38,450
55,909

372.95
785.25
616.23
896.05

191.37
273.01
275.18
447.37

Board of
Governors

429,174

—

429,174

6,878.31

10,178.35

Total

936,186

11,871

948,057

$15,194.37

334.02
464.59
220.41(a)
446.42
181.58
512.24
341.05
448.68
-

$3,520.45
220.41(a)
$3,300.04

(1)

Based on cost per word ($.016026853) for business handled during the month.

(2)

Payments ty Banks are for personal services and supplies and payments ty
Board are for personal services and supplies ($1,157.98) and wire rental
($9,442.07) less amount ($421.70) representing reimbursement for the cost
of sending messages between the Washington office of the Leased Wire System
and the local telegraph offices of the Treasury, Reconstruction Finance
Corporation and the Commodity Credit Corporation. Personal services include
salaries of main line operators and of clerical help engaged in work on main
line business, such as counting the number of words in messages; also overtime and supper money and Retirement System contributions at the current
service rate.

(a)

Credit—reimbursable to Chicago.

NOTE: The attached letter was distributed on November 23, 1940, under the
Symbol number R-733.- The number should have been R-73^, and the attached
page should, therefore be substituted for the previous one and the appropriate change in symbol numbers made on the enclosures.
Attachment.

209

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM

R-73 A

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

November 23, 194-0

Dear Sir:
There are enclosed for your information a table showing applications for membership received ty the Board during 1940,
and a statement containing excerpts from the
bank relations reports submitted ty the Federal Reserve Banks for the month of October.
Very truly yours,

L. P. Bethea,
Assistant Secretary

Enclosures

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

BOARD

R-733-a
BANKS ELIGIBLE* FOR FEDERAL RESERVE MEMBERSHIP ON DECEMBER 31,
1939, AND BANKS WHICH APPLIED FOR MEMBERSHIP DURING 1940

Federal
Reserve
District

Number of Nonmember ComNumber of Banks
mercial Banks Eligible* for Which Applied for
Federal Reserve
Federal Reserve Membership
Membership During—
on December 31, 1939
October 1 This Year
Total
On Par List

Richmond
Atlanta
Chicago
St_ Louis

469,330
981,529
550,836
577,367

0
2.,900
900
2;,500

0
12,300
3,900
33,50C

16
2
51
18

481,555
302,655
1,114,286
428,385

396,447
70,987
1,054,464
309,111

1.,700
0
20.,700
800

21,200
2,80C
60,300
10,000

2
2
0
0

7
7
19
3

189,225
198,993
154,549
545,398

53,439
178,372
110,025
541,768

5,500
9,800
0
0

8,700
13,000
12,200
5.00C

157

5,994,411

5,293,675

44,800

182,900

141
224
225
474

0
2
1
2

0
9-x-x4
21

394
484
1,219
664

232
52
1,079
434

4
0
9
3

420
487
282
194

78
402
174
182

5,209

3,697

Minneapolis
Kansas City
Dallas
San Francisco
Total

469,330
981,529
550,836
577,670

HI
224
225
475

Boston
New York
Philadelphia
Cleveland

Deposits of Banks
Deposits of Nonmember
Which Applied for
Commercial Banks Eligible*
Federal Reserve
for Federal Reserve MemberMembership During—
ship- on December 31. 1939
October
This Year
Total
1 On Par List
(in thousands of dollars)

*• By eligible banks is meant banks with sufficient capital stock to meet the minimum statutory capital requirements for Federal Reserve membership
Includes one newly organized bank for which no deposits are shorn.

211
R-733^b
November 23, 194-0
Not for Publication
EXCERPTS FROM BANK RELATIONS REPORTS
FOR THE MONTH OF OCTOBER 1940
BOSTON
During the month of October 53 country banks were visited,
of which 50 are members of the Federal Reserve System, and 3 nomnembers. Six of the banks are located in Connecticut, 19 in Massachusetts
and 28 in Vermont. In addition the B&nk was represented at the fall
meeting of the New Hampshire Bankers Association.
Practically all of the banks visited are experiencing a
somewhat better local demand for credit. At most of the banks the
portfolios were made up largely of automobile loans (with and without
dealers' endorsements), installment loans financing purchases of furniture, household equipment, etc., loans to municipalities, loans on
real estate (including FKA mortgages), loans on marketable collateral
and insurance policies, and in the case of a few banks in the farming
and dailying sections loans are made also upon farm chattels. With
the exception of loans to municipalities, which carry rates from 2 to
3-1/2 per cent and which at this season are being paid off, practically all loans are made at a 6 per cent rate.
Several of the Vermont bankers'have been buying from dealers
FHA mortgages on properties located in other States; some of the properties being as far away as Virginia, Michigan, Colorado, and Texas.
No banker reported any delinquencies. Most of the bankers visited do
not favor the purchase of real estate mortgages on properties located
outside their own banking areas.
NEW YORK
During the month of October, our officers and representatives
made 146 visits to banks—61 member and 85 nonmember institutions—
located in various sections of the district. Our attention was concentrated chiefly upon the nonmember banks in order to stimulate their
interest in membership, and in numerous cases follow-up visits were
made to discuss the subject further with the boards of directors of
those banks and to assist in the preparation of their applications.
As a result nine applications were filed during the month and several
other nonmember institutions are expected to take favorable action
within the next few weeks.

- 2 -

R-733-b

212

Erie and Niagara Counties, Buffalo Branch Territory, New York
Banking services are provided ty 31 commercial institutions
(17 members and 14 nonmembers), 5 savings banks and 1 industrial bank,
which, together with 75 branch offices, domprise a total of 112 banking offices.
Twenty-six of these banks originally issued preferred stock
or capital debentures amounting to $16,987,000 par value. Ten banks
have since retired their entire issues aggregating $11,965,000, and
fifteen have made partial redemptions totaling $1,260,974, leaving a
balance outstanding of $3,761,026 par value, retirable at $3,94-7,078.
Security investments of the banks aggregate $174,685,000, of
which $104,998,000, or about 60 per cent, are Government obligations,
either direct or guaranteed. Aside from purchases of small amounts of
Government and municipal obligations, the banks have been adding very
little to their portfolios. A number of bankers mentioned that corporate bonds are being disposed of as favorable market conditions develop.
Bankers mentioned that loan demand continues light except in
a few instances, with loans totaling $118,287,000. Several banks have
increased their loan totals through mortgage lending, but on the whole
the demand for commercial loans is negligible, even in sections in
which industrial activity has greatly increased.
PHILADELPHIA
During October 114 banks were visited, of which 80 are member and 34 nonmember institutions.
Investment accounts, principally because of holdings of railroad securities, are worth less than book value in most instances.
Determined efforts are being made to eliminate all holdings of substandard bonds, and only Government bonds are being purchased at present.
Credit demand has been improving and loans show some increase
since last year. The demand has been principally for small loans, and
a few banks have incorporated personal loan departments with satisfactory results. Collections have been better, chiefly because of improved
working conditions, but bankers in communities dependent upon bituminous
coal mining report that liquidation is generally slow. Some increase
has been noticed in the demand for mortgage loans and only a few banks
are using the facilities of the FHA plan. Some institutions have purchased guaranteed mortgages and report that results to date have been
most satisfactory. The 6 per cent lending rate prevails at most institutions .

213
R-733-b
Formal request for examination was received from one nonmember trust company this month and examination of another applicant was
completed. Interviews, specifically for the discussion of membership,
were had with the executive officers of 10 institutions. Some of these
officers were very friendly to the idea and we expect that future meetings with the directors of the several banks will result in a decision
to become affiliated with the System. Officers at two institutions
with whom our officers and representatives have had frequent discussions on the subject for the past two years have indicated that they
expect to have the boards of directors take action in this matter
shortly.
The interest which has recently arisen is gathering momentum
and is aided somewhat by the fact that the uncertainty of the future
with its threat of war causes many bankers to believe that they will
be much better able to withstand whatever comes if their banks are
members of the System.
CLEVELAND
During October 34-5 banks were visited, divided approximately
equally between member and nonmember institutions. One State bank,
having resources of approximately $2,500,000, was admitted to membership in the System.
While there is ample evidence of interest on the part of
banks in membership, it is difficult, in some sections, to translate
interest into action. A number of member banks in the State of Kentucky
which are subject to a strong seasonal demand for loans and an accompanying decline in deposits would find reserve requirements of the
System burdensome. The Kentucky law permits nonmember banks to maintain the same reserves as were required of member banks prior to the
passage of the Banking Act of 1935.
Under the Ohio law, a savings bank may maintain 60 per cent
of its required reserves in the form of United States obligations. Interest in membership on the part of such banks is not keen since, as
members, the income derived from the investment of a portion of their
legal reserve would be lost.
Other banks are considering joining the System in order to
be prepared for any emergency that may develop. One banker recalls
that in 1932 and 1933 correspondent banks were not in a position to
help his institution when help was badly needed.

214
-4—

R-733-b

RICHMOND
During "the month of October 99 banks were visited, of which
4-6 were member and 53 nonmember banks.
The outstanding development, in the Fifth Federal Reserve
District during October was the awarding of $173,635,000 of defense
contracts, on top of September awards of $171,030,000, In addition
to these, contracts of the Newport tyews Shipbuilding and Dry Dock Company with the Navy, Maritime Commission, and private customers increased
$371,586,000 between June 25 and September 30. There has been considerable plant expansion by private industry, including the Dupont Nylon
plant at Martinsville, a synthetic ammonia plant projected for Morgantown, West Virginia, and power developments to cost §75,000,000 for
aluminum manufacture at Nantahala and Glenville, North Carolina.
In some parts of the district where agriculture contributes
most of the people's incomes, there are a few communities where business is not so good as a year ago, but in most parts of the district
business of all types is good and notably above last year.
Banks on the Eastern Shore of Maryland still have the larger
part of their assets in loans, on which interest varying from U to 6
per cent is charged, though none of the communities can use all of their
available funds locally.
In the part of West Virginia visited, there is a great deal
of distance yet to be traveled before banks' resources can be utilized
fully in local communities. Yet, in most of the communities visited
the loan volume is the largest item ,of the earning assets, and in some
places it is over half of the deposit total. Lending rates are mostly
at 6 per cent, though in those communities where loan holdings are lowest some lending is done as low as 4-1/2 per cent. Interest of 2 and
2-1/2 per cent is paid on savings deposits try most institutions. One
bank pays nothing on savings, while another (uninsured bank) is reported
to be paying 3 per cent.
ATLANTA
During October 124- banks were visited, of which 69 were member banks and 55 were nonmember banks.
Western Florida is a general agricultural section where the
principal money crops are tobacco, corn, cotton to a limited extent,
peanuts, hogs, cattle, and lumber. Most of the crops this year were
very good, and some improvement over last year's crops was reported,

215
-5-

R-733-b

particularly with respect to peanuts and tobacco. In view of the favorable crop situation, and good prices, liquidation of farm loans is
said to have been very satisfactory on the whole. A number of bankers
who were required to carry over agricultural paper last year because
of poor crop conditions, reported that farmers had been able to liquidate their old indebtedness as well as current crop advances, and were
in better condition this fall than they have been in many years. All
the banks visited in this section reported satisfactory earnings for
the year and appeared to be very optimistic over the future outlook.
Central and north central Florida comprise some of the most
productive agricultural territory of the State in which citrus fruit,
truck, peanuts, long staple cotton, cattle, and hogs are the principal
money crops. It is claimed that the State of Florida now ranks third
in the United States in the shipment of cattle.
Bankers appeared to be well pleased with business conditions
in their respective areas. Retail trade and general business activity
is reported to have held up unusually well throughout the normally
dull summer months and present indications point to a splendid winter
season. Bankers generally in this area reported increased deposits,
favorable credit demand and satisfactory earnings for the year. Many
of the bankers visited are devoting more attention to installment loans,
which business they state is proving a very excellent source of income.
CHICAGO
During the month calls were made on 29 member and 6l nonmember banks. Nine State banks were admitted to the System. In Illinois
one new national bank opened for business and one nonmember State bank
converted to a national. In Wisconsin a nonmember State bank consolidated with a national bank under national charter.
Several banks were arranging to increase their capital stock
on account of their increased deposit liability, it apparently being a
little less difficult to raise capital locally than at any time since
1933.
Very few inquiries have been received at this bank regarding
defense loans. However, chambers of commerce and similar associations
are actively trying to secure information concerning the procedure to
be followed to obtain Government contracts under the defense program.
There is some increase in building construction, partially
due to defense activities. In Rock Island, Illinois, for instance, we
are told it is practically impossible to rent a residence. The Government is now in the process of constructing 300 housing units there, as

216
—6-

R-733-b

well as 300 in Moline, Illinois. In Saginaw, Michigan, business conditions are reported generally satisfactory. Residential construction is
on the increase and considerable demand exists for mortgage money. No
desirable houses in the city are available for rent. A plant will be
erected for the manufacture of machine guns. However, there is little
demand from manufacturers in Saginaw for credit, and Detroit, Cleveland,
and Chicago are stated to be keen competitors for business loans, quoting very low interest rates. In Jackson, Michigan, where there also has
been an increase in residential building, we are told that the lumber
merchants are having some difficulty in obtaining•certain kinds of materials used in their building operations. A banker in Grand Rapids,
Michigan, advises us that business in that city is the best that it has
been in ten years and that this is not due to the defense program. The
furniture business is cy far the best that it has been for a number of
years, and all of the Grand Rapids furniture factories are operating on
a profitable basis.
ST. LOUIS
During October our officers and field representatives visited
273 banks, of which 73 are in Kentucky, 68 in Illinois, 45 in Missouri,
42 in Mississippi, 36 in Arkansas, and 9 in Indiana. The officers also
called on 70 newspapers in towns where the banks are located.
While reports relative to demand for credit varied somewhat,
taken as a whole, demand was apparently fair to good, reflecting in the
main improvement in general business conditions. There is now,, and has
been throughout the season, an active call for funds to purchase and
carry livestock, including sheep. It was noted that the trend was toward reduction of interest paid on time money, and some banks have discontinued paying any interest.
During the month two banks were admitted to the System, making
15 new State members since the first of the year. Several banks are in
process of admission, two in Illinois and one in Indiana having been examined for this purpose.
At the request of a new member State bank, we sent a qualified
senior employee to assist it in establishing its relations with this
Bank. In the course of the conversation, it was inferred that immediately upon learning of the bank's intention to join the %rstem, a representative of its correspondent in a neighboring city made a visit with
the sole intention of discouraging membership.
During our visits to newspapers, a number of the editors in
the smaller centers suggested that our Monthly Review of Agricultural

217
R-733-b
and Business Conditions be accompanied with a condensed press release
of its contents. The first of these special summaries was mailed to
the newspapers on October 30. It is believed that this will increase
publication of the material, and thereby promote public good will for
the Federal Reserve System.
MINNEAPOLIS
During the month of October 137 banks were visited, of which
64. were member and 73 nonmember institutions.
A number of bankers in nonmember, nonpar banks asked whether
it is true that a great number of State banks are joining the Federal
Reserve System.
During October 4-1 daily and weekly newspaper editors were
visited and introduced to our new "local story releases". These were
based on our bank debits, retail trade, and building statistical summaries. In accordance with our regular policy, they were also shown
samples of our other releases and were invited to make requests to be
placed on the mailing list for any or all of them. In every instance,
the editor commented very favorably on our new style releases and asked
to receive all of such material as rapidly as it was released. Several
indicated that they would like to receive other releases as well but
suggested that a reader-to-run story be sent them along with the full
text of our Monthly Review, Annual Report, etc., similar to the story
regarding the defense contracts.
One editor said that he would greatly appreciate receiving a
mat of our Business Trends Chart and suggested that every editor would
doubtless make use of mats if they were furnished. This matter was
mentioned during subsequent calls and most editors said they could and
would use them. In view of the small amount of work and the relatively
low cost of providing every daily newspaper in the Ninth District with
four or five mats a year and the apparent appreciation of this addedservice, we have decided to offer mats of our Ninth District Business
Trends Chart whenever a cut of that chart is made for inclusion in our
Monthly Review,
KANSAS CITY
During October 22 banks were visited, of which 8 were member
banks and 14 nonmember banks in Kansas, Nebraska, and Missouri. Representatives of this Bank also attended 3 group meetings in Missouri, 9
in Kansas, and the two-day convention of the Nebraska Bankers Association, which was celebrating its fiftieth anniversary.

218
-8-

R-733-b

According to reports from south central Kansas, the defense
program continues to have its effect on the labor situation, drawing
many young men from the country and the smaller towns to Wichita and
to the east and west coasts to work in airplane factories. Welders
from the oil fields are said to be earning $99 a week in airplane and
other factories.
Kansas and Oklahoma bankers, on the whole, are greatly encouraged by the agricultural outlook.
One bank visited in northeastern Kansas with total loans of
$4-44,000 has $115,000 in COG wheat loans and $114,000 in real estate
loans. Another bank with total loans of $464,000 has $154,000 in CCG
wheat loans and $94?000 in real estate loans. Another bank with total
loans of $150,000 has two-thirds of this amount in CCG wheat notes and
in cattle loans. The above bank, a State nonmember, plans to borrow
on its Government bonds in order to oeet the rising demand for funds
to buy cattle and milk cows to utilize plentiful grain and feed supplies, while other banks have sold CCG wheat notes to city banks to
secure additional funds to lend on cattle. These cattle and COG wheat
loans largely account for a sharp increase in deposits over a year ago.
Some bankers, however, aware of the current cyclical upswing in cattle
numbers, which may continue for the next two or three years, and of
the ultimate effect on cattle prices, are not encouraging their customers to stock cattle because they feel that present prices are too
high. In sections that produced a good corn crop, bankers expect to
make a good many CCG corn notes this fall.
Bankers, reflecting the sentiment of their communities, are
anticipating considerable stimulation to business from the armament
program now in progress, although its effect in most places as yet is
barely noticeable. Gash farm income, employment and pay rolls, and
construction for some time have been running above a year ago but retail trade generally has been distinctly disappointing.
DALLAS
During October 57 banks were visited, of which 48 were member
and 9 nonmember institutions.
Southeast Texas
This itinerary included visits to 11 member and 7 nonmember
institutions in the agricultural and industrial areas adjacent to
Houston.
Operating results of the banks visited varied widely (from net

-9-

R-733-b

operating losses to earnings of record proportions) depending upon the
loan and investment policy of the management. The small institutions
serving the industrial areas have a lucrative outlet for funds in the
form of personal and installment advances upon which their experience
has been especially satisfactory. As a consequence, it is not necessary to resort, to any considerable degree, to outside investments.
Institutions in the predominantly agricultural sections continue to
encounter an abnormally low demand for credit. If earning power is
maintained, it is necessary to do so through the investment portfolio.
Such recent changes as the contracted banks have made in their investment policies have been toward shortening maturities or lightening of
accounts in anticipation of opportunity or obligation to take on new
offerings of Government securities which they feel will eventuate from
defense costs and fiscal policies.
East Texas
Eighteen member banks and one nonmember in the region known
as the East Texas oil field were included in this itinerary.
Oil production in this area, which is one of the largest oil
fields in the world, is being held down by proration restrictions, but
business conditions are generally healthy and satisfactory. Banks complained of a lack of outlets for their steadily increasing deposits.
The demand for loans is gradually diminishing, and the banks are placing increasing reliance on investments for the maintenance of their
revenues. Many of them sold their Governments last year at a nice
profit and are reluctant to go back into the market for replacements
at the high price level currently prevailing. They are, however, subscribing to new issues from time to time, and steadily building up
their holdings of high grade municipals.
SAM FRANCISCO
During the month of October 36 banks were visited, of which
27 were member and 9 nonmember banks.
West Sacramento Valley, California
Continued expansion of the Mare Island Navy Yard activities
has created an acute housing shortage covering a considerable area in
the vicinity of Vallejo. Houses, hotels, and auto camps as far away as
Fairfield are being used. This tends to bring a certain amount of additional business to local merchants and offsets to some extent the depressing effect of the poor prices and lack of markets for much of the
fruit.

220
R-733-b

-10-

Yields of barley and rice are large, but are offset by low
prices. Farmers would like to hold their barley for a better price,
as it is considered altogether too low, but few of them are financiallyable to do so. Results in the livestock business, particularly sheep,
have been good, notwithstanding that it was necessary to feed longer
than usual, last winter.
Washington and Yamhill Counties, Oregon
West and southwest of Portland is a highly diversified agricultural district whose boundaries are approximately Washington and
Yamhill Counties in Oregon. In recent years the crops of wheat, oats,
and similar farm crops have been succeeded by widely diversified crops
of walnuts, filberts, prunes, c h e r t s , berries, potatoes, hay, and
seed crops.
A part of the berry crop is dried and ultimately sold for
processing to get the vegetable colorings used in gelatins and in inspectors' stamps on meat products. Dairying brings in the largest
income annually to the district.
PUBLIC RELATIONS ACTIVITIES OF FEDERAL RESERVE BANKS
October 194-0
Federal
Reserve
Bank

Visits to Banks
Member

Nonmember

Total

Meetings Attended

Addresses Made

Number (Attendance

Number IAttendance

50
67
80
174

3
94
34
171

53
161
114
345

2
5
4
12

If
2,000
400
3,276

0
2
2
2

0
200
135
135

Richmond
Atlanta
Chicago
St. Louis

46
69
29
86

53
55
61
187

99
124
90
273

8
10
19
16

1,500
725y
3,925
9,560

4
0
3
6

400
0
165
826

Minneapolis
Kansas City
Dallas
San Francisco

64.
8
48
27

73
14
9
9

137
22
57
36

5
17
4
21

1,036
5,030
750
1,780

0
3
2
2

0
502
315
85

Boston
New York
Philadelphia
Cleveland

Not completely reported

221

BOARD OF G O V E R N O R S
. /fW" " ^

t*r M

OF THE

FEDERAL RESERVE SYSTEM

R-735

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

November 27, 194-0

Dear Sir:
On Wednesday, December 25, the
offices of the Board of Governors of the
Federal Reserve System and all Federal
Reserve Banks and branches will be closed.
Very truly yours,

F. A. Nelson,
Assistant Secretary

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

BOARD

222
BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM

R-736

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

November 27, 1940

Dear Sir t
For your information there is enclosed
a copy of a letter dated November 20, 1940, from
Mr, Henry H, Heimann, Executive Manager of the
National Association of Credit Men, and a copy
of my reply thereto.
Very truly yours,

Ernest G. Draper

Enclosures*

TO THE PRESIDENTS OF ALL
FEDERAL RESERVE BANKS

BOARD

R-736a

NATIONAL ASSOCIATION OF CREDIT MEN
New York, N. Y,
November 20, 19A0

Mr. Ernest G. Draper
Board of Governors of the
Federal Reserve System
Washington, D. C.
Dear Ernestt
It seems to me that I noticed an item in the
paper that the Federal Reserve Board was going to undertake
to look after the small business men's interests in the defense program. It is also my recollection that you were
assigned this responsibility.
I merely wanted to drop you this note to tell
you that myself and organization will be glad to cooperate
with you in any and every possible way,
I should advise you that prior to this notice
we had been turning over in our own minds a program along
the following lines t It was my thought that I would check
vd-th the interested parties in Washington and see whether
we couldn't secure their cooperation in acquainting small
business men with matters of interest in defense contracts.
As you know, we have about 115 local organizations in as
many different cities. Our thought was to call a meeting
at each of these cities, having the business men attend it,
and then if the government was willing we intended to ask
government representatives, particularly the ordnance
officers or representatives of the Procurement Divisions,
attend these meetings. This would bring about a meeting
of the small business men with the buying agents of the
government.
If a plan of this kind would be of help to you
or if there is anything else you have in mind that we could
do, remember we are at your service.
Sincerely yours,
(Signed) Henry H. Heimann

HHH:LS

Henry H. Heimann
EXECUTIVE MANAGER

223

R-736b
C O P Y

November 22, 1940.

Dear Henryt
It was good to get your letter under date of
November 24, and I am delighted to hear that your Association would be glad to cooperate in helping small business men to secure some of the available contracts under
the defense program. Our organization envisions a plan
whereby as much of our work as possible is decentralized
and handled by our men in the field. In other words, we
are trying to avoid the mistakes of the past in having
numbers of business men come to Washington and get lost
in the maze of different agencies down here. Therefore,
we have appointed an officer in each one of our twelve
Federal Reserve Banks and each one of our twenty—four
branch offices. This officer has been acquainted with the
whole program and is able to talk convincingly about the
details of the program. I would suggest, therefore, that
the best way in which your organization could be helpful
would be to have the meetings just as you outline and request an officer from the Federal Reserve Bank or branch
of that district to be present at the meeting. In this way
you ought to get results promptly.
Again with many thanks for your letter, believe me
Yours sincerely,
(Signed) Ernest G. Draper
Mr. Henry H. Heimann,
Executive Manager,
National Assocation of Credit Men,
One Park Avenue,
New York City.
EGDslef

224

225

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM

R-737

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

November 27, 194-0

Dear Sir:
For your information and that of the officials of your Bank
and branches designated as field representatives in connection with
the defense program, the Bank Management Commission of the American
Bankers Association held meetings in Washington on Monday and Tuesday
of this week. At these meetings it considered a draft of a pamphlet
it proposes to send to each banking institution in the United States
with respect to the financing of the defense program.
At the meeting Tuesday morning, which was attended by members of the Board and its staff and of the office of the Director of
Small Business Activities of the National Defense Advisory Commission,
a number of the problems connected with financing the defense program
were discussed, particular emphasis being placed on the best means of
obtaining information with respect to the arrangements bidders have
made for financing contracts awarded them.
It is expected that after the district representatives of
the Bank Management Commission return home they will call together
representative bankers in each State in their respective districts
for a full discussion of the problems connected with the financing
of the defense program. Dr. Stonier, Executive Manager of the
American Bankers Association, told us that he felt it would be helpful if officers of the Federal Reserve Banks designated as field representatives in connection with the defense program could attend such
meetings. It is assumed that the field representatives of your Bank
will hold themselves in readiness to attend such meetings as are
called in your district.
Very truly yours,

Chester Morrill,
Secretary.
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

226

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM

R-733

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

December 3 , 1940

Dear Sir*
In accordance with the usual practice, please
furnish the Board with a summary statement showing the
number and salaries of officers and employees of your
bank (including branches, if any) as of December 3 1 , 1940,
made out in accordance with the attached form.

The

figures/ which should not include any changes in either
the number of salaries of officers or employees that
become effective on January 1, 1941, will be published
in the Board's 194C Annual Report,,
Very truly yours,

E.
L.
tie
L i e Smead,
u n l t S c l U . y Chief
UaU-GJ. 9
Division of Bank Operations*
Enclosure

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

BOARD

227
R~73Sa

NUMBER AND SALARIES OF OFFICERS AND EMPLOYEES OF THE
FEDERAL RESERVE BANK OF
(INCLUDING BRANCHES)
December 31, 1940
Total officers
and employees
including those
whose salaries
are reimbursed
to the bank in
whole or in part
Annual salary of President

Officers and
employees (included in column
l) whose salaries
are reimbursed to
the bank in whole
or in part(a)

Other officers1
Number
Annual salaries

$_
$

Employees, both permanent and
temporaryi
Number (b)
Annual salaries

(a) Should represent aggregate of fractional amounts in the case of
employees whose salaries are only partly reimbursed to the bonk.
For example, if 25 per cent of the salary of an employee receiving
$1,200 a year is reimbursed to the bank, ,25 should be included in
the computation of the "number" of employees, and the amount of
salary reimbursed, $300> should be included in the computation of
the annual salaries.
(b) In the case of part—time employees, i.e., employees who are regularly
engaged for less than a full day, the "number" reported should
represent the portion of the full day worked. For example, if any
employee is regularly engaged for one-half of the usual working day,
.50 should be included in the computation of the "number" of
employees.

228

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM

R-739

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

December 5, 194.0

Dear Sir:
In accordance with its practice in recent years, the Board of Governors will be glad
to arrange to send to State bank examiners upon
request complimentary copies of the Federal Reserve Bulletin for 1941.

Accordingly, it will be

appreciated if you will submit at an early date
the names and addresses of all State bank examiners in your district to whom you suggest that
the Bulletin be sent.
Very truly yours

L. P. Bethea,
Assistant Secretary

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
EXCEPT CHICAGO

BOARD

229
BOARD OF G O V E R N O R S
OF THE

R-71+0

FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December J, 19li-0

Dear Sir:
There are being forwarded to you under separate cover
the number indicated of the following forms for use by your Bank
during 19l' 1:
Number of
copies

Form
F, R« 38

Classification of Discounted and Purchased
Bills Held at End of Month

F, Re 95

Current Earnings of Federal Reserve Bank

F e R. 96

Current Expenses of Federal Reserve Bank

F* R e 96a

Reimbursable Expenses of Federal Reserve
Bank

F. Re 160 )
160A) Receipts and Payments of Paper Currency-l60B)
Monthly report
l60C)
Forms E and
R, jk are now in the hands of the printer
and your supply will be forwarded in due course.
The supply of forms for branches has been mailed direct.
Very truly yours

Je Re Van Fossen, Assistant Chief
Division of Bank Operations•
TO THE PRESIDENTS 0F ALL FEDERAL RESERVE BANKS

230

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM

R-741

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 7, 19A-0

Dear Sir:
Enclosed for your consideration and comment is a proposed
amendment to Regulation U, "Loans by Banks for the Purpose of Purchasing or Carrying Stocks Registered on a National Securities Exchange",
which has been prepared ty the staff but not yet acted on by the Board.
The proposed amendment grows in large part out of certain rules recently issued ty the Securities and Exchange Commission relating to
the hypothecation of customers' securities by brokers and dealers, a
copy of which is also enclosed.
The first section of the proposed amendment, section 3,
would supply a mechanism ty which the bank, without impounding any
collateral needlessly and without waiving liens or cross liens by
means of complex loan agreements, can observe the collateral requirements of the regulation with respect to a loan subject to section 1,
particularly when the borrower has also a loan not so subject. It
will be noted that the requirement of proposed section 3(b) concerning the collateral which must be required in certain cases when making a loan does not require the bank, after the loan is once made, to
obtain additional collateral because of declines in market values or
credit ratings.
Section J+ of the proposed amendment grows altogether out of
the Commission's new hypothecation rules.
In preparing this amendment, the staff has had the benefit
of discussion with and suggestions from legal and other representatives of some of the large banks that will be most affected ty it.
In view of the fact that the Commission's new hypothecation
rules become effective on February 17, 194-1, and that the banks need
plenty of time in advance of that date to revise their loan agreements and adjust their operations, the Board wishes to make the necessary changes in Regulation U as promptly as possible. Jt will be
appreciated, therefore, if you will consider the proposed amendment

—2—

R-741

at your early convenience, using your own judgment as to whether to
consult persons outside your Bank and if so to what extent, and let
the Board have the benefit of any suggestions that you may wish to
offer within perhaps a week, or at most within two weeks, after receipt of this letter.
Very truly yours,

Chester Morrill,
•Secretary.

Enclosures 2
(Securities and Exchange Commission press release
sent only with addressed copies of letter.)

TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS

231

232
R-741*-a
Proposed Amendment to Regulation U - November 29, 194-0
(Occasioned by SEC rules issued November 15, 1940,
concerning hypothecation of customers' securities.)
Regulation U and the Supplement thereto are hereby amended
in the following respects, and such amendments shall become effective
February 17, 194-1, but any bank may, at its option, conduct its operations in accordance with such amendments at any time prior to such
date:
1. The following sections are added after section 2 of Regulation U,
and the succeeding section is renumbered accordingly:
Section 3.

Identification of Collateral

(a) (1) With respect to any loan subject to section 1—-i.e., a
loan that is secured directly or indirectly fcy any stock, is for the
purpose specified in section 1, and is not excepted by section 2 —
the bank shall identity all collateral used to meet the collateral
requirements of section 1 and shall not cancel the identification
except in circumstances that would permit the withdrawal of the collateral .
(2) Only collateral so identified shall have loan value for
purposes of section 1 or be subject to the restrictions therein specified with respect to withdrawals and substitutions.
(b) (1) Any indebtedness of the same borrower that is not subject to section 1 shall at all times be secured by at least as much
collateral not so identified as the bank acting in good faith would
require if the bank held neither the loan subject to section 1 nor
the identified collateral, except that this requirement shall not
apply to any loan described in section 2(d), (f), (g) or (h).
(2) Notwithstanding the preceding paragraph, declines in
market values or credit ratings shall (A) not require the bank to
call or reduce any loan or demand any additional collateral therefor,
(B) not prevent the bank from permitting withdrawals of collateral
against equivalent deposits of collateral or equivalent reductions
in the loan, and (C) not prevent the bank from increasing any loan
on the basis of equivalent additional collateral.
(c) (1) With respect to any indebtedness outstanding on February
17, 194-1, the bank need not make any identification of collateral
until immediately before it permits the borrower to increase his indebtedness or to withdraw or substitute collateral, except that such
identification shall be made in any event not later than August 15,
194-1.

233
—2—

R—V^-l—a

(2) When making such original identification with respect to
outstanding indebtedness, the bank shall then place under identification such collateral as would then have been under identification
if the requirement therefor had been in effect throughout the life of
the loan, and if there is in consequence any deficiency in the collateral not so identified the bank may treat such deficiency as if it
were due to declines in market values or credit ratings.
Section 4.

Customers' Securities Pledged
'by Broker or Dealer

(a) In case any broker or dealer has with the bank any indebtedness subject to section 1, and the bank accepts in good faith
from the broker or dealer information in writing that such indebtedness is secured by securities that are carried for the account of any
customer, the following rules shall apply for the purposes of this
regulation:
(1) such indebtedness so secured shall not be combined
with any other indebtedness of the broker or dealer that is
subject to section 1 and such securities shall not be combined with collateral which secures any such other indebtedness; and
(2) all such indebtedness so secured shall be considered a single loan and all such securities shall be considered in connection therewith, except that a given part of
such indebtedness that is secured 'ay any such security or
any group of such securities may be treated as a separate
loan if such security or group of securities secures only
the part that is to be treated as a separate loan and only
such security or group of securities is given loan value
for such separate loan.
(b) Securities "carried for the account of any customer" by
a broker or dealer shall not include securities carried for the account
of any general or special partner or any director oi* officer of such
broker or dealer, or any participant, as such, in any joint, group or
syndicate account with such broker or dealer or with any partner, officer or director thereof.
2. The second paragraph of the Supplement to Regulation U is amended
to read as follows:
Loans to brokers and dealers. Notwithstanding the foregoing,
a stock, if registered on a national securities exchange shall have a

234
-3-

R— 7/^l—s.

special maximum loan value of 75 per cent of its current market value,
as determined cy any reasonable method, in the case of a loan to a
broker or dealer from whom the bank accepts in good faith (1) a signed
statement to the effect that he is subject to the provisions of Regulation T (or that he does not extend or maintain credit to or for customers except in accordance therewith as if he were subject thereto),
and (2) information in writing that the stock is carried for the account of argr customer as specified in section 4(b) of Regulation U.

235

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM

R-742

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 9, 194-0

Dear Sir:
It is requested that, in accordance with the usual
practice, annual reports of holding company affiliates on Form
F. R. 437 be obtained for the year ending December 31, 194-0,
or for the holding company affiliate1s latest fiscal year if
it differs from the calendar year. Please deliver to each
holding company affiliate which has its principal executive
office in your district, and which holds a general voting permit, three copies of Form F. R. 437, with the request that
the annual report be filed in duplicate with your Bank not
later than February 1, 1941•
The necessary supply of Form F. R. 437 is being forwarded. to your Bank under separate cover. The form has not
been revised and is identical with the form used in connection
with the annual reports of holding company affiliates for 1938
and 1939. Also, the instructions contained in the Board's letter of December 23, 1938 (R-368) and the memorandum enclosed
with that letter (R-363-a) are still applicable to the handling of the reports, except certain dates mentioned in the
instructions. Accordingly, it is suggested that reference be
made to R-368 and R-368-a for information as to the procedure
to be followed in obtaining the reports.
Very truly your

L. P. Bethea
Assistant Secretary.

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

236

BOARD OF G O V E R N O R S

R-71+3

OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 13, 19^0

Dear Sir:
There have been forwarded to you today under separate cover
the indicated number of copies of the following forms, a copy of each
of which is attached hereto, for the use of State bank members and
their affiliates in submitting reports as of the next call date:
Number of
copies

Form
Form Ft R, 105 (Call 8 5 ) ,
member

Report of condition of State bank

Form F. R, lO^b (Revised August 1939), Loans and advances to
affiliates and investments in and loans secured by obligations of affiliates.
Form F, R. lO^e (Call 8 5 ) , Publisher1 s copy of report of
condition of State bank member.
Form F, R, 10^-1 (Revised December 19ii0), Personal and retail
installment paper.
Form F, R, 220 (Revised August 1935)* Report of affiliate
or holding company affiliate.
Form F. R. 220a (Revised December 1938), Publisher's copy
of report of affiliate or holding company affiliate.
Form F, R, 220b (Revised February 1938), Instructions for
preparation of reports of affiliates and holding company
affiliates.

237

E- 7)13
-

No change has been made in any of the forms except Form
F. Re lOF-i (Schedule A.l), which has been used only once before.
That form, is a supplement to Schedule A, Loans and Discounts, It
calls for the reporting bank1 s holdings of retail installment paper,
as it did a year ago, also for its holdings of F. H, A. Title I loans
and personal installment cash loans* Definitions of these items
appear on the schedule, Three copies of Form F. R. lO^-i should be
furnished to each State bank member. Two copies of the completed
schedule should be returned to the Federal Reserve Bank, and one of
these in turn should be forwarded by the Federal Reserve Bank to the
Board,
Very truly yours

L. P. Bethea,
Assistant Secretary.

Enclosures 7
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

238

BOARD OF G O V E R N O R S
'a***-***:

DF THE

FEDERAL RESERVE SYSTEM

R-744

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

December 14, 1940

Dear Sir:
There is attached a copy of the report of expenses of the main lines of the Federal Reserve Leased Wire System for the month
of November 1940.
Please credit the amount payable by
your Dank to the Board, as shown in the last
column of the statement, to the Federal Reserve
Bank of Richmond in your daily statement of
credits through the Interdistrict Settlement
Fund for the account of the Board of Governors
of the Federal Reserve System, and advise the
Federal Reserve Bank of Richmond by mail the
amount and purpose of the credit.
Very truly yours,

0. E. Foulk,
Fiscal Agent.
Enclosure
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
EXCEPT RICHMOND

BOARD

239
R.—Y44-&
REPORT OF EXPENSES OF MAIN LINES OF FEDERAL RESERVE
LEASED WIRE SYSTEM FOR THE MONTH OF NOVEMBER 194-0

Federal
Reserve
Bank

Number
of Words
Sent

Words Sent
try N. Y.
Chargeable
to Other
F.R. Banks

442.90 $
1,293.78
319.33
586.97

281.78 $
871.40
233.85
253.53

Boston
New York
Philadelphia
Cleveland

22,808
69,451
16,158
30,526

967
984
983

23,775
69,451
17,142
31,509

Richmond
Atlanta
Chicago
St. Louis

34,956
38,504
57,418
38,149

963
959
1,032
962

35,919
39,463
58,450
39,111

669.12
735-14
1,038.84
728.58

332.91
236.86
1,240.86
247.19

Minneapolis
Kansas City
Dallas
San Francisco

17,739
30,479
32,372
45,819

961
962
1,012
983

18,700
31,441
33,384
46,802

348.35
585.70
621.90
871.36

191.37
273.01
266.72
423.98

—

Payable
to
Board
of Governors

Expenses
Paid
by Banks
and
Board (2)

Pro Rata
Share of
Total Expenses (1)

Total
Words
Chargeable

Board of
Governors

330,433

6,155.50

9,589-51

Total

764,812

10,768

775,580

#14,447.97

$14,447.97

161.12
422.38
80.48
333.44
336.21
498.28
152.02(a)
481.39
156.98
312.69
355.18
447.88
-

$3,586.03
152.02(a)
13,434.01

(1)

Based on cost per word ($.018628601) for business handled during the month.

(2)

Payments by Banks are for personal services and supplies and payments by Board
are for personal services and supplies ($1,189.73) and wire rental ($8,848.59)
less amount ($448.81) representing reimbursement for the cost of sending messages between the Washington office of the Leased Wire System and the local
telegraph offices of the Treasury, Reconstruction Finance Corporation, and the
Commodity Credit Corporation. Personal services include salaries of main line
operators and of clerical help engaged in work on main line business, such as
counting the number of words in messages; also overtime and supper money and
Retirement Sty stem contributions at the current service rate.

(a)

Credit—reimbursable to Chicago.

240

BOARD DF G O V E R N O R S
OF THE

*******

FEDERAL RESERVE SYSTEM
R-7U5

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 11l, I9I1O

Dear Sir:
There have been forwarded to you today
under separate cover

copies of Form F. R. 107

to be used by State bank members in submitting
their reports of earnings and dividends for the
six months ending December 31* 19!'0.

The form is

unchanged from the one used in submitting reports
for the six months ended June 30, 19U0*
Very truly yours

L. P. Bethea,
Assistant Secretary

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

341

BOARD OF G O V E R N O R S
*******
..-9- - ifii?

OF THE

FEDERAL RESERVE SYSTEM
H-7I16

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

*******

December lL-, 191:0

Dear Sir:
For the information of your field representatives engaged in National Defense work, there
are enclosed copies of an inquiry received from a
Federal Reserve Bank with respect to certain data
contained in the IT. S. Government Advertiser and
of our reply thereto.
Very truly yours,

E. L. Smead, Chief,
Division of Bank Operations.

Enclosures (Two for each head office and each branch)
TO TEE PRESIDENTS OP ALL FEDERAL RESERVE BANKS
EXCEPT KANSAS CITY
(Enclosures with addressed copies only)

R-7l|6a

C O P Y

242

FEDERAL RESERVE BANK OF

December 9, 19ij-0

Mr. E, L. Smead, Chief,
Division of Bank Operations,
Board of Governors of the
Federal Reserve System,
Washington, D, C.
Dear Mr. Smead:
We have received our first issue of the IT. S.
Government Advertiser and have boon studying it with the view
of ascertaining how it can be utilized to advantage. One point
that puzzles us is the large list of names with no information
as to the amounts of contracts awarded but followed by varying
percentages of from l/lO of 1% to 15%* Our first thought was
that this might represent contracts for which certain concerns
were awarded from 1% to 15% of the totals, but this docs not
seem to be correct. It would not appear, however, that the
percentages could represent trade or cash discounts, since no
quantities or amounts arc shown. In any event, the information
seems to be of no particular value to us in this form. In
other cases wo observe names of manufacturers are listed without
information as to the nature of supplies to be furnished. We
find in another section where certain concerns have bid on kraft
envelopes at a fixed price per thousand, with a percentage figure
shown following such price, and we assume this is a cash discount
figure.
If there is available any sort of key or guide to
assist us in interpreting the bulletin, we would like to have it;
if not, we shall appreciate any information you may be able to
furnish.

Very truly yours,

First Vice President*

C O P Y

'•

R-7li6b

BOARD OF GOVERNORS OF THE FEDERAL RESERVE; SYSTEM

243

December I7), l^bo.
Mr.

Dear Mr,

,
J

Reference is made to your letter of December 9, 19^-0, regarding
certain information contained in the IT, S, Government Advertiser,
Upon receipt of your letter we telephoned the publisher and
were advised that no key or guide to the Advertiser is available to assist
in its interpretation* We were informed, how&ver, that all percentages
shown in the Advertiser relate to discounts.
We were also told that the information in the Advertiser is set
up in two ways, depending principally upon the number of bidders. If there
are a large number of bidders the names are first listed alphabetically and
a number assigned to each. For example, in the U, S, Government Advertiser
dated December S, 1 9 W , bids opened by the Navy Department on November 28
are listed beginning in the third column on page 1l and continuing to the
last column on page 5* A total of 157 firms submitted bids and these firms
are arranged alphabetically and given a key number, Following No, 157*
"Wellsville China Co., Wellsville, Ohio11, you will note the heading tTSch, ,
.l'068, S. & A," Lot 17 under this heading comprises 50,000 corrosion-resisting
steel paring knives. Only two of the 157 firms listed submitted bids on this
item - No, JO "international Silver Company, N.Y. City", and No, 1)j2, TtR,
Wallace & Sons, Kfg, Co,, Wallingford, Conn," The bid submitted by No. 70
was $*167 and by No, lii2, |, 1 6 7 5 • No, 70 offered a two per cent discount and
No, lli2, one per cent discount.
In the case of the bids on kraft envelopes referred to in your
letter, the information is set up paragraph by paragraph because of the small
number of bidders. The December 5 issue of the Advertiser, page J, third
column, indicates the Government Printing Office opened bids for these envelopes on December 2, Item 1 consists of 800,000 kraft envelopes No, iiO and
Item 2, 100,000 kraft envelopes No, 61;, There were seven bidders on these
two items. The Murray Envelope Corp., for example, bid #1.08 per 1,000 on
Item 1 and §1,96 per 1,000 on Item 2, less two per cent in both cases.
If you have any further questions regarding the information contained in the U, S, Government Advertiser, pi rase do not hesitate to call on us

Very truly yours,
(Signed)

E, L, Smead

E, L. Smead, Chief,
Divi si on of Bank Ope rati ens,

244

BOARD OF G O V E R N O R S

R-7b7

OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 16, l<pliQ

Dear Sir:
For your information there is enclosed a
copy of a letter, furnished to us this morning, addressed
by the Director of Purchases and Contracts of the War
Department to the heads of the various services of the
Department.
It is assumed that contracting officers may,
from time to time, communicate vtith the field representative or representatives of your Bank for the purpose
of obtaining information with respect to the financial
position, general character and responsibility of proposed contractors and for the purpose of obtaining the
necessary financing of both primary and subcontractors,
I know that such requests will reccivc the usual prompt
attention.
Very truly yorrs,

Ernest C-. Draper

Enclosure

TO THF PRESIDENTS OF ALL FEDERAL RESERVE B A M S

245
C 0

Ii-7it7a

December 9» 19^-0

SUBJECT:

Field contacts wixh Representatives of Federal Reserve
Banks in connection with procurement and supply,

TO:

The
The
The
The
The
The
The
The
The
The
The

Chief of the Air Corps,
Chief, Chemical Warfare Service,
Chief, of Coast Artillery,
Chief of Engineers,
Chief, National Guard Bureau,
Chief of Ordnance,
Chief Signal Officer,
Quartermaster General,
Surgeon General,
Chief of Finance,
Judge Advocate General.

1. Herewith for information, is a list of District Officers
of the Federal Reserve Banks who have been designated by the
Federal Reserve System at the request of the Advisory Commission
to the Council of National Defense to give special information
and assistance in response to requests therefor from (l) contracting officers with respect to potential primary contractors and (2)
contractors who have orders for national defense materials with
respect to business establishments which may be qualified to act
as sub-contractors on their contracts•
2, It is the intention of the Federal Reserve System to employ the facilities of Federal Reserve Banks to assist contracting
officers, primary contractors and sub-contractors in obtaining
special information or financial aid when requested to do so and
when such services are not available from the usual sources,
The services of the District Officers of the Federal Reserve Banks and branches thereof listed in the enclosure will be
available to contracting officers for any information or assistance
that may be requested. This assistance may bo found particularly
helpful in connection with the small contractor or sub-contractor
whose lack of financial resources may have precluded him from consideration in the past.

246
R-7jj.7a

ii. Contracting officers also may a vail..themselves of the faciiities of the Federal Reserve System to secure additional information regarding the financial position and the general character
and responsibility of proposed contractors with the War Department,
Contracting Officers desiring such information will communicate
with the nearest Federal Reserve Bank or branch thereof, addressing their inquiry to the officer of the bank shown on the attached
list* Any information so received will be held strictly confidential and used solely for the purpose of the proposed contract.
5* It is desired that the foregoing information be disseminated to contracting offices of your branch with the least practicable delay.
By direction of The Assistant Secretary of War:

John W.
Schulz,
Colonel, Corps of Engineers,
Director of Purchases and Contracts.
1 Inclosure
List

-2-

R-748

247

BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For release in morning papers,
Thursday, December 19, 194-0.

The following summary of general business and financial conditions in the
United States, based upon statistics
for November and the first half of
December, will appear in the January
issue of the Federal Reserve Bulletin
and in the monthly reviews of the
Federal Reserve Banks.

Industrial activity continued at a high rate in November and the
first half of December and distribution of commodities increased considerably.

Commodity prices generally showed, little change following earlier

advances.
Production
Volume of industrial production, which visually declines at this
season, showed little change from October to November, and the Board's
seasonally adjusted index rose 3 points further to 132 per cent of the
1935-1939 average.
Reflecting work on a large volume of orders for national defense
purposes and for civilian needs, activity in the machinery and textile industries continued to increase sharply.

At machinery plants and at cotton

textile mills activity reached new high levels and at woolen mills output
was close to the previous peak reached early in 1937.
Steel ingot production, which had been at about 94 per cent of
capacity in October, increased somewhat further in November and the first
half of December.

Automobile production continued in unusually large vol-

ume, amounting in November to around 500,000 cars and trucks.

Retail sales

-2-

R-748

of new cars have been large this autumn and production has been maintained
at high levels in order to supply this demand and to build up dealers'
stocks.

Lumber production declined less than seasonally from October to

November. New orders for lumber continued somewhat above the current rate
of production although below the high level of the three preceding months
when large orders were placed for cantonment construction.

Lumber stocks

at mills continued to decline and were smaller than at any time in recent
years.

Bituminous coal production increased considerably in November, fol-

lowing a sharp decline in the previous month, while output of crude petroleum was maintained at about the October rate.

Production of most metals

continued in large volume.
Value of total construction contract awards declined less than
seasonally in November.

In the 37 eastern States for which F. V«. Dodge

Corporation data are available total contracts showed little change; awards
for public construction increased further and those for private work declined by somewhat less than the usual seasonal amount.

In the far western

States contract awards showed a decline from the unusually high level
reached in October.
Distribution
Distribution of commodities to consumers increased considerably
in November.

Sales at department stores and mail-order houses rose sharply,

while variety store sales increased by about the usual seasonal amount.

the first half of December there was the customary large expansion in retail
sales.
Total freight-car loadings showed considerably less than the
usual seasonal decline in November and the early part of December. Loadings

-3-

R-748

249

of coal, which had been curtailed in October, increased sharply and shipments of ore and of miscellaneous merchandise declined much less than is
usual at this time of the year.
Wholesale commodity prices
Prices of basic commodities, which had risen substantially since
August, generally showed little change from the middle of November to the
middle of December.

Prices of a few imported commodities, particularly

cocoa, burlap, and shellac, increased considerably and there were small
advances in steel scrap and some other do.uestic commodities, while moderate
declines were reported for such varied commodities as lead, grains, and lard.
Bank credit
Total loans and investments at reporting member banks in 101
leading cities have increased sharply since the beginning of October.
Commercial loans continued to increase in November and the first half of
December, and holdings of United States Government obligations at New York
City banks rose sharply.

Principally as a result of the expansion of bank

loans and investments. Government expenditures, and foreign disbursements
financed by additional gold imports, bank deposits increased to new high
levels.

At the same time there has been a considerable increase in cur-

rency in circulation partly in response to seasonal trade demands.
United States Government security prices
Prices of United States Government securities continued to rise
during the latter half of November and the early part of December, and the
1960-65 bonds advanced to successive new high levels, with a peak of about
111 5/8 on December 10.

The yield on this issue declined to a low point

of 2.03 per cent on the latter date, but increased slightly toward the
middle of the month, reflecting some easing in prices.

250
BOARD OF G O V E R N O R S
of

t h e

FEDERAL RESERVE SYSTEM

R-7U9

w a s h i n g t o n
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 18, I9I4.O

Dear Sir:
There is enclosed a supply of pages 1 and 10 of
Form E, Functional Expense Report, revised July 1, 19!'0,
which should be substituted for sheets bearing the same
numbers in such sets of the form as you may have in stock.
It m i l be noted that on these sheets provision has been
made for the inclusion of the National Defense function#
The supply of complete sets of Form E requested
by your bank for use during the coming year will be
forwarded in due course•
Very truly yours,

E. L, Smead, Chief>
Division of Bank Operations

Enclosures
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

2 5 1

BOARD OF G O V E R N O R S
of

*******

R-750

t h e

FEDERAL RESERVE SYSTEM
w a s h i n g t o n
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 19, I9I4O

fr-

Dear Sir:
In connection with their end-of-year call reports
State bank members will be requested to report the amounts of
"personal and retail installment paper" as provided in the
Board* s letter R-7^3 of December 13, 19W *
The Comptroller of
the Currency has requested national banks to report the same
data. A copy of the schedule, form F, R. 10^i, on which State
bank members will report personal and retail installment paper,
is enclosed*
it is believed that the information on retail installment paper will be useful in connection with analyses of member
bank operating ratios as compiled on form" P, R. hr^6 in accordance
with the Board* s letter R-68B of August 9, 19^-0 <1 Accordingly,
it will be appreciated if you will arrange to have the total
holdings of personal and retail installment paper, as reported
by each of your member banks, entered on form P.R. L.56 in the
space immediately below the bottom of the column headed " Dec,"
in section A of the work shoot* The amount should be entered
in thousands of dollars, with the nearest hundred shown as a
decimal, as in the case of other figures entered in this section.
The percentage ratio of this figure to total loans at the endof-year call date should then be computed to the nearest tenth
of 1 per cent, as in the case of other ratios, and entered in the
space below the bottom line of the "Averages" column in section A,

L. P* Bothoa,
Assistant Secretary,
Enclosure•
TO THE

PRESIDENTS OP ALL FEDERAL RESERVE BANKS.

252

BOARD OF G O V E R N O R S
of

t h e

FEDERAL RESERVE SYSTEM

B-751

w a s h i n g t o n
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 19* 19^0

Dear Sir:
There have been mailed to you today
by Mr. Mehornay's office 25 copies each of explanatory statements describing the Emergency
Plant Facilities Contract and the Assignment of
Claims Act prepared in the office of the Advisory
Commission to the Council of National Defense.
Three copies of each statement have been sent to
each of your branches, if any.
Very truly yours,

E# L. Srnead, Chief,
Division of Bank Operations.

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

253

BOARD OF G O V E R N O R S
of

t h e

FEDERAL RESERVE SYSTEM

R-752

w a s h i n g t o n
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 21, 194-0

Dear Sir:
On Mew Year's Day the offices of the Board of Governors
of the Federal Reserve System and all Federal Reserve Banks and
branches will be closed.
Inaugural Day, Monday, January 20, is a legal holiday in
the District of Columbia, and while the Board's offices will be
closed, the telegraph office will be open and transit clearing
wires for January 18 will be dispatched as usual. There will be
no Federal Reserve note clearing on January 20.
The Board is advised that the following holidays also
will be observed by Federal Reserve Banks and branches during
January:
January 8
(Wednesday)

New Orleans

Anniversary of the
Battle of New Orleans

January 20
(Monday)

Richmond
Charlotte

In observance of the
anniversary of the
birthday of General
Robert E. Lee which
falls on Sunday

Atlanta
Birmingham
Jacksonville
Nashville
New Orleans
Little Rock
Louisville
Memphis
Dallas
El Paso
Houston
San Antonio

-2-

R-752

On the dates given the offices mentioned will not participate in either the transit or the Federal Reserve note clearing
through the Interdistrict Settlement Fund. Please include transit
clearing credits for the offices concerned on each of the holidays
with your credits for the following business day.
Please notify branches.
Very truly yours,

F. A. Nelson,
Assistant Secretary.

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

2 5 4

255
BOARD OF G O V E R N O R S
**«****».

rffijgfe

t h e

FEDERAL RESERVE SYSTEM

R _ ?53

w a s h i n g t o n
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 26, 1940

Dear Siri
For your information, and in order that correct
comparative figures may be published in the consolidated
weekly condition statement of the Federal Reserve Banks
for 1941, if issued at your bonk, there are shown below
revised 1940 weekly Federal Reserve Bank press statement
figures received too late to be reflected in the comparative column of the following week1s statement.
REVISED FIGURES III CONSOLIDATED WEEKLY
STATEMENT OF CONDITION OF FEDERAL RESERVE
BANKS IN 1940, NOT REFLECTED IN THE
COMPARATIVE COLUMN OF THE FOLLOWING
WEEK'S STATEMENT
(in thousands
of dollars)
January
Other
Total
Other
Total

3
assets
assets
capital accounts
liabilities and capital accounts

June 5
Deposits:
Foreign
Other deposits
June 12
Bills discountedi
Secured by U. S. Gov't obligations
Other bills discounted
Deposits I
Foreign
Other deposits

58,254
19,102,476
34,662
19,102,476

460,411
488,091

1,071
1,346
461,216
552,894

E 753

256

(in thousands
of dollars)
June 19
DepositsI
Foreign
Other deposits

666,014
432,301

June 26
DepositsI
Foreign
Other deposits

664,720
474,856

July 3
Deposits:
Foreign
Other deposits

755,373
489,981

July 10
Deposits:
Foreign
Other deposits

767,123
506,707

July 17
Deposits:
Foreign
Other deposits

800,436
498,085

July 24
Deposits I
Foreign
Other deposits

814,582
512,853

July 31
Deposits:
Foreign
Other deposits

843,419
538,943

August 7
Deposits:
Foreign
Other deposits

893,557
492,797

August 14
Deposits:
Foreign
Other deposits

937,798
506,467

August 21
Deposits:
Foreign
Other deposits

962,928
522,597
Very truly yours,

J. R. Van Fossen, Assistant Chief,
Division of Bank Operations

TO
THE
PRESIDENTS
OF
ALL
FEDERAL
RESERVE
BANKS

257

BOARD OF G O V E R N O R S
of

t h e

E-75I1

FEDERAL RESERVE SYSTEM
w a s h i n g t o n
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 27, 19l'0

Dear Sir:
During the recent Presidents' Conference
some of the Presidents asked me to send them copies
of any reports I submitted to the Board covering
activities of the Federal Reserve System in connection
with the defense program. For your information, there
is enclosed a copy of my first report dated December
21. It is now contemplated that future reports will
be made at approximately monthly intervals.
Very truly yours,
£
Ernest G# Draper.

Enclosure
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

R-751

December 21, 1940
TO:

Board of Governors

FROM:

Governor Draper

The purpose
summary of our recent
to transmit a summary
field representatives

SUBJECT:

Report of Defense
Activities

of this memorandum is to give the Board a brief
activities in behalf of the Defense program and
statement of the activities of the Reserve Bank
in this connection.

On October 25 the National Defense Commission requested the
Board to act as its operating agent in assisting the smaller business
enterprises in obtaining defense contracts arid such financial aid as
might be required. The Defense Commission suggested that the Board
designate one of its members to have charge of this work and request
each Reserve Bank to detail an officer at each Head Office and Branch
to serve as field representative. The Board advised the Commission
on October 26 that the System would be glad to assist in the manner
indicated and that I had been requested to take charge of the activities in question. On November 2, 1940, the Reserve Banks were advised
that the names of the field representatives had been placed on the
mailing lists to receive press statements, publications, etc. as released by the Defense Commission.
Each Federal Reserve Bank and Branch has been placed on the
mailing list of the United States Government Advertiser, a paper published in Washington each Thursday, listing all Government contracts
let during the preceding week, bids asked for, etc., and for the semimonthly statement "Contracts and Expenditures" compiled by the Office
of Government Reports in collaboration with the National Defense
Commission, which shows all contracts (exclusive of those not made
public) let during a semi-monthly period.
At the suggestion of the Defense Commission, a conference was
held in Washington on November 12-13 in order fully to acquaint the
field representatives with the details of the program and prior thereto various memoranda were forwarded to the field representatives for
their information. The Conference was attended by forty-seven Reserve
Bank officers. In addition to representatives of the Board and of the
Defense Commission, representatives of the War, Navy, Treasury, and
Commerce Departments, the Reconstruction Finance Corporation, the
Securities and Exchange Commission, and the Tennessee Valley Authority
also attended the Conference.

259

R-7&&

-2-

•

-•

It was the understanding at the Conference that the Reserve
Bank field representatives would be in a position to familiarize local
banks with the procedure to be followed in accepting assignment of
Government claims as security for loans; to encourage local banks to
make loan commitments on condition that borrowers obtain Government
contracts; to furnish business enterprises in their districts with
information on the procedure to be followed relative to obtaining Defense contracts; and to assist small business enterprises in obtaining necessary financing from their local banks.
On November 16, 194-0, a draft of letter indicating briefly
the services which the Reserve Banks are in a position to render in
connection with the Defense program was sent to the Presidents of the
Reserve Banks with the suggestion that a letter along that line be
addressed promptly to all banks in their respective districts. The
Reserve Banks were furnished a report form entitled "Facilities For
Defense Supplies" and were requested to have the form printed and
forwarded to commercial banks to be filled out for concerns interested in supplying Defense articles. Two copies of each completed
report are mailed by the Reserve Banks to the Board's Division of
Bank Operations, one of which is given to the Director of Small Business Activities of the National Defense Commission. These reports
are now being received, and, while they are corning in rather slowly
except from one or two districts, the indications are that they will
presently be received in larger volume and will be very helpful.
The Reserve Banks were advised that all financial problems
on which they need information or assistance from Washington should
be taken up with the Board's Division of Bank Operations, and that
all problems relating to purchasing of materials and supplies ty the
armed services, bidding procedure, and the like should be taken up
directly with the Office of the Director of Small Business Activities
of the National Defense Advisory Commission.
Numerous telephone, telegraph, mail, and personal inquiries
have been received requesting information or assistance with respect
to various financial and other problems that have arisen, and all such
inquiries, I believe, have been answered with the utmost dispatch,
generally either on the day they were received or the following day.
While many of these inquiries were of a minor nature and, therefore,
were not recorded, acre than 50 have been deemed sufficiently important to warrant the maintenance of written records in connection
therewith. Each such case has "been assigned a number and written up
on Form F. R. 536 entitled "Defense Contract Case Handled through
Federal Reserve Bank". This form provides for showing the District,
name of contractor or sub-contractor, material, contracting agency,

260
R-75ha

source of inquiry, bank involved (if any), "facts", and "disposition".
A summary statement covering thirty-nine of these cases is attached.
This record should prove helpful in handling any future inquiries of
a similar nature and also in answering any questions that may be raised
with respect to the disposition of a particular case. When questions
of a general nature have been raised, the substance of our replies has
been transmitted to all Federal Reserve Banks for their information.
A number of the Reserve Banks have indicated that they arc appreciative
of our promptness in answering their inquiries,
In our letter of December $, S-240, the Federal Reserve Banks
were requested to render reports each Monday of the activities of their
field representatives on behalf of the Defense program. The first reports, which cover the period from November 12 to December 7, are attached. From these reports it appears that the Reserve Banks have circularized the banks in their districts, their representatives have
addressed meetings of bank associations and numerous inquiries received
through banks and through others have been answered. It appears that
many business concerns have been aided either in obtaining Defense contracts, or in necessary financing, in some instances under the provisions of Section ll-b. Commercial banks are reported as responding
satisfactorily and as being prepared to cooperate fully in promoting
the National Defense program. As might be expected, some criticism has
been reported of the Reconstruction Finance Corporation*s announcement
of a rate of one and one-half per cent on Defense loans made by it.
There is also attached a summary of the reports prepared by the Division of Bank Operations. A copy of this summary is being furnished the
office of the Director of Small Business Activities in response to its
request.

(Signed) Ernest G. Draper

Attachments

261
R-75ii.b

DEFENSE CONTRACT CASES HANDLED
THROUGH
FEDERAL RESERVE BANKS
Date

F.R.Bank

Subject

10/31

Chicago

Request to expedite assignment of claim of $15,000
as security for loan of $10,000 to be made by Main
State Bank of Chicago

10/31

Cleveland

Request to permit 30 percent advance on War Department contract to be deposited in a State member bank
rather than a National one.

11/1

Cleveland

Inquiry as to whether subcontractors can benefit
from Emergency Plant Facilities contract on same
basis as primary contractor.

11/6

Kansas City

Request for advice as to the necessary steps to
be taken in order to have an assignment accepted
by War Department

11/15

Minneapolis

Request for Navy specifications for 145,000 paii*
gymnasium shoes.

11/15

Pittsburgh

Request for advice regarding the procedure to be
followed in obtaining an advance on a Government
contract.

11/19

Chicago

Request for information concerning procedure to be
followed in securing proper certification under
Section 124 of the Internal Revenue Act.

11/20

Richmond

Request for a copy of Navy contract for the erection
of housing facilities at Norfolk Navy Yard,

11/22

Cleveland

Request (l) as to purchasing officer at Camp Holabird
(2) whether assignment instrument may provide that
checks be payable solely to the assignee.

11/22

Chicago

Request that contracting officers at Fort Sheridan,
Illinois, be advised with respect to assignment of
claims procedure.

11/25

Chicago

Request from War Department to investigate the
responsibility and financial condition of Vilter
Manufacturing Company,

" I B

Date

F. R. Bank

11/26

Chicago

Request for information as to definite procedure
to be followed in making application for Emergency
Plant Facilities.

11/26

Cleveland

Request for information as to whether or not offset
law relating to Army and Navy contracts is applicable to Treasury contracts.

11/22

Minneapolis

Request that an effort be made to release a contracting company from its contract with the Navy.

11/23

Cleveland.

Request for advise as to whether or not certain
contracts contain any prohibitions against their
assignment as collateral for a loan.

11/19

Minneapolis

Request for information regarding three contracts
and questions relating to general policy matters
involving these contracts and all future contracts
with both Arny and Navy.

10/28

Minneapolis

Request for specifications of certain supplies for
Air Corps.

11/18

Cleveland

Request to expedite consideration by War Department
of an application for Emergency Plant Facilities,

11/26

Boston

Request firon War Department to investigate the
responsibility and financial condition of the
Cowdrey Machine Works*

11/29

Portland

Request to investigate industrial facilities for
making gun mounts.

11/29

Cleveland

Request for information regarding the preparation
of Emergency Plant Facilities contract for subcontractors.

11/29

New York

Reqeust from War Department to investigate the
responsibility and financial condition of the
Electric Arc Cutting and Welding Company,

11/29

Dallas

Request to expediate an assignment of claim to
the Federal Reserve Bank, which is making a loan
to finance Dallas Cotton Mills Company,

12/2

Philadelphia

Request as to whether or not the Navy could
guarantee a contractor against loss on Emergency
Plant Facilities, if contracts are cancelled, other
than by the provisions of the Emergency Plant
Facilities contract.

Subject

263
R-75Ub
-3Date

F. R. Bank

Subject

11/28

Minneapolis

Request for expediting delivery to potential bidders
of Army and Navy specifications.

12/2

Philadelphia

In filing
required,
certified
execution

12/3

Chicago

Request to expedite consideration of a request to
assign claim filed with contracting officer at
Erankford Arsenal, Philadelphia,

12/4

Boston

Request for information as to proper officer of
American Red Cross to be communicated with in
regard to yarn requirements,

11/30

Portland

Request that industrial facilities for the manufacture
of wooden ships be investigated by the Navy Department.

12/5

Baltimore

Request that the War Department not require a contracting company to file application for assignment
with contracting officer located in Porto Rico but
permit the application to be filed directly with
the office of the Assistant Secretary of War,

12/5

Chicago

Request that War Department notify a contracting
officer in Madison relative to assignment of claims
procedure.

12/2

Cleveland

Request from War Department to investigate the
responsibility and financial standing of the
Robertshaw Thermostat Company,

12/6

Chicago

Request for information as to whether War Department
considers an option to purchase property a contract
against which a resulting claim can be assigned
as security for a bank loan.

12/5

Chicago

Request for specifications of caskets used by War
Department for burial of deceased soldiers,

12/6

Cleveland

Request for information as to bids to be opened
for 1,000,000 gallons of paint.

assignment of Government contracts it is
in the case of a corporation, that a
copy of resolution be attached authorising
of assignment by officers.

R-75Ub

264

-4Date

F. R. Bank

Subject

All Federal
Reserve
Banks

Request to discuss with War Department a method
of expediting the handling of requests for
assignment of claims.

12/7

Philadelphia

Request that the War Department permit a 30
percent advance on a contract to be deposited
in a State member bank rather than in a
National Bank.

12/7

New York

Request that the War Department permit a 30
percent advance on a contract to be deposited
in a State member bank rather than in a
National Bank,

12/6

Kansas City

Request to confer with War Department relating
to the assignment of a claim resulting from a
contract for the construction of a large arms
plant near Kansas City.

R-75ho
Summary of Federal Reserve Bank reports on activities of field
representatives in behalf of the Defense program, Nov, 12- Dec, 7, 19^0

265

Boston
The banks in the First District are responding very warmly in
their desire to cooperate with the National Defense program. Most of the
inquiries received have been in respect to the procedure to be followed
by banks in reaching their customers as the desired information is not
available in the banks1 files. Some banks have contacted their customers
individually but the larger ones have resorted to newspaper advertisements,
A group has been formed of six senior officers of banks in the
larger cities of Connecticut and in response to its request the Reserve
Bank is sending a representative to Connecticut to serve as secretary of
the group and to make personal contacts with all commercial banks in that
State, The establishment of similar groups through the banking associations in other states is under consideration.
A meeting of all commercial banks in metropolitan Boston was
held under the sponsorship of the Boston Clearing House Association on
December Ij. to discuss matters relating to the Defense program. This meeting was attended by Mr, Hult and by the representative for the First District of the Bank Management Commission of the American Bankers Association.
Not over 15 individuals called at the Reserve Bank and all but
two were familiar with bidding for Government contracts and merely inquired whether there was any other line they might adopt in order to expand
their businesses. Investigation proved that two concerns which had been
awarded contracts had neither the facilities nor the ability to fulfill
any Government contract.
Contacts were established with the Ordnance
Department, Boston, and with several associations in and outside Boston.
No bank visited by the Bank Relations representative reported
any recent demand for Defense financing and none stated that any immediate
demand was in evidence. The following two points were referred to by
bankers as deterrent to their undertaking a widespread campaign for loans:
(l) Announcement of R.F.C. with respect to rates; and (2) Feeling that
many small concerns may not be able to determine production and labor costs
accurately enough to make financing of operations against contracts secured
by Competitive bidding a good banking risk for small banks not experienced
in making industrial loans. Certain large banks located both in and outside the First District are actively soliciting Defense loans, The only
rate that has been heard quoted is that of three per cent by a Boston bank.

R-7$lc
-2-

<566

Boston (Continued)
The Reserve Bank* s Statistical Department indicates that vdthou t available data with respect to the completion of Defense contracts
to subtract from the cumulative Government contract totals awarded, a
very false expectancy on pay rolls, employment, trade, and prices may
exist within the next year. The Statistical Department states that up
to October Jl9 19210, $1,322,1:78,000 had been awarded in Hew England and
asks, for example, how much has been completed now and how much will
have boon completed by December *1.
New York
One application has boon received to participate with member bank in a loan of $1,000,000 to a concern which has an Army contract.
Arrangements have been made for the facilities of the Reserve
Bank to bo used on December 17, 19^0, for the purpose of bringing together the District representatives of the Now York State Bankers Association and some Connecticut and New Jersey bankers to discuss the
Defense program.
Forty-one individuals representing principally manufacturers
and contractors have called at the Reserve Bank, Of the lil interviews,
3^ were primarily concerned with obtaining contract work and represented,
for the most part, small manufacturers of steel and other metal products.
The remaining eight inquiries pertained solely to requests for financial
aid. In four of such cases it was ascertained that reasonable bank
credit was available and the inquiries were the result of a desire for
lower interest rates or a misunderstanding that the Government proposed
to finance directly all Defense work* In two instances individuals desired equity capital in order to purchase nonoperating plants* The remaining two cases desired Government funds for capital investment in
new enterprises in excess of a sum of private capital already available.
Forty-six letters have been received from various concerns
asking how they might participate in National Defense work. Each letter
was answered and Circular No* 2lii7, together with the forms entitled
ft
Facilities for Defense Supplies", were enclosed. Numerous telephone
inquiries have been received from financial institutions concerning the
procedure and mechanics of a bank loan secured by the assignment of
claims under a Government contract.
Banks in the Second District located in Fairfield County, Connecticut, have indicated that the Eerchants Association of Connecticut
has completed a thorough study of the manufacturing facilities of the

R-75kc
2 6 7

New York (Continued)
entire State and that its report has been made available to the National
Defense Commission* These banks have decided, therefore, that further
to pursue the matter by means of the Reserve Bank's facilities would be
a duplication of work which it is claimed is more detailed than that required by the Reserve Bank.
The Buffalo Branch has received 25 telephone calls and had 12
interviews with business men *&id banks.
Officers of the Reserve Bank have discussed the Defense program
with various Procurement officers and are now in a position to contact
them as occasion arises.
Philadelphia
Circular letters were sent to all banking institutions in the
district furnishing copies of the !tEmergency Plant Facilities Contract",
and explaining the functions and facilities of the Federal Reserve
System in the Defense program. The circular entitled TfFinancing National
Defense" was also sent to all banking institutions and to approximately
2,000 industrial concerns that report to the Federal Reserve Bank monthly
on employment, payrolls, etc.
Regional meetings of banking groups at Scranton and WilkesBarre were addressed by President Sinclair, and similar meetings at
Bethlehem and Reading were addressed by Vice President and Field Representative Davis. Articles placed in leading newspapers throughout
the district have resulted in inquiries by letter and telephone.
Fifty-four inquiries were received as to how to get supplies
contracts; three as to how to arrange facilities contracts; ten as to
how to finance supplies contracts, and thirty-five for general information. During the report period six applications for l^-b loans for
defense purposes have been received, of which four, in the amount of
$5,870,000 have been approved. The other two applications are under consideration. In addition, extensions on payments on five outstanding
13-b advances have been granted to assist the borrowers in financing
defense orders on hand.
The attitude of the banks in the district has been generally
cooperative and there exists an evident desire to assist to the fullest
extent in financing the National Defense program,

R-75/+0

268

Cleveland
Banks in the Fourth District have requested 7,208 forms
captioned ?fFacilities for Defense Supplies*1 and jb. banks have returned 198 completed forms.
Personal interviews at the head office have ranged from
two to eight daily and the number at each of the branches not quite
as high. Most of the interviews have been with representatives of
manufacturing concerns which wish to obtain Government business.
Several subcontractors have inquired about the procedure for obtaining Emergency Plant Facilities Contracts and a number of telephone
calls have been received from banks. The Reserve Bank was ef assistance in closing negotiations between The Winters National Bank
and Trust Company of Dayton, Ohio, and the Sheffield Gage Company
of Dayton for an Emergency Plant Facilities Contract.
Representatives of the Reserve Bank have made the acquaintance of Ordnance Procurement officers in Cleveland, Cincinnati, and
Pittsburgh. Arrangements have been made for eight or nine meetings
in January of bankers in various parts of the Fourth District,
One application for a line of credit in the amount of
$650,000 for Defense purposes has boon received and will be presented
to the Industrial Advisory Committee on December lo.
The inquiries which the Reserve Bank has passed on to the
Board's offices have been handled with dispatch.
Ri chmond
Ytfhile only 56 'TFacilities for Defense Supplies'* forms have
been received to date, there have boon requests for additional forms
and it is evident that a great many more will be received in due course,
A sample form of assignment prepared by the Reserve Bank* s
Counsel was furnished to several banks at their request and was favorably received.
The Reserve Bank has assured two banks where customers' needs
are in excess of their legal limits that it will give favorable consideration to participating in such loans if not practicable to have the
loan divided between two or more commercial banks.
In the case of one industrial borrower, the terms of a direct
advance by the Reserve Bank were revised in order to assist the company
in financing a ••)!,9&0,000 contract for the manufacture of anti-aircraft

-5Richmond (Continued)
shell cases. Under the provisions of Section l^b there have been approved recently loans totaling v175»000 to three enterprises engaged
in supplying defense needs. While most of the larger concerns with
Government orders apparently have sufficient credit, at least for the
present, to enable them to finance themselves without difficulty, one
such concern has requested assistance and has been invited to discuss
the matter with the Reserve Bank.
Atlanta
In response to its circular letter of November 19, 19U-0,
the Reserve Bank received and sent to the office of the Director of
Small Business Activities the names of 110 concerns to be placed on
the invitation bidding lists of Army and Navy Procurement- offices.
The Reserve Bank has examined all statements on Form ND~1
and has communicated with the banks submitting them in cases where it
appeared assistance in supplying working capital might be given.
A meeting to acquaint bankers with the part which they may
play in the Defense program is to be held in the Reserve Bank Building
on December 12 under the auspices of the Georgia Bankers Association
and the Federal Reserve Bank of Atlanta, A similar meeting will be
held in Now Orleans on the same date and arrangements for meetings at
Birmingham, Jacksonville, and Nashville are under way.
Mr * William C. Cram, Jr., an industrial engineer, has been
retained as Technical Advisor to the Reserve Bank.
A survey is being made for the Navy Department of all plants
at the South Atlantic and Gulf ports in the District which should be able
to build, service, or repair boats up to 200 feet.
The Reserve Bank has not financed or directly participated
in the financing of any contractors but discussions have been held with
a number of banks on matters involving financing. Advice has been given
to a number of banks concerning the Assignment of Claims Act of l^h0. A
pamphlet, entitled 'Financing National Defense", following closely that
issued by Philadelphia is being prepared for distribution to all banks
in the District.
Mr. Neely has personally talked with Navy Procurement officers
and has been exceedingly helpful in the formulation of the Reserve Bank*s
plans for National Defense.

-6-

Chicago
The response to the Reserve Sank's questionnaire of November
18 vie,s immediate and the results are reflected in the following summary: Loans or commitments made, 2; correspondence, hjyO; interviews,
95; telephone calls, 211; questionnaires transmitted to Board, $21. A
number of meetings were held with bank representatives relative to the
program for developing the information called for in the questionnaires.
Various Army and Navy officials have been invited to have lunch at the
Reserve Bank and to discuss phases of mutual interest. These meetings
have been extremely helpful and it has been found possible to solve
many local problems by communicating with local Army and Navy officials.
Seme manufacturers have asked that engineers be sent to their
plants with a view to advising the types of Defense products that could
be supplied with their facilities. In such cases the Reserve Bank has
requested that Army engineers make the surveys and they are cooperating
very effectively.
At the request of the local Ordnance Department, the Reserve
Bank forwards to it, direct, copies of all questionnaires received.
The Ordnance Department maintains a complete card index on industries
and answers requests from large concerns holding prime contracts for
information regarding smaller manufacturers to whom they could sublet
contracts for parts.
Smaller manufacturers have experienced considerable difficulty
and delay in effecting assignments due to the fact that Procurement
Officers were not informed concerning the procedure, but now that regulations have been issued by the War and Navy Departments it is assumed
that the assignments can be functioned with reasonable expediency.
While every effort is being made to help the smaller manufacturer in arranging for financial aid through normal banking channels,
the Reserve Bank advanced §2,000 to one applicant in immediate need of
assistance to moot his pay roll and a commitment agreement has boon
entered into in connection with ^0 per cent of a Wi,000 loan at Detroit.
St. Louis
"Head Office. Visits were made to interested Army officers in
St. Louis* Between 50 %nd 75 representatives of business concerns were
interviewed and information given with respect to having their names
placed 011 lists to receive invitations to bid. Two of the individuals
interviewed were given information as to the procedure they should follow in obtaining financing through their local banks. An informal talk
was made to a group of about 25 St. Louis bankers concerning the Defense
program. After the talk specific questions regarding the making of loans
on the security of an assignment of a Government contract were answered

R-75L.0

371

St. Louis (Continued)
in a round-table discussion which lasted about one and one-half hours.
Advioe was given to five local banks in connection with specific loans
being considered by these banks• No applications and only two inquiries with respect to a 13*"b loan in connection with Defense work
were received.
Little Rock Branch. Since local banks are not interested,
the Mercury Mines, Inc., Little Rock, which has a contract to furnish
750 flasks of mercury to the Government for %190,000, intends to file
application with the Reserve Bank for a loan to finance the contract.
Conversations have been had with presidents and vice-presidents of
Little Rock banks and other bankers in the district with reference to
the Defense program.
Louisville Branch. One industrial plant was visited, and information collected and forwarded to the National Defense Commission* One
member bank was visited regarding the questionnaire. Correspondence was
had with one member bank securing a survey of industrial facilities of
the city in which located. A visit was made to the Procurement officer
at the Jeffersonville Quartermaster Depot. Three inquiries wore received
and referred to other Federal Reserve Banks. Eight inquiries were received and answered.
Memphis Branch. One inquiry has been received and referred to
the New Orleans Branch. Steps necessary to secure contracts under the
Defense program were explained to the secretary of one out-of-town chamber
of commerce. Inquiries received from five concerns, all of which have or
can obtain sufficient financing, were referred to Mr.Nelson1 s office.
The Second Army has moved its headquarters from Chicago to Memphis and
the Commanding Officer has been visited.
Minneapolis
Letters have been mailed to banks, industrialists, chambers
of commerce, etc., and a meeting of all bankers from potentially industrial districts has been arranged. A luncheon attended by the heads of
the larger Minneapolis Banks was given by the Reserve Bank on December 9
in preparation for this meeting.
While the Ninth District probably will not receive many direct
contracts, the Reserve Bank is confident that the District will secure
some of the subcontracts. Everyone is giving full cooperation and the
Reserve Bank is forcing the issue as rapidly as possible.

-8r

273
R-75ltc

Kansas City
After mailing a circular letter to all banks, the Reserve
Bank began visiting the larger ones and while all indicated a desire
to cooperate, some were critical of what seems to be a duplication
of effort on the part of several agencies and many bankers expressed
displeasure over the statement of Mr. Jesse Jones relating to a rate
of l^l/2 per cent on loans secured by assignment of Defense contracts,
Through the Reserve Bank*s efforts a considerable amount of
favorable publicity has been given the Defense program* At Kansas City
meetings of the Chamber of Commerce and the Clearing House Association
have been attended and the Reserve Bank has cooperated with the' dis*
trict representative of the Bank Management Commission of the A,B.A,
Discussions have been had with the newly established Quartermaster1 s
Depot in Kansas City. At the branch cities meetings have been held
with chambers of commerce, and at all offices interviews have been
had with bankers and manufacturers# Many inquiries have boon received from bankers and manufacturers relating to their own particular problems and, in several instances, valuable information has been
obtained from the office of the Director of Small Business Activities
as well as from Mr# Smead*s office* Letters addressed to both offices
have received prompt attention.
In not less than four instances the Reserve Bank has been
of service in connection with the award or financing of contracts, the
total amount involved being approximately #8,000,000, including one
contract for $7,500,000* In other instances the efforts of bankers
have been stimulated as a result of the Reserve Bank1 s activities
although the Bank has had no direct part in financing operations* One
banker advised the Reserve Bank that his bank had made loans aggregating more than !5*000,000 based on Defense contracts*
Dallas
Personal conferences have been held with 35 individuals who
called for the purpose of discussing the possibility of obtaining
Government contracts and in each instance the Federal Reserve Bank
has suggested that Form ND-1 be filled out and forwarded through a
local bank* In addition, the Reserve Bank has attempted to put them
in touch with the proper Procurement Officer of the Army and Navy.
Several callers had subcontracts or purchase orders from primary contractors and sought help in financing their business. In all cases
the Reserve Bank advised them to discuss the matter with their own
banks but to return in event they did not make arrangements for adequate financing* Inasmuch as none has returned, the Reserve Bank assumes
their needs were satisfied*

Dallas (Continued)
Numerous telephone and mail inquiries from bt.nks have
been answered with reference to financing Defense contracts.
The Reserve Bank has committed itself for a loan of
$87,000 to the Dallas Cotton Mills Company for new machinery and
working capital with which to carry out a Government contract of
$2h0,000 for furnishing tent material.
Mr. Stroud attended a dinner, given by President Houston
of the American Bankers Association for the executive officers of
the Association during its regional conference at Ft. Worth, and
made a short talk explaining the part of the Federal Reserve System in connection with the Defense program. The representative
of the Association's National Defense Loans Committee for the
Eleventh District spoke concerning the necessity of commercial
banks cooperating in the movement to the fullest extent.
San Francisco

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R-755

w a s h i n g t o n
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

December 27, 194-0

Dear Sir:
There is attached a copy of a resolution
adopted fcy the Board of Governors of the Federal
Reserve System levying an assessment upon the various Federal Reserve Banks in an amount equal to
three hundred and two thousandths of one per cent
(.00302) of the total paid-in capital stock and
surplus (Section 7 and Section 13b) of the Federal
Reserve Banks as of the close of business December
31, 194-0, to defray the estimated expenses and salaries of the members and employees of the Board
from January 1 to June 30, 194-1.
The resolution also contains instructions
with regard to the manner in which the payments on
the assessment shall be deposited with the Federal
Reserve Bank of Richmond.
Very truly yours,

0. E. Foulk,
Fiscal Agent.

Enclosure
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

BOARD

R-755-a
RESOLUTION LEVYING ASSESSMENT
WHEREAS, Section 10 of the Federal Reserve Act, as amended,
provides, among other things, that the Board of Governors of the
Federal Reserve System shall have power to levy semiannually upon
the Federal Reserve Banks, in proportion to their capital stock
and surplus, an assessment sufficient to pay its estimated expenses and the salaries of its members and employees for the half
year succeeding the levying of such assessment, together with any
deficit carried forward from the preceding half year, and
WHEREAS, it appears from a consideration of the estimated expenses of the Board of Governors of the Federal Reserve Qystem that
for the six-months' period beginning January 1, 194-1# it is necessary that a fund equal to three hundred and two thousandths of one
per cent (.00302) of the total paid-in capital stock and surplus
(Section 7 and Section 13b) of the Federal Reserve Banks be created
for such purposes, exclusive of the cost of printing, issuing and
redeeming Federal Reserve notesj
NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF GOVERNORS OF
THE FEDERAL RESERVE SYSTEM, THAT:
(1) There is hereby levied upon the several Federal Reserve
Banks an assessment in an amount equal to three hundred and two
thousandths of one per cent (.00302) of the total paid-in capital
and surplus (Section 7 and Section 13b) of each such bank at the
close of business December 31, 194-0.
(2) Such assessment shall be paid ty each Federal Reserve
Bank in two equal installments on January 2, 194-1, and March 1,
194-1, respectively.
(3) Every Federal Reserve Bank except the Federal Reserve
Bank of Richmond shall pay such assessment by transferring the
amount thereof on the dates as above provided through the Interdistrict Settlement Fund to the Federal Reserve Bank of Richmond
for credit to the account of the Board of Governors of the Federal
Reserve System on the books of that bank, with telegraphic advice
to Richmond of the purpose and amount of the credit, and the Federal Reserve Bank of Richmond shall pay its assessment try crediting the amount thereof on its books to the Board of Governors of
the Federal Reserve System on the dates as above provided.

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BOARD OF G O V E R N O R S
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OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 27, 19U0

Dear Sir:
There is enclosed for your information a copy of a decision (B-I3852) rendered, by the Comptroller General of the United
States to the Secretary of War, under date of December 10, 19-1 <0,
with reference to the procedure under the Assignment of Claims Act
of 19l'.0, This decision did not come to our attention until today.
Copies of the Circular No. lilt? of the Director of Procurement and of the decision of the Comptroller General (B-13700)
dated December 2, I9I1.O, which are referred to in the enclosed decision, were sent to you in Mr* Morrill's circular letter of
December li, 19l|.0»
Very truly yours.

E. L, Smead, Chief,
Division of Bank Operations.

Enclosure

COMPTROLLER GENERAL OF THE UNITED STATES
Washington
S-13852

December 10, I9I4D

The Honorable,
The Secretary of War.
Sir:
I have your letter of December 5, 19W, as follows:
"In order that appropriate instructions may be issued to disbursing officers of the War Department in connection with payments
to be made to assignees of moneys due or to become due from the
United States, or from any agency or department thereof under contracts with the United States, in accordance with the authority contained in the Assignment of Claims Act of 19W, Public Gil, Chapter
779, 76th Congress, Jd Session, approved October 9, 19U0, your decision is requested on the question hereinafter propounded under the
authority contained in the Act of July j$l, 1894, 28 Stat. 208,
U. S. C. 31:7U"Under subparagraph 4 of the proviso to Section 1 of the Assignment of Claims Act of 1940, and, as understood by this Department,
as a condition precedent to the validity of the assignment provided
for therein, the assignee of moneys due or to become due from the
United States, or from any agency or department thereof, is required to furnish to certain designated persons or agencies specified
in said subparagraph a written notice of the assignment, together
with a true copy of the instrument of assignment.
"Your decision is requested on the question whether under the
above cited subparagraph of said proviso a disbursing officer making
payment under such assignment, copy of which has been furnished him,
may accept an affidavit executed by the assignee to the effect that
written notice of the assignment and a true copy of the instrument
of assignment have been furnished the persons or agencies with whom
the Act in question requires such filing, as adequate evidence as to
compliance with the requirements of said subparagraph of the Act in
question, to justify payment to said assignee.
"In order that current procurements in the field of National
Defense may be properly and expeditiously obtained, your early decision in the premises is requested,"

278
3-13852

- 2 -

Section Z4. of the Assignment of Claims Act of 1940, provides in
pertinent part as follows:
"That in the event of any such assignment, the assignee thereof
shall file written notice of the assignment together with a true copy
of the instrument of assignment with-*
"(a)
"(b)
agency,

the General Accounting Office,
the contracting officer or the head of his department or

"(c) the surety or sureties upon the bond or bonds, if any,
in connection with such contract, and
"(d) the disbursing officer, if any, designated in such contract to make payment."
This office will accept an affidavit such as mentioned in your
letter as establishing prima facie, for audit purposes, that there
has been a compliance with section I4. of the act, but should it subsequently develop that there has not been a compliance with said
section U the disbursing officer would in no way be relieved of
responsibility for the payment based on such false affidavit.

That

is to say, if the disbursing officer elects to accept such affidavit
for purposes of making payment to the assignees this office will require no additional evidence to establish the fact of compliance with
section U of the act unless the affidavit proves to be false, but the
acceptance of such affidavit will not relieve the disbursing officer
of his responsibility*
The matter of assignments, notices thereof, and payments thereunder has been considered by the Director of procurement who has
issued general instructions in that regard by Circular Letter No.

B-13852

- 3 -

279

ltij.7, December 3» 19U0, which provides, insofar as concerns the
question you have presented, as follows•
"In the event that any moneys duo or to become due from the
United States under any contractor© assigned pursuant to the terms
of the Assignment of Claims Act of 1940, the assignee is required to
forward a true copy of the assignment, together with written notice
thereof, to each of the parties specified in proviso L. of the Act#
This notice of said assignment in the form attached hereto should be
furnished to each of such parties in quadruplicate. Three of the
four copies of each notice of assignment should be returned to the
assignee under the contract with the receipt form at the end thereof
properly executed. One of these copies is for the assignee. The
other two copies should be attached to the first voucher, invoice,
or other similar document submitted for payment. One copy of each
receipt should be furnished to the General Accounting Office with the
first voucher and the other copy of each receipt retained by the appropriate officer of the Department making payment. Reference as to
the previously filed receipts should be made on subsequent vouchers,
"This procedure is designed to afford the assignee and the appropriate officers of the Government convenient evidence thrt there
has been compliance with the requirements of the statute with the
reference to the filing of notice of such assignments. However,
rigid adherence to this procedure should not be insisted upon if
satisfactory evidence of compliance with the statute is provided by
other means."
It would appear that if the procedure suggested therein be
followed there would be available to the disbursing officer evidence
in the form of receipts that the notices and copies of assignment
had been filed as required, which evidence should afford him ample
protection insofar as concerns section I4. of the act in question.
It is suggested that the procedure therein outlined, or a similar
procedure, well might be adopted by the War Department.
As having a bearing on the responsibility of a disbursing officer
in making payments under assignments permitted by the Assignment of
Claims Act of 1 9 W , attention is invited to decision of this office

280
B-13852

dated December 2, I9I4.O (B-13700), a copy of which is attached to
and forms a part of Circular Letter No, hb7> supra, wherein it is
stated:
"There would appear to be no necessity for a specific claim
from, an assignee under a valid assignment for an amount established
to be due and payable under a particular contract. However, it is
to be recognized that disputes unknown to the Government may exist
between the contractor and its assignee in connection with the
assignment, the consideration or a condition of the assignment may
have failed etc. Also, it is to be noted that the assignee, and
not the contractor, is required to supply to the Government information as to the assignment, and that a ftrue copyf of the assignment
is required to be furnished# Having regard therefor, in order to
insure that payments are properly made, to prevent frauds upon the
United States, and to protect the rights of all parties involved,
it would appear that the voucher, invoice, or other data in support
of a payment direct to the assignee should clearly indicate that the
contractor recognizes the assignment, its validity, and the right of
the assignee to receive the payment• The form or means of indicating
such recognition is not material insofar as this office is concerned,
For instance, the contractor's certification on a voucher in which the
name of the assignee is shown would suffice for audit purposes."
Should the disbursing officer make a payment based on an affidavit such as mentioned in your letter under a voucher which shows
that the contractor recognizes the assignment, its validity, and
the right of the assignee to receive the payment, the Government
might have a valid defense to any subsequent claim from the contractor for the said amount should the contractor base such claim
on the fact notices and copies had not been furnished as required
by the act.

However, should the payment be made in connection with

a contract supported by bonds the interests of the Government might
be unduly prejudiced in the event the surety had not been furnished
a notice and copy of the assignment.

Consequently, it would appear

8^13852
advisable in such cases, for the protection of the disbursing officer
that no payment be made to the assignee until it be established that
the surety had received a notice and copy of the assignment.

Respectfully,
(Signed) LINDSAY C. BARREN
Comptroller General
of the United States.

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BOARD OF G O V E R N O R S
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R-757
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

December 28, 194-0

Dear Sir:
There are enclosed for your information a table showing applications for membership received qy the Board during 194-0,
and a statement containing excerpts from the
bank relations reports submitted try the Federal Reserve Banks for the month of November.

L. P. Bethea,
Assistant Secretary

Enclosures

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

BOARD

R-757-a
BANKS ELIGIBLE* FOR FEDERAL RESERVE MEMBERSHIP ON DECEMBER 31.
1939. AND BANKS M I C H APPLIED FOR MEMBERSHIP DURING 1960

Federal
Reserve
District

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total

Number of ^onmenber Commercial Banks Eligible* for
Federal Reserve Membership
on December 31, 1939
On Par List
Total

Number of Banks
Which Applied for
Federal Reserve
Membership During—
November This Y e a r
0
11**
5
23

Deposits of Nonmember
Deposits of Banks
Commercial Banks Eligible*
Which Applied for
for Federal Reserve MemberFederal Reserve
ship on December 31, 1939
Membership During—
November This Year
Total
On Par List
(In thous ands of dolla r s )
0
0
469,330
469,330
16,800
4,500
981,529
981,529
1,100
5,000
550,836
550,836
2,400
3
5,900
577,670
577,367

HI
224
225
475

141
224
225
474

0
2
1
2

394
484
1,219
664

232
52
1,079
434

1
0
11
0

17
2
62
18

481,555
302,655
1,114,286
428,385

396,447
70,987
1,054,464
309,111

200
0
13,900
0

21,400
2,800
74,200
10,000

420
487
282
194

78
402
174
182

0
1
4
1

7
8
23
U

189,225
198,993
154,549
565.398

53,439
178,372
110,025
541.768

0
300
1,100
400

8,700
13,300
13,300
5,400

5,209

3,697

5,994,411

5,293,675

180

23,900

206,800

-"'By eligible banks is meant banks with sufficient capital stock to meet the minimum statutory capital requirements
for Federal Reserve membership
** Includes one newly organized bank for which no deposits are shown.

R-757-b
December 27, 194-0
Not for publication
EXCERPTS FROM BANK RELATIONS REPORTS
FOR THE MONTH OF NOVEMBER I960
BOSTON
During the month of November 21 banks were visited, of which
18 are member and 3 nonmember institutions.
The Eighteenth Annual Meeting of the Stockholders of the
Federal Reserve Bank of Boston was held on November 7, 1940, with 326
representatives from 210 member banks in attendance, and in addition
certain invited guests—our former directors and officers, the members
of the Industrial Advisoiy Committee, and the Bank Commissioners of
the New England States—had been invited to attend. The principal
speaker was Professor James Grafton Rogers, Professor of Lav; and Government at Yale University, who discussed changes in current economic
conditions. The proceedings of the meeting are in process of publication and copies will be sent to the Board of Governors and our
member banks.
All visits to banks were made closely following upon our letter to the bankers in the District asking for their cooperation in the
matter of the financing of manufacturing concerns engaged upon or seeking defense contracts. There was a pronounced willingness on the part
of bankers to cooperate. No banker visited reported recent demands
made upon him for so-called "defense loans", nor did any banker look
for an immediate demand. Several bankers indicated their willingness
to make such loans wherever they could be obtained and requested that
the Reserve Bank refer to them applicants from other sections of the
District. Some of the larger banks of Boston and New York are actively
soliciting defense loans throughout the District.
NEW YORK
During the month 87 banks were visited, of which 42 are member and 45 nonmember banks. Our attention continued to be concentrated
chiefly upon nonmember banks in order to stimulate an interest in membership in the Federal Reserve System. Three applications were filed
during the month and serious consideration is being given to the subject try several of the other banks visited. We also called upon some
of the new member State banks to explain the procedure with respect to
establishing and maintaining their reserve accounts and to assist
their officers in using our various services, answering many questions,

285
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{5 7—b

and explaining our methods of operation. The officers of several of
these banks have also been given special attention when they have
called at our office.
Many banks have adopted schedules of lower rates on loans,
especially for those on a secured basis, and this is tending to attract new business and keep loans from going out of the territory. A
number of institutions are actively soliciting personal, automobile,
and life insurance loans and in several of the larger villages an active mortgage demand is reported, but few loans are being negotiated
under Titles I and II of the National Housing Act. One banker in a
farming section expressed satisfaction with the competition of the
Production Credit Association, stating that his bank has obtained
some new business through refinancing farmers' current indebtedness
to the Association and that the latter has on the other hand taken
some poor loans which the bank was unable to grant and, in addition,
he now finds it easier to obtain security from the farmers than heretofore .
PHILADELPHIA
During November representatives visited 22 member and 53
nonmember banks in various parts of this District. This total includes 22 special visits; 20 for the purpose of discussing membership
in the System and two in connection with our services.
All banks in the State of Delaware were visited. Delaware's
chief sources of income are: raising of grains, garden vegetables,
fruit, and soy beans; poultry and poultry products; dairying; processing of leather; manufacture of paints, chemicals, fibre, airplanes,
rayon, and dental supplies; shipbuilding; oil refining.
Banking conditions show some improvement since last year.
Most bankers report a somewhat better demand for credit but, in a
majority of instances, it has been for small loans. Institutions in
the southern part of the State reported a good demand for mortgage
money. This is attributed to the residential building program which
has been under way since the nylon plant of the I . E . DuPont de Nemours
Company was started at Seaford in the latter part of 1938. However,
the rate of building has been declining in recent months. Loan liquidation, while slow in farming communities, was reported to be satisfactory .
Real estate values continue to improve, although few sales
are being consummated. Rentals have increased, especially in the
southern part of the State, because of better working conditions, and

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one banker reported that holdings of other real estate have netted a
profit of 3-1/2 per cent for the year to date.
Visits were made to 20 banks for the purpose of discussing
membership. At three banks this subject was discussed with and at the
request of the boards of directors. As a result, a request was received from one of these institutions to conduct the necessary examination after January 15, and we have received assurance from the president of another institution that he is certain that the board of
directors of his bank, will take similar action this week. The members
of the other board interviewed were subsequently reported to be very
much interested in having their bank a member of the System.
CLEVELAND
During November 285 banks were visited, of which 142 were
member and 143 nonmember institutions. Three banks having resources
of $4,053,000 were admitted to membership.
While there has been criticism over the past several years
of the flood of Government releases of various types pouring in newspaper offices, we are informed that the volume of publicity matter now
being received from governmental departments and agencies, particularly the War Department, was so groat that "it had become a nuisance".
We understand that this matter was the subject of discussion at a
recent meeting of the Kentucky Press Association.
From a small interior Kentucky town comes the suggestion
(from the chairman of the executive committee of the Kentucky Bankers
Association) of the possibility that the demand for war finance credits might exceed the capacity of local banks to meet them, with the
result that some governmental agency would have to take the overflow.
He offers the suggestion that, if the Federal Reserve System wants to
be of real service, they could "act as middle-man arranging for assignment of claims under contracts and distribute the loans among banks
in sections where there is no local demand for such financing. In
this manner the banks in general would find an outlet for excess funds
and the entire banking resources of the country would be brought to
bear on the problem of defense financing, in a systematic manner rather
than the resources of only a small proportion of banks who happen to
be located in industrial centers." He further suggested that "such
procedure would prove the ability of the Federal Reserve System to coordinate the banking resources of the entire country, and make them
effective in an emergency, failure of which might lend emphasis to the
current trend toward governmental control of banking, and perhaps the
elimination of the system of independent banking."

887
R-757-b
There seems to be prevalent among a number of smaller banks
the idea that the Federal Government is "trying to force a 1-1/2 per
cent loan rate on the banks" in order to finance the defense program.
It is argued that despite the excess reserve position of many banks the •
cost of servicing defense loans plus the risk involved in rigid governmental inspection does not entitle borrowers to such a low interest
rate.
RICHMOND
During the month of November 61 banks were visited, of which
4-1 were member and 20 nonmember banks.
Tobacco production in North Carolina is indicated to be 10
per cent larger than was estimated earlier in the season, but the crop
is still 42 per cent smaller than last year. Money returns on North
Carolina tobacco, however, are not affected in the same proportion as
production, for prices are around 20 per cent higher.
Lint cotton and tobacco will bring South Carolina farmers approximately $59,000,000 compared with $63,000,000 last year. The value
of cotton is up about $3,000,000 because of a 10 per cent larger crop,
but tobacco will bring about $7,000,000 less, mainly because of a 39
per cent smaller crop.
Christmas Club savings of $31,200,000 have been distributed
in the Fifth District, and a good part of this will augment the already
good retail trade figures.
Although the Government loan is giving temporary strength to
cotton prices, thoughtful bankers and others interested in maintaining
the southern farmer's cash income are apprehensive of the consequences
in view of the foreign market outlook.
There was considerable letdown in the awarding of defense
contracts in the Fifth District during November, but, nevertheless,
the amount of $47,956,000 awarded is an important contribution to the
business of this District.
ATLANTA
During November 38 banks were visited, of which 23 were member banks and 15 nonmember banks.
The steel making rate for the Birmingham and Gadsden districts (Alabama) for the first nine months of this year was 86.8 per

288
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P.-757-b

cent as compared with the national average of 77.8 per cent for the
same period. Reports indicate that the month of October holds the
record for production in some plants and fabrication and distribution
have struck high levels, there being little chance of accumulation
of inventories.
With the expectation of an even larger tourist season in
Florida than last year's banner season and with other conditions, with
but one or two exceptions, showing more than average gains over last
year, there is justification for an optimistic outlook for the immediate future. The 194-0 census shows a gain of 28 per cent in population
for Florida, which is the largest increase for any State.
Debits to individual accounts during September (1940) in
banks of the four- reporting cities in Florida—Jacksonville, Miami,
Pensacola, snd Tampa—were 9.6 per cent above the same month last year,
as compared with an increase of one-tenth of 1 per cent in the Sixth
Federal Reserve District (26 reporting cities) and a decrease of 7.6
per cent for the United States as a whole. For the first nine months
of this year debits to individual accounts in the reporting Florida
banks were 14..6 per cent greater than a year ago. The increase during
the same period in the Sixth District was 10 per cent and for the
country as a whole 3-4- per cent.
Bankers in southern Mississippi reported fair business activity despite the poor crop conditions prevailing this year. In most communities the loss of income from cotton is said to have been offset to
an appreciable extent by the production and sale of beef cattle—an activity that is making progress throughout most of the State. Liquidation of farm paper is said to have exceeded expectations and very little
carry-over was reported.
CHICAGO
In November calls were made on 50 member and 17 nonmember
banks. Seven State banks were admitted to the System, bringing the
total number of admissions for the eleven months of 194-0 to 52. Membership as of November 30 consisted of 309 State and 542 national
banks, a total of 851.
All indications point to a heavy liquidation of bank loans in
the agricultural sections during the marketing season of the next few
months. The great question in the minds of most of the bankers is
whether or not they can find satisfactory reinvestment. The tendency
is still toward reducing interest paid on time deposits; in fact, a
number of banks are discontinuing the interest payments entirely.

R-757-b
In Detroit, the banks in the metropolitan area state that
their loans are 25 to 30 per cent higher than on June 30, some of
these being attributable to defense activities either directly or
indirectly. Generally, the banks in this District have experienced
comparatively little loan demand as a result of the national defense
program. The larger manufacturers who have received Array and Navy
contracts as a rule have adequate working capital, making it unnecessary for them to borrow. However, several of the larger banks have
applications for emergency plant facilities loans. In a number of
other instances, manufacturers s.re contemplating plant expansions
under emergency plant facilities contracts. A few of the smaller
manufacturers who have received Government contracts have called on
local banks for assistance. Some of these loans are being secured
ty an assignment of claims accruing in connection with Government
contracts, and the Federal Reserve Bank has been instrumental in
assisting such banks in consummating the assignments. In one or two
cases the general conditions have been such as to cause the local
banks to feel it inadvisable to be a party to the financing, and the
Federal Reserve Bank with a view to cooperating in the national defense program has agreed to make immediate advances on an assignment
of claims for payment.
ST. LOUIS
During the month our officers and field representative
visited ZOA banks, of which 65 are in Illinois, 57 in Missouri, 54
in Kentucky, 21 in Arkansas, five in Mississippi, and two in Indiana.
The officers also called on 33 newspapers in towns where the banks
are located.
Owing to lateness of the crop, production loans to Arkansas
cotton planters are liquidating in smaller than the usual seasonal
volume. The volume of such loans as well as commitments for handling
cotton are relatively light as contrasted with years prior to the competition of GCC and other Government lending agencies, according to
bankers interviewed. The present status of industrial bonds in portfolios of certain banks is giving concern to officers and directors.
Quite a few bankers have stated that their future policy will be to
eschew industrial, utilities, and similar issues in favor of the
United States Government, State and city obligations. General demand
for credit varies considerably with the several localities and banks,
but on the whole shows improving trends, particularly in the recent
past. Loan rates range from 5 to 10 per cent, with a large part bearing the major figure of the spread. It was noted that the condition
of credit files shows continued betterment.

290
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During November two banks were admitted to the System,
making seventeen new State members since the first of the year.
Several banks are in process of admission.
MINNEAPOLIS
During the month of November 39 banks were visited, of which
24 are member and 15 nonrnember institutions.
Most of the loans (southeastern Minnesota) were being made
at 6 per cent and 7 per cent, some at 5 per cent and 8 per cent with
a few real estate loans at 4 per cent. One banker was working on a
$30,000 loan to the city at 3 per cent.
Earnings were reported as being equal or better than last
year. One small bank will have the best year since the bank holiday,
while another (four-year old bank) informed our representative that
the first year he broke even, the second year earned 10 per cent,
third year 14 per cent, and this year 25 per cent; this, despite competition by the Production Credit Association, which competition some
bankers seem bitter about. One bank in a town of less than 1,400 will
earn $4,800 this year on float and exchange charges. One bank reported that the demand for loans was so great, it had become necessary to borrow, while another bank with a similar demand had sold
Government bonds.
For the purpose of making available to newspaper editors
business statistics gathered by our research department and to build
up a more friendly relationship with the press, during the month representatives of our Bank called on approximately twenty newspaper
editors in the State of South Dakota. We found that these editors
were not only unaware of the fact that we could make available to
them newspaper stories of a localized nature, but also that they were
very eager to use this material.
To implement our new function of field representative and
operating agent for the small business activities section of the
National Defense Advisory Commission, an industrial coordination department was established on November 18. Letters were written to all
banks in the District and to available lists of procurement and purchasing officers. Some response has been received from both groups,
but sufficient time has not elapsed to enable us to appraise the
results.
KANSAS C m
During the month of November 53 banks were visited, of which
22 were member and 31 nonrnember banks.

R-757-b

291

Officers of this Bank and the managing directors of its
three branches held numerous conferences with bankers in the larger
cities of the District in connection with financing the national
defense activities of small business concerns. In addition to Kansas
City, conferences were held with bankers in Oklahoma City, Tulsa,
Denver, Wichita, Topeka, Pittsburg, Joplin, St. Joseph, Lincoln, and
Omaha. The purpose of these conferences was dual in nature, One was
to urge banks to furnish the names of customers not now on invitation
lists of the Army and the Navy but who are equipped to take a part in
the national defense program. The other equally important purpose
was to inform banks fully as to the procedure in financing business
firms that receive Government contracts.
Everywhere a willingness to cooperate was found. Bankers
seemed especially appreciative that recognition is being given to the
fact that the task of financing the small business concern is primarily the job of the local bank and that the Federal Reserve Banks,
instead of competing for these loans, are confining their activities
to helping small manufacturing concerns get some of this business and
in acquainting local banks as to the procedure in financing it.
There was some criticism of the veiy large amount of duplication of effort. The banks are now being asked for lists of their
customers who are not on invitation lists for Government bids while
the Ariry and Navy, the Department of Labor, chambers of commerce, and
other local groups have already made similar elaborate surveys, the
results of which are already available to everyone.
There was also criticism of the announcement that the interest rate on these loans would be limited to 1-1/2 per cent. Officials
of the Reconstruction Finance Corporation later clarified this statement, pointing out that this rate should apply only to certain preferred risks. But while all bankers saw the first statement, not so
many saw or fully understood the correction. Large city banks, holding not only the deposits of their own communities but also the redeposited funds of their far-flung correspondents, are in a position to
merchandise credit in large quantities at comparatively low rates. But
the country bank, collecting its deposits in driblets and lending them
to farmers and local merchants in small quantities, has a very high
unit overhead cost for both deposits and loans. Operating under cost
factors so radically different from those of large city institutions,
country bankers feel that a 1-1/2 per cent rate for them is out of the
question.
DALLAS
During November 25 banks were visited, of which 17 were member and eight nonmember institutions.

292
-9-

R-757-b

While oil production in southern New Mexico is among the
first of the region's industries in importance, there is no drilling
in the fields at the present time and the oil men are discouraged
over prospects in the near future.
Cattle men are doing exceedingly well. All spring calves
have been sold or contracts made at prices generally ranging at from
nine to eleven cents a pound. At these prices, and with the favorable
condition of the stock, the calves are bringing from $35 to $55 a
head, which is very profitable. As a consequence, cattle loans are
being reduced sharply and many of the banks are having difficulty in
placing surplus funds.
Crops are good in the irrigated sections, cotton and alfalfa
production being 10 per cent to 25 per cent greater than in 1929. The
dry farmers did not fare so well, except in a few scattered communities, because of the dry season. The wheat crop was almost a total
failure, row crops were only fair, while broom corn was below average
with the price not much more than the cost of production.
There is no manufacturing or mining in this section and,
although we brought up the matter repeatedly, we could find no demand
for industrial loans. Most of the bankers expressed the view that
while the preparedness program would be reflected in a general business expansion of which this territory would receive indirect benefits,
its direct effect would not be great. The general feeling was that
England could withstand any attack and would take the offensive as
soon as we could supply her with sufficient material.
Many of the bankers were worried over the high price of Government bonds and some have sold a part of their holdings; most of
them of the longer maturities. Interest rates on time deposits run
from 2 per cent to 2-1/2 per cent, which in most cases is unprofitable.
Loans are generally low and deposits high, the latter having reached
a record in some banks.
SAN FRANCISCO
During the month of November 52 banks were visited, of which
35 were member and 17 nonmember banks.
Central Arizona
Building permits in Phoenix for September were greater than
for any prior month this year or any month last year. Many residences
are being erected by well-to-do easterners for winter occupancy, Motor
travel into the State has been above last year, and a good winter
tourist crop is anticipated.

293
-10-

R-757-b

Higher prices for copper and other minerals have stimulated
activity in mining.
Total production of all cotton in Arizona is forecast at
197,000 bales as against 202,000 bales last year, with yield per acre
417 pounds lint cotton as against 514 last year. Average production
for the ten-year period (1929-38) was 154,000 bales, with yield 382
pounds per acre.
Owing to unseasonable temperatures and with the groves receiving less water, condition of oranges and grapefruit was much below
normal. With increased acreage coming into bearing, the 1940 Arizona
orange crop is estimated at 600,000 boxes as against 520,000 last year.
Grapefruit production is placed at 2,800,000 boxes as against 2,900,000
in 1939,
Imperial Valley, California
Agriculturally, the Valley had a fair year. The lettuce
deal, the largest in the Valley, was only fair, the melon deal, the
next largest, was poor, as was the carrot deal. Growers of other vegetable crops had a successful season. Beet acreage approximates 10,000
acres, with yields of 18-20 tons per acre. Flax acreage has expanded
to 100,000 acres, with a yield of 25 bushels per acre. Carrot and
lettuce acreage is increasing. More of the acreage is coming into
possession of larger, more stable owners. Thus, there are more big
operators, and this, coupled with a reduction in dairies the last few
years from 800 to 300, accounts for the fact that the population in
the Valley has not increased in the last decade.
On account of the stationary population, there is no particular building activity. The banks in this area do not generally lend
on real estate, owing to the high bonded indebtedness per acre and the
fact that, while irrigation water is ample, adequate provision has not
been made for proper drainage, which accounts for a considerable acreage
going sour. The Federal Land Bank makes no loans in this area.

294
R-757-b

-11-

PUBLIC RELATIONS ACTIVITIES OF FEDERAL RESERVE BANKS
November 194-0

Federal
Reserve
Bank
Boston
New York
Philadelphia
Cleveland

Visits to Banks
Member

Nonmember

Meetings Attended

Addresises Made

Total

Number

Attendance

Number

Attendance

4
13

1
3
6
8

150
135
590
485

18
42
22
142

3
45
53
143

21
37
75
235

1/
4,522
1/
732

Richmond
Atlanta
Chicago
St. Louis

61
23
17
61

41
15
50
143

20
38
67
204

7
10
5
10

1,353
1,130
1,660
910

1
1
3
2

500
75
235
100

Minneapolis
Kansas City
Dallas
San Francisco

24
22
17
35

15
31
8
17

39
53
25
52

3
7
4
13

940
2,170
300
1,300

5
3
2
0

1,006
1,685
2,425
0

Not reported.

295

BOARD OF G O V E R N O R S
of

yjW

t h e

R^758

FEDERAL RESERVE SYSTEM

w a s h i n g t o n
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

De c emb e r 28, I9I4.O

Dear Sir:
There is enclosed for your information a
copy of a letter addressed by Frank W. Bullock, Major,
Signal Corps, Assistant to the Director of Purchases
and Contracts, War Department, to the heads of the
various branches of the service, with respect to deposits in member banks of advance payments under
-War Department contracts,

A copy of this lettter is

being mailed to each officer designated as a field
representative at your Bank and branches, if any.
Very truly yours

E, L# Smead, Chief,
Division of Bank Operations•

Enclosure

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BARKS
COPY TO FIELD REPRESENTATIVES

296
R-758a
December 27)9 19^-0
SUBJECTt

Advance Payments - Banks to be used as Depositories
for Special Accounts

TO:

The
The
The
The
The
The
The
The
The
The
The

Chief of the Air Corps
Chief, Chemical Warfare Service
Chief of Coast Artillery
Chief of Engineers
Chief, National Guard Bureau
Chief of Ordnance
Chief Signal Officer
Quartermaster General
Surgeon General
Chief of Finance
Judge Advocate General
Effective January 1, 19^1# the following policy will

govern:
Contracts or supplemental agreements containing provisions
for advance payments and requiring that such advance
payments shall bo deposited in a special bank account,
will provide that such special account shall be in a bank
which is a "member of the Federal Reserve System", instead
of being limited to a Tfnational bank"* This will include
state banks which are members of the Federal Reserve System
as well as all national banks#
Where such contracts or supplemental agreements further provide
that such special account shall be the subject of an actual
escrow agreement to which the bank shall be a party, then
the provision for its deposit in a "national bank" will be used
as heretofore•

By direction of The Assistant Secretary of War:
Frank W. Bullock
Major, Signal Corps
Assistant to the
Director of Purchases and Contracts

R-759

297

BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Statement for the Press
For release in morning newspapers
of Thursday, January 2, 194-1 •

December 31, 1940

The Board of Governors of the Federal Reserve System today
announced the following designations and appointments at the Federal
Reserve Banks and Branches shown below:
CHAIRMEN AMD FEDERAL RESERVE AGENTS FOR YEAR 1941
Federal Reserve
Bank'
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

Name of Appointee
Mr. Frederic H. Curtiss of Boston
~x~Mr. Beardsley Rural of New York, New York
Mr. Thomas B. McCabe of Swartbmore, Pennsylvania
Mr. George C. Brainard of Youngstown, Ohio
Mr. Robert Lassiter of Charlotte, North Carolina
Mr. Frank H. Neely of Atlanta
*Mr. Frank J. Lewis of Chicago
Mr. Ufa. T. Nardin of St. Louis
Mr. W. C. Coffey of St. Paul, Minnesota
Mr. R. B. Caldwell of Kansas City
Mr. J. H. Merritt of McKinney, Texas
Mr. Raymond C. Force of Piedmont, California
DEPUTY CHAIRMEN FOR YEAR 1941

Boston
Ne*<v York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

Mr.
*Mr.
Mr.
Mr.
Mr.
Mr.
""Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

Henry S. Dennison of Framingham Centre, Mass.
Edmund E. -pay of Ithaca, New York
Alfred H. Wiliams of Wallingford, Pennsylvania
R. E. Klages of Columbus, Ohio
W. G. Wysor of Richmond
J. F. Porter of Williamsport, Tennessee
Clifford V. Gregory of Des Moines, Iowa
Oscar Johnston of Scott, Mississippi
Roger 3. Shepard of Newport, Minnesota
J. J. Thomas of Seward, Nebraska
Jay Taylor of Amarillo, Texas
St. George Holden of San Francisco

R-759

-2-

Federal Reserve
Bank

Name of Appointee

3LASS C DIRECTORS
(Appointed for 3-year terms beginning January 1, 1941 unless otherwise
stated)
Boston
Philadelphia
Cleveland
Richmond•
Atlanta
Chicago
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

Mr. Henry I. Harriman of Newton, Massachusetts
Mr. Warren F. Whittier of Douglassville, Pennsylvania
Mr. George C. Brainard of Youngstown, Ohio
Mr. Robert Lassiter of Charlotte, North Carolina
Mr. Rufus C. Harris of New Orleans, Louisiana
Mr. Frank J. Lewis of Chicago
*Mr. Simeon E. Leland of Chicago, for unexpired
portion of 3-year term ending December 31, 1941
Mr. Oscar Johnston of Scott, Mississippi
Mr. W. D. Cochran of Iron Mountain, Michigan
Mr. R. B. Caldwell of Kansas City
Mr. J. B. Cozizo of Dallas
Mr. St. George Holtien of San Francisco

BRANCH DIRECTORS
(Appointed for 3-year terms beginning January 1,
stated)
Federal Reserve
Bank and Branch
NEW YORK
Buffalo
CLEVELAND
Cincinnati
Pittsburgh
RICHMOND
Baltimore
Charlotte
Charlotte
ATLANTA
Birmingham
Nashville
New Orleans
CHICAGO
Detroit

194-1> unless

otherwise

Name of Appointee
Mr. Howard Kellogg of Derby, New York
Mr. Frank A. Brown of Chillicothe, Ohio
Mr. George T. Ladd of Coraopolis, Pennsylvania
Mr. W. Frank Roberts of Baltimore
Mr. George M. Wright of Great Falls, South Carolina
*Mr. Charles L. Creech, Sr., of Winston-Salem, N. C
for unexpired portion of 3-year term ending December 313 1941
Mr. Ed L. Norton of Birmingham
Mr. E. W. Palmer of Kingsnort, Tennessee
Mr. S. F. Biliington of Meridian, Mississippi
*Mr. Clarence W. Avery of Detroit

299
R-759

-3BRANCH DIRECTORS
(continued)
Federal Reserve
Bank and Branch
ST. LOUIS
Little Rock
Louisville
Memphis
x MINNEAPOLIS
Helena
KANSAS CITY
Oklahoma City
Omaha
DALLAS
El Paso
Houston
San Antonio
x SAN FRANCISCO
Los Angeles
Portland
Salt Lake City
Seattle

Name of Appointee
Mr. I. N. Barnett, Jr., of Batesville, Arkansas
Mr. Perry B. Gaines of Carrollton, Kentucky
Mr. Rufus C. Branch of Pecan Point, Arkansas
Mr. Alex Cunningham, of Helena, Montana
K

~Mr. Phil Ferguson of Woodward, Oklahoma
Mr. W. H. Schellberg of Omaha
Mr. Jack B. Martin of Tucson, Arizona
Mr. George G. Chance of Bryan, Texas
Mr. Dolph Briscoe of Uvalde, Texas
Mr.
Mr.
Mr.
Mr.

W. S. Rosecrans of Los Angeles
A. E. Engbretsen of Astoria, Oregon
R. C. Rich of Burley, Idaho
Fred Nelsen of Seattle

All positions not preceded by an asterisk were filled by reappointment
of the present incumbents.
x Branch directors of these Federal Reserve Banks were, as usual, appointed for 2-year terms (beginning January 1, 1941).

300

BOARD OF G O V E R N O R S
of

t h e

FEDERAL RESERVE SYSTEM

S-225
Reg. L-13

w a s h i n g t o n
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

July 13, 1940

Dear Sir:
The Board recently considered a case involving the
question whether two places were "contiguous or adjacent" within the meaning of the Clayton Act. (Footnote 8, Regulation L.)
The purpose of this letter is to inform you of the Board's conclusions, summarizing the facts which were examined in great
detail in the original ruling.
The banks were located in two "Towns" in New England,
and the boundaries of the two "Towns" touched. However, in
view of the Board's letter of February 27, 194-0, 8-20$, it was
suggested that the limits of the towns should be disregarded
and that the applicability of the statute should be decided on
the same basis as if two unincorporated communities were involved .
However, in this case each of the communities was incorporated as a "City" and had a city form of government administered ty a mayor and city council. The corporate limits of
the two cities were the same as the limits of the two "Towns",
and therefore touched each other. In the circumstances the
Board ruled that the two cities were "contiguous".
The Board pointed out that the position taken in its
letter S-2.05 was taken for the purpose of avoiding discrimination in the application of the Clayton Act in various parts of
the United States. That letter took notice of the fact that in
certain States in New England the entire area of the State is
divided into "Towns" whereas in other parts of the United States
a town is merely an area drawn to include a cluster of houses,
leaving large parts of the State which are not included in any
city, town or village. Had the Board not taken this position
the result would have been a discrimination in the application
of the statute against some interlocking relationships existing

S-225
Reg. L—13
in New England. Accordingly, the Board's letter S-205 proceeded
on the theory that the boundaries of a subdivision of a county
known as a "Town" were not necessarily to be regarded as the
boundaries of unincorporated communities located within the town.
It did not proceed on the theory that the limits of a community
should be disregarded where the community is in fact an incorporated municipality with defined corporate limits such as a city,
town or village as they exist generally throughout the United
States, because to disregard the corporate limits in such a case
would involve a discrimination in favor of that community and
against similar incorporated communities throughout the United
States where such limits have been consistently followed in applying the statute.
Very truly your

L. P. Bethea,
Assistant Secretary.

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

302

BOARD OF G O V E R N O R S
of

t h e

FEDERAL RESERVE SYSTEM

S-226
Reg. T-92

w a s h i n g t o n
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

July 19, 1940

Dear Sir;
There is attached a copy of a ruling which will be published in the Federal
Reserve Bulletin regarding "Obtaining Payment
for Purchase of Securities in Cash Account
Under Regulation T".
It will be noted that the attached
ruling is in the form of a statement for the
press which, however, is not to be released
until the time specified on the statement.
Very /truly yours

L. P. Bethea,
Assistant Secretary

Enclosure
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS

BOARD

303
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For release in morning papers,
Tuesday, July 23, 194-0.
The following ruling will appear in the Federal Reserve
Bulletin:
Obtaining Payment for Purchase of Securities in Gash
Account Under Regulation T
The Board recently considered several questions regarding
the provisions of Regulation T which relate to the maximum time permitted for obtaining payment in a special cash account under section
4(c) of the regulation.

The general rule on this subject is stated

in subdivision (2) of the section.

Subject to a number of exceptions

stated in subsequent subdivisions of the section, this subdivision
provides that:
"(2) In case a customer purchases a security (other
than an exempted security) in the special cash account and
does not make full cash payment for the security within 7
days after the date on which the security is so purchased,
the creditor shall, except as provided in the succeeding
subdivisions of this section 4(c), promptly cancel or otherwise liquidate the transaction or the unsettled portion
thereof."
Paying by sale of another security. - One inquiry related
to the application of this provision to a question that may be described as follows:
A customer effects a purchase in a special cash account established pursuant to section 4(c) of the regulation. On the same day the customer sells in the account

304
-2-

another security which he owns but which he has not yet deposited in the account. The proceeds of the sale, which
was effected "seller 10", are sufficient to make full cash
payment for the purchase, but such proceeds will not be
available to the broker until after the time applicable
under section 4(c) for obtaining payment for the purchase.
May the sale be considered to constitute payment for the
security purchased, and thus make it unnecessary to take
alternative action?
It is to be noted that a similar question was considered by
the Board in the ruling published at page 1043 of the December 1938
Federal Reserve Bulletin on the subject of "Paying for Purchase in
Special Cash Account try Selling Another Security".

In that case the

security sold was deposited in the account prior to the expiration of
the time permitted for obtaining payment of the securities purchased.
In the present case, although the sale was made within the required
period, the securities so sold were not delivered into the account
within that time.
It is recognized that such transactions might be evidence
of an effort to evade the regulation in violation of section 4(a)
which provides that:
"A special account established pursuant to this section shall not be used in any way for the purpose of evading
or circumventing any of the provisions of this regulation."
Naturally, any such transaction should be carefully scrutinized for any
such possibility, and any repetition of such a method of making payment
by a customer would be especially subject to question.

Assuming, how-

ever, that there is no such evasion or circumvention of the regulation,
it is the view of the Board that the broker may, at his option, treat

305
—3—
the customer as having made payment for the purchased, security at
the time when the other security was sold, and that this would be
permissible even though the security sold had not been deposited in
the account.

The same conclusion would, of course, follow if the se-

curity sold had been deposited in the account but happened not to be
in form for "good delivery",
Delayed offer of payment. - An inquiry was presented as to
a situation in which a broker or dealer does not obtain full cash
payment within the period applicable to the transaction but is offered
payment promptly after the period and before he has cancelled or otherwise liquidated the transaction.

The question was whether the broker

or dealer in such circumstances may accept such payment and consider
the provisions requiring cancellation or liquidation for failure to
obtain payment to have been met.
The section provides various exceptions for cases where a
period other than the seven-day period would be more appropriate.
These exceptions do not include any provision for a payment which is
offered promptly after the period applicable to the transaction, and
it does not appear why any additional time should be permissible in
such circumstances if there is no other ground for additional time.
The provision for cancelling or otherwise liquidating the transaction
when payment has not been obtained within the applicable period is
explicit.

There are various exceptions, including provision for an

extension of time under certain conditions ty an appropriate committee

306
-4of a national securities exchange, and it is the view of the Board
that in the circumstances described the delayed payment try the customer may not be accepted as a substitute for the cancellation or
liquidation of the transaction.

This would be the case whether a

brokerage or a dealer transaction was involved.
Additional time for shipment of securities. - Subdivision
(4) of section 4(c) provides that:
"(4) If any shipment of securities is incidental to
the consummation of the transaction, the period applicable to the transaction under subdivision (2) of this section 4(c) shall be deemed to be extended ty the number of
days required for all such shipments, but not by more than
7 days."
Questions were raised as to whether certain periods required
for the shipment of securities were covered ty this provision, and
whether they might be added together (to a total such extension not
exceeding the seven days specified in the provision).

Such questions

were presented as to the time of shipment from the place of purchase
to the broker, from the broker to the customer, and to and from the
transfer office.
Assuming that such shipments are not a subterfuge but actually are incidental to the consummation of the transaction, it is the
view of the Board that each such period is covered ty the provision.
In addition, all such periods may be added together, provided, of
course, that the total such extension for any transaction does not
exceed the seven-day maximum specified in the provision.

307
S-227
Reg. Q—4-1

INTERPRETATION OF LAW OH REGULATION
(Copies to be sent to all Federal Reserve Banks)

August 12, 194.0
Mr.
, Vice President,
Federal Reserve Bank of
,
Dear Mr.
This refers to your letter of August 2, 194-0 enclosing a copy
of a memorandum from your Counsel with regard to the form of certificate
of deposit proposed to be used by the
National Bank of
,
The certificate provides that the principal is payable to the
registered holder on presentation of the certificate "on the last day
of any
period after date". The blank in the quoted phrase
is to be filled in with a period agreed upon by the parties, such as 90
days, six months, or other period, and the rate of interest payable on
the certificate will be fixed in accordance with the supplement to Regulation Q, i.e., if a six months' period—2-1/2 per cent, and if a 90 day
period—2 per cent. The certificate is payable at the specified time,
however, only if, prior thereto, written notice of a stated number of
days has been given ty either party to the other; and, if the certificate is not matured for payment or called at the end of any period as
provided in the certificate, it is automatically renewed from period to
period until it is so matured or called. Checks for accrued interest
are mailed to the registered holder on June 30 and December 31 of each
year.
Several questions are suggested with reference to the certificate in question. The first is with regard to the provision for successive renewals without requiring the presentation of old certificates
and the issuance of new ones. This feature does not prevent the deposit
from being considered a time deposit within the meaning of Regulation Q
for, if the period named in the certificate is six months when the deposit is made, it is a six months' certificate and, if not called in at
the end of the first period, it would after such six months' period
automatically become again a six months' certificate. Although a period
of notice by one party to the other is required before payment, the certificate is in no event payable except at the end of the specified periods. The case is somewhat similar to the classification as time deposits
of postal savings funds payable at the end of successive periods of 30

-2-

S-227
3 0 8
Reg. Q—4-1

days, which is covered by the ruling of the Board published in the
1933 Federal Reserve Bulletin, at page 763.
The certificate provides that the principal is payable only
on presentation of the certificate but contemplates the payment of interest by semiannual checks to the registered holder. The provisions
of Regulation Q are not specific on the question whether the interest
on a time certificate of deposit may be paid only on presentation of
the certificate; but, in the opinion of the Board of Governors, the
fact that interest is payable ty check to the registered holder without presentation of the certificate does not prevent the deposit from
being classified as a time deposit.
The question has also been suggested whether the provision
for the payment of interest on June 30 and December 31, irrespective
of the maturity of the certificate, might result in a payment of a
rate slightly in excess of the rate mentioned in the supplement to
Regulation Q compounded quarterly. For example, if a deposit were
made on June 1 and the period of successive renewals were 90 days,
interest accrued through June 30 would be paid on that date. If the
certificate with accrued interest at the date of payment were paid
at the end of the first 90 days, the net yield on the investment, assuming that the depositor redeposited the interest paid him on June
30, would be slightly more than the specified rate compounded quarterly. In order for this to take place, however, it would be necessary
for the depositor to make a new deposit in the bank of the interest
he received on June 30 and presumably obtain another certificate.
This would seem to be an independent transaction requiring a new
agreement between the bank and the depositor and, accordingly, it
does not appear that the rate of interest paid on a certificate of
the kind in question would exceed the maximum permitted by the supplement to Regulation Q.
In the circumstances, it is the Board's opinion that a deposit evidenced by such a certificate may be properly classified as
a time deposit within the meaning of Regulation Q.

Very truly yours,
(Signed)

Chester Morrill

Chester Morrill,
Secretary.

309
S-223
Reg. L-14INTERPRETATION OF .LAW OR REGULATION
(Copies to be sent to all Federal Reserve Banks)

August 12, 194-0

Mr.
, President,
Federal Reserve Bank of
,
Dear Mr.
In your letter ox July 17, 194-0 you presented the
question whether Mr.
, Mr.
, and Mr.
,
may continue to serve both The
National Bank of
and The
Trust Company of
, in view of the provisions of the Clayton Act.
The information which has been submitted to the
Board ia to the effect that the trust company does not receive deposits within the meaning of section 3(c) of Regulation L, and that the national bank is not exercising trust
powers except that it is trustee under one indenture securing certain debentures all of which are held by the Public
Works Administration.
In the circumstances, the Board has decided that
the relationships described in the first paragraph of this
letter are not prohibited by section S of the Clayton Act.

Very truly yours,
(Signed)

Chester Morrill

Chester Morrill,
Secretary.

310

BOARD OF G O V E R N O R S
*

•Olft.V

S-229

OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON

-S L
* «

ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

********

October

BOARD

5, I9I4-O.

Dear Sir:
In accordance with the provisions of letter B-1002 of
July 28, I93I1, the Federal Reserve Banks now notify the Board by
wire of each suspension, absorption,liquidation, or other cessation of operations of a bank. These bank closings are also included in the weekly reports of changes in"the status of banks
submitted on form F,R. Ll.12 (formerly B-12), pursuant to letter
B-1093 of July 25, 1935.
It now appears that the information contained in the
weekly reports of bank changes (form F,R. Ij.12) will suffice for
the Board's purposes except in the case of (1) bank suspensions,
(2) any changes affecting a State member bank, except those relating to branches in the head office city, and (3) any other
changes which in the opinion of the Federal Reserve Bank should
be brought promptly to the Board1 s attention* Wire advice of
other changes may be discontinued, but it is emphasized that
advice of the above changes in the status of State member banks
should be furnished by wire, as such changes are published and it
is desirable that the publications be current with the changes.
Such information on bank changes as is furnished by wire should
be covered briefly by an open telegram giving the salient facts.
Accordingly, the code !,Supp!!, "Likk", "Vert" and "Sorb" wires
requested in letter B-1002 may be discontinued effective immediately.
The weekly report on form F.R. IJ.12 should include every
change in the status of banks that has actually occurred and has
come to the attention of the Reserve Bank, even if it has not
received formal approval of the supervisory authority* Any qualifications, of which the Federal Reserve Bank has been advised,

311
8-229
-

—

such as the lack of formal approval, should be noted in the report#
The report hereafter should also include changes in the status of
branches, heretofore reported on form St. 63860. A supply of
revised form P.R. 1|12 is being sent to you under separate cover.
Reports of branch changes on form St. 63860 may be discontinued
effective immediately. Reports of changes in chain or group
banking, which some Reserve Banks are still submitting on form
St. 6386d, may also be discontinued, since such data are called
for annually by moans of a letter addressed to the respective
Reserve Banks.
' There is attached a specimen copy of the revised report
form F.Re I4.12, illustrating the manner of reporting the various
changes, which should be used as a guide in order that the reports
from all districts may be as nearly uniform as possible. The
headings in the specimen report cover the various types of changes
reported in the past, but if none of them appear to cover a situation that may arise in the future the change should be reported
under an appropriate heading devised for the purpose, A report
should be submitted each week whether or not there are any bank
or branch changes to report.
Very truly yours,

E, L. Smead, Chief,
Division of Bank Operations.

TO TEE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

Form F.Ri 2+12
(Revised Oct. 19lt0)

S"%
REPORT OF BANK AND BRANCH CHANGES
Week ended Wednesday,

Federal Reserve Bank of

/
v> '

Location

Name of bank and/or branch

Class
of
bank

, 19k
Date on which
change became
effective

New banks
(except successions and conversions)
Robertsdale,

Central Baldwin Bank

Nonmember

I-17-W

3—30-lj.O

Successions and conversions
Uptown National Bank of
Conversion of —
Uptown State Bank

Chicago, Il^t-K^

National

Chicago, Ill>

State member

J. F. Morgan & Co. Inc.
Conversion of —
J. P. Morgan <$• Co.

New York,

Nonmember

Security National Bank of
Succession of —
The Whitesboro National Bank

\ -

New York, A Y.
X J
Whitesbord> Tex.

Private

Whiteatioro,' Tex.

National

II-1-W

3-30-lt.o

Reopenings of suspended banks
Chatsworth Savings Bank

ChettSn(or' ih, Iowa
r-x.

Nonmember

2-26-lf.O

nsions

Blairsville Savings & Tru^t Coi..

lairdrille, Pa,
\

Nonmember

JU-5-ltO

\ Voluntary liqOWations
(except incio&aj^to absorptions, successions, etc.)
Burns Bank & Trust Co*

BurnS^Tenn,

Nonmember

3-23-L0

Consolidation's, absorptions, etc.
Union Avenue Bank of Commerce
Deposit liabilities assumed b y Commerce Trust Company
Bank of Guerneville
Analy Savings Bank
The Sebastopol National Bank
These three banks combined under

charter of Analy Savings Bank and
http://fraser.stlouisfed.org/
under title of
Federal Reserve
T3 ABank
v, of St.
-P Louis
Q
**.***** Qj,

Kan^s City, Mo,

Nonmember

Kansas. City, Mo,

State member

Guerneville, Calif. Nonmember
Sebastopol, Califs Nonmember
Sebastopol, Calif. National

6-21-i >0

3-1-1>.0

Form F.R. J J . 1 2
(Revised Oct. 19-'iO)

Page 2
S-229a

313

REPORT OF BANK AND BRANCH CHANGES
Week ended Wednesday,

Federal Reserve Bank of

Location

Name of bank and/or branch

(\^
\

Class
of
bank

,191;

Date on which
change became
effective

Consolidations, absorptionsV-Wtc. (Cont'd)
Farmers State Bank
Absorbed by -Exchange Bank

Lenora, Kead

Nonmember

Lenora, ^an&.

Nonmember

The First National Bank of
Me nomi i^ee ^\Mi ch.
The Lumbermen*s National Bank of
Menominee, Mich,
These two banks consolidated under
\
charter and title of —
The First National Bank of Menominee

2-2)j.-iiO

National
National

3-11-1 i.O

Admissions of State bagS*s td Federal Reserve membership
The Bank of Wadesboro

Wad&sBtfro, N. C.

—

3-6-h.O

Withdrawals of State\jmftftc§) from Federal Reserve membership
Bank of Eastman

/^EBr^tmn, Gaf

9-6-38

(
^ % ^ p g e ^ in t ^ l e or location
Michigan Industrial "Rank ,
Title changed to —
The Michigan Bank

it, Mich,

Lea County State Bank of
Title and location changed t o —
Lea County State Bank

Nonmember

Lovington, N. Mex. "Nonmember

2-5-I4O

6-18—38

H<jfbtis, N. Hex,

] \

ancftes established

I. *1^vi\ba^ks
n* Y
(including
converted into branches)

Miami Industrial Bank
Miami Beach Branch
(De novo)
Bank of Sonoma County
Guerneville Branch
(Formerly Bank of Guerneville)

\Miami, Fia.
Nonmember
\ 1101 Lincoln Road,
\ Mi ami Beach, Fla.
Sebastopol, Calif, Nonmember
Guerneville, Calif,

3-1-ILO

3 -1-11-0

Form F.R. Ll2
(Revised Oct. 19^0)

Page 3
S-229&
REPORT OF BANK AND BRANCH CHANGES

31.4

Week ended Wednesday,

Federal Reserve Bank of

/ Class

Location

Name of bank and/or branch

bank

,191).
Date on which
change became
effective

Branches acquired by absorption\or
JU 1<- purchase
d "
Sebastopol, Calif, Nonmember
Bank of Sonoma County
Monte Rio, Calif.
Monte Rio Branch
Forestvilie Branch
Forestvilley^C^ili f.
(Formerly branches of Bank of
Guerneville and Analy Savings Bank,
respectively, both of which were
merged into Bank of Sonoma County)
Manufacturers Trust Company
Stuyvesant Square Branch
(Purchased from Chase National
Bank, New York, N. Y.)

Plymouth Five Cent Savings Bank
Court Street Branch

New York,pit Y.
, 230 2nd Avfenue

Branches discontinued
r — ; — —
PlyAgithy' Mass,
318 tourt Street

3-1-iiO
3-1-UO

State member
6-30-37

Mut, Savings
11-30-35

X
Changes in name SQT•\ ljccation of branches
Lea County State Bank /ot
Lovidgton, N. Mex.
Designated its brandh
Hobbg^^
f x
N. Mex., as the hea\ o^Kice; folMagr
head office at Loving\on\ri 11 be
operated as a branch
American Trust Company
Third-Townsend Branch
renamed
Third-Brannan Branch
Bank of America, N. T. & S, A,
Fillmore-Haight Branch
moved and renamed
Haight-Fillmore Branch
Seattle-First National Bank
Wenatchee Valley Branch
moved to

Nonmember

San Francisco,Calif, State member
601 Third Street

X
\

B^me address
:;
\San Francisco,Calif, National
/^j-6 Haight Street

6-18-38

l-2l.i-38

L.-30-38

z U98 Haight Street
Seattle, Wash,
National
2 South Wenatchee Ave.,
Wenatchee, Wash,
36 South Wenatchee Ave,

3-27-I1O

315

B O A R D OF G O V E R N O R S
OF THE

*******

FEDERAL RESERVE SYSTEM

S-230

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

October 14, 1940

Dear Sir:
A request has been received through a Federal
Reserve Bank that the manager and examiner for a clearing house association be placed on the mailing list to
receive the Federal Reserve Bulletin, the examiner stating that as a former national bank examiner he received
the Bulletin and found it of considerable value in his
work.
It is possible that the Bulletin would be of
assistance to examiners for other clearing house associations and it is suggested that, if you feel it is
desirable to do so in your district, you advise all
clearing house associations in the district which employ examiners that if the Bulletin would be useful to
them the Board would be glad to send it to them without charge upon receipt of a request.
In this connection, it will be appreciated
if you will advise the Board, for its records, the
names of the clearing house associations in your district that still have examiners on their staffs and
the number of examiners employed try each.
Very truly yours

b. R. C arpentir
Assistant Secretary.

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

316
S-231
Sec. 4, FRA-2
INTERPRETATION OF LAW OR REGULATION
(Copies to be sent to all Federal Reserve Banks)
October 10, 1940
Mr.
, Vice President,
Federal Reserve Bank of
,
Bear Mr.
This refers to your letter of October 2, 1940, requesting the
views of the Board with respect to the voting rights possessed by the
____________ National Bank of
and its two subsidiary member
banks, The First National Bank of
,
, and the ___________
State Bank of
, in connection with the approaching election of
a Class B director of your bank.
It is understood that all three of the member
belong to the same electoral group and that the specific
sented is whether the _________ National Bank of _________
in the election in addition to such participation by one
ary member banks.

banks involved
question premay participate
of the subsidi-

A similar question was considered by the Board several years
ago and the Board concluded that it was the intent of the statute that
in a situation of this kind all of the member banks in a single group
controlled by the same interests should together have but one vote in
such an election; and that this intent of the law is not affected by the
circumstance that one of the member banks happens to be a holding company
affiliate. Accordingly, it is the view of the Board that in the circumstances stated in your letter any one, but not more than one, of the
three member banks named, when designated for the purpose in accordance
with the provisions of section 4 of the Federal Reserve Act, may participate in the approaching election of a Class B director of your bank,
and that therefore if the
National Bank of
elects
to participate, neither of the other member banks may do so.

Very truly yours,
(Signed)

S. R. Carpenter

S. R. Carpenter,
Assistant Secretary.

317

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM
S-232

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

October 22, 1940

Dear Sir:
At the recent Presidents' Conference the Leased
Wire Committee submitted and the Conference approved a
recommendation that the memorandum on instructions with
respect to telegrams sent over the Federal Reserve Leased
Wire System be changed so that the "check" count on telegrams containing code words shall be on the same basis as
the count made for accounting purposes.
The Board of Governors is in agreement with this
recommendation and approves the change to become effective
November 1, 194-0.

Assistant Secretary

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

BOARD

318

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS

S-233
Reg. T-93
OFFICIAL C O R R E S P O N D E N C E
TO THE

October 26, 194-0

Dear Sir;
There is attached a copy of a ruling
which will be published in. the Federal Reserve
Bulletin regarding

111

Gash on Delivery' Transac-

tions Under Regulation T".
It will be noted that the attached
ruling is in the form of a statement for the
press which, however, is not to be released until the time specified in the statement.
Very truly your,

S. R. Carpenter,
Assistant Secretary
Enclosure

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

BOARD

BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For release in morning papers,
Tuesday, October 29, 194-0.
The following ruling will appear in the Federal Reserve
Bulletins
"Cash on Delivery" Transactions Under Regulation T
The Board has recently considered certain questions involving the special cash account under section 4(c) of Regulation T, and
especially the provisions of section 4(e)(5) relating to so-called
"cash on delivery" or "C.O.D." transactions. For convenient reference,
the relevant portions of section 4(c), particularly of 4(c)(5) are set
out below:
"(c) Special cash account. *- (1) In a special cash account, a creditor may effect for or with any customer bona
fide cash transactions in securities in which the creditor
may-**
"(A) purchase any security for, or sell any
security to, any customer, provided funds sufficient for the purpose are already held in the account or the purchase or sale is in reliance upon
an agreement accepted ty the creditor in good
faith that the customer will promptly make full
cash payment for the security and that the customer does not contemplate selling the security
.prior to making, such payment; . > . . # .
"(2)- In case a customer purchases a security (other than
an exempted security) in the special cash account and does not
make full cash payment for the security within 7 days after
the date on which the security is so purchased, the creditor
shall, except as provided in the succeeding subdivisions of
this section 4(c), promptly cancel or otherwise liquidate the
transaction or the unsettled portion thereof . , > . > , , .
"(5) If the creditor, acting in good faith in accordance
with subdivision (1) of this section 4(c), purchases a security

320
-2-

for a customer, or sells a security to a customer, with the
understanding that he is to deliver the security promptly to
the customer, and the full cash payment to be made promptly
by the customer is to be made against such delivery, the
creditor may at his option treat the transaction as one to
which the period applicable under subdivision (2) of this
section 4(c) is not the 7 days therein specified but 35 days
after the date of such purchase or sale: Provided, however,
That the creditor shall not so treat any purchase ty a given
customer if any security has been purchased by such customer
at any time during the preceding 90 days in a special cash
account with the creditor, and then, for any reason whatever,
without having been previously paid for in full by the customer, the security has been sold in the account or delivered
out to any broker or dealer: Provided, That an appropriate
committee of a national securities exchange, on application
of the creditor, may authorize the creditor to disregard for
the purposes of the preceding proviso any given instance of
the type therein described if the committee is satisfied that
both creditor and customer are acting in good faith and that
circumstances warrant such authorization.
"(6) If en appropriate committee of a national securities exchange is satisfied that the creditor is acting in
good faith in making the application, that the application
relates to a bona fide cash transaction, and that exceptional circumstances warrant such action, such committee, on application of the creditor, may (A) extend any period specified
in subdivision (2), (3), (4) or (5) of this section 4(c) for
one or more limited periods commensurate with the circumstances, . . . . . "
In general. The problems were ones relating, under section
4(c)(5), to the time of delivering a security to a customer and obtaining cash payment against the delivery. The rulings on the particular
cases may be understood more readily in the light of certain general
principles which apply to section 4(c) and particularly to the C.O.D.
transactions under section 4(c)(5).
It should be noted at the outset that it is not the purpose
of section 4(c)(5) to allow additional time to customers for making
payment. The "prompt delivery" described in section 4(c)(5) is delivery which is to be made as soon as the broker or dealer can reasonably
make it in view of the mechanics of the securities business and the
bona fide usages of the trade. The provision merely recognizes the
fact that in certain circumstances it is an established bona fide
practice in the trade to obtain payment against delivery of the

321
-3security to the customer, and the further fact that the mechanics of
the trade, unrelated to the customer's readiness to pay, may sometimes
delay such delivery to the customer.
The customer should have the necessary means of payment readily available when he purchases a security in the special cash account.
He should expect to pay for it immediately or in any event within the
period (of not more than a veiy few days) that is as long as is usually
required to carry through the ordinary securities transaction.
Such an undertaking is a necessary part of the customer's
agreement, under section 4(c)(1)(A), that he "will promptly make full
cash payment". Furthermore, any delay ty the customer may cast doubt
on the original status of the transaction and should be explainable by
exceptional circumstances that justify the delay. Repetition of delays
by the customer would be especially hard to justify. Such repetition
would almost conclusively label his transactions as unable to qualify
as bona fide cash transactions and would almost conclusively disqualify
them for inclusion in the special cash account.
These general principles are illustrated by the specific
cases to which the Board has given consideration.
Broker "failed to receive" security. A typical example of
a case in which the delivery to the customer is delayed because of conditions in the trade is one in which tne broker has "failed to-receive"
the security which the customer has purchased. Assuming that no evasion of the regulation is involved and that the failure to receive the
security is an ordinary incident to the usual operation of the securities business, section 4(c)(5) would cover the time, not exceeding the
35-day maximum specified in the provision, reasonably required for the
broker to obtain the security and deliver it to the customer.
Purchasing for delivery security already sold to customer.
It sometimes happens that a dealer will sell a security to a customer
although the dealer does not have the security on hand for deliveiy and
expects to purchase it in the market in order to make delivery to the
customer. A special case of this type is one in which an institutional:
investor such as an insurance company, trust fund, or the like, will
purchase a block of a particular issue of securities—usually bonds—
as a unit, and will request that the entire block of securities be delivered at one time in order to avoid unreasonable duplication of
clerical or administrative operations.
Questions as to the time allowed the dealer to acquire the
securities in the market for delivery to the customer under section
4(c)(5) are essentially questions of reasonableness, and must

322
necessarily depend on the circumstances of the particular case.
As indicated above, the dealer could not delay acquiring the
securities he did not have on hand if such delay was for the purpose
of giving additional time to the customer. Assuming, however, that no
such evasion is involved and that there is complete good faith, the
dealer would have a reasonable time for acquiring the securities and
could take into account the general state of the market, the effect of
forcing a sudden purchase of the securities, and similar factors. He
would not have to force through a sizeable purchase in a market that
is temporarily thin or disorganized. But on the other hand he should
proceed to acquire and deliver the securities with all reasonable dispatch .
Unissued securities. The question was raised whether section
4(c)(5) applies to securities which at the time of the transaction are
unissued. The answer is that it does, but that, as in other cases, the
broker should deliver the security and complete the transaction as soon
as he can in view of the mechanics of the trade. This being the case,
it seems that there would be very few instances in which section 4(c)(5)
would, in practice, authorize any more time for delivering such a security and obtaining payment therefor than would section 4(c)(3) which,
in the following terms, specifically provides for most situations involving unissued securities:
"(3) If the security when so purchased is an unissued
security, the period applicable to the transaction under subdivision (2) of this section 4(c) shall be 7 days after the
date on which the security is made available by the issuer
for delivery to purchasers."
Securities purchased with proceeds of securities called for
redemption. Sometimes a customer wishes to purchase a security and to
pay for it with the proceeds of another security which the customer
holds and which the issuer has called for redemption. Occasionally the
proceeds of the called security will not be available for some time,
perhaps 30 days, and the customer would like to delay payment for that
time.
Such a circumstance would not justify delay in obtaining payment under section 4(c)(5), since the delay would not arise from the
mechanics of the trade as they affect the broker or dealer, but merely
from the customer's desire for delay in making payment.
In the particular case presented to the Board, however, the
customer deposited the called security with the dealer with definite
instructions to deliver it for redemption and apply the proceeds to
payment for the purchased security. This made the situation similar

324
BOARD OF G O V E R N O R S
OF THE

*******

FEDERAL RESERVE SYSTEM

S-234

WASHINGTON
ADDRESS

D FFICIAL C O R R E S P O N D E N C E
TO THE

November 1, 1940

Dear Sir:
Referring to the Minutes of the Conference of
Presidents held in Washington on September 27-28, 1940,
the Board of Governors concurs in the action taken by
the Conference in approving the Report of the Standing
Committee on Collections dated July 10-11, 1940, including the addition of the items listed below to those not
to be subject to the service charge permitted 1y item 3
of the fifth paragraph under Collection Charges in the
Uniform Noncash Collection circulars:
Items recalled by sending banks before maturity,
Items returned because of missing endorsement
or because otherwise incomplete,
Items as to which the sending banks request
telegraphic advice of fate, and
Dishonored notes which are returned unprotested.
Very truly your
/?/

I. Carpenter
Assistant Secretary.

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

BOARD

325

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM
S-235

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

November 7, 1940

Dear Sir:
Reference is made to the Board's letters of June 20, 1939,
S-165, and November 15, 1939, R-553, regarding the destruction of certain records of the Federal Reserve agents from the date of the organization of the Federal Reserve Banks to the date of the transfer of
the nonstatutory duties of the agents to tho Banks.
Pursuant to the terms of the Act of August 5| 1939, concerning the disposition of certain records of the United States Government,
permission has been granted in House Report No. 2775, 76th Congress,
Third Session, dated July 11, 1940, for the disposition of certain
records of the Federal Reserve agents as therein described. A copy
of H.R. 2775 is enclosed.
After giving careful consideration to the records contained
in H.R. 2775, the Board of Governors is of the opinion that the following records listed therein should not be destroyed at this time but
should be retained ty the Federal Reserve agents for the periods indicated until further advice is received from the Board:
Item
No.

Title or description

Retain Reports for —(All dates inclusive)

F.R. 107. Report of earnings and
dividends of State member bank

1916, 1921, 1926 to
1937

Treas. 2129. Report of earnings
and dividends of national bank

1916, 1921, 1926 to
1937

F.R. 105. Report of condition of
State member bank

June call dates, 1915
to 1925; June and
December call dates,
1926 to 1937

336
S-235

-2-

Item
No.

Title or description

Retain Reports for —
(All dates inclusive)

Treas. 2130. Report of condition
of national bank

June call dates, 1915
to 1925; June and
December call dates,
1926 to 1937

Member banks1 weekly condition
reports

1927 to 1937

F.R. 24-0. Report of member firm
of a national securities exchange

1935 to 1937

Reports of examinations made by —
Comptroller of the Currency
State banking departments
Federal Reserve agents' examiners

1914 to Jan. 1937
1914 to 1933
1914 to Jan. 1937

In the discretion of each Federal Reserve agent, disposition
of the remaining records listed in H.R. 2775 may, under the terras of
Section 5 of the Act of August 5, 1939, be made by one of the following
methods:
(a)

By sale, upon the best obtainable terms after due
publication of notice inviting proposals therefor;

(b)

By causing them to be destroyed;

(c)

Ejy transfer (without cost to the United States Government) to any State or dependency of the United
States of America or to any appropriate educational
institution, library, museum, historical, research,
or patriotic organisation therein, that has made
application
therefor, through the Archivist of
the United States.

Records containing confidential information should not, of course, be
disposed of ty sale as waste paper unless their character as records
has been destroyed. No records should be transferred to axsj library
or other institution without the consent of the Board of Governors.
If records are to be sold, a separate account should be kept of the
cost of the sale and the amount of the purchase price received, and
the net proceeds of the sale should be credited to the Treasurer's

327
_3—

S-235

General Account. A report of the disposition of the records
should be made to the Board of Governors on the attached form in
duplicate.
Very truly yours,

S. R. Carpenter,
Assistant Secretary,

Enclosures
(Enclosures sent only v?ith addressed copies)
TO ALL FEDERAL RESERVE AGENTS

328
5-235 -a

REPORT OF THE DISPOSITION OF USELESS RECORDS OF
FEDERAL RESERVE AGENT AT

To the Board of Governors:
The records approved for disposition by authority of
House Report No. 2775, 76th Congress, Third Session, dated July
11, 194-0, have been disposed of by the following method (except
as indicated under the item "Remarks" below):

By sale:
By destruction:

Cost of sale:
Purchase pries:
(Indicate manner of destruction)

By transfer to
(Name of institution)
(Post office address)

Date of disposition:
Remarks:

329

BOARD OF G O V E R N O R S
OF THE

FEDERAL RESERVE SYSTEM s _ 25 6
WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

November 23, 19U0

Dear Sir:
In accordance with letter X-9371 of November 26,
1935 (Loose-Leaf Service $3270)* the Federal Reserve Banks
compute semi-annually each member bank's required holdings
of Federal Reserve Bank stock and request member banks to
file applications for such adjustments in their holdings as
may be necessary because of changes in their capital and
surplus. It has recently come to the Board's attention
that, although many of the resulting applications involve
only a few shares of Federal Reserve Bank stock, a considerable amount of work is required in making the semi-annual
computations, handling the applications, and issuing and
cancelling stock certificates. In the circumstances you
are authorized to substitute an annual review of member
bank holdings of Federal Reserve Bank stock, to be made as
soon as practicable after February 1 of each year, in place
of the semi-annual reviews now provided for,
There is attached a copy of form F,R. 533 to be
used hereafter in reporting changes in Federal Reserve Bank
stock holdings during the semi-annual periods ending on June
30 and December 31 $ respectively, of each year. This form,
a supply of which is being sent to you under separate cover,
is to be used in submitting the report outlined in paragraph
7 of the Board's letter X-9371 of November 26, I935, It will
be noted that form F,R, 533 provides for the inclusion in
the figures reported against items 2b and 3b, respectively,
of increases and decreases in holdings of Federal Reserve
Bank stock resulting from consolidations of member banks

330

(of the type described in section 5 of Regulation I), The
form also provides for the listing, in the last section on
page Ij., of consolidations of member banks and of conversions
(as described in footnote 3 of Regulation I) of State
member banks into national banks.
The Federal Reserve Banks now advise the Board
by wire against code FAZOI of the issuance of Federal Reserve Bank stock to a newly organized national bank# Such
telegraphic advice may be discontinued, since the information furnished in the semi-annual reports on form F,R, 533
covering the issuance of Federal Reserve Bank stock will
suffice for the Board's purposes,
Very truly youperj

S. R'; Carpenter,
Assistant Secretary,

Enclosure.

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS.

331
S-237
Reg. T—94
INTERPRETATION OF LAVv OR REGULATION
(Copies To Be Sent To All Federal Reserve Banks)
November 20, 1940
Mr,
, Vice President,
Federal Reserve Bank of
,
Dear Mr.

Reference is made to your letter of November 9, 1940, regarding the inquiry of
, Inc.,
,
,
with respect to Regulation T.
It is understood that the inquiry is an example of questions
that have come to you from several sources. The questions relate to
certain transactions in which a broker subject to the regulation, acting on behalf of the Federal Deposit Insurance Corporation, sells certain unregistered securities under terms providing for the payment of
the purchase price in installments over a substantial period of time.
In some cases the broker may actually effect the sale on behalf of the
Federal Deposit Insurance Corporation, whose name is disclosed to the
purchaser at the time of the transaction. In other cases the broker
may do no more than negotiate the sale with the purchaser and bring the
purchaser and the Federal Deposit Insurance Corporation together, the
actual transaction being effected directly between the Federal Deposit
Insurance Corporation and the purchaser. In all cases, however, the
broker does not at any time have any interest in the securities and
does not in any way finance their purchase by the ultimate purchaser.
As you suggest, the Securities Exchange Act of 1934 and Regulation T, as a general proposition, do not permit a broker subject to
the regulation to effect or "arrange" such an installment sale of unregistered securities. The situation, however, seems to be altered in
the present case by the fact that the Federal Deposit Insurance Corporation is the real seller of the securities and also finances the sale.
The Federal Deposit Insurance Corporation is a Government
corporation. It is not merely an "instrumentality" of the Government
in the very broad sense that, for example, a national bank is such an
"instrumentality". It is much more. Its directors are appointed by
the President with the advice and consent of the Senate, it is granted
the free use of the United States mails, its capital stock is in effect supplied by the Government, and it operates as an integral part
of the Government,

332
S-237
Reg. T-94
-2-

It is a settled principle that a statute, no matter how
broad or general its terms, does not apply to the sovereign, or to
one acting for the sovereign, unless the sovereign is brought under
the statute by specific language. This principle is, in effect, set
forth in section 3(c) of the Securities Exchange Act of 1934 which
provides that:
"(c) No provision of this title shall apply to, or
be deemed to include, any executive department or independent establishment of the United States, or any lending agency which is wholly owned, directly or indirectly,
by the United States, or any officer, agent, or employee
of any such department, establishment, or agency, acting
in the course of his official duty as such, unless such
provision makes specific reference to such department, establishment, or agency."
In view of the governmental character of the Federal Deposit Insurance Corporation and the absence of any indication that Congress intended to bring the Federal Deposit Insurance Corporation
under the present requirements, the Board is of the opinion that,
without regard to the particular language of section 3(c), the present question is controlled by the fundamental principle that general
language of a statute does not apply to the sovereign. Furthermore,
since the sovereign necessarily must act through agents, it seems
that the principle must apply to the broker's activities in the present case. The Board concludes, therefore, that in circumstances such
as those described in which the Federal Deposit Insurance Corporation
as a disclosed principal sells securities through a broker, and the
broker acts purely as an agent for the Federal Deposit Insurance Corporation without acquiring any interest in the securities or doing any
financing, this principle exempts the transaction from the requirements of Regulation T and the provisions under which the Regulation is
issued.

Very truly yours,
(Signed)

L. P. Bethea

L. P. Bethea,
Assistant Secretary.

333
S-238
Reg. P-16
INTERPRETATION OF LAW OR REGULATION
(Copies to be sent to all Federal Reserve Banks)
November 15, 1940.

Mr.
, Vice President,
Federal Reserve Bank of
Dear Mr.

This refers to your letter of October 15, 1940, raising
certain questions regarding the report of examination of
__
Bond & Mortgage Company,
,
, as of June 29, 1940,
made by an examiner for your bank.
You requested the Board's comments as to whether the assets of
Bond & Mortgage Company which are claimed by it to
satisfy the requirements of section 5144 of the Revised Statutes,
with respect to readily marketable assets, may be so regarded.
The assets consist of stock of
Theatre Company and _____ Department Store, Inc., small local corporations, the former owning the
stock of a corporation which operates the moving picture theatres
in
and the latter operating a department store in that
town. All of the stock of ______ Department Store, Inc. and half of
the stock of
Theatre Company is owned by
Bond & Mortgage
Company. The examiner states that it would be extremely difficult
to accurately appraise the sales value of the stocks and that it is
recognized that they do not have a broad market. It appears that,
in support of its position that the assets ore readily marketable,
it is claimed by
Bond & Mortgage Company that, in view of the
good earnings shown and the fact that the company controls the moving picture possibilities in the town, the stock of
Theatre
Company could be easily sold to persons who would be interested in
gaining control of the local situation, and it is stated that the
Department Store is the only locally owned store of its type
and that it possesses a favorable lease and shows good earnings.
In its ruling published in the Federal Reserve Bulletin
for March 1938 at page 192 (based upon its letter of February 4,
1938 to your bank concerning an inquiry from
Bond & Mortgage
Company), the Board stated that, in determining whether assets
are readily marketable within the meaning of section 5144, it
should be borne in mind that -

8-238
Reg. P-

"the law apparently contemplates that the
assets shall be of such a nature that their
fair market value can be easily ascertained
with reasonable accuracy and can be readily
realized in the market at any time in order
to pay assessments on bank stocks or to assist subsidiary banks through voluntary contributions."
Thus, an asset does not satisfy the statutory requirements merely because it is considered sound and desirable and it
is believed that a purchaser at some price could be found if an
effort were made. Accordingly, upon the basis of the facts presented, the Board does not consider that the stocks of
Theatre Company or
Department Store, Inc. satisfy such requirements and, unless you have additional pertinent facts which
might lead to a contrary view, please advise
Bond & Mortgage
Company accordingly.
According to the information in the report of examination, the holding company affiliate has invested in the stock of
the
Department Store, Inc., over ten per cent of its total
assets (book value). In consideration of the granting of the
general voting permit held by
Bond & Mortgage Company, the
corporation agreed, among other things, "that, except with the
permission of the Board of Governors of the Federal Reserve System, it shall not cause or permit any change to be made in the
general character of its business or investments". Investment by
the corporation of so large a portion of its assets, other than
bank stocks, in control of a department store, without first having requested or obtained the permission of the Board, is regarded
as a violation of the quoted provision of the agreement, and it is
requested that you so inform the holding company affiliate,
The report of examination indicates that the stock of
the
Department Store, Inc., has been shown as "Investment Q,"
on the books of the holding company affiliate and that it was so
designated because it was felt desirable to conceal the ownership
of the local store by interests close to the subsidiary bank.
The full extent to which the concealment is carried is not definitely disclosed in the report of examination and a question
arises as to whether the holding company affiliate is unduly concealing the nature of its activities from its own shareholders.
It is noted also that the company's investment of $10,000 in the
department store as of December 31» 1939» was concealed by use of

335

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S-238
Reg. P-16

the caption "Investment Q," in the corporation's annual report to
the Board for 1939* It is requested that you inform the
Bond
& Mortgage Company that, so long as it is subject to the voting
permit law and agreements, for the administration of which the
Board is responsible, the Board expects that full and accurate information regarding the corporation's assets and operations will
be set forth in its books and records and in its annual reports to
the Board, and that fictitious captions will not be substituted for
the names of organizations whose securities are held by the corporation.
It will be appreciated if you will keep us informed as to
any further developments in connection with the foregoing matters.
You requested also the Board's views as to the propriety
of supplying the holding company affiliate and its directors certain information with respect to the condition and operations of
the two banks which are affiliated with the holding company affiliate but which are not subsidiary banks. Data concerning the holding company affiliate and subsidiary and other affiliated banks,
and other affiliated organizations, obtained by an examination of
the holding company affiliate itself should be contained in the
open section of the report of examination of the holding company
affiliate. Of course, any information so obtained which is of a
confidential nature, including such information as is ordinarily
contained in the confidential section of a report of examination
of a bank, should be set out only in the confidential section of
the report of examination of the holding company affiliate. Data
taken from reports of examination of banks or other affiliated organizations, and data derived from the contents of such reports
of examinations, to the extent considered necessary in reviewing
the financial condition and operations of the holding company affiliate and its relationships with other organizations, should be
included in the confidential section only. In no case should the
contents of a report of examination of a bank be quoted verbatim
or paraphrased in such manner as to result in any embarrassment
to the examiner or the supervisory authority responsible for such
report.

Very truly yours,
(Signed) S. R. Carpenter
S. R. Carpenter,
Assistant Secretaiy.

S-239
Reg. L
INTERPRETATION OF LAW OR REGULATION
(Copies to be sent to all Federal Reserve Banks)
December 3, 1940

Mr.
, First Vice President,
Federal Reserve Bank of
,
,
Dear Mr.

This refers to your letter of September 27, 194-0, and
enclosures, regarding the applicability of the Clayton Act to Mr.
, who is a director of The
_____ Bank of
and
Trust and Savings Bank, both of
,
a director of the
The question presented is whether the two banks are engaged in aryr of the same classes of business within the meaning
of the exception contained in paragraph (6) of section 8 of the
statute. It appears that both banks receive demand and time deposits, and in view of previous rulings of the Board counsel for
your bank reaches the conclusion that the above exception is not
applicable. The Board sees no reason to differ with this conclusion.
The
Trust and Savings Bank contends that the
banks are not engaged in the same classes of business because all
of the customers of The ________ Bank are Japanese whereas the
Savings Bank has no Japanese customers. However, the Board does
not believe that the applicability of the exception was meant to
depend upon differences in the character of the clientele of the
two banksj and it is apparent, moreover, that a ruling to this
effect would produce serious administrative difficulties, as well
as serious practical difficulties for the directors, officers and
banks involved in this and in other similar cases if the facts
should be slightly different.

Very truly yours,
(Signed)

L. P. Bethea

L. P. Bethea,
Assistant Secretary.

337

BOARD OF G O V E R N O R S
OF THE

S-2l|0

FEDERAL RESERVE SYSTEM
mo a

WASHINGTON
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 5> 19U0

Dear Sir:
In order that my associates end I may be kept informed as
to the part officials of the Federal Reserve Banks are taking in
connection with the Defense program, it will be appreciated if you
will have the field representative at your head office mail me a
report each Monday setting forth a resume of his activities, and
the activities of the field representatives of your branches, if
any, on behalf of the Defense program during the preceding week.
This report might set forth any interesting developments during
the week that it is thought worthwhile to bring to our attention.
It should also include the approximate number and amount of contracts, the award or financing of which was facilitated in any way
through the services of your bank.
The report should also set forth briefly any difficulties
that were experienced during the week, particularly in regard to
difficulties, if any, encountered in obtaining financing, and
whether in the opinion of your representatives anything can be done
by our office to facilitate the work, It vd.ll be particularly
helpful to us if you will have the first report cover the period
November 12, I9I4.O to date. In this connection, you may be interested
to know that the several units of the Defense Commission prepare
statements each Monday of the activities of their offices during the
preceding week.
It is assumed that you have arranged to have a detailed
record kept of the matters connected with the Defense program which
are handled by the officers of your Bank.
Very truly yours,

Ernest G. "Draper*
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS

338

•S-2A1
Reg. F-26
INTERPRETATION OF LAW OR REGULATION
(Copies to be seat to all Federal Reserve Banks)
December 4> 194-0
Mr.
, President,
Federal Reserve Bank of
,
Dear Mr.
This refers to your letter of October 7, 1940, relating to
the authority of
National Bank in
,
,
,
to exercise certain fiduciary powers.
The bank applied for and. was granted permission to act, when
not in contravention of State or local law, as executor, administrator,
guardian of estates, assignee, receiver, or in any other fiduciary
capacity in which State banks, trust companies or other corporations
which come into competition with national banks are permitted to act
under the laws of the State of
. Since three of the specific
powers enumerated in section 11(k) of the Federal Reserve Act (i.e.
trustee, registrar of stocks and bonds, and committee of estates of
lunatics) were not included, the Board's announcement FR-270 (No. 98)
listed the bank as having been granted "limited trust powers".
Stating that you have reason to believe that it is the
bank's understanding that it has authority to exercise "full trust
powers", you point out that competing State institutions are authorized "to act as guardian of any insane person or idiot under appointment of any court of record having jurisdiction of the estate of such
insane person or idiot", "to transfer, register and countersign certificates of stock, bonds, or other evidences of indebtedness" and
to act as trustee.
Your opinion that the bank is authorized to exercise the
above-mentioned powers which competing State institutions may exercise is in accordance with views heretofore expressed by the Board.
The so-called "general power" covers all fiduciary powers which competing State institutions are authorized to exercise, including any
of the eight specific powers enumerated in section ll(k). Thus, a
national bank which receives a permit covering part of the specific
powers and the "general power" may, in practical effect, have "full
trust powers", although its right to exercise the specific powers not
listed in its permit is dependent upon the authority of competing
State institutions to exercise them.

-2-

S-241
Reg. F-26

Since your inquiry resulted from the use of the terms
"limited trust powers" and "full trust powers" in the Board's FR-270
announcements, that practice will be discontinued and, hereafter, the
announcements will merely show that the right to exercise fiduciary
powers has been granted, without indicating the extent of the powers.

Very truly yours,
(Signed.) L. P. Bethea
L. P. Bethea,
Assistant Secretary.

340

BOARD OF G O V E R N O R S
of

t h e

FEDERAL RESERVE SYSTEM

8-242

Reg. 0-40

w a s h i n g t o n
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 11, 1940

Dear Sir:
Some time ago the Board had occasion to consider the applicability of section 22(g) of the Federal Reserve Act, regarding loans
to executive officers, to a vice president of a national bank who had
authority to sign deeds, checks, drafts and other documents in the absence of the president. The letter which the Board wrote on the subject was not circulated to the Federal Reserve Banks at the time and,
accordingly, for your information and records we are stating below the
position which the Board took in the matter.
It appeared that the officer in question had been an inactive
vice president of the bank for many yearsj that he had never been paid
a salary as vice president, his only compensation being as a director
and a member of the finance committee of the board of directors; and
that except for his duties as a director his only official actions were
the signing of documents in the absence of the president. The board of
directors of the bank proposed to adopt a resolution giving the vice
president in question authority to sign deeds, checks, drafts, and other
documents in the absence of the president, but expressly denying him
authority to make loans or to perform any of the other duties of an
executive officer having control of matters of policy or direction of
the activities of the bank.
On the basis of the above facts, the Board advised the Federal Reserve Bank which submitted the inquiry that it concurred in the
Federal Reserve Bank1s opinion that the duties to be performed by the
officer in question require a participation "in the operating management of the bank" and, therefore, he would be an executive officer of
the bank within the meaning of the Board's Regulation 0, as amended
July 1, 1939.
very Lruiy yours,

TO THE PRESIDENTS OF ALL
FEDERAL RESERVE BANKS

L. P. Bethea,
Assistant Secretary.

341

BOARD OF G O V E R N O R S
of

*******

t h e

FEDERAL RESERVE SYSTEM

S-243

w a s h i n g t o n
osfl *
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

*******

December 13, 194-0

Dear Sir:
We have received a request from Mr. R. L.
Mehornay, Deputy Director of Small Business Activities, that his office be furnished with copies of
all bulletins and circular memoranda issued by the
Federal Reserve Banks to their member and nonmember
banks relative to Government contracting in so far
as they come within the purview of the Director of
Small Business Activities. It will be appreciated
if you will comply with the request of Mr. Mehornay.
It is suggested that such bulletins and memoranda
be addressed to Director of Small Business Activities, Advisory Commission to the Council of National
Defense, Washington, D. C., attention: Mr. R. L.
Mehornay.
It is assumed that you are now sending to
the Board the usual number of copies of all such
bulletins and memoranda.
Very truly yours,

Chester Morrill,
Secretary.

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

BOARD

342
BOARD OF G O V E R N O R S
*******

t h e

FEDERAL RESERVE SYSTEM

S-244

w a s h i n g t o n

\vWm9fi
" ' ^ r t f ' "

ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 14, 1940

Dear Sir:
As you know the procedure adopted by the Federal Reserve
Banks for uniform treatment of employees called for military service provides that, upon receiving evidence that an employee called
to military service has taken out National Service Life Insurance,
the Bank will reimburse him for the cost of premiums on such insurance for his period of military service in a principal amount
up to (a) the multiple of $500 which is equal to or next above the
equivalent of two years' salary, or (b) $5,000, whichever is less.
Inasmuch as amounts payable in this connection will be
relatively small, it is believed that it would be preferable to
make a single payment in any given case unless the period of military service is in excess of one year. We are advised that each
person taking out National Service Life Insurance will receive an
insurance policy which can be presented to the Federal Reserve
Bank at the time request is made for reimbursement for National
Service Life Insurance premiums.
If in the case of those who return to the Bank's employ,
or those who do not return, your Bank wishes to obtain evidence
that premiums were paid for the entire period for which reimbursement is requested, it is suggested that you communicate with the
Board's Division of Bank Operations which will be glad to obtain
from the Veterans Administration information as to the actual
amount of premiums paid and the period covered h/ such premiums.
This information may be obtained, if desired, at or about the time
of the expiration of service or when a request for reimbursement
is received. In each instance, in order to insure proper identification, the full name of the insured, the branch of the service,
and any numbers incident to service or the insurance that are
available should be furnished. If the number of the policy is

343
S-2U

not known, information as to the effective date of the insurance,
if available, is desirable.
Very truly yours

L. P. Be the a,
Assistant Secretary.

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

344

BOARD OF G O V E R N O R S
*******

t h e

FEDERAL RESERVE SYSTEM
5-245

w a s h i n g t o n
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

*******

December 16, 1940

Dear Sir:
Some time ago Governor Draper received an inquiry from
one of the Federal Reserve Banks with regard to the priority of
rights between sureties guaranteeing performance of Government
contracts and assignees of contractors' claims against the Government under such contracts. A preliminary investigation was
made of the circumstances involved and these are reflected in the
attached copy of a memorandum which was prepared for Governor
Draper. Subsequently, the matter was referred to a Committee of
the National Defense Commission which considers problems arising
out of Arny and Navy contracts for consideration of that Committee.
We may later be called on for information as to whether
similar questions have come to our attention, and it will be appreciated if you will let us know of any cases that come to your
attention where it appears that priority of rights of sureties on
Government contracts interfered with or tended to retard, financing of such contracts by banks. We will appreciate receiving any
suggestions you may wish to make with regard to the effect of
existing surety bond requirements on the ability of banks to finance defense contracts.
Very truly yours,

Chester Morrill,
Secretary.
Enclosure
TO OFFICERS AT FEDERAL RESERVE BANKS AND BRANCHES DESIGNATED AS
FIELD REPRESENTATIVES IN CONNECTION WITH NATIONAL DEFENSE
PROGRAM.

345
S—245—a
November 30, 1940
To:

Governor Draper

From:

Mr. Wingfield, Assistant
General Counsel

SUBJECT: Priority of rights between
sureties guaranteeing performance of
Government contracts and assignees
of contractors' claims against the
Government under such contracts.

Pursuant to our previous considerations, I have been looking
into the circumstances involved in the inquiry of Mr.
in his letter of November 19, 1940, relating to the above matter. The
following is set out for your information and as a basis for a discussion with you as to the further direction to be given the matter.
Mr.
stated that in one case involving the Federal Reserve Bank of ___________ the surety companies had agreed that
they would not take an assignment equal or prior to that to be obtained
by the Federal Reserve Bank under the contract. He also stated that in
the case of a member bank he had advised the bank to enter into negotiations with the surety company and the contractor in an effort to have
the surety company stipulate that an assignment obtained by it will be
subsequent to any assignment obtained by the lending bank. Mr.
suggested that the Board and the Defense Commission arrange with the
Army and Navy Departments for a requirement that a surety bond should
not contain any clauses for assignment except subordinate to the rights
of any lending banks that might take assignments of Government claims
pursuant to the new Assignment of Claims Act.
It appears to be the general rule of law that where there is
a Government contract and a surety bond for performance and subsequently
an assignment by the contractor of his claims against the Government to
a lending bank the rights of the surety company are prior to any rights
of the assignee lending bank. For example, if the contractor should dissipate the loan obtained from the bank and then default on his contract,
the surety on the performance bond would have to complete the contract
and would be entitled to any unpaid amounts due the contractor. Also,
in cases of this kind the surety company may have taken a general lien
on the assets of the contractor which would be prior to any claims by the
assignee bank.
I discussed the matter informally with Mr.
the
Washington representative of stock surety companies. Mr. _____________
felt that a general requirement of the kind suggested by Mr.
would not be workable and might prevent surety companies from bonding
Government contracts. He is very anxious, if any further steps are taken
in this matter, to request executive representatives of the companies he
represents to come to Washington and confer with us regarding the matter.

346
-2-

S—245—3'

I told him that I was merely collecting information at this time but
that I felt sure that if such a requirement should be contemplated we
would want to discuss the matter with representatives of his companies
before any final action was taken.
, of
I discussed the matter informally with
the Navy. He said that he had not previously had occasion to consider
it but that such a requirement might make it difficult for the Navy to
obtain performance bonds on their contracts and might be embarrassing
in view of the lack of authority in the Navy to waive performance bonds.
if he knew whether any further consideration had
I asked
been given to obtaining an amendment to the statutes making it unnecessary for the Navy to obtain bonds on their contracts. He said that he
had not heard of it but that if 1 deemed it desirable he would get in
touch with Mr.
office with regard to the matter. I said
that I was merely obtaining information and would not suggest at this
time that he do that.
I also discussed the matter with
in the War Department , who said that he had not previously had occasion to consider
the question. He said that he would give consideration to it and would
be glad to confer with us regarding it at any time. At his request, I
sent him a copy of Mr.
[_s letter for his informal consideration.
In each of the conversations above referred to, it was mentioned that a surety company might be willing to subordinate its claims
to an assignee bank in a case where there was full confidence in the
standing and ability of the contractor but would be unwilling to do so
where there was some question as to the standing and ability of the contractor. In other words, a surety company would be willing to subordinate its claims in a case where, as a practical matter, such subordination
would not mean anything but would be unwilling to subordinate in a case
where, as a practical matter, it might be helpful to the assignee bank.
In these circumstances, any suggestion regarding negotiations between a
bank and a surety company which is short of a requirement for subordination by a surety company might not prove to be very helpful.
As a matter of brevity, in the above memorandum, I have referred to performance bonds. The same problems might arise in connection with payment for labor and supplies bonds and bonds given in
connection with advances to contractors by the Army or Navy.

Respectfully,
(Signed) B. Magruder Wingfield
Assistant General Counsel.

347

BOARD OF G O V E R N O R S
of

******

t h e

FEDERAL RESERVE SYSTEM
S-24-6

w a s h i n g t o n
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 16, 1 % 0

Dear Sir:
In accordance with letter X-7629 of October 5, 1933 (LooseLeaf Service #60$0) and letter X-4739 of December 4, 1926, the Federal
Reserve Banks make a review as of the end of each year and furnish the
Board with a report and recommendation covering member banks in the
respective districts located in outlying sections of reserve and central reserve cities (except New York City) which have been granted
permission to carry lower reserves on deposits than are required to
be carried by other banks located in such cities. After the reports
have been reviewed at the Board's offices, the Federal Reserve Banks
are advised whether or not the Board concurs in their recommendations.
The annual reviews of these reports at the Board's offices
have resulted in the revocation of permission to carry lower reserves
in only one case, the revocation being due to the establishment of a
branch of the bank in the downtown section of the city. In the circumstances, your reviews and the resulting reports and recommendations
to the Board on this subject may hereafter be made at three-year intervals. The next regular review, accordingly, should be made as of
December 31, 1942. In the interim, if a bank that has permission to
carry reduced reserves establishes a downtown branch, or if there is
brought to your attention a change in the character of its business
which might warrant revocation of the permission to carry reduced reserves, the facts in the case should be brought to the Board's attention promptly with such recommendation as you. may care to make.
Very

L. P. Bethea,
Assistant Secretary.
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

348

BOARD OF G O V E R N O R S
.

t h e

FEDERAL RESERVE SYSTEM
w a s h i n g t o n

S-247
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 19, 1940

Dear Sir:
Reference is made to the Board's circular letter dated
December 14, 194-0 (S-244-) relating to reimbursement to employees
called for military service for the cost of premiums on National
Service Life Insurance which might be taken out ty such employees.
Under the law providing for the issuance of National Service Life Insurance, it is provided that "such insurance shall be issued upon the five year level premium terra plan, with the privilege
of conversion as of the date when any premium becomes or has become
due, or exchange as of the date of the original policy, upon payment
of the difference in reserve, at any time after such policy has been
in effect for one year and within the five year term period, to policies of insurance upon the following plans; Ordinary life, twenty
payment life, thirty payment life". It will be noted that although
the original insurance is issued on the five year level premium term
plan it may be converted or exchanged, retroactively to the date of
the original policy, to one of the other three plans at any time
after the policy has been in effect for one year and within the five
year term period upon payment of the difference in premium rates.
Since the premium rates for such insurance are based on the American
Experience Table of Mortality, the premium rates for ordinary life,
twenty payment life and thirty payment life are considerably in excess of the premium rates for the term insurance.
A case has come to the attention of the Board in which
there appeared to be some uncertainty as to which type of insurance
is contemplated in the procedure for reimbursement approved
the
Board. In order that there may be no misunderstanding regarding
this matter, you are advised that the procedure approved ty the
Board relating to reimbursement for the cost of premiums on National Service Life Insurance issued to employees of the Federal Reserve
Banks called for military service contemplates reimbursement only
for premiums on the five year level premium term plan, or for an

349
-2-

S-247

amount equivalent thereto if such insurance is converted into one of
the other plans, during the period of military service.
Very truly your

L. P. Bethea,
Assistant Secretary.

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

350
BOARD OF G O V E R N O R S
of

t h e

FEDERAL RESERVE SYSTEM

8-248

w a s h i n g t o n
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 26, 194-0

Dear Sir:
The Board's letter S-235 of November 7, 194-0 requested
that member banks' weekly condition reports (item No. 11 on page
2 of the letter) for the period 1927-1937, inclusive, be retained
until the receipt of further advice from the Board. It has since
come to the Board's attention that some of the Reserve Banks have
complete transcripts of the reports submitted by the individual
reporting member banks, in addition to the reports themselves.
There is no need in such cases of retaining the original reports.
Accordingly, to the extent that your bank has transcripts of the
figures reported try each individual weekly reporting member bank
during the period 1927-1937, inclusive, the reports may be destroyed or otherwise disposed of in the manner provided by the
Board's letter S-235.
Now that such reports are no longer handled by the Federal Reserve Agents' offices, there is, of course, no need of our
obtaining Congressional authority for their destruction, and the
determination of when current reports of weekly reporting member
banks should be destroyed may be made by the Federal Reserve Banks
in the absence of instructions from the Board. In this connection,
the report submitted in 1936 try the committee of representatives
of the Federal Reserve Banks on the destruction of records, copies of which were sent to all Federal Reserve Banks ty President
Harrison of the Federal Reserve Bank of New York on June 11, 1936,
suggests that member bank weekly condition reports be retained for
one year. From the Board's standpoint there is no objection to
this policy, since transcripts of these reports beginning with
1933 are in the Board's files.
Very truly

TO THE PRESIDENTS OF
ALL FEDERAL RESERVE BANKS

/")
•

Assistant Secretary.

351

BOARD OF G O V E R N O R S
of

t h e

S-2I.I.9

FEDERAL RESERVE SYSTEM
w a s h i n g t o n
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 28, I9I4.O

Dear Sir :
At the time of our conference in Washington on November
12 and 1^, the opinion was expressed that the financing of Defense
contracts should be undertaken wherever possible by the commercial
banks. Such banks may, however, from time to time be presented
with situations where the circumstances surrounding the loan application are such as to make questionable the loan of depositors' funds•
It is needless to say, however, that adequate Defense requires
adequate financing.
In those cases whore the local banks find themselves
unable to extend credit to Defense contractors, the Federal Reserve
Banks may be called upon to render financial advice or aid. Should
the Federal Reserve Bank, either because of statutory limitations
or for other reasons, be unable to extend credit, it would be desirable for it to call promptly into conference the Manager of
the local Reconstruction Finance Corporation Agency# By bringing
the Reconstruction Finance Corporation into the conference before
the application is finally disposed of, much valuable time can be
saved the contractor.
In each case where the Federal Reserve Bank does not believe
it is justified within the law in granting a loan, please advise the
Board1 s Division of Bank Operations forthwith of the action taken
and the reasons therefor, and where it is thought desirable we will
bring such notice to the attention of the Office of the Director of
Small Business Activities. It would be helpful if such notification
would contain a statement setting forth (a) the type of financing
required by the applicant, (b) the amount sought, (c) the reasons
for the declination by the local bank and the Federal Reserve Bank,
(d) whether the applicant is a sub-contractor or a primary contractor,
(e) the type of Defense orders which the applicant is engaged in
executing, and (f) the date on which the case was transferred to the
Reconstruction Finance Corporation Loan Agency.

352

, *

S-2JL9

- 2 -

It is of the utmost importance to the successful operation
of the Defense program that in all cases in which private financing
cannot be arranged uninterrupted consecutive assistance of the officers
of the Federal Reserve Banks and the Reconstruction Finance Corporation
Loan Agency be given applicants for loans, and that in considering
loan applications the Reconstruction Finance Corporation have the benefit of all applicable information obtained by the Reserve Bank,
Very truly yours,
sV

Ernest G, Draper

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

353
BOARD OF G O V E R N O R S
*******

t h e

B-12h8
fOn office copies
only)

FEDERAL RESERVE SYSTEM
w a s h i n g t o n
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December it, I9I4.O
SUBJECT:

Procedure under the Assignment
of Claims Act of I9J'-0.

Dear Sir:
Referring to our letter of November ^0, 19''0 enclosing tentative drafts of certain documents on the above subject, there are
enclosed for your'information copies of the following documents in the
form in which they have beon released officially:
1, Circular No. )J;J addressed by the Director of Procurement
to the heads of all Executive Departments and Independent Establishments
under date of December
19^0.
2, The suggested form of notice of assignment (referred to in
the above mentioned circular) with provision for acknowledgment of receipt by the addressee.
3, Instructions for the use of this form.
li.. A copy of -& decision of the Comptroller General of the
United States (No. B»13700), dated December 2, 1 9 W , addressed to the
Federal Works Administrator, containing rulings on the two points mentioned in our' letter of November
19h0.
You arc at liberty to furnish copies of any or all of those
documents to banks, financing institutions and other interested parties
in your district. If you do so, it has been suggested that you call
especial attention to the fact that the procedure outlined is suggested
as a convenient means by which the assignee can obtain the proof which
he will need to satisfy the appropriate officers of the Government that
the requirements of the statute vdth reference to the filing of notices
of assignments have boon complied with.
While this procedure may appear to be a bit cumbersome, it is
believed that it is the simplest that could be devised to meet a practical problem arising out of the requirements of the statute, and that it
will save correspondence and possible delays in obtaining payments of
assigned claims.

(On office copic
only)

While no written promise to furnish such information has been
received, banks and other financing institutions which consider it
necessary to ascertain whether previous assignments of particular claims
have been made amy wish to address .inquiries to the Comptroller General
of the United States, Washington,. D. C., or to the disbursing officer,
if any, designated in the contract to make payment* However, it is believed that it would be advisable to Biake any such inquiry in a separate
letter or telegram and not to include it in the notice of assignment.
Otherwise, acknowledgment of receipt of the notice of assignment may be
delayed pending a search of the files.
The Board is arranging to have a supply of the enclosed forms
of notices of assignment printed for the convenience of banks and other
financing institutions and you may wish to send a sample copy to each
such institution in your district with advice that additional copies
can be obtained from you on request. As soon as the form is received
from the printer we shall send you a supply somewhat in excess of the
number of banking institutions in your district. Additional copies may
be obtained upon request.
Very truly yoers,

Chester Morrill,
Secretary.

Enclosures
TO PRESIDENTS OF ALL FBDMUL RESERVE BANKS aBD Of? I OSES AT FEDERAL
RESERVE BANKS AND PRAMG5ES OBSIGNATED A3 FIELD REPRESENTATIVES
IN CO'tiEECTIOv. WITH NATIONAL DEFENSE FROGRAK.

355

BOARD OF G O V E R N O R S
of

t h e

B-1249
(on office
copies only)

FEDERAL RESERVE SYSTEM
w a s h i n g t o n
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

November 28, 19'''.0

Dear Sir:
For your information there is enclosed
a copy of a statement "Directory Giving Names of
Officers to be Addressed'1 revised to November 1, 19li0,
just received from the War Department.
Very truly yours

E, L.Smead, Chief,
Division of Bank Operations,

Enclosure

TO OFFICERS AT FEDERAL RESERVE BASKS AMD BRANCHES
DESIGNATED AS FIELD REPRESENTATIVES IN CONNECTION
WITH NATIONAL DEFENSE PROGRAM.

356

BOARD OF G O V E R N O R S
of

B-1250

t h e

(on office
copies only)

FEDERAL RESERVE SYSTEM
w a s h i n g t o n
ADDRESS

OFFICIAL C O R R E S P O N D E N C E
TO THE

*******

November $0, 19l'r0

SUBJECT:
Dear Sir:

BOARD

Procedure under the Assignment
of Claims Act of 19^0*

For your confidential information there are enclosed tentative
drafts of the following:
1. A proposed circular letter on the above subject to be addressed
by the Director of Procurement to the Heads of all Executive Departments and
Independent Establishments;
2* A proposed form of notice of assignment with provision for
acknowledgment of receipt by the addressee;
Proposed instructions for the use of this form.
These documents have been tentatively approved by representatives
of a number of the Government departments with the understanding that their
release will be delayed for a reasonable time pending an effort to obtain
from the Comptroller General a prompt ruling on two questions: (l) Whether
it is necessary for the assignee as well as the contractor to certify on the
vouchers or other requests for payment under assigned contracts, that payment has not yet been received; and (2) whether the last paragraph of the
proposed instructions is acceptable to his office or whether his office will
require something additional in the way of assurance that the copy of the
instrument of assignment filed with the notice of assignment is a true copy.
It is hoped that the Comptroller General will render rulings on
these questions by Monday, December 2, but, even if he does not do so, these
documents probably will be released officially sometime next week*
The enclosed copies arc sent to you for your advance information
and should not be released until you have been advised that they have been
released by the Government.
Very truly yours,

Enclosures

E. L. Smcad, Chief,
Division of Bank Operations.

TO OFFICERS AT FEDERAL RESERVE BANKS AND BRANCHES DESIGNATED AS FIELD
REPRESENTATIVES IN CONNECTION WITH NATIONAL DEFENSE PROGRAM,

357

BOARD OF G O V E R N O R S
of

t h e

FEDERAL RESERVE SYSTEM
w a s h i n g t o n
ADDRESS

B-1251
OFFICIAL C O R R E S P O N D E N C E
TO THE

BOARD

December 12, I9U0•

SUBJECT:

Surety Bond Requirements—
Army and Navy Contracts.

Dear Sir:
Recently a representative of one of the Federal
Reserve Banks requested information as to requirements of
the Army and Navy with respect to surety bonds , The requested information was obtained informally from representatives of the Army and Navy and is reflected by the attached
copies of letters, with enclosures, replying to the specific
inquiry.
You will understand that this information, which
is furnished to you for your assistance in answering inquiries, was obtained on an informal basis and is not to
be considered as formal commitments of the War or Navy Department; and, in so far as the information covers administrative practices, these may, of course, be changed from
time to time.
Very truly yours,

E. L. Smead, Chief,
Division of Bank. Operations,

Enclosures
TO OFFICERS AT FEDERAL RESERVE BANKS AND BRANCHES DESIGNATED
AS FTBLD REPRESENTATIVES IN CONNECTION WITH NATIONAL DEFENSE
PROGRAM,

B-1251-a
COPY

December It, 19i'-0

Mr.

Dear Mr.
This refers to your telegram of November 29 requesting
advice as to 1 requirements of the A m y and Navy with respect to
surety bonds. In this connection, the following advice has been
obtained from the Navy Department:

1. Replying to your request for information on questions raised by ____________ in his telegram of 29 November,
the following information is furnished.
"(A) Under Emergency Plant Facilities Contracts
If reference is here made to the "Emergency
Plant Facilities Contract" form gotten up by
the Advisory Commission to the Council of
National Defense the Navy treats each case
on its own merits and has as yet arrived at
no standard schedule to apply to all facilities contracts. Where the emergency facilities constitute a minor portion of the total
cost of a supply contract, such facilities
are covered by the supply contract and the
bond requirements therefor are as covered
under B.
!,

(S) Under Supplies Contract:
I am enclosing a copy of a memorandum of
October 17th covering this situation in full
detail;

"(c) VJhon advance is made:
This subject is also covered by the above referred to memorandum of October 17th.

b-I25I-g

3 5 9

- 2 -

Mr»
"2. The Navy Department does not possess the discretionary authority granted to the War Department for waiving of
bond requirements* Each contract in excess of $500*00 entered
into by the Navy must therefore be bonded*
The statute requiring bonds on Navy Contracts is
R.S. 3719."
A copy of the memorandum of October 17 referred to in the
above quotation is enclosed*
We are advised by representatives of the War Department
that information with respect to War Department requirements will be
furnished to us as soon as possible and we will forward it to you as
soon as it can be obtained.
Very truly yours,
(Signed) S. L. Smoad

E, L, Siriead,
Chief, Deivision of Bank Operations

Enclosure

B-1251-b

COPY

3 6 0

HAVY DEPAI Tt'ENT
BUREAU OF SUPPLIES #- ACCOUNTS
mSHIHGTOK, D.C.
L13-l(l)/lJ(SPC)
L10-6/Lb-2(2)

17 October lQl«0
NOTICE TO PROSPECTIVE BIDDERS
SUBJECT:

Change $ta bond requirements for supply and
facilities contracts

Bonds will be required on supply contracts awarded on bids submitted on and after this date, as follows:
(a)

When no advance or progress payments arc to be made;

Contract over $500 up to and including #50,000. - 25 per
cent of the amount of the contract (but not more than 510,000).
Contract over i50,000 up to and including #100,000, 20 per cent cfthfe amount of the contract (but not more than

115,000).

Contract over $100,000 up to and including $200,000. - '
15 per cent of the amount, of the contract (but not more than

#20,000).

Contract over $200,000 up to and including #1,000,000. 5 per cent of the amount of the contract (but not more than

#50,000).

Contracts over $1,000,000. - 5 P G r cent of the amount of
the contract (but not more than V1,000,000).
(b)

When progress payments arc to be made, but no advance
payments:
The bond shall be in an amount calculated in accordance with paragraph (a) above, plus the- following:

Contracts up to and including >1,000,000. - 15 per cent
of the amount of the contract (but not more than $50,000).
Contracts over $1,000,000. - 5 per cent of the amount of
the contract (but not more than 51,500,000),
NOTE: The amount of the bond thus calculated is the
sum of paragraphs (a) and (b), as applicable.

-2-

(c)

B-1251-b

361

When advance payments are to be made:
The applicable amount of paragraphs (a) and (b)
plus the full amount of the advance payment.
NO'rE: The total amount of the bond thus calculated
is the sum of paragraphs (a), (b), and (c), as applicable.

"Progress payment1' means a partial payment on the material
while the work is in progress and before the material passes into the
possession of the Government.
"Advance payment" means an advance of funds under the authority of Section 1 of Public No. 671, 76th Congress, Third Session, H. R,
9822, approved 28 June 19^0.
"When the bond is a combination of paragraphs fa) and (b) and/
or (c), and the contract imposes upon the contractor obligations in the
form of maintenance and/or performance guarantees and other covenants
for fulfillment subsequent to the delivery and acceptance of the material, equipment, etc., and the contractor so requests, the bond may be
executed in the amount thus prescribed to run unti1the delivery and acceptance of the material, equipment, etc., and another bond calculated
in accordance with paragraph (a) only, conditioned upon the faithful
performance of all maintenance end/or other guarantees and all other
covenants not fblly fulfilled or performed prior to delivery and acceptance of the material, the second bond to take effect upon the delivery
and acceptance of the material and to continue in full force and effect
until all covenants and obligations of the original contract are fulfilled.

RAY SPEAR
: Rear Admiral RC U S Navy
Paymaster General of the Navy

B-1251-0

362

December 11, I9I1O

Mr.

,
$

Dear Mr.

This refers further to your telegram of November 29 requesting advice as to requirements of the A n y
and Navy with respect to surety bonds. The advice obtained informally from the Navy Department was furnished
you with ny letter of December h. We have now received
an informal memorandum prepared by a representative of the
War Department, and a copy of this memorandum is enclosed
for your information and assistance in replying to inquiries, You will understand that the memorandum is
merely an informal one describing the practices of the
War Department and is not to be considered as a formal
commitment of that Department; and, in so far as the memorandum covers administrative practices, these x;ay, of
course, be changed from tir,.e to time.
Very truly yours,
(Signed) E. L. Smoad
E. L. Smead,
Chief, Division of Bank Ope rati ons.

E n d osure

B-1251-d

3 6 3

COPY
SUMMARY STATEMENT AS TO BOND REQUIREMENTS OF THE M R DEPARTMENT .
A. Emergency Plant Facilities Contracts.
No bid, performance or payment bonds are at present required in
connection with Emergency Plant Facilities Contracts.
B•

Supply Contracts•

1. Requirements as to bid bonds,—The Army regulations as to when bid
bonds are required reads as foTTows:
"At the discretion of the chief of arm, service,
ir bureau concerned, bid bonds may be required
or waived-(1) In special cases, or
(2) By general instructions issued to purchasing officers, but will be required or
waived alike to all bidders
Chiefs of the arms and service have issued general instructions requiring
bid bonds in oases where contracts are let on a competitive basis after
the issuance of general invitations to bid but in general do not require
bid bonds in cases where the contract is negotiated.
2.

Requirements as to performance bonds,

(a) No performance bond is generally required when the amount
involved is undor $2,000.00, although the chief of the arm or service concerned has discretionary authority to require such a bond.
(b) In the ordinary supply contract, which is not a "public work",
(see (c) below) performance bonds are not generally required, although
it is in the discretion of the chief of the arm or service to require a
performance bond or waive it in special cases.
(c) The Miller Act, I4.9 Stat. 793"79U, UO U.S.C. 270, requires payment and performance bonds for contracts for the construction, alteration,
or repair of public buildings and public works when the mount involved
exceeds $2,000.00. The Comptroller General has ruled that a contract for
work, labor, or manufacture upon articles or property belonging to the
United States, including supply contracts, wherein it is provided that
partial payments will b0' m'cta" YVr* natoTial and TaBor as the maiuifacture of
such supplies progresses, title to the worlf in progress to vest in the
United States "upon the" making of the first such partial payment, is a contract for "public work of the United States". Similarly all contracts for
supplies on a cost-plus-a-fixed-fee basis are contracts for public work
since title to materials used or to be used in performance of the contract

_2_

B-1251-d

passes to the Government upon deliverer at the site of the work. The
ruling is applied even though the contractor retains possession and remains responsible for the care of the property so paid for until finally
accepted by the United States.
(1) When the supply contract is also a contract for
"jpublic work" the amount of the required Miller Act performance bond will be set by the chief of the arm or
service concerned, provided the contract is let on a
fixed-price basis. ~
"
(2) If the supply contract constitutes a "public work"
but was lot on a cost-plus-a-fixed-fee basis, Public 781,
76th Congress, as amended by Public 800, 76th Congress
(Third Supplemental National Defense Appropriation Act 1941)
amends the Miller Act to permit the Secretary of War to
waive the compulsory performance bond requirement of the
Miller Act, and he has in general done so, leaving discretionary authority with the chief of the arm or service involved to
determine whether a performance bond in such case will bo
required.
(d) In general, the amount of the performance bond for a supply
contract (if such bond is required either by statute or administrative
action), has been set by the Chiefs of the Arms and Services concerned at
10%; for largo airplp.no contracts tho amount of a performance bond required has boon set at 5/'»
3.

Requirements as to payment bonds.

(a) The Miller Act establishes a statutory requirement for payment bonds to protect sub-contractors and material men in all "public work"
contracts. As has already been indicated, if the supply contract is also
a "public work" contract and has been let on a fixed price basis, this
requirement can not bo waived,
(b) If the supply contract is on a cost-plus-a-fixed-fee basis,
the requirement normally is waived under Public 781, 7&th Congress as amended by Public 800, 7&th Congress.
(0) The statutory amount of the bond is 507' of the total amount
payable by the terms of the contract when the contract is under $1,000,000.00;
UO^ when the face of the amount of the contract is between §1,000,000,00 and
$5*000,000.005 and when the contract is over $5,000,000.00 the payment bond
is in the sum of 12,500,000.00.
U. It should be noted that if the obtaining of Miller Act bonds is too
onerous, the manufacturer under a supply contract may avoid them by nego-

B-iM-a

365

-3tiating the contract on a cost-plus-a-fixed-fee basis or by eliminating
from the contract any provision for partial payments, provided he can
also convince the arm or service concerned that such bonds should be
waived in his case.
C.

Bond Requirements with Respect to
Advance Payments.

"When an advance payment is made on a supply contract, Public 703»
76th Congress vests in the Secretary of War discretion as to the adequacy
of the Security required. Whether or not an advance payment bond in
addition to a performance and payment bond (if they are required because
the supply contract is also a contract for a "public work") will be demanded
depends upon the recommendation of the Chief of Arm or Service concerned,
upon the general financial condition of the Company and upon whether the
Secretary of War deems other security furnished (usually in the form of a
supplemental agreement) to be adequatef