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76'1 A meeting of the Board of Governors of the Federal Reserve SYstem was held in Washington on Saturday, April 25, 1942, at 11:00 a.ra. PRESENT: Mr. Ransom, Vice Chairman Mr. Evans Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman The action stated with respect to each of the matters here— illstUr referred to was taken by the Board: Telegrams dated April 24, 1942, to Messrs. Treiber and Hays, Seer staries of the Federal Reserve Banks of New York and Cleveland, esPective),Y, Mr. Leach, President of the Federal Reserve Bank of '44011d, Messrs. Dillard, Stewart, and Powell, Secretaries of the ederal Reserve Banks of Chicago, St. Louis, and Minneapolis, re— al/ectively, Mr. Caldwell, Chairman of the Federal Reserve Bank of 4a4sas City, Mr. Gilbert, President of the Federal Reserve Bank of as) and Mr. Hale, Secretary of the Federal Reserve Bank of San ' -1sco, stating that the Board approves the establishment without by the Federal Reserve Bank of San Francisco on April 21, and the Federal Reserve Banks of New York, Cleveland, Richmond, Chicago, L Minneapolis, Kansas City, and Dallas on April 23, 1942, of the ' l ates of discount and purchase in their existing schedules. Approved unanimously. 762 4/25/42 —2— Renewal bond in the amount of $40,000, executed under date Of April 22, 1942, by Oliver E. Foulk as Fiscal Agent of the Board Covernors of the Federal Reserve System. Approved unanimously. Memorandum dated April 24, 1942, from Mr. Goldenweiser, c-Lor of the Division of Research and Statistics, submitting the l'esigliation of Miss Esther H. Larson as a clerk in that Division, to come effective as of the close of business on April 22, 1942, ' 44r1 rec ommending that the resignation be accepted as of that date. The resignation was accepted. Letter dated April 24, 1942, to Mr. Drinnen, First Vice rol dent of the Federal Reserve Bank of Philadelphia, reading as your letter of April 200 1942, the toard"Referring to of Governors authorizes your Bank, until further ,1;()tice, to pay to the member of the Federal Advisory 1/4'0Uncil representing the Third Federal Reserve District , amount not to exceed $20 for each meeting attended, a11 us actual traveling expenses, and $10 per diem dur— rig the period the member is absent from home in at— tending meetings of the Council." Approved unanimously. the Letter dated April 24, 1942, to Mr. Hill, Vice President of l'edaral Reserve Bank of Philadelphia, reading as follows: "Reference is made to your letter of April 8, 1942, ver).-th attachments, relating to the action of the Burlington 1*&,Y Loan and Trust Company, Burlington, New Jersey, in Le_ducing its capital stock in the net amount of $47,200 (a) retiring the 9,350 shares of its outstanding preferred stock (par value $93,500, retirable value $401,300) at a price of $5 per share; 76:1 4/25/42 -3- "(b) the retirement of 30 fractional shares of the above 9,350 shares of preferred stock and 30 fractional shares of common stock as a unit at a price of $37.92 per share in addition to the $5 per share for the preferred stock provided for under (a) above; and (c) issuing new shares of $15 par value for the remaining 9,320 shares of outstanding common stock of a par value of $10 per share. "It appears from the information submitted that the ?lank has effected a simplification of its capital structure which, after giving effect to the reduction, will ?_ontinue to provide a favorable capital ratio. Thererore, the Board will interpose no objection to the transaotlon under the condition of membership numbered 2." Approved unanimously. Letter dated April 24, 1942, to Mr. Young, President of the Pe6tel'a1 Reserve Bank of Chicago, reading as follows: "This refers to your letter of March 31, 1942, reding the receipt by your Bank of a number of letters trcm member banks with respect to the question whether lt is permissible to allow the withdrawal of deposits ' l epresented by time certificates of deposit prior to maturity for the purpose of purchasing United States War Bonds. "This question, as well as the related question ! egarding immediate withdrawals of savings deposits for e purchase of war bonds where banks require a notice °I' withdrawal, has been under consideration by the Board °n several occasions in recent months, and the matter 'las been discussed informally with the Treasury DepartTent and with the Federal Deposit Insurance Corporation. 14 a further discussion of the question with the Treas, 111'Y on the basis of the information contained in your -4”ter, we were advised informa31y that the Treasury still feels that action to permit such withdrawals Should not be taken. "As you know, the primary effort of the war bond ! amPaign is to attract the savings of the public from ' 111Tent income so as to reduce present purchasing power tIld it is hoped that emphasis will be placed by the tnks on this approach when discussing the matter with Lleir depositors. Furthermore, a substantial part of 764 141 /42 -4- "the existing time and savings deposits held by banks throughout the United States is already invested in Government securities and substantial withdrawals of these funds might necessitate the sale by some banks of some of their holdings of these securities. It might be well to point out also that the present provisions of Regulation Q with respect to withdrawal of time and savings deposits have the effect of requiring depositors who wish to use existing savings which may not be immediately withdrawn, to defer their purchase of bonds in most instances for a relatively short period, and this delay would not warrant the amendment of Regulation Q 60 permit immediate withdrawal." Approved unanimously. Telegram dated April 24, 1942, to the Presidents of all the Pecier 41 Reserve Banks, reading as follows: In order that War Department, Navy Department or Maritime Commission may be in possession of adequate information in passing upon applications for guarantees of loans under Executive Order 9112, please accompany l'equests for such guarantees with a recommendation of necessity for loan from contracting officer of supply 41111 or service concerned or from some other reliable 8°urce. Such statement should include not only neces6‘1tY for war supplies or services being furnished, but also a statement of necessity of making loan to pro' Posed borrower and his ability to perform work at price specified in contract or subcontract." Approved unanimously. Telegram to the Presidents of all the Federal Reserve Banks, 44144g as follows: "It will be appreciated if hereafter you will fort d in duplicate all communications and enclosures aub' 13mail to the Board in connection with guarantees to be executed by armed services or Maritime Commission tinder Executive Order 9112. Your cooperation in this 765 4/25/42 —5— respect will facilitate the submission of applications and related data to the appropriate department or agency." Approved unanimously. Letter dated April 24, 1942, to Mr. Hale, Vice President of the Federal Reserve Bank of San Francisco, reading as follows: "In your letter of April 6, 1942, you request the Board's comment regarding the application of Regulation 17 to the situations that exist where a loan originally 111 excess of $1,500 is renewed after having been reduced tO less than $1,500, and where a modernization loan originally in excess of $1,000 is revised when a large lump sula Payment is made which reduces it to less than $1,000. "You state your belief that the principles involved in the two cases are similar and that in both situations You have advised that the maturity limitations of Regulation W are inapplicable to the revised contracts proiced the original loans and subsequent revisions were made in good faith and without any intent to evade or circumvent the regulation. The Board agrees. "From the facts given in your letter, it does not athat the original loans were extensions of in,talment loan credit and, therefore, section 8(a) of !she regulation dealing with renewals or revisions of 14etalment sale credit or instalment loan credit is not applicable." Approved unanimously. Letter dated April 24, 1942, to Mr. George F. Howard, Mang-g Lt, `'itor of the Kelley Blue Book, Los Angeles, California, reading tte roilows: 20 "This is in reply to your two letters dated April b requesting interpretation of the Board's letter of 1parch 21 regarding the designation of the 'Kelley Blue c°10 for purposes of Regulation T. "With respect to used automobiles of 1934 and earlier models, it is assumed that some appraisal guides ! fill publish quotations for such automobiles, as a service to their subscribers who deal in them. It was the 766 4/25/42 -6- "Board's intention, however, to permit such an automobile to have a maximum credit value of 66-2/3 per cent of its bona fide cash purchase price, regardless of its estimated average retail value as published in appraisal guides, and the Board has no objection to your pointing cut these facts in connection with any quotations that You publish for automobiles of 1934 and earlier models. "With respect to the quotation of automobiles haySpecial equipment, you are correct in interpreting the Board's intention that additional values for radios ?r heaters, even if stated in the guide, should not be included in determining maximum credit values for purPoses of Regulation W. The same principle should be aPPlied to fog lights and other similar eauipment." Approved unanimously. Letter to Mr. Hulbert T. Bisselle, Vice President of The Iliggs National Bank, Washington, D. C., reading as follows: "In your letter to Mr. Hodgson of April 15, 1942, Y°11 requested information regarding the operation of sections 8(a) and 8(b) of Regulation W as amended by Amendment No. 3. "You are correct in your understanding that 'reor revisions' under section 8(a) refer to cases Where the terms of the loan are changed but no new tIl(IneY is advanced. "Your numbered examples 1 and 2 regarding the op?ration of section 8(a) are correct; that is to say, a borrower has a loan of 3300 requiring 12 monthly 11 )nstalments of $25, 6 of which are paid, the lending k may refinance the balance for a period of 9 months, tl the final maturity of the revised note being 15 months ' rom the date of the original note. However, if the ° 1., kriginal 000 loan required 15 monthly instalments of 74.0 each, there could be no extension of time for payment without first obtaining a Statement of Necessity tinder section 8(d). "With regard to Option 1 of section 8(b), you cite the example of a borrower who has a loan of $300 relc. l iring 15 instalments of $20 a month and who, after 4,'! Payments are made, requests the lending bank to put the loan back to the original $300 figure. Under Option 767 4/25/42 -7-- "1, and as you indicate, the borrower would be required to pay on the consolidated obligation $20 a month for a five months' period to retire the $100 balance on the original obligation and pay $13.33 a month for 15 months on the new credit of $200; that is to say, the consolidated obligation would call for $33.33 a month for the first 5 months and $13.33 a month for the remaining 10 months. This, of course, is the result of establishing terms for the consolidated obligation which would have b?en necessary to meet the requirements of the regulatl°n if the two obligations had not been consolidated. "To demonstrate the operation of Option 2 under section 8(b), you cite the example of a borrower giving a note for $300 calling for 15 monthly instalments of $20 each. After payment of 5 instalments, the borrower wants to put the loan back to $300. Under Option 2 a new note may be made for $300 calling for 15 payments 0f $20 a month. However, if this borrower should apply for additional credit of $160, which would call for a consolidated obligation of $360, Option 2 would require 15 monthly- payments of $24. Thus, Option 2 prevents reduction of instalment payments, and also limits the credit to not more than 15 uniform monthly instalments." Approved unanimously. Thereupon the meeting adjourned. Secretary. Vice Chairman.
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