The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
618 A meeting of the Board of Governors of the Federal Reserve SYstem l vas held in Washington on Friday, April 3, 1942, at 12:45 P•111. PRESENT: Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak Draper Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Smead, Chief, Division of Bank Operations Mr. Vest, Assistant General Counsel MI'. Eccles made substantially the following statement: pea The Board's conference with representatives of the 2:oral Reserve Banks and the armed services adjourned at ter2:111- Yesterday without agreeing upon a ceiling inrate for loans to be made by banks and other financ3,g in i't;stitutions under the provisions of Executive Order the ( ) N/112 or upon charges to be made by the War Department, avY Department, and the Maritime Commission for guar: ante illatAexeouted pursuant to such Order. In view of the glie.1, 4.tY of the conference to agree on a schedule of ead charges, I advised Major Cleveland toward the cOet conference that the Board would submit its tha ndations to the Under Secretary of War not later coZanext Monday and that he (Major Cleveland) could either r ax14 in such recommendations or submit a separate memolarad7_ containing his own recommendations. Major CleveWas p,""I'd indicated that this disposition of the matter requ;aldsfactory to him. After the meeting adjourned, I serv-s ed Messrs. Hale, Hays, and Olson of the Federal Reof San Francisco, Cleveland, and Chicago, reto w 1;7_elY, to remain in Washington during the afternoon reco with members of the Board's staff in formulating eilarwAendations with respect to a schedule of fees for the rtees made in whole or in part by the War Department, reste tirY Department, and the Maritime Commission. As a °f further discussions yesterday afternoon and this G0 , 11g, which were participated in at one time or another vernor Draper and myself, the staff prepared a draft 619 4/3/42 -2-Of a letter to Under Secretary of War Patterson. The proosed POf theletter was discussed and cleared with Mr. Mark Brown War Production Board. Major Cleveland called Mr. trYton on the telephone this morning and requested that ti e f°rmal communication containing the Board's recommendab-°ns, which had been mentioned at yesterday's meeting, . addressed to Mr. A. J. Browning, Chief, Purchase Branch, ci(TIrement and Distribution Division, Headquarters Service sh"PlY. However, it was finally agreed that the letter atZu-Lid be addressed to the Under Secretary of War, for the ti enti°n of Mr. Browning, with a copy of the communicaBr°n ?ent to Major Cleveland. It was understood that Mr. De,T1 : 13Lng would undertake to clear the letter with the Navy e'rLinent and the Maritime Commission. At the Chairman's request, Mr. Bethea read the proposed letter a.a follows: You may know, meetings were held at the offices n "As ofthe .lok O -0ard of Governors of the Federal Reserve System be -er11 1 and April 2, 1942, at which were present memwars of the Board and its staff, representatives of the sir DePartment, the Navy Department, the Maritime CommisOf°n and the War Production Board, and operating officials caathe twelve Federal Reserve Banks. These meetings were fc)r the purpose of considering a tentative draft of Pron : d, eral-r°, instructions from the War Department to the Fed9112; 4 eserve Banks as fiscal agents under Executive Order With "nd a tentative regulation of the Board of Governors 13,11.0,reference to the operations of the Federal Reserve such agents. 2 °11e of the more important matters discussed on April With the n rePresentatives of the War and Navy Departments was *larZiei°n of the maximum interest rate which may be wholr' °Y financing institutions on loans guaranteed in and Part by the War Department or Navy Departmentt ellohthe fees that should be charged by those agencies for pa rantees. ?eder-it was the consensus of the representatives of the nanc ' ." Reserve Banks that commercial banks and other fisaIllelng in stitutions should be permitted to charge the te, on guaranteed loans that they ordinarily charge (311 oja e,,, -4(3ans, provided such rates do not exceed five 620 4/3/42 -3per cent. It was developed in the discussion that such a tHaaxilam rate would not necessarily be the actual rate on great many loans made under such a guarantee. The comj P tition among financing institutions for loans, including 2?se under lWeeth proposed guarantee, will tend to keep the a'ar.,te w the maximum, except on smaller loans, which e g?nerally expensive to make and to service. "After extended discussion and careful consideration ri "ev Board of Governors favors fixing such maximum rate at app:zer:= de 1:1.1bject to change from time to time as may p "The proposal is based upon the philosophy that the c , Te of the Executive Order should be accomplished withThi,s'eruPtion of the country's existing credit facilities. 13. ;! ;. aPproach is consistent with the policy of the War Dec. r_lt as reflected in the statement made by Colonel J. that cuem at the meeting on April 1, 1942 referred to. At time Colonel Mechem said: 'I want to say to you gentlemen that the 1Var Department expects to exercise those very great powers in such a way as to preserve and not to destroy the banking system of the United i States. That is one of our great objectives. „ : t. 4i8 our desire to encourage in every way the ,71 1!-sting financing agencies of the country in ' ''3J-ng this particular job. It is our desire to encourage them not to discourage them. We are rtgo4-4 rIg into competition with anyone. Our it;-fleJ-rs is to cooperate and not to compete.' sche Board also favors the adoption of the following by th`4-1-e of fees for guarantees made in whole or in part War Department, Navy Department, or Maritime Cora.rablsubject to change from time to time as may appear cle81 e. Guarantee Charges on Portion of Loan Guaranteed Charges to be determined by Reserve Bank within ' Ce ta e of Loan Guaranteed ' following limits 91 - 100% ' 30 - 40% of Loan Rate 75 - 90% ' 20 - 25% " " UP to 75% ' 10 - 20% " " ' No charge shall be less than ' 1/2% of portion of loan guaranteed ZN 621 4/3/42 -4"The foregoing schedule is designed to conform to the 13 ..°1icY of the Ual- Department that where guarantees are necesr, the financing institution should wherever possible refaln an interest in the loan. Thus the range of charges r a full guarantee is substantially higher than for a 90 guarantee, for which, in turn, the range is subcent ti lly hi gher than for a 75 per cent guarantee. ce t ti The proposed range of charges, based upon the per: 8 age of the loan guaranteed, permits the Federal Res' o ve Banks to negotiate with the financing institution , a81i4) bring the net interest rate in reasonable relaill aP to the various circumstances surrounding the loan, and uding the element of risk and the expense of making the loan. By adopting a guarantee charge which ''LL Dears a percentage relationship to the loan rate, the guarantee fee charged the financing institution declines as the rate it charges the borrower declines. The minimum 114`4°.razt_tee charge under this proposal is 1/2 of 1 per cent. The -Le m„,,, Board will appreciate your views with respect to -A4-latlin rate of interest and the schedule of fees for guarantees as above set forth as promptly as possible." i gat:na Following a discussion of the schedule of fees set out in the letter, the schedule of rates applicable to loans and commitments made by the Federal Reserve Banks under section 13b of the Federal Reserve Act, and the schedule of rates fixed by the Reconstruction Finance Corporation with respect to loans and commitments made under statutes apPlicable to it, the Board, upon motion by Mr. Szymczak and by unanimous vote, approved the foregoing letter. In this connection, it was agreed that the existing schedule of rates applicable to loans and commitments made under section 13b of the Federal Reserve Act should be changed and made uniform at all Federal Reserve Banks. the At this point, action Smead and Vest left the meeting, and stated with to each of the matters hereinafter "t4tled t0 was then taken by the Board: 622 4/3/42 —5-The minutes of the meeting of the Board of Governors of the Federal Reserve System held on April 2, 1942, were approved unanimously. T elegrams to Mr. Paddock, President of the Federal Reserve 131111k of 13, -8' 4n, Mr. Treiber, Assistant Secretary of the Federal Reserve 88.rat of New York, Mr. Post, Secretary of the Federal Reserve Bank of Philaci elPhia, Mr. McLarin, President of the Federal Reserve Bank of Atlazit 4) Ur* Dillard, Secretary of the Federal Reserve Bank of Chicago, and mr. Gilbert, President of the Federal Reserve Bank of Dallas, stat— th - Federal. Naas the Board approves the establishment without change by the Reserve Banks of New York, Philadelphia, Atlanta, Chicago, and °I1 April 2, 1942, and by the Federal Reserve Bank of Boston to— day, of the rates of discount and purchase in their existing schedules. Approved unanimously. Telegram to Mr. West, Vice President of the Federal Reserve : 4111t S'all Francisco, stating that the Board of Governors approves the sari Francisco Bank, effective April 4, 1942, the rate estab— liehe4 bY the board of directors of the Bank of 1 per cent on redis— a„ advances Peciertaa to member banks under sections 13 and 13a of the °serve Act and on advances to nonmember banks under the last para. aph of section 13 of the Federal Reserve Act, and the establish— 14e4t 11441t /vithout change of tLie other rates of discount and purchase in the a existing schedule. Approved unanimously. 623 4/3/42 -6Letter to Mr. Fleming, President of the Federal Reserve Bank of vv.Land, reading as follows: te "In accordance with the request contained in your letE r of March 28, the Board approves the appointment of Arthur ii_?stel as an assistant examiner for the Federal Reserve of Cleveland. Please advise us of the effective date an salary rate." Approved unanimously. Ileserve Letter to Mr. Hays, Vice President and Secretary of the Federal Bank of Cleveland, reading as follows: View of the circumstances set forth in your letter of Parnu.:4:4d.rch 31, 1942, the Board of Governors approves the of a salary to Miss Helen Kessler at the rate of ae? Per annum, which is 1'300 in excess of the maximum f01741- salary provided in the personnel classification plan the Position occupied by Miss Kessler." Approved unanimously. Letter t0 "The Farmer's National Bank of Danville", Danville, tellttleklr reading as follows: "The Board of Governors of the Federal Reserve SyseZhas given consideration to your supplemental applith0 , 1°11 ,for fiduciary powers, and, in addition to the aua '-"Y heretofore granted to act as trustee, executor, eetatistrator, registrar of stocks and bonds, guardian of 1114 iTr' assignee, receiver, and committee of estates of verl4 Ces, grants you authority to act, when not in contraof State or local law, in any other fiduciary co'rntlr in which State banks, trust companies or other bariCaions which come into competition with national are o Permitted to act under the laws of the State to t;,' - llekY, the exercise of all such rights to be subject tio Provisions of the Federal Reserve Act and the regu8Ystem 118 of the Board of Governors of the Federal Reserve tict4 7his letter will be your authority to exercise the e'arY powers granted by the Board pending the preparation 624 4/3A2 —7— "of a formal certificate covering such authorization, --4c11 will be forwarded to you in due course." Approved unanimously. sank Letter to Mr. Hodge, Assistant Counsel of the Federal Reserve of Chicago, reading as follows: a "Reference is made to your letter of March 13„ 1942, 21d earlier pre.?,nted b- correspondence, regarding the question y the law firm of Sins Handy and McKnight as to the modernization of elevators in existing strucIlres is included in Group E of Regulation W. tie "The Board agrees with your view that under Amendpar',N°. 3 materials and services in connection with re84.'114g, altering or installing elevators in existing r?ctures other than those designed exclusively for nonuse are included in Group E if the deferred ei -nee does not exceed P1,000, and that all other extent of°118 of credit for the repair, improvement or installation elr a tors are not subject to the regulation. In connection with the question you mention regardan':` !-Partment hotels, the Board agrees with your view that ci4ment hotels which are designed exclusively for resiell use should be considered residential structures hot-l nugh they may accept some transient guests, and that be 71-- 'tesigned exclusively for nonresidential use should acc'eemed accept nonresidential structures even though they may some permanent residents." b ilether 4 Approved unanimously. Thereupon the meeting adjourned. Secretary. Chairman.
@FedFRASER