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:i t267,V4 A meeting of the Board of Governors of the Federal Reserve 8Mem waS held in Washington on Monday, April 6, 1942, at 11:30 PRESENT: Mr. Eccles, Chairman Mr. Mr. Mr. Mr. Ransom, Vice Chairman Szymczak Draper Evans Mr. Mr. Mr. Mr. Morrill, Secretary Bethea, Assistant Secretary Carpenter, Assistant Secretary Clayton, Assistant to the Chairman The acti n 0 stated with respect to each of the matters hereinter referred to was taken by the Board: The minutes of the meeting of the Board of Governors of the Ped.eral 1°11sly.. Reserve System held on April 3, 1942, were approved unani- The minutes of the meeting of the Board of Governors of the Re atiorie 8erve System held on April 4, 1942, were approved and the Federal recorded therein were ratified unanimously. ser.ved 0Chairman Eccles reported that Kenton R. Cravens, who had uiviaio a temporary basis as a consultant on consumer credit in the Qf SecuritY Loans, would be willing to reenter the employ of : tIle130 1)04 orI'd for a temporary period of not to exceed 60 days for the purserving as Ad 8 istrator in the organization created by the N ' cl at the , meeting on March 26 in connection with the discharge by toar. th of its responsibilities under Executive Order No. 9112 au- the financing of contracts to facilitate the prosecution 628 4/6/42 of the T.rar. Chairman Eccles reported also that it was the recommenda- tiOrl Of hiMSelf CraVens and Mr. Draper that, effective today, the Board appoint for the temporary period, on the same terms as his previous el3pointment, under which his salary was fixed at the rate of , 14,500 Per arinurti and he was allowed a per diem of t10.00 in lieu of subsistence during the period of his temporary employment and reimbursement for his actual necessary transportation expenses between Cleveland 41.1c1 Washington as well as his actual necessary transportation expenses t° and from other points to which he might be sent under proper written tl'a-vel authorization on official business of the Board. Approved unanimously, with the further Understanding that, effective immediately, the office of Administrator for the War Loans Committee would be established which would not be a part of any division of the Board's staff; that Gardner L. Boothe'', Technical Assistant, Catherine E. Hopping, Clerk!ten°grapher, and Mary Holmes, Clerk, all In the Division of Bank Operations, and Frederica R. Lockhart, Clerk in the Office of the Secretary, would be transferred to that office, effective immediately, with no change in the salaries they are now re"axing; and that as promptly as possible af..budget covering the expenses of the of-ice for non-personal services would be submitted to the Board for approval. Letter to Under Secretary of War Patterson, reading as follows: fall.° "We understand that the War Department is giving closrcPle consideration to the adoption in the form enerai%4 herewith of instructions to be issued to the Fedeservc Banks with regard to their operations under Order No. 9112, dated March 26, 1942. These 629 4/6/42 "were, tiv prepared in informal consultation with representate'es of the Board of Governors of the Federal Reserve SysThe proposed regulations of the Board of Governors to be ued pursuant to the provisions of the Executive Order th; v1de that the operations of the Federal Reserve Banks tinrell4der shall be conducted in accordance with instrucissued by the War Department after consultation with thia'"I'd of Governors of the Federal Reserve System and 84-6 8 te advise you that the enclosed instructions are tory to the Board of Governors." Approved unanimously. The instructions enclosed with the letter were in the followlnG form: Iva "P ursuant to the authority vested in the Secretaryand of ot1 ' 4 bY E xecutive Order No. 9112, dated March 26, 1942, g4tel ;authority vested in the Secretary of War, and delepnr : te or otherwise vested in the Under Secretary of War .12 11t to such order or any law or order, each Federal lagi,./Le Bank, as fiscal agent of the United States, is aUthorized to execute and deliver guarantees and to ikrtir,4e 1°ans, discounts, advances and commitments or to cfda,',4,2a:te therein on behalf of the War Department in acWith the following instructions: (311 1. LIAIo1 uD FINANCIAL CONTRACTII'4G OFICERS. re,_ "The Under Secretary of War or his duly authorized licivlsentative will as soon as practicable designate liaison rez ( ncial contracting officers and alternates therebe 10-' hereinafter referred to as liaison officers), to s4eted each city in which a Federal Reserve Bank ricer Uatedin and elsewhere as renuired. Such liaison ofen designated shall have the authority hereint2eeiried. IZeTION 2. ADVANCE PAYMENT .AND LOAN bECTION. . A;Ilere has been established in the Budget and Finan14nat,--cullsirlietration Division, Service of Supply, War Departfl %Lte; I Advance Payment and Loan Section in which has been cllitil ;, the administration of the powers conferred by Ex11°titi-ilvrder 9112. The Federal Reserve Banks will be b:s4 from time to time of the names of officers who ro-eh authorized as financial contracting officers to allal.E111 ;the War Department in authorizing the execution of 1 1"t14 3 fld the making of loans on behalf of the War DePending the appointment of liaison officers the Ure Prescribed in paragraph (f) of Section 3 hereof 630 4/6/42 -4-- onall be followed, in so far as applicable, with respect anY proposed guarantee or loan to be made on behalf of vIT War Department, regardless of amount. 'SECTION 3. PROCEDURE IN MAKING OR GUARANTEEING LOANS. t "When it appears to a liaison officer that any contract:31'y subcontractor or other person (hereinafter called 'en: n rPrise') is engaged in or is about to engage in any business or operation deemed by the liaison officer to be ofensarY, appropriate or convenient for the prosecution or wie war and is in need of funds in order to facilitate of expedite war production or the obtaining or conversion facilities needed therefor, he will so notify the Federal4 Reserve Bank in writing. Thereupon such liaison of' cer and Federal Reserve Bank shall proceed as follows: "(a) The Federal Reserve Bank will make an investigaenr of the credit standing and financial condition of such derrPrise and of the character of its management and will vid4 11erriline _ the most appropriate and expeditious method of prote 4-rig necessa-ry financing and the amount thereof and the rmstand conditions of such financing. the :OD) Such financing may be accomplished by any one of 0wing methods: (1) A direct loan by a commercial a cr other financing institution; (2) a direct loan by con,:del'al Reserve Bank; (3) a participation in a loan by a sla:rrcial bank or other financing institution with other se'" banks or financing institutions or with a Federal Repror%Bank; (4) a direct loan or participation therein as in wITIu in (1), (2), or (3) above guaranteed against loss or or in part by the War Department; (5) a participat5 han;' ,LI' the War Department in a loan made by a commercial (61' or Federal Reserve Bank or other financing institution; arraa direct loan by the War Department; or (7) such other peOement as is considered to be most appropriate and ex113 subject to the approval of the liaison officer. that (c) In general, it is the policy of the War Department ret necessary financing be provided to enterprises above alicrred to without guarantees or loans by the War Department erenthat guarantees to the extent necessary be used in prefc?,,to loans by the War Department. /14 d) In arranging for loans or participations therein to guaranteed by the War Department and for the making of inents °r Participations therein on behalf of the War Departthe Federal Reserve Bank and the liaison officer will be bep'X'Pected to make reasonable efforts to afford the War artmeqt the best available protection against possible 631 4/6/42 511 loss consistent with obtaining maximum war proriotexpeditiously, but such guarantees or loans shall f. be denied or substantially delayed because of the diflcult of obtaining adequate protection against such loss. "ke) Except as provided in paragraph (g), if the amount Of t a guarantee or loan to be made by the War Department, Xer with other guarantees or loans made by the War De13° the ent, Navy Department and Maritime Commission through agenoY of and outstanding With respect such Federal Reserve Bank to the same enterprise, does not exceed $100,000, ' uthe r;? Federal Reserve Bank, acting as fiscal agent of the 3-ted States, may execute and deliver such guarantee or make. on such terms and conditions as it may deem and sable, in accordance with the terms of these instructions 44 _ of the executive order above mentioned, without submitmatter to any other officer or agent of the War lartaent for prior approval, but report thereof shall be e !::57" wire to the Advance Payment and Loan Section. is (f) Except as provided in paragraph (g), in case it parZie°mmended by the Federal Reserve Bank that the War Deent execute a guarantee or make a loan in excess of the Bazikamount authorized by paragraph (e), the Federal Reserve porv ehall submit its recommendation with the necessary supof jng information to the Advance Payment and Loan Section bst2e IATe.r Department. In case there is any disagreement to :een the liaison officer and the Federal Reserve Bank as shouttlh,er or not such guarantee should be executed or loan -e made or as to the terms and conditions thereof, eith r under this paragraph or under paragraph (e), the officer shall, and the Federal Reserve Bank may, rePort, a re the case to the Advance Payment and Loan Section with tio c°mmendation and with full necessary supporting informaZell le tiTief of the Advance Payment and Loan Section or or assistant executive officer thereof may authe1. Federal Reserve Bank to execute the proposed 'rarite bepart e or to make the proposed loan on behalf of the War: ment upon such terms and conditions as may be prescribed ; 1,1,ch authorization, which may be transmitted through the Bos slI0ll,0f ' Governors of the Federal Reserve System. Thereupon tj arlill ecsIzr av. es, Reserve Bank, acting as fiscal agent of the is authorized to execute and deliver such hair 11.t: r ee or to make such loan, as the case may be, on bealaci, °I the War Department in accordance with the terms of tiv L authorization, of these instructions and of the execue -J-uer above mentioned. 2-LrlanClal 632 4/6/42 -6"(g) In case it is proposed that the War Department guarantee a loan to be made or participated in by- the Fed"al Reserve Bank and the amount of such guarantee, together nth other guarantees or loans made by the War Department, nvY Department and Maritime Commission through the agency n such Federal Reserve Bank and outstanding with respect the same enterprise, does not exceed $100,000, the '4018180n officer may make such guarantee on such terms and .,nlitions as he may deem advisable. If the amount of fn guarantee, together with other such guarantees or iv4118 outstanding with respect to the same enterprise, is excess of $100,000, the liaison officer shall submit re commendation with necessary supporting information rave the Advance Payment and Loan Section of the War Departani2t. The Chief of such Section or any executive or assist:fc;;:ctolive officer thereof may authorize the liaison any other financial contracting officer to exUpon1"e the proposed guarantee on behalf of the War Department e. such terms and conditions as may be prescribed in such 0 loriza 'ftion, which may be transmitted through the Board offiovernors of the Federal Reserve System. Thereupon such nis authorized to execute and deliver such guarantee O 0 ,uehalf of the War Department in accordance with the terms ‘ ,,41 roll authorization, of these instructions and of the ' ke 1.ittive order above mentioned. The liaison officer shall have access to all in'ion in the possession of the Federal Reserve Bank part.re8Peot to any enterprise and shall have the right to lciPate in the negotiations with respect to any proposed therantee or loan. He shall have the right to object to or texecution of the guarantee or the making of the loan, merit°,,IY term or condition thereof, prior to any committhe ,"'th respect thereto. In the event of such objection, 11:51cedure prescribed in paragraph (f) shall be followed. make ki) In any case in which a Federal Reserve Bank shall urlit °r Participate in making a loan as fiscal agent of the tor tates under this authority, the funds necessary therebe paid to the Federal Reserve Bank as fiscal agent • the united by States by checks drawn in favor of such bank ser; disbursing officer of the War Department. A Federal Rearld .7,8ank may, however, use its own funds for this purpose • wa—/ such event will be immediately reimbursed therefor by 1' Department disbursing officer. "SECTION 4. REPORTS. nem. 'Ile Federal Reserve Banks shall make such reports as T •7 633 4/6/42 -7be required by the War Department with respect to proeed guarantees or loans made or denied under the provisions vollp.these instructions, including reports as to losses, Llitjes and expenses. "SECTION 5. RATES, MATURITIES AND OTHER CONDITIONS. "Rates of interest to be charged on loans made or ilamanteed in whole or in part by the War Department through ase agencY of any Federal Reserve Bank and general policies , to terms, conditions and maturities shall be as determined 1;113 accordance with the regulations or directions of the teard of Governors of the Federal Reserve System issued aronsultation with the War Department, Navy Department the'ritime Commission in accordance with the provisions of executive order above referred to. "SECTION 6. EXPENSES AND LOSSES. De "Interest, fees, and other charges derived by the War toPtrtrilent from loans and guarantees of the kinds referred th:erein shall be deposited by the Federal Reserve Bank in 14-,aocount of the Treasurer of the United States for credit di 1421e disbursing account of the appropriate War Department 171:, ursing officer. The Federal Reserve Bank will be reimar148r bY the War Department in the usual manner for expenses ees (including but not limited to attorneys' fees and ' a-- 8 . 4 ?e of litigation) incurred by such Federal Reserve Bank ig as fiscal agent under these instructions. "SECTION 7. GENERAL. elm "A Federal Reserve Bank, in arranging for or making any theIrtees or loans or participations therein on behalf of or ."ar Department under or pursuant to these instructions actr' flaking renewals or extensions thereof or in taking any with°fl that such bank deems necessary to insure compliance or the terms and conditions of any such guarantee, loan t1ciPation therein, will act as fiscal agent of the , tar UniP States and shall have no responsibility or accountaeLas such fiscal agent. T;;:cr he 'loan', as used in these instructions, shall incicInstrued as referring to a loan, discount or advance, Mit:1'4g a participation therein, and shall include a cornto make or purchase such a loan, discount or advance alialr otherwise indicated by the context; but such term by not be construed to include any advance payments Tade the War Department, Navy Department or Maritime Commission e_cifio contract or on specific contracts. The term 'guarantee' as used in these instructions T Z 634 4/6/42 -"Shall be construed as including a coruilitment to make such a 811arentee unless otherwise indicated by the context. lata"These Instructions, which have been issued after conlon with the Board of Governors of the Federal Reserve 4 8 17'el4, maY be revoked at any time or modified from time to : re after consultation with the said Board, but no such obiration or modification shall affect any action taken or e: 4 t nion incurred under the Provisions of the instructions g at the time such action is taken or obligation is ''Urred.” Letter prepared for the signature of Chairman Eccles to Under Seeret-,r7 (4 War Patterson, reading as follows: derth ' You know, actions of the Federal Reserve un-e Provisions of Executive Order No. 9112 of March ,6, 1942 'are subject to such directions and conditions as the %it " °f Governors of the Federal Reserve System may preby regulation or otherwise, after consultation with ttze-p ecretary of War, the Secretary of the Navy or the Marieord1 Assion, or their authorized representatives. Aclat1o4g171 consideration has been given to a proposed regut4tlxit° be adopted in accordance with the provisions of 11tive Order and also to the Question of the maximum illter ot 10-Q4 rate that may be charged by financing institutions or 11:4s guaranteed by the War Department, Navy Department Cornanission and the fees to be charged for such -,At,ees by these agencies. 4132.13. 1 'se matters were discussed at the conference held on llors ,Ild 2, 1942, at the offices of the Board of CoverWas attended by representatives of the several 11.Yre3 /1 '-a Of the Government named in the Executive Order and 4-res entatives of the Beard and the Federal Reserve Banks. 1942 "At a meeting held at the Board's offices on April 4/ the Luetween representatives of each of these agencies of laleLZvernment and of the Board of Governors, the subject of tIler ci rall:m interest rate and the fees on guarantees was fur' scussed and an informal agreement was reached as fol1 i aimum interest rate which may be charged by financth stletit , ,"14ions on loans guaranteed in whole or in part by , J4 De ' a, ePartment, Navy Department or Maritime Commission: l;fai-Le, subject to change from time to time as may appear ta;S7 ' -1 4/6/42 —9— The following schedule of fees for guarantees made s, War Department, Navy Department or Maritime Commis1°n, subject to change from time to time as may appear desirable : Guarantee Charges on Portion of Loan Guaranteed Charges to be determined by Reserve Bank within 4aZ gatAat_Qf 41 a G a a tee •_ •74! 4 2'. ft 91 - 100% ' 30 - 40% of Loan Rate It It 75 - 90% ' 20 - 25% " 11 11 Up to 75% ' 10 - 20% " less than be shall charge ' No of portion on ' 1/2% per annum guaranteed ' loan by of th"At the meeting on April 4, 1942, the proposed regulation !Board of Governors under the Executive Order was also cow Posedered and there is enclosed herewith a draft of the proone regulation. The draft enclosed, with the exception of sent°1 ; two minor details which have been discussed with reprethe es of your department, is identical with the draft of :Igulation which was considered at the meeting on April 4. o It will be appreciated if you will advise the Board as Pr toZtlY as possible whether the proposed regulation in the enclosed, together with the maximum rate of interest and the youillarantee fees as above set forth, are satisfactory to Approved unanimously, with the understanding that similar letters were being sent to Under Secretary of Navy Forrestal and Chairman Land of the United States Maritime Commission. The Board's War Loans Committee had been given to understand by N1)1`esentatives of the War and Navy Departments and the Maritime Commisl°r1 at ' a m eeting held in the offices of the Board on April 4, 1942, that tIie clIsaLft of regulation enclosed with the letters referred to above and 41e PNposed schedule of fees set forth in the letters had received the irtforrnal a pproval of the three services, and that advice of formal ap1INT1 would be contained in the replies to the Board's letters. A 636 4/6/42 -10cillift of the Board's regulation had been approved informally by the 13°ard at a meeting on April 1, 1942, and had been discussed subsequently rePresentatives of the Federal Reserve Banks, and the regulation Ilas submitted by the War Loans Committee at this meeting of the Board a rec ommendation that it be adopted, effective immediately. Thereupon, upon motion by Mr. Draper, the following resolution was adopted by unanimous vote: Resolved, That Regulation V, War Financing, be adopted in the following form to become effective immediately: "WAR FINANCING "SECTION 1. AUTHORITY. to t "This regulation is based upon and issued pursuant liar he Executive Order of the President, No. 9112, dated OrdnN26, 1942 (hereinafter referred to as the Executive and various provisions of the Federal Reserve Act, c4-0,"ae been issued after consultation with the Secretary uarnr, the Secretary of the Navy, and the United States cohime Commission (hereinafter referred to as Maritime ' on), or their authorized representatives. oECTION 2. OBJECTIVE OF THE FEDERAL RESERVE SYSTEM. 07 the :bjective of the Federal Reserve System in carrythe of the Executive Order is to facilitate ver,,,e .xPedite war production, including the obtaining or con : or ( 1 ) CT . Of financing the for arranging facilities therefor, by rless n6ractors, subcontractors and others engaged in busiPar4,!8 en°r oPerations deemed by the War Department, Navy Deor ;tuent or Maritime Commission to be necessary, appropriate for the prosecution of the war. "SECTION 3. BOARD OF GOVERNORS. "The Board of Governors of the Federal Reserve System 637 4/6/42 -11cooperate and assist in every way possible in carry?g.out the provisions of the Executive Order. It will ex2:„clse general supervision and direction of the operations the Federal Reserve Banks under authority of the Executive ujider and will prescribe from time to time, after consulta0-°n with the Secretary of Tar, the Secretary of the Navy tirvthe Maritime Commission, or their authorized representaas es) such further direction of the Federal Reserve Banks " be necessary to accomplish the purposes of the Exse2 Order. All facilities of the Board and of the p`o'teral Reserve Banks will be made available for the pure of facilitating the financing of business enterprises, i si ti.4dIng nc smaller businesses, in order that they may pare more fully in speeding up war production. "SECTION 4. FEDERAL RESERVE BANKS AS FISCAL AGENTS. C9 "Federal Reserve Banks, having been designated as fis11 ; agents of the United States by the Secretary of the Treasope,Pursuant to the terms of the Executive Order, will coe ate to the fullest extent possible in carrying out 0-4editiously and effectively the purposes of the Executive andel‘Lin accordance with the provisions of this regulation raetit'ne instructions of the War Department, Navy Departaerv °r Maritime Commission. To this end the Federal Re10.1,, e Banks will arrange guarantees and loans in accordance 4.,e Provisions of the Executive Order and of the inSt ;%th t e-r °ns of the War Department, Navy Department or Maritheir::°mmission, respectively, wherever it is believed that cll i,4"4-11 contribute to the obtaining of maximum war pro1 expeditiously. While the Federal Reserve Banks will : : 1 easonable efforts to afford the tar Department, Navy pep tecjument and Maritime Commission the best available pro, against posslble financial loss consistent with thiel°11 niea°0iective, such guarantees or loans should not be dein a or substantially delayed when they can be provided , e , Nalr c°rdance with the instructions of the War Department, -)ePartment or Maritime Commission. ri tie."'Each Federal Reserve Bank should arrange such fior Ing, Where practicable, without any guarantee or loan Part -epart ciPation therein by the War Department, the Navy bank:ment or the Maritime Commission, through commercial or oil vdlether or not members of the Federal Reserve System her financing institutions, or through the Federal 638 4/6/42 -12"Reserve Bank under the provisions of section 13b of the Federal Reserve Act. Where this is not feasible, par.antees by the Ear Department, Navy Department or s.ritime Commission of loans made by such banks or fielleIng institutions to the extent necessary should be Used in preference to loans or participations therein by any of these agencies. "SECTION 5. INSTRUCTIONS OF WAR DEPARTMENT, NAVY DEPARTMENT, AND MARITTU COMMISSION. co ."The Ear Department, Navy Department, and Maritime oralnlission, after consultation with the Board of Governors t 05 Federal Reserve System, will issue general instrucpa f1 , with respect to the operations of the Federal Reserve ea : 14 . under the Executive Order, including provisions rethe relationships of the Federal Reserve Banks with ap,e13?n officers or other field representatives of such cl ri-T-es- The operations of the Federal Reserve Banks unExecutive Order shall be conducted in accordance " such instructions. "SECTION 6. RATES. mad "Rates of interest, fees and other charges on loans Me .et,(T, guaranteed in whole or in part by the War Departagrien 3 'avY Department or Maritime Commission through the be y;Y °f any Federal Reserve Bank will from time to time oth'escribed, either specifically or by maximum limits or S:Z1se, by the Board of Governors of the Federal Reserve ' a ll after consultation with the War Department, Navy De, ' Re rtment or Maritime Commission, and with the Federal serve Banks. "SECTION 7. MATURITIES. may.b"With respect to financing of production, except as 8tru e otherwise authorized specifically or by general C0mmIti°118 by the War Department, Navy Department or Maritime Wholoss-1-°n3 the maturity of any loan made or guaranteed in stleh-or in part by a Federal Reserve Bank on behalf of any rov, -genoY shall be consistent with the needs of the bor"er for the fulfillment of the contracts or orders for 639 4/6/42 -13"rilell the financing is provided. With respect to fin • aricallg of facilities the maturity of any loan made or guaranteed in whole or in part by a Federal Reserve Bank On behalf of any such agency shall be as may be agreed Upon between the parties concerned but in no case shall sual maturity be in excess of five years. "SECTION 8. REPORTS. as „"Each Federal Reserve Bank shall make such reports * ,441e Board of Governors of the Federal Reserve System require with respect to its operations pursuant to the -terms of the Executive Order and of these regulations. "SECTION 9. GENERAL. be "The term 'loan', as used in this regulation, shall in construed as referring to a loan, discount or advance, ht,?luding a participation therein, and shall include a cornto make or purchase such a loan, discount or advance ;Vss otherwise indicated by the context; but such term not be construed to include any advance payments mad? the /Mar Department, Navy Department or Maritime Commission on !Peoific contract or on specific contracts. be "The term 'guarantee' as used in this regulation shall antrrletrued as including a commitment to make such a guar' e unless otherwise indicated by the context." Upon motion by Ur. Draper, and pursuant to the provisions of section 6 of Regulation V, the Board, by unanimous vote, prescribed a maximum interest rate of 5 Per cent on loans guaranteed in whole or In part by the War Department, the Navy Department, or the Maritime Commission, and the following schedule of fees for such guarantees: Guarantee Charges on Portion of Loan Guaranteed. Charges to be determined by Reserve Bank within the °ent limits following e of Loan Guaranteed 91 - 100% : 30 - 40% of Loan Rate 76 - 90% : 20 - 25% of Loan Rate Up to 75% (Inclusive) : 10 - 20% of Loan Rate : No charge sha31 be less than : 1/2% per annum on portion of : loan guaranteed. 640 4/6/42 -14Telegram to Mr. Hays, Vice President of the Federal Reserve 81411t of C leveland, reading as follows: wi "Your wire March 31. In determining maximum credit ,24-11e, license plates, transfer fees and similar expenses T4Y be added to appraisal guide value. However accessories tilstalled in the car at the time of sale or sold at about 17.same time for installation may not be added to the ap— t alsal guide value, and no additional credit may be ex— ended because of them." Approved unanimously. Letter to the representatives of the trade who were in attend— at the March 13, 1942, conference on nonpurpose loans, reading as follows: the March 13 conference on nonpurpose loans held the pre'ne Board's offices, it was suggested that the Board 0tb1)are a questionnaire to be submitted to you and the in attendance. You will find a copy herewith. The purpose of the questionnaire is to obtain opin— aX and information, informAlly and confidentially, to the Board in formulating its policies. gildn'It might be helpful to state briefly the problem loa.n—g rise to this series of questions. Nonpurpose beens as described in section 5(h) of Regulation W have reae08:ject to regulation primary il for the following 1. At the outset Regulation W did not provide for a so—called 'Purpose Test' and, accord— ingly, it was necessary to regulate all loans to cover 'purpose' loans. 2. There is room for doubt of the effectiveness of a Statement of Borrower in ascertaining the use to which the proceeds of a cash loan will be put. It has seemed necessary, there— fore, to supplement the control of 'purpose' loans with an over—all control of all loans below a certain amount like the saucer under the cup, the control of nonpurpose loans catching what spills over. 641 4/6/42 -15That extensions of credit at a time like this may have an inflationary tendency and, therefore, that there should be continued regulation of nonpurpose as well as purpose lending. 4. The curtailment of nonpurpose loans may be necessary to achieve the ultimate goal of reducing all consumer credit outstanding to a minimum to protect our postwar economy and Provide a backlog of demand and purchasing Power. tio he Board is continuing its study of the many quesac ns involved in the control of nonpurpose loans. The inenanYing questions are intended to develop information is -4 Ller that the Board may be able to determine whether it of Practicable, under present conditions, to relax control ncT3urpose loans, tist."Please do not feel required to develop special stato les- Disregard questions if you do not feel qualified 04 11ewer The Board is anxious, however, to have your Views the" e queios. You may use as much space as you wish re vit "It is probably unnecessary to say that the Board ines_Your cooperation in keeping this matter confidential. "The Board would appreciate receiving your answers and coromen ts On or before April 18." Approved unanimously, together with a similar letter to representatives of banks and finance companies. etter to Mr. S. A. Wilson, General Supervisor Time Service, The ktirn -ore and Ohio Railroad Company, Baltimore, Maryland, reading as follows. file "This refers to your letter of March 24, 1942 (your number A-1) addressed to Mr. Hodgson, and your telephone ' e"conversation with Mr. Chase regarding Regulation V. tion LT011 quote from a letter which states that under.sec'kf) a watch may be delivered to the purchaser without 111, payment if the price is to be paid at approximately e(111 °1 : or :4 Intervals in approximately equal instalments the last "hich matures three months after the first day of the 642 4/6/42 -16endar month next following the sale. The letter also s .rder that a watch may be sold under your payroll deduction plan, if the watch is not delivered until the amount cructed and paid is equal to the down payment required by 0 e regulation, and if the balance is payable in instalments vera period not to exceed 15 months. W. 'Both of these methods are permissible under Regulation :tate The question whether any more liberal treatment may be co 871,-ven under a payroll deduction order plan is now under tu4s1deration by this office, and you will be advised through i? Baltimore Branch of the Federal Reserve Bank of Richmond there are further developments in this connection." Approved unanimously. Thereupon the meeting adjourned. Chairman.
@FedFRASER