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1194 A meeting of the Board of Governors of the Federal Reserve 8Yetem was held in Washington on Thursday, August 3, 1944, at 11:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Draper Evans Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman The action stated with respect to each of the matters hereinafter referred to was taken by the Board: The minutes of the meeting of the Board of Governors of the Ilecleral Reserve System held on August 2, 1944, were approved unaninuxisly. Memorandum dated July 31, 1944, from Mr. Goldenweiser, Director of the Division of Research and Statistics, submitting the res- ignati on of Mrs. Sue Driver as a clerk in that Division, to become "factiv e as of the close of business on July 31, 1944, and recommending that the resign ation be accepted as of that date and that appropriate reimbur eement be obtained for unearned sick leave of 24 days and 20 44Wtes - and unearned annual leave of 6 days, 3 hours, and 5 minutes. The resignation was accepted as recommended. pi Letter to Mr. Fry, Vice President of the Federal Reserve. -uu, reading as follows: Bankof 1195 8/3/44 -2- "The Board of Governors approves the changes in the personnel classification plan of the Federal Reserve Bank of Richmond, as submitted with your two letters of July 26, 1944." Approved unanimously, together with a letter to the Joint Committee on Salaries and Wages transmitting the original and four copies of three certificates of the Richmond Bank with respect to increases in the maximum annual salaries for 15 positions under the personnel classification plan of the Bank as approved by the Board In the above letter. Letter to Mr. F. J. Bailey, Assistant Director, Legislative Reference, Bureau of the Budget, reading as follows: "This refers to your letter of July 18, 1944, asking for an expression of views with regard to the proposed report of the War Department on H.R. 4801, a bill 'To Promote the more effective participation of all small business concerns in the war effort; to facilitate their slIcesssful adjustment to civilian and peacetime operations; to t stimulate and encourage small business enterprise; and amend the Act of June 11, 1942 (Public Law 603, Seventyseventh Congress), in furtherance of these purposes.' ness "H.R- 4801 would provide facilities for small busiwhich lie outside the field of credit, and as to those saYisione of the bill the Board expresses no opinion. to the various provisions which relate to credit for small however, the e Board is opposed to the enactin_ business iowever, ent of H.R. 4801 and sees no objection to the transn831-()n to Congress of the proposed report of the War upalment, which also opposes the bill. The proposed letter from the War Department points out a. number of objections to the bill but does not diswrs Title V of the bill, relating to loans. This title tould authorize the Smaller War Plants Corporation, subject __ceertain conditions, to make and to guarantee loans for o nversion or reestablishment of small businesses or for e Purpose of financing them upon cancellation of their r 1196 8/3/44 -3war contracts. The Board believes that such a provision is unnecessary. "The Smaller War Plants Corporation is given ample authority, under the recently enacted Contract Settlement Act of 1944, to guarantee and to make loans in connection with the terminat ion of war contracts or operations, and in this respect the provisions of Title V of the bill would merely duplicate existing authority. Moreover, loans for reconversion or reestablishment of small businesses can be proIlided in a more desirable manner by other pending legislation. As you know, S. 1918 (as well as its companion bill, '"1- 4804) would authorize the Federal Reserve Banks to guarantee financing institutions against loss of principal or interest on any loan made to a business enterprise. In 2ur letter to you of July 5, 1944, it was pointed out that "1918 does not involve any new appropriation by Congress !Id does not authoriz e the Federal Reserve Banks to make l're .ict loans to business enterprises, thus avoiding compe' 3A1?n with private financing institutions. The objective of Title S. 1918 V of H.R. 4801 would be met by the enactment of and, for the reasons stated in the memorandum which accompanied our letter of July 5, entitled 'Plan for Industrial Loans by Commercial Banks Guaranteed by Federal Reserve. Banks', the Board of Governors hopes that S. 1918 7111 be enacted. A copy of the memorandum in question is enclosed herewith for your convenient reference." Approved unanimously. Letter to Mr. F. J. Bailey, Assistant Director, Legislative Refet'ence, Bureau of the Budget, reading as follows: for "This refers to your letter of July 19, 1944, asking , an expression of views with regard to the proposed rePort of the National Housing Agency on S. 1777, a bill .0 establish a Small Business Finance Insurance AdminissZ°n in the Department of Commerce, to aid in financing chasesbusiness enterprises by insuring loans to and pures Poses !.0f stock in such enterprises, and for other pur- 4 sur "The bill would create a Small Business Finance Inall "Administration, to be headed by an Administrator 1197 8/3/44 -4authorized to insure loans made to business enterprises Up to an aggregate amount at any one time of $500,000,000. The Administ rator would also be authorized to insure investment companies against loss on preferred or common stock Purchased from business enterprises, up to an aggregate amount of insurance liability at any one time of $500,000,000. "It is the view of the Board of Governors that the inancing of small business enterprises can be provided 1-11 a more desirable manner by other pending legislation. 8 You know, S. 1918 (as well as its companion bill, H.R. 4904) would authorize the Federal Reserve Banks to guarantee financing institutions against loss of principal or interest on any loan made to a business enterprise. 0 1 our letter to you of July 5, 1944, it was pointed out that S. 1918 does not involve any new appropriation by l'ongress and does not authorize the Federal Reserve Banks make direct loans to business enterprises, thus avoid1g competon with private financing institutions. For he reasons stated in the memorandum which accompanied our letter of July 5, entitled 'Plan for Industrial Loans by Banks Guaranteed by Federal Reserve Banks', the Board of Governors hopes that S. 1918 will be enacted. A Copy of the memorandum in question is enclosed herewith your convenient referen ce. "In addition to provisi ons for insurance mentioned the above, teve, S. 1777 would add to the Federal Reserve Act a __!ction 24B', which would authorize a national bank to ' 4 8.1 e loans to business enterprises secured by first liens Part of the assets of such enterprises other than siheir inventories and accounts receivable. This provimIZ .1-Ltould apparently give to national banks authority to eon.-t loans secured by real estate in addition to that now d_ ained in section 24 of the Federal Reserve Act. Unexi8ting authority a loan on real estate by a national of" maY not exceed 50 per cent of the appraised value icrt,he property, or 60 per cent in the case of an amortized upar : t1,; but under the proposed authority loans could be made ist ° 90 Per cent of the appraised value. Also, under exnoting law the real estate loans may 60 exceed the aggregate amount of surplus of the bank or capital stock and Per cent of its time and savings deposits, whichever is ad_greater. Under the proposed new authority, however, aZu TcMal loans could be made in an aggregate up to the of capital stock and surplus, and 90 per cent of r! 4 1198 8/3/44 -5- any loan insured under the bill would be excluded in comPuting this amount. It is the view of the Board that authority for national banks to make real estate loans on the basis proposed would not be compatible with sound banking and should not be given. "You are advised that the Board sees no objection to the transmission to Congress of the proposed letter of the !!Itional Housing Agency which accompanied your communication of July 19, 1944." Approved unanimously. Thereupon the meeting adjourned. Assistant Secretary. Chairman.
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