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Minutes of actions taken by the Board of Governors of the hdnral Reserve System on Tuesday, December 12, 1950. PRESENT: Mr. Szymczak, Chairman pro tem. Mr. Vardaman Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Telegram to Mr. Diercks, Vice President of the Federal Reserve, 'can't of Chicago, reading as follows: "Reurtel December 11 Board approves designatio „ n of Donald L. Bauer and Edward V. Hnnrahan as assistant examiners for Federal Reserve alak of Chicago.” Approved unanimously. Letter to Mr. DeMoss, Vice President of the Federal Reserve tkik Of Dallas, reading as follows: Your "In accordance with the request contained in etter of December 4, 1950, the Board approves 4 d-Lesignation of William Byrne Dunaway as a 1342ial assistant examiner for the Federal Reserve " 4 of Dallas." Approved unanimously. ttrve 134Letter to Mr. Armistead, Vice President of the Federal Re4k of Richmond, reading as follows: 4 "Reference is made to your letter of December advising that you have agreed with the St the e Banking Department to postpone until next year eltm Joint examination of The Liberty Trust Company, berland, Maryland, which had been scheduled ts4t atively for late December 1950. 114 It is noted that the examination of the bank re2riginally delayed because of the extensive --u ' eli-ng of the banking house which has been 12/12/50 -2Progress for some time and is not yet c°41Pleted, and that the State authorities have l'equested that the bank not be examined this Ionth because they feel that the increased nnilless activity during the Christmas season ip—"' the unusual conditions prevailing in the tank would make the examination very difficult ! t not impractical. However, it is understood e'e.t the examination will be undertaken as 4111-Y as possible in January 1951. "In the circumstances, the Board interposes .° objection to the postponement of the examina4/4 as proposed." t Z Approved unanimously. Letter to Mr. irmistead, Vice President of the Federal e 8ank of Richmond, reading as follows: is acknowledged of your letter of NOV,a "Receipt 1_ a' -woer 30, 1950 which refers to the Board's eProval on May 26, 1950, of an additional inrzeStrient of $33,000 by The Washington Loan and 118t Company, Washington, D. C., which provided : c tt if any portion of the expenditure were cl'eitalized the bank would make provision for aelseciation of the entire amount of such yeclitional investment by the end of the current and that the charge-off should be in tion to the regular program of depreciation. It is noted that the bank feels the rewas rather severe because the writeof the expenditure, which represented the 41.” of rewiring its main building, might not be tp,:°1'led as a tax deduction in full by income 11;4 alit It now requests permission to hOritieS. lte off the amount over a three-year period. thnt "In view of your recommendation and the fact go:: the amount involved is relatively small, the to7 11 of Governors will interpose no objection ue Proposal. However, recent reports of tC4ination made by national examiners show that depreciated value of the banking house for leectIle tax purposes is approximately $300,000 88 than its carrying value on the bank's books. 4 w12/50 -3- HT, is understood, also, that the Office of the " n "omPtroller of the Currency feels that the bank should, as soon as practicable, accelerate the of depreciation in order to bring these b'lles more nearly in line. You may wish to g this situation to the bank's attention "10. advising it of the Board's action." Approved unanimously. Letter to Mt. Mangels, First lace President of the Federal Ileserve 13ellk of San Francisco, reading as follows: letter of November 28, "Reference is made to your , 1950, in which you advised that it appears exIsee for certain functions at your head office -441 branches will exceed the 1950 budget estimates as follows: Salt SanLake Los Fran.1 1:tions P.1 Seattle cisco Angeles Portland City tiet 6Tir_ Ov erhead $3,200 $2,900 NrIliture and 12,700 Pistags and : R 345/1"essage 7,500 $5,000 5,000 $15,000 -uock of n TSUPplies ?611rance 3,600 $1,900 uiscount and 04edit ; 0°48umer Credit 26,900 15,500 Estate Credit 2,500 10,900 and -"IleY 00i4 41,600 11'.. ,14k and Public ,'elations 6,800 2,000 5,500 5,200 1,000 6,400 1,900 2,300 2,200 13,000 10,500 12,00 6,500 ?neral Reserve ' ,tote , 4 ssues 223,700 "The Board accepts the revised figures as submitted appropriate notations are being made in the Board's —cords.” CAC) Approved unanimously. Letter to the Presidents of all Federal Reserve Banks, rem 4 '4.111g as follows: t, "From time to time questions arise under Regula,*fla W regarding Registrants' offers of so-called i.4ree gifts' and other sales inducements. The problems vcaved are complicated by the variety of forms that the 'free gifts', rebates, discounts, or other sales tneeMents may take in particular cases. Therefore, b e Purpose of this letter is to provide certain itekground and to state certain general principles maY be helpful in dealing with such questions ' 441vidually as they arise. As will be shown later, these principles are "licable whether the 'free gift' or discount is 7e4 as cash, savings bonds, gift certificates or 1)1 other form. However, for the purpose of exoranation, they will first be discussed in terms a simple cash discount. alzv , ample of cash discount. - Suppose, for exthat a Registrant is selling a $260 Group B pe icle on which the required down payment of 2) tier cent would be $6. Suppose further, that he keTles to offer a $')0 discount as a sales inducepall'. If the Registrant obtains the $6) down a r';11 ,ellt but at the same time gives the purchaser thc e'':ck for $50 as the discount on the $260 price, 4e - Aegistrant has done more than give a $50 discount. ke liae also rebated part of the required down paykellts In other words, he has obtained a down payof only $15, which would be deficient under the regulation. l c "Section 8(j)(7) of the regulation states that lien Price' is 'net of any rebate or sales discount'. t .4ee, in the example, the cash price of the Group re'article would be $210 rather than $260, and the orTlired down payment need be only $52.50 instead the$65* Consequently, on the facts assumed above, Registrant would have to get from the customer T37 ,,, more in cash in order to bring the down paykellt UP to the required minimum of $52.50 j 4 Z 12/12/5o -5- "The general principle, therefore, is that in , 811°11 a case both (1)the down payment and (2) the 1_84 Price are to be calculated on a net basis. 'Lle result is that the down payment requirement is rjdUced (as it should be) in the same proportion 44 't the cash price is reduced, but that it is not duced by the amount that the price is reduced. 4° do the latter would vitiate the requirements icit ) the regulation. In other words, the regulation not prevent reduction in the price of an ticle, whether such reduction is a cash disellat or in some other form. But the regulation , °es prevent other features of the arrangement ▪ m being such as would frustrate the regulation. nciple applies elsewhere. - The same would apply to any 'free gift' which, °M the viewpoint of the ordinary customer, would 15; similar to cash -- even though not necessarily 11 ; e4tical with cash. For example, if the discount 84re given in the form of a savings bond, this tl,°uld be treated as cash, although in practice bond is not redeemable until the passage of ' ▪ certain period of time. ot "Similarly, if the discount is given in the form e 8. certificate entitling the customer to receive of his own selection, this also should be ThT4ted as equivalent to cash for these purposes. would be true even though the selection might be ce ted by the nature of the store on which the Ztifi.cate was drawn, or limited further as, perOnly to food, or only to frozen food (as in 1s" 4ection with the sale of a food freezer). It ra evident that if the purchaser is given a cuillY Wide degree of choice among articles that are tli omarily purchased by the average person, or if isere is made available to him articles which it cla re , 4 4sonable to assume that he will purchase, the r/ZIller in effect is given a rebate that is pir , 7612-37. equivalent to a cash rebate so far as the —140ses of the regulation are concerned. thi %In illustration of nonconforming terms in tian !regard arose recently in a case which was very like the example of the $260 Group B article, 111.°1:Pt that the $50 discount was in the form of a certificate' on a department store. A radio j w12/50 -6- advertisement of the Registrant concerned was, in Part, as follows: 'Buy your television set at the store where your down payment entitles You to free groceries or your choice Of any merchandise.' 'It would not seem feasible to attempt to state m"'_th Precision how narrowly the choice of the purchasers would have to be limited before a 'gift ae irtificate' would cease to be equivalent to a cash .68count. However, it would seem reasonable to 'eat the 'gift' of a single specific article as 1: , : (, 2 e in the nature of a novelty than a monetary .:41cement if its appeal would normally vary widely ;7°11g different people. In such a case, the 'gift' thght properly be disregarded for the purposes of , c e regulation. But even these situations should be '48idered only on a case-by-case basis and with cation. ais "Of course, in any case in which the 'gift' is re preceding paragraph, the garded, as indicated in the precedi on the full price required be would °17n payment or .,. forZelisted without allowing any discount 40 "It is believed that item 8 of S-1190 (W-97), a_vetiber 9, 19j0, is stated in general terms that 1,11.0t conflict with the above. However, any ;Zings under the present regulation or previous bersi°ns that might conflict with this letter should considered modified to the extent of any such cOx flict vit ,"You will note that this letter does not deal 411141 qUestions regarding the amount allowed on an su,'ele taken as a trade-in. Under Part 5 of the /1041ement, no question arises in that connection cel,!als as articles in Groups B, C, and D are conIt can, of course, arise in connection or 4 articles in Group A, and it will be the subject seParate letter." Approved unanimously. 1 1 0 4 WI Secreta
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