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Nerai Minutes of actions taken by the Board of Governors of the Reserve System on Monday, December Pli SENT: Mr. Mr. Mr. Mr. 4, 1950. Szymczak, Chairman pro tem. Vardaman Norton Powell Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Peurea M1411tes of actions taken by the Board of Governors of the eserve System on December 1, 1950, were approved manimously. or Metorandum dated November 30, 1950, from Mr. Bethea, Director the —vision of Administrative Services, recommending the appoint- 4eAt h "GeOrge mtvisiort Oil a. Al. Russell, Jr. as an Operator (Mimeograph) in that temporary basis for a period of six months, with basic 1/411triie rate of $2,120 per annum, effective as of the date 111°4e enters upon the performance of his duties after having 4saeci the usual physical examination. Approved unanimously. 14"1°razicliza dated November 29, 1950, from Mr. Bethea, Director Of Administrative Services, recommending an increase 48ie salary of Joseph H. Hoyle, Pay Roll Clerk in that tr°rn $3,115 to $3,225 per annum, effective December 10, Approved unanimously. 14enlorejadazt dated November 29, 1950, from Mr. Bethea, Director bivis, -ton of Administrative Services, recommending an increase -2ilitheba8ic salary of Malian R. McDonald, a clerk in that Division, trot $2,730 to $2,875 per ann, effective December 10, 1950. Approved unanimously. re, a quizg Letter to the Presidents of all Federal Reserve Banks, as follows: con ,"The Act of August 17, 1950 (Public Law 706-81st Ac•Cliess), amended section 9 of the Federal Reserve tati8° as to provide that, upon the conversion of a ; 4 ° 1v,119.1 bank into a State bank, the resulting bank 18# Ely;e admitted to membership in the Federal Reserve ovi -l ela, but otherwise the Federal Reserve Bank stock ' .by the national bank shall be cancelled and ec14 Paid Re 4-or as provided in section 5 of the Federal sel*ve Act, spe 1 n"il Regulation I is amended to provide 1callY for the cancellation of Federal Reserve 4 : BetjetIlatio'""°ck in the case of the conversion of a cecit al bank into a State nonmember bank, the pro%;7 Prescribed in section 7 of Regulation I for bezis involving voluntary liquidation of member pri 8 shoUld be followed and Form 86, with approte the changes, should be executed and filed prior date 04 vcted 4 on which the conversion is to be , -in order that the stock may be cancelled the"' date." Approved unanimously. tett , ettd4 „lig e- the Presidents of all Federal Reserve Banks, 148 f01 1OWS: 111411:It has come to the Board's attention that a thei;rOf financing institutions have indicated 11-10,, ' l eluctance to participate in the current beca.--4 Program for financing defense production or ; 118e of their fear that, after full payment the- gliaranteed loan secured by an assignment of Govecorltractor's claims under his contract, the krIcialitelit j might recover from the assignee finamounts claimed by the Govern 12/4/50 -31:.!'''zit against the contractor. Apparently, this fear prompted largely by certain recent rulings Go! he Comptroller General with respect to the 1ent's right of recovery from an assignee b8.1 01,7:on account of price revision, renegotiation, "ax claims against the contractor. the "Ila this connection, some banks have raised covqUestion whether, in the event of such retheerY 'by the Government from an assignee bank, stitlunctuits recovered would be regarded as conOf tilting a 'loss on the loan' within the meaning thathe standard form of guarantee agreement so to hp the guaranteeing agency would be obligated to , 1--re the resulting loss to the bank according par;:e sPecified percentage of guarantee in the .J.oUlar case. Of is believed that under the present form be ;,7rantee agreement this question clearly should thett -4811ered in the affirmative. However, the fact banks appear to be concerned by the clari.i e°11 has suggested the desirability of a Eigre;'Ying amendment to the form of guarantee at -111, 1e". This matter was recently discussed ag4c7:eting with representatives of the guaranteeing 8j:4(4101z-8 and it was their feeling that such an —elit is desirable. "Acc the the i e ntesiordingly, after consultation with 01I -4-ng agencies, the Board has prescribed °14ing amendment to the standard form of tItlalli agreement of September 27, 1950: 'Within27 the meaning of section 2(A) and ;-\c) of this agreement a loss on the loan shall include any amounts which 4-/, aY. have been received by the Financing 4.4stitution and applied by it to reduction of the loan but which are subsequently 'ecovered from the Financing Institution, either before or after the date of set tlement, by the United States or by "NY person lawfully entitled to such recovery.' v. This provision should be incorporated as a ketrt -14ental section or otherwise in guarantee agreehereafter executed by the Federal Reserve Banks Ithcl " 1 41 agents on behalf of the guaranteeing agencies; the purpose of the standard form of authoriza- ;been N: 12/4/50 -4 %to, ae .- and definition of the code word 'AJOTE' as Willed in the Board's letter of November 13, 19)0 reference to the standard form of guarantee ent of September 27, 19;0, will be deemed to pr—mtle authorization for the inclusion of this ilIT!i°11. The provision may also be incorporated clestrarant— e agreements heretofore executed, if bY the financing institution, upon authparie :'10/1 by the guaranteeing agency in each lcUlar case. ot "It should be understood that the standard form her:trantee agreement, including the amendment that aUt horized, should be used in all cases and 14 1 ,ther amendments to the guarantee agreement posXividual cases will ium be permitted. It is the-:,1e, of course, that, after consultation with be ,rarezteeing agencies, further amendments might 'escribed for general use in all cases." a 3), ,ZT 4' Approved unanimously. tettai Te1p, -5 .4am to the Presidents of all Federal Reserve Banks, 4 48 r°110W5: inquiry has been received concerning the 7(c) lti°11 of the 'demonstrator' exemption in section vi RegUlatiOn W to credit extended to a motor ekt ! , ) Dilrec:112facturer's 'salesman, or representative, to itl epo.r a new automobile to be used as a 'demonstrator (Arai.r'illg on dealers and dealer-salesmen for demon1 to them of merits of new car'. s114ta ,ith respect to qualifying for such exemption, eLra0407J-ilaterpretation 32 in S-1190 (N-97) states, 'to ' : Is "her things, that the exemption does not extend e: s°ns who are not employed principally as salesmen'. C( 1.s. tivel ';'elltlY, the fact that a manufacturer's irepresenta8 employed to demonstrate the merits or other , reati4 ; '°41aer-s °f a new automobile to franchise dealers or salesmen of the manufacturer's line would not, or itfl :alesmen 1t5 qualify such 'representative' as a 'bona fide 7(c) -ala of automobiles' for the purposes of section 4ctin Or course, the 'salesman' referred to in that %Itin 18 not limited to a person selling cars at 4or would a 'bona fide salesman' be ineligible tor ; e 'rep,:etnption merely because he may be designated a "eelltativel.” T () ' .:r1(3 ' 2A/50 -5Approved unanimously. Reeerve T elegram to Mr. Hitt, First Vice President of the Federal 4 of St. Louis, reading as follows: ft.-' orb November 24 concerning applicability tr egulation W Find W-88 to automobile sales con' surt revritten as result of replacement by inCompany of completely wrecked automobile. bei— in the case you present old obligation is cre4 consolidated with new credit to cover in1,1014.48ed insurance costs combined obligation 40t d be subject to section 8(h) and W-88 would aPPly.n Approved unanimously.' 44(44 Tele gram to the Presidents of all Federal Reserve Banks, 84 f011oWS: ljete:Ill Order to reply to an inquiry from the et tZle Administration request you telegraph se4.6'ellt of disaster area exemptions under to 5(c)5(c) of Regulation X declared by your Bank to -este, including limitations imposed with respect -7. 1 :actor of credit and period. ( lie 411 ellY future declarations with respect to cree.ster areas it is important that character of AclzacL it , exempted be clearly stated as the Veterans kili4-1-stration intends to use Federal Reserve to bee emptions as pattern for parallel exemptions crti , -Issued by their regional offices. In view tion't relief afforded by section 5(e) of Regula41 : - it is hoped that the number of disaster - relarations can be held to a minimum. sett till the past the Federal Reserve Banks have td:.4) the Board advices of declarations of the It!; / , 11ce of an emergency under Regulation W. ceja-1, 4.4-1. be appreciated if a similar procedure sa f, r°110wed by your bank under Regulation X, Vires,',, in both cases, prompt advice is sent by i Approved unanimously. ,(1 -6Letter to Congressman Noble J. Gregory, House of Representatt48, w 484iagt°n, D. C., reading as follows: le "This morning we received your special delivery x tter concerning questions about Regulations W and szpbmitted by the Fulton Building and Loan Association ! Il t°11, Kentucky. We regret the inconvenience 441 : to -41`43r undergone by the Association and shall endeavor 8ilelier the questions to the best of our ability. it ; th!,„IalllaYs difficult to supply definite answers in th :u'usence of all the facts involved, but I hope that 'following will be helpful: for 4QUest1on 1: We have an application for a loan koW00 on a piece of property which is now gaged. same having an unpaid balance of $1300.00 4141- the to money that the borrower wishes to get is the present loan and make necessary WITIVe on the house in the sum of $700.00. Please if this loan is eligible for us to make. value of the property is Woo.00. reed.A 1181/er: Regulation X does not apply to loans on 4011 4 0 started before August 3, 1970. If the 8," date- -14 question was built or started before that ellbj2he loan to pay off the present loan is not Eutai.; to Regulation X. Moreover, loans for major t104-.ras or major improvements are subject to RegulaW411t7" 2-Y if the cost or estimated cost of such for ;:(3118 or improvements exceed $2500. The loan -PILirs, however, is subject to Regulation W, v 10 ? 1 Means that there must be a down payment of 184;r cent and the loan must be paid off in at 18 30 months. When the remainder of the loan is :t 1 for _ a purpose subject to Regulation W, there l equirement for down payment or maturity for that° ' 0 113°1'tion of the loan. 1/110est103 : ,Il 2: We have an application from a widow crsks in one of our local factories for a loan °*°0 on a piece of property which is a con814 the --Lon loan, the borrower, knowing nothing about el/ regulations, gave a contract about the first 444 ctob•, 'Jo build this house in the sum of $3500.00 the le. 3V.0 to the contractor the sum of $1500.00 and t1:1-,:ore owes him a balance of $2000.00 for which Made this application. If the loan is not °feer I wv50 -7ins•de it will put her in a very embarrassing position : 8 she has no way to pay the $2000.00 except to borrow t ls. El a loaning company where she can make smalt 1131- q* Payments until the loan is liquidated which ye,,:17°ur plan would be a period of twelve and one-half 138248) otherwise she will lose the amount she has 41 the contractor. oc, Answer: If the construction was begun prior to -„ 12) 19)0, real estate construction credit eztc3ber 811,:, med Prior to May 1, 1951, in connection with -4' construction is not subject to Regulation X. borr Question 3: We have an application from a ower for a loan of $2800.00 on a piece of property Is ;4;shes to purchase which will cost him $4000.00. lean eligible under the new regulations? : 4/ s/ler: Whether or not this transaction is 81Am , Propt: to Regulation X will depend on whether the Y in question involves new residential con(i.e., begun after August 3, 1950). If 10 —4701ves new residential construction, the maximum 811-le (for conventional and FHA guaranteed loans) La'ansaction of $1t0oo would be 0 - 600. rro question 11.: We have an application for a loan lehirli el,4 borrower in the sum of $500.00 on a house in le lives and on which property we have a loan for the unpaid balance of $2000.00. or 10$)00.00 loan is for the purpose . Off a bank debt and to make some minor j ! r l3f reie.8. it ell'' 4 13 the house. Please advise if this loan I %10113 //er: From the facts presented, this loan to b 'lot be subject to Regulation X, but the amount W (ie Used for repairs would be subject to Regulation turia ;e.' there must be a down payment of 10 per cent, As loan must be paid off in at least 30 months). tor '''icated above, if the remainder of the loan is 1,IDUrPose not covered by Regulation W, there is 40 d:f. rtlEotibL'Ilite requirement of minimum down payment or Maturity for that portion of the loan. In the case where a house has been ?,111.1tCtestion qlere.p-clre than six months prior to illgust 3rd, 1950, solci ; ) ° , ; 1 e is not a new construction, and is now being ktell-e7" the Purchaser wishes to borrow part of the %tie se Price of property, does a loan of this kind 11/341er Regulations W and X and if so, which 0'-'( I. „ -88111ation, or is same exempt from regulations? Aaswer: In such a case neither Regulation X RegUlation W applies. Of course, if there are 5 the ree-ir 1 additions, or improvements to be made, cos credit will be subject to Regulation X if the thE:t exceeds $2500 and subject to Regulation W if credit is $2500 or less. 8tect "I hope these answers will be helpful. As we %cted above, they are given on the basis of the adeti ,Presented and might be changed in the event ';°114a1 information were provided. tot we can be of further service, please do hesitate to call upon us." 40 Approved unanimously. Lett er to Honorable Joseph R. McCarthy, United States Senate, shillgt ° ) D. c., reading as follows: /ve, "This is in reply to your note of November 9 Jr' - r ning to us a telegram from Mr. Robert Dane, ; 0 hairman of the Retail Division of the Beloit ( ) 8 1, -,-481-11) Association of Commerce, protesting 38t the terms of this Board's Regulations W 80 far as our Regulation 4, governing °I:ier credit, is concerned, we believe that to 17. etters of October 2) and November 13, written folj1 it connection with similar protests, may Ddaie. base for an appropriate reply also to Mr. 4 oriz " aThe new regulations, as you know, were auth1Y Congress in the Defense Production ,,ct or 10 In writing Title VI of this Act Congress t1101-1Alzed the substantial inflation already existtc;'13 the housing field and took vigorous steps fizselit further inflationary pressures and to NI,7,e the availability of materials and labor —led for the defense program. Peclelsb.ilt is the expectation of the Board and the 1-L HoUsing authorities that Regulation X 11:11:1;:7 companion restrictions on guaranteed coriz;tsUred loans will reduce the volume of housing 1)eebt--rlacti0n from the record levels of 19'30. It has 81-Iggested that it would be desirable if the 13: °11 of new housing units next year could 12A/50 -9 be cut to about 800,000. Should the regulation have thef c I fect, such a level of construction would still 4are favorably with the high levels of construcJ1°4 !.ctivity in other years since World War II. co -Both the consumer credit and real estate credit Reli ntrcas reflect the general philosophy of the Federal EtIC!!" System that it is better to attack inflation th :ue source than to combat its symptoms. We feel itee, it certain situations, such as the present one, airva:rect controls such as these are preferable to ect controls over prices, wages, and the like which If rere in the daily lives of millions of people. cott ' reot controls prove necessr,ry, these credit colabr°1s would still remain a valuable method of 4tillg inflatjon. cu.:Please do not hesitate to call upon us if we be of further service." Approved unanimously. MeMorandum dated December 4, 1950, from Mr. Hooff, Assistant , or tile t recommending that there be published in the law department the to eceMber issue of the Federal Reserve Bulletin statements in 114 at tached to the memorandum with respect to the following: Cott,— 'qmer Credit !!:'431-1se Trailers , z-re-effective Date "Balloon" Notes or Payments rts and Groups of Articles , 1°111e Improvement Incorporating Group B Combination Unit zaotel or Motel Repairs or Improvements "Rental" Transactions T6tx or Fee Prerequisite to Auto Tags ilefinancing of Instalment Sale of Unlisted Article Statement of the Borrower lIZMe.rY of Interpretations dential Real Estate Credit Rollse Trailers 1,4,,xtmum Maturity Qn ort-term Construction Credits 4eMPti0n8 for Contemplated Construction 1V4/50 -10Modificatio n of Pre-effective Date Firm Commitment Motels and Tourist Courts Allowance for Builder's Profit and Costs of Sale Preservation of Records Fraternity House Maximum Maturity of Converted Short-Term Construction Credit Approved unanimously. Adi, / / 4ablis:4_74 Secreta
@FedFRASER