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31S Minutes of actions taken by the Board of Governors of the ?etieral Reserve System on Wednesday, February 27, 1952. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Szymczak Evans Powell Mills Robertson Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Minutes of actions taken by the Board of Governors of the Reserve System on February 26, 1952, were approved unanimously. Memorandum dated February 25, 1952, from Mr. MPrget, Director, International Finance, recommending an increase in the bEteic sa1arY of Gordon B. Grimwood, Economist in that Division, from t4,330 to $4,14.55 per annum, effective March 2, 1952. Approved unanimously. Letter to Mr. Stetzelberger, Vice President, Federal Reserve Bank oteleveland, reading as follows: "Reference is made to your letter of February 20, 19,' recommending the appointment of Thomas R. Conner as exminer for the Federal Reserve Bank of Cleveland. Stet it is understood that Mr. Conner is indebted to a thete4111 , enlber bank, secured by a mortgage on his hone, but Is 40,_ obligation could very easily be placed with a l'aeinetber institution. as n,The Board approves the appointment of Thomas R. Connor Vit1727-aminer for the Federal Reserve Bank of Cleveland j'he Understanding that he will not be authorized to Dar , he 'IciPate in any examination of a member bank to which Y be indebted. Ig(1 2/27/52 -2- "Please advise us of the date upon which the appointment becomes effective and also of the salary rate." Approved unanimously. Letter to Mr. Gidney, President, Federal ResE:rve Bank of Cleveland, reMing as follows: "The Board of Governors approves the appointments Messrs. Fam W. Emerson, H. P. Ladds, John P. McMaliams, InTall R. Neff, and Arthur i. teudel as members of the ' se llstrial Advisory Committee for the Fourth Federal Regirve . District to serve for terms of one year each, heb,11T-ng March 1, 1952, in accordance with the action taken io'he Board of Directors as reported in your letter of ruary 18, 1972.“ g Approved unanimously. Memo randum dated February 21, 1952 from Messrs. Thomas, Economic 6714er t the Board, Young, Director, Division of Research and Statistics, %am '4trget) Director, Division of International Finance, reading as rola° . of 4.,"At the 1949 meeting of Technicians of Central Banks col"'Ie Continent in Eantiago, Chile, both Cuba and.La extended invitations to the delegates to hold the th t 1T!eting in their countries. It was finally agreed th:;„„:"e 1952 meeting would be in Cuba. It is quite likely, for-;*:'_ °.re, that the delegates will be invited to Colombia thal.'lle next meeting. However, there is a bare possibility Res :et Majority of the delegates will feel that the Federal -rve SYstem as one of the original sponsors of the meet14 , : At should serve as host next time. In our view, the taeillean delegation should not extend an invitation to the t tee to come to Washington for their next or fourth j teee , --ng, probably in 1954, unless it should prove to -be ver, iii-a .stbarrassing to avoid extending such an invitation. le14 of the constructive purposes served by these con: fer co.,-EI,lleee, however, we feel that they should not be disitR -fled just because an invitation to hold the next meetnot been forthcoming from any of the participating - ) 2/27/52 -3- Countries. It is recommended, therefore, that the head of the American delegation be authorized to extend to the deleptes an invitation from the Federal Reserve System to come to Washington for their next meeting. tnt4 "If it should become necessary to extend such an inviis expected that the Federal Reserve Bank of New y: ; 01'4 and perhaps some of the other Federal Reserve Banks 111 .4 want to participate in the meetings. It might be s1rable to hold the last few days of the two-week conference(saY from Wednesday through Sunday) at the Federal Re1,70:,;! Bank of New York, and in this case the New York Bank Th:L4-d bear the expenses of this portion of the conference. 14 Int ernational Monetary Fund and World Bank may also t to Participate in this as in Previous conferences. "It is course, to forecast the exact cost to 4., impossible of 4.1- Board of a conference of this nature, since it vill, 'e let,. we held two years hence. The attached memorandum and to give only some rough figures as to the probable cost the Board of conducting the conference." Approved unanimously, together with a telegram to Mr. Young, in care Of Hotel National, Havana, Cuba, reading as follows: ize,1 "Board has approved recommendation that you be authorin event you think it desirable to extend invitation fo ; eting of technicians of central banks in 1954. Hpve ! besnill viii 4-11 touch with Knoke in New York. Understand matter eald be Presented to directors as to their participation you decide that eXteZik will wire Rozell tomorrow. Should ; i-T)n of invitation is desirable, understand that upon rse hali,44 of New York wire you will extend invitation on heBoard and New York Bank." ellicaeo Telegram to Mr. Olson, Vice President, Federal Reserve Bank of r'eading as follows: 26. We concur in your view that a tr t Reurtel February c°111PanY which is a Registrant must comply with Regu, lati0 X in selling 'new construction' as an executor under ; pave Of sale in will or court order even though the estate 2/27/52 n. itself is not a Registrant. Approved unanimously. Letter to Mr. Strothman, Vice President, Federal Reserve Pank Of Milzleapolis, reading as follows: ce "This refers to your letter of February 15, 1952, conling an inquiry by the Investors cyndicate of America, Minneapolis, as to the applicability of ' °ans made to holders of its investment certificates Regulation„ e security of and in accordance with the loan privit4 Provisions in such certificates. The particular cert'icate Provision in question is qrticle 1/1, which provides t the Company will lend to the owner of the certificate aj flY time upon the execution and delivery of a note and ! 11042'se ignment and delivery of the certificate any amount ei'sgreater than the amount which the owner would then be cl..TAled to receive in cash upon surrender of the certifi. We understand that notes evidencing such loans ot narilY have a six months' maturity and are not repaid instalment basis. We does Understand the Company contends that Regulation ” aPPly to such loans because (1) the certificate tol n theder had a contractual right to borrow in accordance with of ReguIaticertificate's terms prior to the effective date corum°' X and that this amounts to a pre-Regulation 1' firm vith rilent, and (2) that since such loans are to be repaid Of t;',11 siX Months they should be treated under section 4(c) tio,"e regulation as extensions of credit made by institusiMilar to a bank or savings and loan association and acooL!ecIlred by withdrawable shares issued by or savinge held with the lender. i : IAfter reviewing the sample investment certificate enelose o indefinite too is believe it your we „i letter, llst CO 60C"lite a firm commitment within the meaning of section cer+.°f the regulation. Because of the very nature of the ; lficate, it leaves unknown until a subsequent time the pio ate ( t r °I the loan, the borrower, the amount of the loan, tote ;:!_value and location of the property involved. Ve 4 tr 'at Article 17 of the sample certificate provides for 06111sfer of the certificate upon request therefor in writing Als'Under Article lb the maximum amount that the certificate O r 47 (rZfy") gr3- 2/27/32 -5'I .ner g maY borrow T,ions is not fixed but is contingent upon other opstated in Article ') and 12 of the certificate. Therefore, even the certificate were considered a firm commitment with6fle meaning of section 6(l), in our opinion, credit extended 1..s.uant to such modifications of the commitment would not be Z2(_empt from Regulation 7' under the principles stated in the interpretation l'-1196, (Y-16). !assumed in the discussion above that the Company contend, °,'Lae certificate is a firm commitment within the meaning ((b). However, if the Company's argument is merely ' 6 is contractually obligated to eytend credit to the certific; iraue holders upon request, and that it will be liable for damages tinit ckes not do so, you may want to call its attention to secof- 1,7C7 of the Defense Production it cf 19)0, under authority c11. Regulation thp was issued. This section provides in 2,-Irt * * result40 Person shall be held liable for damages r 6 directly or indirectly from his com)liance with a rule, , ton, or order issued pursuant to this act, * * *.' In Other to a statutory eyculpLtion Of . w°rdL, this provision amounts colitlabilities -effective date or other noncollforninE pre under contra The defense it furnishes is silil-r to tile common 1" impossfbility', 'Crustrationcantractual defenses of purpose', and 'supervening illegality'. If you or cou for °r the Company want to pursue the apDllcability or effect °f this provision further, aninterost'n L,' note which res 41ti' the provision with similar provisions in other. logis°11 MaY be found in Ch Harvard Law hey low 4,r (1950). answer to the Company's second contention, we agree that SUch month:, are simtlar to and should be t,'°alls if repaid within ' eated irlst under section it(c) as eytens'ons of credit side by bank or savings and loan association and f itt , Iti°11.0 similar to e,oco 141Y secured by withdrawable shares issued by or savings anslatults held with the lender. However, we believe that in to c eriTIC the inquiry you should caution the Company that loans not elstificate owners on the security of their certificates are 13.un)exeMPt from Rewulation 7 if such loans are made for the ' e-c3se of Purchasing or financing new construction, or othervis are extersions of real estate construction credit. For plir,Die, it Is likely that such loans sometimes may be for the :i t'rring a down payment on new residential construction. ! s e°f to 4(o) requires the Company, if it is a Registrant, ta,in certain the nature of any credit eytened by it and mainrecords which reasonably demonstrate on their face whether credit is real estate construction credit. In issuing the 2/27/52 -6- "regulation, however, the Board recognized that the vast , 111ajc)ritY of such short-term secured loans are not for real aitate construction credit purposes, and provided in sec,?fl 4(c) that it is not necessary to comply with this re.-_!-Ilrement if the Registrant does not have actual knowledge that the credit is real estate construction credit. oa, "The provision was intended to ameliorate the practiI- difficulties of maintaining records of a vast number of !mall 10 irl twould not be subject to the regulation. In rze ou : ia Company will know from other facts or from 'eevious dealings with the borrower that the loan is not 04.!'l estate construction credit. If the Company does not rw e know these facts, they can be obtained by a simple isc14117 of the borrower. then this is done and the Company tio8atiefied that the credit is not subject to the regula4 the Compamy may demonstrate this fact by the maintenance of ' to ZAY records which evidence that the credit is not subject a regulation. Among other means, this can be done byiten endorsement placed upon any papers in connection the credit stating that the Company is satisfied that the credit in question is not real estate construction credit. you :In symmary, we believe that in answering this inquiry , is wish to advise the Company that (1) the certificate ' 1(;)t a firm commitment within the meaning of Regulation elld lalak41 even if the Company has a contractual obligation to Ile loans, it has a defense against any action for damages: viol If it should refuse to make one because It would be a ilag ni°n of Regulation 7, and (3) with respect to loans havT InatUrity of six months or less, the Company need not coraD, with section 4(c) unless it has actual knowledge that ' the credit is real estate construction credit.' z V treis Approved unanimously. / lor Ag .4LIA Secretary.
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