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Minutes of actions taken by the Board of Governors of the ?edersi Reserve System on Thursday, February 3, 1949. PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman pro tem. Szymczak Draper Evans Clayton Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Thurston, Assistant to the Board Minutes of actions taken by the Board of Governors of the Pederal Reserve System on February 2, 1949, were approved unani" r 184 Letter to Honorable Kenneth C. Royall, Secretary of the Arty reading as follows: "In connection with the performance of Government contracts, including contracts awarded by the DepartMerit of the Army, banks have been financing contractors through loans secured by assignments taken under the Provisions of the Assignment of Claims Act of 1940 of Moneys due and to become due under the contracts inAs you know, such assignments of claims were ,t_he principal type of collateral security taken by rInks in financing war contractors under the Regula'ion V guaranteed loan program during World War II. It is understood that contracts of the Department Of the Army contain, among other provisions, an article ating to price revision under which the contracting Dicer may require the contractor, after completion cf the contract, to negotiate for a reduction of the contract price. The article provides that 'the GovernMet shall retain from amounts otherwise due the cont ractor, or the contractor shall repay to the Govern, 11/ellt if paid to him, any amount by which the contract " - rice is found * * * to exceed a fair and reasonable Price, as the contracting officer may direct.' T 2/3/49 -2- "One of the Federal Reserve Banks has advised the Board that a commercial bank in its district has requested the Office of the Comptroller General for a decision on the question whether, under the abovementioned price revision article, a bank which is assignee of claims under a Government contract may be required to repay to the Government amounts determined to be 'overpayments' as the result of a price revision. The question also arises whether, before full payment is made, the Government may retain amounts Otherwise due on the contract in making payments to the bank as assignee. In either event, of course, the effectiveness of the assignment as collateral for the bank's loan would be impaired. "It is understood that the Comptroller General's c)ffios has stated that it has no jurisdiction to render a decision in this matter unless requested by the head °f a Government department or a disbursing officer and hes suggested therefore that the matter be taken up with the Department of the Army. "In view of the importance of this matter to banks engaged in the financing of Government contractors, we Shahl greatly appreciate it if you will ask the Office of the Comptroller General for a decision of that Office on the question presented, which may be stated as follows: Where claims under a Government contract have been as!igned to a bank, would the price revision article of contract be regarded as authorizing the Government to retain amounts otherwise due on the contract in Making Payments to the assignee bank, or, where full Payment has been made, to require repayment by the bank of amounts previously paid to it by the Government?" Approved unanimously, together With letter to Mr. Slade, Vice President of the Federal Reserve Bank of San Francisco, reading as follows: "This refers to your letter of January 22, 1949, 141th enclosures, regarding a question which has been raised as to the effectiveness of an assignment of claims under a Government contract as collateral secul'itY for bank loans to contractors for the armed se rvices, in view of the price revision article inserted in Government contracts which authorizes the 2/3/49 -3- "Government to retain, or to require repayment, of amounts due under a contract where the contract price is found to exceed a fair and reasonable price. "For your information in this connection, there is enclosed a copy of a letter which the Board is today addressing to the Honorable Kenneth C. Royall, Secretary Of the Army, asking that this question be submitted by him to the Office of the Comptroller General for a decision. We shall of course advise you of any further developments in this matter." Letter to Honorable Edwin C. Johnson, Chairman, Committee on Interstate and Foreign Commerce, United States Senate, prepared in Etecr3rdance with the action at the meeting on January 28, 1949, readfollows: "This refers to your letter of January 25, 1949, in which you advise that your Committee will appreciate r eceiving any comments that this Board may care to offer regarding S. 236, a bill 'To clarify and formulate a consistent and coordinated national policy with respect to transportation costs in interstate commerce; to s trengthen the antitrust laws of the United States and to provide for their more effective enforcement; and to Promote competition by permitting sellers to have access to distant markets.' "This bill involves the legality of certain pricing 1?,ractices in interstate commerce in the light of recent decisions of the Supreme Court of the United States but not appear to affect the monetary and credit func‘10n5 or other activities with which the Federal ReSystem is directly concerned. In the circumstances, ue Board has no comments to offer concerning this proPosed legislation, but we appreciate the opportunity forded by your letter to consider the matter." Approved unanimous Secretary. Chairman pro tem.
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