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1419 A meeting of the Board of Governors of the Federal Reserve SYstem was held in Washington on Tuesday, July 14, 1942, at 11:30 a.m. PRESENT: Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak Evans Mr. Morrill, Secretary 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 Federal Reserve System held on July 13, 1942, were approved unaniMous7. Memorandum dated July 13, 1942, from Mr. Paulger, Chief of the 114 ' 1-Lvision of Examinations, recommending, with the concurrence °f Mr. Cravens, Administrator for the War Loans Committee, that, effective as of August 16, 1942, Marion E. Wright be transferred *°111 the Office of the Administrator for the War Loans Committee t° the Division of Examinations and appointed as an Assistant Fedelial Reserve Examiner, with salary at the rate of $1,800 per By unanimous vote, Marion E. Wright was appointed an examiner to examine Federal Reserve Banks, member banks of the Federal Reserve System, and corporations annum. 1420 1114/42 -2operating under the provisions of Sections 25 and 25(a) of the Federal Reserve Act, for all purposes of the Federal Reserve Act and of all other acts of Congress pertaining to examinations made by, for, or under the direction of the Board of Governors of the Federal Reserve System, and was designated as an Assistant Federal Reserve Examiner, with official headquarters at Washington, D. C., and with salary at the rate of $1,800 per annum, effective as of August 16, 1942. Memorandum dated July 13, 1942, from Mr. Goldenweiser, Di- rector of the Division of Research and Statistics, submitting the r"ignation of Miss Lynda Nickl as a clerk in that Division, to become effective as of the close of business on July 12, 1942, and recom„ ---enuing that the resignation be accepted as of that date. The resignation was accepted. Letter to Mr. Young, President of the Federal Reserve Bank of Chicago, reading as follows: "Referring to your letter of July 9, 1942, the of Governors approves, effective as of that date, Payment of a salary to I. J. Petersen, Assistant uashier, at the rate of $5,000 per annum for the period ending March 31, 1943." Oard Approved unanimously. Letter to the board of directors of "The Union Bank", LOOgootee Indiana, stating that, subject to conditions of membershiP aumbered 1 to 3 contained in the Board's Regulation HI the 804rd aPproves the bank's application for membership in the Federal RA 6 " System and for the appropriate amount of stock in the Fed- era]. eserve Bank of St. Louis. 1421 7/14/42 -3Approved unanimously, together with a letter to Mr. Davis, President of the Federal Reserve Bank of St. Louis, reading as follows: "The Board of Governors of the Federal Reserve System approves the application of tThe Union Bank', Loogootee, Indiana, for membership in the Federal Reserve System, subject to the conditions prescribed in the enclosed letter which you are requested to forward to the Board of Directors of the institution. Two copies of such letter are also enclosed, one of which is for your files and the Other of which you are requested to forward to the Director, Department of Financial Institutions for the State of Indiana for his information. "Since the amount of estimated losses shown in the report of examination for membership is relatively small, the usual condition of membership requiring elimination of estimated losses has not been prescribed. It has been noted, however, that the management intends to charge off lez the amount classified and it is assumed that this will "It is assumed also that you will follow the matter of the bank's reducing to within statutory limits the excess balance carried with a nonmember bank." Telegram to Mr. Gidney, Vice President of the Federal Reserve Barik or New York, reading as follows: "In accordance with the recommendation contained in Your telegram of July 14, 1942, and as a temporary measure for the duration of the present emergency, the Board of Governors authorizes the Guaranty Trust Company of New York to establish a branch in the London, England area at .51,11e place at which the office of the American Finance uffice is operating. This approval is granted with the 1/Iderstanding that the New York State Banking Department has also given its approval thereto; that the action of the Trust Company in making the application will be ratified by the directors of the Trust Company; and that the 1eation of the branch will be reported to the Board when it is established. Please advise Guaranty Trust Company lice?rding],y and inform the Board as to date of establishmenu of the branch." Approved unanimously. 1422 7/14/42 -4Letter to Mr. Gidney, Vice President of the Federal Reserve Bank of New York, reading as follows: "This refers to your letter of June 29 regarding the question whether Mr. Carl Egner may continue to serve as a partner of Clark, Dodge & Co., New York, and as a director of West Hudson National Bank of Harrison, Harrison, New Jersey. You refer to the fact that in a letter to you dated June 12, 1936, the Board concurred in your opinion that on the basis of the facts then existing, Clark, Dodge Co. should not be regarded as 'primarily engaged! in the business described in Section 32, but that in your letter rePlYing to the inquiry regarding Mr. Egner's eligibility, You pointed out that if there should be a material change in the character or relative volume of the various types of business transacted by the firm, a further question regarding the applicability of Section 32 might be presented. , "You state that you have now been advised that during 6he intervening period, the proportion of the business of the kind described in Section 32 transacted by the firm is . ubstantially larger than the proportion shown in 1936, and .hat it produced over 28 per cent of the aggregate gross ..11oome of the firm for the 6-year period ending April 1, 10)42. In the circumstances, you informed Mr. Egner that the information submitted clearly indicated that Clark, Dodge & Co. presently should be regarded as 'primarily enged t in the type of business described in Section 32, and that therefore he may not lawfully continue as a director of a national bank while he continues his association with the firm. r "As you know, the Board has considered a number of Cases„. of this kind where the question was whether the type (4 business described in Section 32 was a sufficiently imo portant part of the business of the firm to be regarded as _Ile of its primary activities within the meaning of the ;Latute. The facts shown in 1936 in connection with Mr. ner's status at that time, presented a rather close ques, 1°n, but, as stated above, the Board saw no reason to differ with the conclusion reached by your bank. However, the °.-rd agrees with you that on the basis of the information ?h has now been submitted regarding the nature of the Iness transacted by the firm during the 6-year period -fl'ing April 1, 1942, it is clear that the firm should now j Z! I423 7/14/42 -5- "be regarded as 'primarily engaged' in the type of business described in Section 32, and that Mr. Egner may therefore not lawfully continue as a director of the bank while he continues his association with the firm." Approved unanimously. Memorandum dated July 10, 1942, prepared by Mr. Wyatt, General ecluneell in accordance with the action taken at the meeting of the Beard on that day, submitting proposed amendments to Regulation D, Resev,r, "S of Member Banks. The memorandum stated that, inasmuch as a change in reserve requirements was reflected only in the supplement tc the regulation, it was not necessary to delay action on the pro- Posed amendments pending a decision on whether such a change should be °Iacle, and suggested that if the amendments were adopted the entire regIllation be reprinted and distributed to all member banks. By unanimous vote, the following amendments to Regulation D were adopted, effective immediately, with the understanding that the Federal Reserve Banks would be advised by wire that the amended regulation was being reprinted and that sufficient copies would be sent to each Reserve Bank to meet its needs and to send a copy to each member bank: Section 2(a) is amnded by striking from the last 1935Hparagraph thereof the words "by the Banking Act of Section 2(c) is amended by striking out the `A "checks" and substituting in lieu thereof the word " m,' and by changing sites the period at the end of the an ection to a colon and adding the following: "Provided, however, That the Federal Reserve Bank may, in its discretion, refuse at any time to permit the withdrawal or other use of credit given in its reserve account for any OrA 1424 7/14/42 —6— item for which the Federal Reserve Bank has not received payment in actually and finally collected funds. Section 3(c) is amended by striking out the words and the personal liability of the directors permitting Violations of the laws". Section 4 is hereby repealed. Letter to Mr. West, Vice President of the Federal Reserve Bank of San Francisco, reading as follows: "This refers to your letter of July 6, 1942, relating to an inquiry from First National Trust and Savings Bank of Santa Barbara, Santa Barbara, California, with respect to whether, in view of the provisions of section 12 of Regultion F relating to custody of trust investments and securities, the bank may deposit securities which it holds in trust accounts with some inland bank for safekeeping during the present emergency. "It is the Board's view that such action is permissible, trovided that the receipts issued by the depositary identify L he securities as trust assets of the depositing bank and uhe securities are to be releosed by the depositary only uPon the order of two or more officers or employees of the &Positing bank designated by the board of directors of that uank to have custody of trust investments and securities." Approved unanimously. Telegram to the Presidents of all the Federal Reserve Banks, rea,14, _ --Lug as follows: "The Board has recently considered several cases that r(elate to the differences between (1) 'instalment sale' (1 : : 11Nlich, by definition, relates only to listed articles), \<) instalment sale of an unlisted article or a service, allci (3) 'instalment loan'. of a 'When listed articles involved.-Sometimes the seller listed article does not take a note payable to himself, )11t instead, according to arrangements with a financial : 118titution, takes a note payable to the financial institu011-- Such a transaction involving a listed article is an listalment tent sale whether the note is made payable to the : sell or to a financial institution, since section 2(e) 1 t 1425 7/14/42 -7- 11 sPecifically states that, so long as the extension of credit is made 'by any seller' of any listed article and 'arises out of the sale of such listed article', the definition applies whether the seller provides for the credit as principal, agent or broker'. Such a transaction does n°t constitute an instalment loan and hence does not require a Statement of Borrower, since under section 2(h) an instalment loan includes only specified transactions 'other than an instalment sale'. "When unlisted article involved.- When such transacti°fls involve an unlisted article or a service (including an insurance policy) instead of a listed article, the rule i8 somewhat different. If the seller takes a note payable to himself the transaction is exempt from the regulation as a sale of an unlisted article or a service, and the note IllaY be purchased by a bank or other financial institution without regard to the requirements of the regulation. On t,..1.1e other hand, when the seller takes a note payable to a Pllancial institution instead of to himself, the transac' 10n (if for $1,500 or less) is subject to the regulation as an instalment loan and a Statement of the Borrower is required. The controlling factor in such cases involving an unlisted article or a service is whether the note is l!lade payable to the seller, in which case the transaction ?s exempt, or is made payable to a financial institution, I an which case the transaction is subject to the regulation T instalment loan. Note, however, that the word 'servIC _,.e as used herein, does not include any service ccnnected wlth the acquisition of a listed article. javol"The differences between the status of transactions -Lying listed articles and those involving unlisted arti;'es and services flows from the fact that the definition of illstalment sale in section 2(e) is by its terms specifically ined to transactions involving listed articles. Ythen an :nlsted article or a service is involved and the note is ;Ve payable to a financial institution instead of to the c,4-.: 3 er, the transaction on its face is a loan by the finan-L-al institution and (if for ,1,500 or less) is subject to tne regulation as an instalment loan. co_ "Statement of certain other interpretations,.- This ierS the questions considered in W-16, 119 and 124 and u4ces the place of those interpretations." Approved unanimously. 1426 7/14/42 -8Telegram to Mr. Hale, Vice President of the Federal Reserve Bank of San Francisco, reading as follows: "Your letter June 18 regarding proposed agreement between oil company and credit card holders designed to Permit sale of listed articles even though accounts of holders may be in default under Regulation W. Agreement Would provide that holder would pay account, should it be ?-n default, upon terms complying with section 5(d)(2), or In cash if demanded by company. "Section 5 does not contemplate that such an agreement shall be used since section 5(d)(2) specifies an 'agreement in good faith to pay the amount in default' and therefore does not contemplate an agreement which may prove to be a nullity, because it does not agree to pay anything. Also, .,sh-payment option of agreement conflicts with section (d)(1) which clearly contemplates that if default is to be ' A llred by payment in cash, such payment shall be made before the credit is extended, not after." Approved unanimously. Telegram to the Presidents of all the Federal Reserve Banks, rteading as follows: "Re Board's telegram April 2, 1942, and subsequent tea. egrams regarding Federal tax on dividends on Federal "eserve Bank stock, one of Federal Reserve Banks has raised estion whether in making adjustments in a member bank's t°1dings of Federal Reserve Bank stock the Federal Reserve ' oank should continue its previous practice of calling in titstanding certificate and issuing a new certificate covne adjusted holdings. In view of conclusion reached in decision dated July 6, 1942, Board's telegram of 4Jul .c.'LY 8 contemplated that Federal Reserve Banks will conflue to follow procedure outlined in section 11 of Board's e , ulat10n I with respect to cancellation of old and issu8, ce of new certificates. Board does not contemplate any -41Lendment to Regulation I.n r r Approved unanimously. 1427 7/14/42 -9Letter to Mr. Ben R. Draper, Secretary of the Montana Bankers Association Helena, Montana, reading as follows: "Reference is made to your letter of June 26, 1942, in which is quoted a resolution adopted by the Montana Bankers Association requesting the Board of Governors to make available to Montana member hpnks facilities of the Helena Branch of the Federal Reserve Bank of Minneapolis for the safekeeping and redemption of War Savings Bonds. "Since War Savings Bond operations are handled by the Federal Reserve Banks in their capacity as Fiscal Agents of the United States, their activities in this connection are necessarily governed by instructions of the Treasury Department. Accordingly, a copy of your letter is being sent to that Department. A copy of your. letter is also being sent to Mr. J. N. Peyton, President, Federal Reserve Bank of Minneapolis." Approved unanimously. Thereupon the meeting adjourned. ereAL, Secretary. Chairman.
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