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A meeting of the Board of Governors of the Federal Reserve 8Mern Ivas held in Washington on Thursday, June 11, 1942, at 2:15 Pon, PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Draper Evans Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Thomas, Assistant Director of the Division of Research and Statistics Mr. Bergelin, Associate Economist in the Division of Research and Statistics 11r- Ransom stated that in accordance with the action taken at the nieeting of the Board on June 9, 1942, he had undertaken, with the tareC of Messrs. Merrill, Thurston, Goldenweiser, and Thomas, to ciNtt a letter that might be sent to all banks in the United States retie Nad use of credit in connection with the accumulation of in- es of consumer goods. At Mr. Ransom's suggestion, the draft was d discussed paragraph by paragraph. Following the discussion, upon motion by Mr. Ransom, it was agreed that the proposed letter should be revised, under the direction of Chairman Eccles, by the members of the staff who had worked on the original draft in the light of comments offered by various members of the Board; that the Board members would hand to Mr. Morrill any further suggestions which they might have with respect to the language or contents of the letter; that the revised draft should be addressed to "All Banks and Other Financing Institutions"; and that the final draft should be submitted to the Board for approval, after which it would be cleared with the Secretary of the Treasury, the Secretary of Commerce, the Administrator of Ghe Office of Price Administration, the Chairman of the War Production Board, the Chairman of the Federal Deposit Insurance Corporation, and possibly others. At this point, Messrs. Thurston, Goldenweiser, Thomas, and tero.r.,. 'la left the meeting, and the action stated with respect to each Of the matters hereinafter referred to was then taken by the Board: The minutes of the meeting of the Board of Governors of the ?eder al Reserve System held on June 10, 1942, were approved unanimously. Letter to Mr. Fleming, President of the Federal Reserve Bank (1tCleveland, reading as follows: "For the reasons set forth herein the Board has deperred action on the application for membership of The el'rYsburg Banking Company, Perrysburg, Ohio. ."The bank was reorganized in 1934 under a plan inti3 .1 nng a waiver of deposits and an agreement by the bank 11*, until the waived deposits had been paid in full, it in °1-1-ld turn over to the trustees for the benefit of the waivbe depositors earnings of the bank which would otherwise tn aPPlicable to the payment of dividends. It appears that 4 ,1940 the bank attempted to relieve itself of any liaat'itY under the reorganization plan, but your counsel or tes that he is unable to render an opinion that the et i . Ite. ?l agreement with the waiving depositors is not still in the circumstances there is an inherent danger the bank's proceeding on the theory that it has been reth:v : id of all liability under the original agreement and in- 4mard does not feel that it would be warranted in.takbagl. nY action on this application for membership until the tl'‘ has taken such action as may be necessary to satisfy 6111/42 -3- Your counsel as to whether or not it has been relieved of liability. "Under the provisions of the Federal Reserve Act, the Boarc', in passing upon an application for membership, must ?onsider, among other things, the general character of the °ank's management. To satisfy questions which have arisen f on that point in this case, the Board would like to have .411 information as to why it was deemed desirable to enter !alto a new agreement with the waiving depositors; whether, .111rn presenting such agreement to the waiving depositors, they ,ere fully informed as to their rights in the circumstances; ' rld whether in your opinion any activities of the representatives of the bank in connection with the obtaining of auch new agreement reflect unfavorably on the management. "The questions in this case have naturally arisen bese the only gesture by the stockholders, looking the r towardlie to ehabilitation of the bank in 1934, was an agreement line effect that the waiving depositors, instead of the stocktl°11ders, would receive any dividends which might be paid on 2, bank's stock. However, in 1940, the bank apparently prtook to relieve itself even of that obligation and the apparent consideration for obtaining the subsequent treraent from the waiving depositors was the paying over them of something which was already theirs." Approved unanimously. Letter to Honorable Lindsay C. Warren, Comptroller General of "e thlited States, General Accounting Office, reading as follows: le, "There are enclosed for your information a copy of a e ,iter and certain enclosures addressed to the Board's GenAN Counsel under date of June 9, 1942 by Mr. P. F. Coleman, 1,'Il5tant Vice President of the Federal Reserve Bank of from which it appears that the acknowledgr!lent ;V return of notices of assignment pursuant to the Assign01.11 of Claims Act of 1940 are sometimes held up by members for'ille staff of the General Accounting Office with requests all,comPliance with certain requirements which are not usu."' t insisted upon by your office. Ass; 'AS You probably know, the standard form of Notice of 14e-gnment now being used and the instructions for their were prepared by an inter-departmental committee shortly 1188 6/11/42 -4- "after the passage of the Assignment of Claims Act of 1940 and the procedure regarding such notices was the subject of rulings numbered B13700 and B13852 issued by Your office under dates of December 2, 1940 and December J-0, 1940, respectively. "If the requirements regarding such assignments and the notices thereof have been changed, or if any additional requirements have been prescribed by your office, the Board 111-11 appreciate prompt advice thereof, in order that it may advise the twelve Federal Reserve Banks so that they may yoid the delays in the war financing program resulting from lfriculties of the kinds referred to by Mr. Coleman. If, 01.4._the 1 other hand, the requests made by the members of the !rff of your office in the letters enclosed with Mr. Cole-'n's letter are not in accordance with the requirements of Your office or are not deemed by you to be absolutely neces17, it is respectfully suggested that the issuance of adce to this effect to the members of your staff might avoid Lirlrortunate delays in the financing of the war production Program, Board's interest in this matter arises out of the e fact that, under the terms of Executive Order No. 9112 trued by the President under date of March 26, 1942 for tie Purpose of expediting and facilitating the war producf4°n program, the Federal Reserve Banks are acting as 8oal agents of the War Department, the Navy Department arid the Maritime Commission in expediting and facilitating the f inancing of contractors, subcontractors and others en thgaged in war production and the Board of Governors of .p,e Federal Reserve System, pursuant to the terms of the ?titive Order and its own Regulation V, is maintaining 1:;.alson between the Federal Reserve Banks and the War Deanr cItillent, the Navy Department and the Maritime Commission the exerting its best efforts to facilitate and expedite e rrying out of this program. cult,4 'In view of the importance of eliminating any diffipro "-es which may obstruct or delay this program, your 4 mPt attention to this matter will be greatly appre°4-ated4,1 l 2 r r Approved unanimously. ot Telegram to Mr. Fleming, President of the Federal Reserve Bank level, reading as follows: 6/11/42 -5- "Re tel June 11 Board has no objection to your sendirtIg copies of R-985 (press release with respect to amortlzation of loans to individuals for nonproductive purPoses) to all member banks in your district." Approved unanimously. Or Letter to Mr. Fry, Vice President of the Federal Reserve Bank Ri chmond, reading as follows: "With your letter of May 15, 1942, you enclosed a le4!R7 of a letter from Mr. M. R. Morgan, Commissioner of 7 4,nking of Virginia, in which he suggested a modification 17-72 so that a Registrant may sell a repossessed automobile without regard to the one-third down payment required by Regulation W. "Mr. Morgan's suggestion is based upon an analogy to the case where a bank disposes of real estate taken , , /111 er foreclosure, and it is obvious that from the stand' l0(4nt of the bank the procedure which he suggests would be Preferable and would be in harmony with the practice which has been followed in the past in most cases. t_ "However, the question has been presented to the ;°1ard on several occasions and the Board has said that 4_ the usual case where a Registrant repossesses an auma'froni,obile and offers it for sale, the resale cannot be thr on terms which do not comply with the Regulation, 1,148 aPPlying to a bank the same rule which would be ap' -."-ed to any other Registrant. 1111 "It is clear, of course, that an automobile dealer 8h° repossesses an automobile and puts it back in stock 401041 be required to sell it on terms complying with the glaation• In very many cases where automobiles are repos com8essed, the sale was financed by an automobile finance whiPa t_nY which bought the contract from the dealer and repossessed the automobile. To permit the finance 1107anY to resell the automobile in such cases on terms eomplying with the Regulation would create an anomalous com , et tive situation, and the Board felt that no distinctij the-r?nould be made between resales by the dealer and by b4812-nance company. Likewise, there seemed to be no com,' for makin,: a distinction between a bank and a finance nY in such cases. The Board has not so far been advised that this poo 11 has worked a hardship on Registrants which would 1190 6111/42 -6- n. Justify it in changing its position. However, you may assure Mr. Morgan that the Board is glad to have his suggestions and to give them the most careful consideration." Approved unanimously. Telegram to Mr. Bryan, First Vice President of the Federal Re%e sank of Atlanta, reading as follows: b ."Your wire June 10. Pool tables and equipment and j wlIng pins and balls are included in section 13(a) (of le L gulation t), Group A, item 33 but bowling alleys are not. .°:12-ng alleys become part of structure in which installed are not considered 'equipment'. Bowling alleys ink, in commercial establishment would not be covered ln Group c. " i Approved unanimously. Letter to Mr. Gilmore, Assistant Cashier of the Federal Reserve ' 1 St. Louis, reading as follows: ti "Your letter of May 23 contained a number of quesa regardg Regulation VI, one of which was whether raaRegistrant making an instalment sale of a listed article rY accept one or more payments equal to the down payment t:quired by section 4, and delay making an instalment conuntil the date of delivery. ma "Under section 12(d), the Registrant in such a case hltreat the extension of credit as not having been made : as , t11 the date of delivery of the article to the purchaser, the Registrant may likewise delay making the contract natl- that date. The fact that the article is of a seasonal 111" is not material. The e other questions contained in your letter relate to d ce4'elayed deliveries of charge sales. The Board has reSeveral inquiries from other Federal Reserve Banks ding similar questions, and you vill be informed of the l'cardis views as soon as possible." Approved unanimously. Telegrain to Mr. Swanson, Vice President of the Federal Reserve mIn neapolis, reading as follows: . • 4 —7-"Your wire June 10 regarding Group C, Regulation W. Apartment hotels designed exclusively for residential use 're residential structures even though they accept some transient guests, but hotels designed exclusively for nonl'esidential use are non-residential structures even though ey accept some permanent residents." Approved unanimously. Letter to Mr. Hale, Vice President of the Federal Reserve Bank Or p 'an Francisco, reading as follows: to "This is in reply to your letter of May 28 relating tWQ problems in connection with the regulation of charge accounts under Regulation V that have been raised by stores .4a1 your district. "Your first question relates to the identification, Promptly after the 10th day of each calendar month, of the Tiaceounts which have become 'in default' under section 5 of iegulation W. While it will involve a substantial operat1,ng Problem for a store to have these accounts identified w4 the 11th of the month, it is our understanding that large n, (2Tas in Canada have been successful in meeting the similar 'i, t c)ulem which arises under the Canadian credit regulation. th You point out in your letter, Regulation W requires that t4 a store refrain from making credit sales of listed ara eles to customers whose accounts are in default, without 14 exception except in cases covered by section 5(1) rereling to certain sales of less than $5 and section 12(a) defating to cases in which the making of the sale in a notaulted account is the result of an excusable error and O casioned by a regular course of dealing. ac, Your second question relates to cases in which an is'-ount is in default but the amount of money involved in ilerY small. Mile Amendment No. 4 of Regulation V:was e.°°ess of preparation, the matter of permitting deratr aid 'a of small amounts to be overlooked was given conPro ation but the Board decided not to include any such die : 1 4.sion in the regulation. On the other hand, you inare-;e,in Your letter that in some cases these small amounts Montheilarged off' if still unpaid at the end of three the .8* As indicated in S-499, the mere charging off of the Ind ebtedness would not end the defaulted status of account. 6/11/42 —8— "As the foregoing paragraphs will indicate it is the Present inclination of the Board not to sanction any devia— ,10/1 from strict compliance with the terms of Regulation W 4-n the matters discussed in your letter of May 28. On the oth!r hand, of course, if there come to your attention any adc .Iltional points relating to these or similar matters "ch you believe ought to be considered by the Board, it ' 11111 be appreciated if you will write us further." Approved unanimously. Letter prepared for the signature of Mr. Evans to Senator Clyde t, ilerring, reading as follows: . 'tith your letter of June 3 you enclosed a letter addressed to you May 28 by Mr. Douglas G. Swale, Vice President of the First National Bank of Mason City, re— a loan under the terms of RegulationW to a sal— aried worker who owns a farm and desires to borrow for 'le same purpose that a farmer himself might borrow. 9(,, "The question relates to Section 8(i) and Section 0) of the regulation, and at the outset it would be he!irable to mention some of the important differences ''lleen these two sections. A copy of the regulation 8 enclosed. "Section 8(i) exempts entirely from the regulation %. Y 1°an to a person engaged in agriculture if the loan f)r agricultural purposes and is not for the PcTe of purchasing any listed article. mont 'Section 9(b) permits variations from the regular row..hlY payment schedule on instalment loans if the bor— prijis engaged in agriculture and derives his income to beiPallY therefrom, even if he intends to use the money ly a listed article. te,x 'The loans which Mr. Swale describes (to pay interest, ' ed 8 °r Principal payments on a farm mortgage, and to bizti a hog house) are not for the purpose of purchasing anv 4-ieted article (See Section 13), but they are for ag— :;tural purposes, and the borrower (whether a farmer or a 81 a tureried worker who owns a farm) is 'engaged in agricul— the,within the meaning of section 8(i), as appears from exezverY nature of the loans. Therefore, the loans are Pted from the regulation by section 8(i) even though 4 6/11/42 -9- "the borrower's income is not principally derived from agriculture. "Accordingly, if we interpret Mr. Swale's letter correctlY, the amendment which he suggests is unnecessary. "We are giving continuing study to the regulation and ! r e always glad to have comments from bankers and other int7res4ed persons regarding its practical effect in opera: 4- I suggest, however, that if Mr. Swale has any fur,er inquiries regarding the regulation, he may find it re convenient to address them directly to the Federal erve Bank of Chicago, which has charge of administering e regulation in the district in which he is situated." X Approved unanimously. Letter prepared for the signature of Chairman Eccles to Honorable 11).W. Bell, Under Secretary of the Treasury, reading as follows: whi L'II am in receipt of your letter of June 1, 1942 with You enclosed copies of letters written to the Fed"LL Reserve Banks of Chicago and New York relative to the d ire of f the Treasury Department to use a tabulating card rn1 of check for the purpose of making disbursements by Of Chicago and New York offices of the Treasury's Division DirDursement. b,. th It is noted that you propose to have the checks drawn t„ e Chicago and New York disbursing offices made payable 4,1'01igh the Federal Reserve Banks of Chicago and New York the same manner as is now being done with respect to 041‘gehoY relief checks, except that you would want the ell ley Federal Reserve Banks to give immediate credit for emc e" checks the same as they do for other checks (except unjgehoY relief checks) drawn on the Treasurer of the ti ued States. It is understood that under the new practice the Federal Reserve Bank receiving such checks would itsauthorized to charge them to the Treasurer's account on the ,1 ;ooks and that the checks would then be forwarded to tor r ederal Reserve Bank through which they were payable The namlnation and final payment as agent of the Treasurer. line:uard knows of no reason why a procedure along these com ;,can not be satisfactorily worked out, provided no beepJacations arise with respect to the return of checks '4 ' 118e of forged signature of the drawer, insufficient %lids cove'etoPPage of payment, or any material defect disred upon final examination. j 6/4/42 —10— "It is believed that, if the Federal Reserve Banks re called upon to handle these checks in the manner out' Lined in your letter, it is important that they act under !Pecial instructions clearly defining their duties and e8Ponsibilities as agents of the Treasurer of the United ‘Jtates. Inasmuch as it is contemplated that this practice el, 'later be extended to all Federal Reserve Districts, Ftyould also seem desirable that Counsel for all of the eueral Reserve Banks be given an opportunity to consider a draft of the proposed instructions before they are isThe Board and its staff will be glad to assist in 4acilitating prompt consideration of the matter. "Ur. Smead has advised me that he and Mr. Myrick att nended a conference in Mr. Bartelt's office on the afterof Wednesday, June 31 at which this matter was distussed and that the Treasury Department sent representatives t( 0 ) the Federal Reserve Bank of Chicago on Monday, June 8, r the purpose of discussing the proposed new procedure and of working out details necessary to put it into operaH"- At Mr. Bartelt's request, Mr. Myrick and Mr. Cherry .!-L the Board's staff accompanied the representatives of ar Department on their visit to Chicago and will likeaccompav them on their expected visit to New York itLh reference to the same matter. of "It is noted that the appropriation of the Treasurer re4!he United States is not legally available for making of444bureement to the Federal Reserve Banks for the payment eh rgular Government checks (other than emergency relief st!!'s); but that the Office of the Treasurer of the United ,,'6es has under consideration the question of obtaining necessary legal authority. In view of the additional being placed upon the Federal Reserve Banks, it is hoped t4t'eu that the Treasury will obtain the necessary legisla4-on for this purpose at an early date." T Z Approved unanimously, together with the following letter to the Presidents of all the Federal Reserve Banks: corr "There are enclosed for your information copies of epe! 8Pondence between the Treasury and the Board with reto the desire of the Treasury to use a tabulating car' by il,f°rm of check for the purpose of making disburemntx,Divand New York offices of the Treasury's -n °I' Disbursement. I :5:1 6111/42 11 , "As you will note, these checks would be drawn on Treasurer of the U. S. payable through the Federal Reserve Banks of Chicago and New York, which would pay them -a , as agents of the Treasurer of the U. S. in a manner is3341.1-1-ar to that in which Emergency Relief checks are now eing handled. It is the desire of the Treasury that oh cheeks be received for immediate credit at other !ederal Reserve Banks, which would be authorized to charge them to the Treasurer's account. "The Board will appreciate any comments you may wish to ake with respect to this proposal." Thereupon the meeting adjourned.
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