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244;i A meeting of the Board of Governors of the Federal Reserve SYstem was held in 'Washington on Thursday, June 18, 1942, at 11:30 PRESENT: Mr. Mr. Mr. Mr. Eccles, Chairman Szymczak McKee Draper Mr. Mr. Mr. Mr. Morrill, Secretary Bethea, Assistant Secretary Carpenter, Assistant Secretary Clayton, Assistant to the Chairman The action stated with respect to each of the matters hereinatter referred to was taken by the Board: The minutes of the meeting of the Board of Governors of the ' 111.1 Reserve System held on June 17, 1942, were approved unanimously. Memorandum dated June 16, 1942, from Mr. Nelson, Assistant Seereta 17, submitting the resignation of Albert J. Sadler as a guard th e Secretary's Office, to become effective as of the close of 1444 tiess on August 9, 1942, so that he might go into service with theu . States Coast Guard, and recommending that the resignation be "ecepted as of that date. The resignation was accepted. Letter to Mr. Paddock, President of the Federal Reserve Bank Of Bo 'ton, reading as follows: "The Board of Governors approves the changes in Personnel classification plan of your Bank as requested in your letter of June 11, 1942.ft the Approved unanimously. t 244 6/18/42 -2Letter to Mr. Powell, First Vice President of the Federal Re- " re Bank of Minneapolis, reading as follows: "The Board of Governors approves the changes in Personnel classification plan of your Bank and the lielena Branch as requested in your letter of June 13, 1942,11 Approved unanimously. Telegram to the Presidents of all the Federal Reserve Banks, reati.L. -4-ug as follows: "Regarding question whether pay roll deduction orde rs may be accepted as down payment required by Reguation following general principles are applicable: 1 a pay roll deduction order covering wages not yet ea'rned cannot be accepted as the required down payment; the same is true of an order covering wages earned :ut not yet payable; (3) a pay roll deduction order coywages which are earned and payable on demand may be _ accepted as the required down payment in the same man"er as a check on a bank." t Approved unanimously. Letter to Mr. Hays, Vice President of the Federal Reserve Bank oreleveland, reading as follows: "This refers to your letter of June 21 19421 regarding the effect of Regulation Wupon certain loans to school teachers. haw.. 7ou say that in many localities, school boards been unable to raise funds needed to make prompt .J10e-Yment of teachers' salaries, which normally are paid °111thlY or semi-monthly. In some instances the diffictY of the school board has persisted for two or three ha,,rs- Where this situation has prevailed, school teachers love found it necessary to borrow money on single-payment b,ans with at least a six months' maturity. The school ' ard has certified to the lending bank that the amount .73 6118/42 H. ls due to the teacher, and it subsequently pays the amount directly to the lending bank. YOU state that your counsel has advised you that these loans are not exempt under section 8(1) as loans to a school or political subdivision, and, further, that he does not believe that the loans are to persons with seasonal incomes so as to be given special treatment under section 9(c). "There would seem to be no basis for reaching a different conclusion with respect to section 8(1), and it is clear that section 9(c) should not be deemed to be apPllcable to every person who does not receive his income as regularly as he had expected. On the other hand, where the situation with respect to the school income has Persisted for some time it is conceivable that the facts 11210t be such that the Registrant could accept in good rtalth a statement to the effect that the borrower cusomarily receives 75% or more of his income during one or two specified seasons of the year from seasonal sources. "It is assumed that the banks and other interested rsons have given consideration to the possibility of ending money to the school board instead of to the , 6eachers and thus bringing the loan under section 8(1)." r Approved unanimously. Telegram to Mr. Dillard, Vice President of the Federal Reserve teLw, of Chicago, reading as follows: "Your wire June 13. Board is of the opinion that Regulation V; is applicable to local production credit 2°rporation to same extent as other lending agencies. -Ln this connection 8-402 may be of interest." Approved unanimously. Letter to Mr. Hodgson, Assistant Counsel of the Federal Reserve krat f o-L Minneapolis, reading as follows: let 11 Thank you for your letter of June 11 enclosing a ter from Mr. A. C. Stevensen containing constructive 4.v 61 6118/42 -4- ft suggestions with respect to section 5(d) of Regulation W. "As you already know, the Board has been aware of the possibility that section 5(d)(2), permitting a default in a charge account to be cured by the execution Of a 6-month instalment agreement without any down payment, is susceptible of abuse. On the other hand, as klolated out in our letter of May 25 to you on this subject, it would seem desirable for the Board to obtain the results of some experience before passing on an amendment to change or repeal section 5(d)(2). "In this connection the Board will want to obtain information as to the extent to which credit extended in Charge accounts since the effective date of section 5 is converted into instalment credit on the basis permitted bY section 5(d)(2), the extent to which such conversions maY be concentrated at particular stores or particular classes of stores, the extent to which stores do in fact require down payments in connection with such conversions, and the extent to which merchants may be making charge 84.1es with an understanding that the credit will be conYerted under section 5(d)(2) -- such understanding being 3,-11 violation of the regulation as interpreted by the rard's telegram S-471. It would seem likely that Mr. "mftevensen, in view of his position as Secretary of the 'etail Credit Association of Minneapolis, may be able to 'urnish material assistance in developing information along these lines, and any such information when it beb°Ines available will, of course, be greatly appreciated Y the Board and its staff." Approved unanimously. Letter to Mr. Hale, Vice President and Secretary of the Federal 1/eaerv e Bank of San Francisco, reading as follows: "Your letter of June 6, 1942, contains two inquiries l'egarding section 8(b) of Regulation W. "Your first question is whether savings passbooks are 'investment securities' -within the meaning of that section, and in this connection you refer to the Board's letter S-484 dated May 23, 1942 which said, in effect, i 6118/42 —5— "that investment certificates issued by building and loan associations were 'investment securities'. Although there are points of similarity between the two, the Board has not regarded savings passbooks as 'investment securities' for the purposes of section 8(b). "Your second question relates to the meaning of the word 'carrying' in section 8(b). The word has the same general meaning as in section 3(h) of Regulation U. In effect, this confines 'carrying' to the refinancing of indebtedness which was originally incurred for the Purpose of purchasing stocks, bonds, or other investment !ecurities. The mere fact that the extension of credit 1? secured by such investment securities is not sufficient., Approved unanimously. Letter to Mr. Hale, Vice President of the Federal Reserve Bank Or sa n Francisco, reading as follows: ."Thank you for your telegram of June 15, 1942, concerning the way in which the Southern Pacific Railroad clInPany is solving the watch problem. "Vie had hoped that some similar plan could be worked , (!llt by all of the railroads, but the difficulty seems to ue that there is a scarcity of watches for lending purPoses, Eastern railroads anticipate that the real pres811re will come in the Fall when a large number of employees Tust be added because of increased traffic at that time. It rather appears that an amendment will be necessary. 1-!1 lere is a possibility that this may be safeguarded by 4 lating it to an order of the Var Production Board, limit! sales to railroad employees who obtain certain certi'1oation5 from their supervisors." Approved unanimously. Letter to Mr. John B. Blandford, Jr., Administrator of the Naal Housing Agency, reading as follows: "This is with reference to your letter of June 4, 1942) addressed to Chairman Eccles, which outlines a -6Proposed change in the procedure for the designation ?f remodeling or rehabilitation projects as 'defense housng1 for purposes of section 8(e) of the Board's Regulation IN "The Board has considered the proposed change and 11,-8 no objection to the proposal. A few minor suggestlons as to the wording of your order and form have been made by members of the Board's staff and are incorporated ln the attached memorandum. "As soon as the order and form have been adopted, We should like to have about 75 copies of each so that We may inform the Federal Reserve Banks. They will also need a supply for distribution to applicants although we assume that most of this distribution will be effected tY the Federal Housing Administration." Approved unanimously. Letter to the Presidents of all the Federal Reserve Banks, with Cop1' to the liaison officers, reading as follows: 190 "Referring to the Board's letter of September 22, .4-4-2 R-888, there is enclosed for your information a TImmarY of the May 1942 reports of the activities of Fedai Reserve Bank liaison officers in connection with ue War Savings Program. "Since the monthly reports of the liaison officers aPPear to have served the purpose for which they were ;',1:iginally intended, they need no longer be submitted to e,"s 296Board as requested in its letter of September 2, 1941, 0-,n J Approved unanimously. Telegram to the Presidents of all the Federal Reserve Banks exew York, reading as follows: Rese"Understand that Treasury may have an overdraft at .r-ire Banks on one or two of the next few days. Assume that certificate will be given to New York to cover paclInt of overdraft and that such certificate will be vir'iciPated in by all Federal Reserve Banks, please ad,0ee whether you would prefer to have someone remain at lir Dank at night until definitely known whether there Z 9 6442 —7— "will be an overdraft and amount thereof so that payment account your participation may be included in your settlement fund wire, or whether you would prefer to have adjustment made by special transfer on following morning as of Preceding day. Expect procedure regarding future overdrafts will be discussed at Presidents meeting on Monday." Approved unanimously, together with a telegram to Mr. Sproul, President of the Federal Reserve Bank of New York, quoting the above telegram. Letter to Mr. Francis C. Brown, Solicitor of the Federal Deposit 611rance Corporation, reading as follows: "Reference is made to your letter of May 20, 1942, Which you inquire whether there is any rule or pracI ce restricting the certification of checks and drafts "I.Y Federal Reserve Banks at the request of public finance Qfficers or nonmembers of the Federal Reserve System. "No rulings or instructions have been issued by the Bo ard on this subject. We understand, however, that a imber of the Federal Reserve Banks are reluctant to isbile cashiers' checks or to certify drafts drawn on them 1 3r member banks and nonmember clearing banks when they , ,',flow or have reason' to believe that the checks or drafts ;re to be outstanding for a considerable length of time. cederal Reserve Banks do not issue cashiers' checks or meritifY drafts at the request of banks that are neither nember banks nor nonmember clearing banks, or at the res-41,ret of public finance officers. As you know, however, of the Federal Reserve Banks do issue cashiers' brcks to or certify drafts by member banks and nonmemla:r clearing banks when it is known that they will be ed as collateral for deposits of public finance offi.erse n , in T Approved unanimously. N1 co hm be llemorandum dated June 18, 1942, from Ir. Vest, Assistant Gen- ilneely submitting the following Treasury press release which en Prepared by the Treasury in consultation with members of the 6/18/42 -8Staff. The memorandum stated that Mr. Szymczak had approved pres8 release and would like to advise the Treasury as promptly as P°ssible whether the statement met with the approval of the Board: "The Government's campaign to conserve vital materials, manpower and machinery needed in the war effort was further accelerated today by the announcement of Secretary 11°Pgenthau that the Treasury Department is endeavoring by all available means to reduce to a minimum the necessity ,cr drawing on stocks of copper, nickel, silver and paper "In making coins and printing currency during the war emerncY. To this end, he is appealing to every person in United States to help in this war conservation program keeping all existing coins and currency in public circulation and in the banks. "Persons who have been thriftily saving in coin banks, ,j,!1's, and other home repositories are urged to discontinue ' uls practice and to invest their accumulated coins and e,., Irrency in War Savings Stamps, adopting in the future the -4-°gan, 'Save with War Savings Stamps'. The Secretary ,?inted out that if this accumulation of pennies, nickels, &, quarters and half-dollars is continued, more coins _11-1-1 have to be manufactured by the mints to take the place those removed from public circulation. Similarly, every sextra dollar bill that a person carries in his pocket or calts away at home rather than keeping it in his bank acl_nt means that the Government has to print new bills to R'Ke the place of the ones thus taken out of daily use. it:temphasized that a vast amount of labor, machinery, vital t erials and paper can be conserved and the war effort hereby aided. "I am confident', Secretary Morgenthau said, 'that ;7,will have the wholehearted cooperation of the public in 1'? effort when they understand how important it is to ill°1d all needless minting and printing of money by keepexisting supplies in circulation, preferably by invest'lit in War Savings Bonds. co "During the last fiscal year the minting of coins oftit;ulled 4700 tons of copper, 434 tons of nickel, 34 tons -111 137 tons of zinc, 1221 tons of silver, and if the pre' latsent rate of coinage continues, 2,100,000 man hours of 1Irrr will be required this year for coinage alone. The lajram of the mints is designed to divert materials and u(31 't0 war production wherever possible and at the same g b;e p j 4 6118/42 -9- "time to reduce the wear and tear on machinery which is nOW difficult to replace. "Likewise, great savings can be accomplished in the use of paper currency, the demand for which always rises in times like these when the national income is increasing and production is expanding. Vast quantities of paper, ink and nylon are required to meet this demand. The unnecessary holding of currency wastes vitally needed labor and means wear and tear on machinery. "The amount of currency in circulation is now greater than ever before in our history. A determined effort on the part of the public to reduce the amount of cash they carry in their pocketbooks or accumulate outside of the oanks and other institutions where savings may be deposited, 8-nd thus kept in use, will contribute definitely and in a Practical way to the war effort. This is the time to be thrifty and to save. The best way of all is to invest Your extra cash with Uncle Sam.' "As part of this program, Secretary Morgenthau, after conferring with the Federal Reserve Board, has requested the Federal Reserve Banks to make available for issuance When needed for currency circulation existing stocks of 'ederal Reserve notes of the series of 1928, amounting to $4,200,000,000. These are notes which were printed, cut and packaged and on hand in 1934 when the new series 1 Federal Reserve notes was issued. In addition, the ' Treasury Department and the Federal Reserve System will Utilize; another existing stock of currency printed in the early 30's, known as Federal Reserve Bank notes, amounting to %59,000,000. use, as needed, these existing "BY making available for stocks of unused paper currency, it is estimated that 111°re than 1Y2,000,000 will be saved in the cost of printing new currency -- or enough to purchase 20,000 Garand rifles. ic)recover, the saving in paper will amount to 240 tons, and 1200,00° hours of labor in addition to large quantities of nylon man and ink. th "The t4,200,000,000 stock of Federal Reserve notes of d e series of 1928 bear the legend 'redeemable in gold on nienland at the United States Treasury or in gold or lawful rneY at any Federal Reserve Bank'. They are, of course, Qeemable in lawful money, but the Treasury no longer e out gold for currency. These notes, as well as the Federal Reserve Bank notes, are essentially the same as tiler currency now in daily use. ; 4 0 Aciot.14 . , 6118/42 -10- "In a further effort to conserve copper, the Treasury Department recently entered into an agreement with the Defense Plant Corporation to make available approximately 47,000 tons of the 'free silver' stocks of the United States to be used in place of copper in plants engaged in war Production. The Treasury Department is also currently disCUSSing with the Senate Silver Committee ways and means which will permit the remainder of our huge stocks of silver to be used in war production." Approved unanimously, with the understanding that the Treasury would be advised informally of the Board's approval. Thereupon the meting adjourned. Chairman.
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