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1136 A meeting of the Board of Governors of the Federal Reserve SY'steni was held in -Washington on Friday, June 5, 1942, at 11:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Draper Evans Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman The action stated with respect to each of the matters hereinrter referred to was taken by the Board: Nteral The minutes of the meeting of the Board of Governors of the Reserve System held on June 4, 1942, were approved unanimously. Telegram to Mr. Sproul, President of the Federal Reserve Bank "Iew 1.°11c, stating that the Board of Governors approves for the Bank t4ie r°110wing rates on advances and commitments under Section 13b of the pecieral Reserve Act and the establishment without change of the °ther rates of discount and purchase in the Bank's existing schedule, et4ctive June 6, 1942: On advances made direct to established businesses, including advances in participation with other financing inst itutions - 2.1.; to 5 per cent. on (Ir1.1mitments to make advances direct to business enterr1ses - 10 to 25 per cent of rate to be charged borrower with minimum of:1-5 per cent. on advances taken over from financing institutions under !ommitments °L. Rate charged borrower on portion for which Reserve Bank assumes risk. b. Rate charged borrower less commitment charge on Portion on which financing institution assumes risk. I 137 6/5/42 -2On commitments to financing institutions - 10 to 25 per cent of rate charged borrower with minimum of per cent, provided that no commitment shall be given on loan on which borrower is charged more than 5 per cent he egram also stated that the Board of Governors appreciates Mr. 8131'01111 8 meeting with the Board to discuss the maximum rate on indus- trikl 1 1-°ans and his outlining to his directors the views of the Board thereon. Approved unanimously. Telegram to Mr. Caldwell, Chairman of the Federal Reserve Bank °11 IC44eas City, stating that the Board of Governors approves for the 411k the following rates on advances and commitments under Section 13b orthe pede _ ral Reserve Act and the establishment without change of the t3t11" rates of discount and purchase in the Bank's existing schedule, effective June 6, 1942: AdVni, -gees direct to industrial or commercial businesses, cluding advances made in participation with other lnancing institutions - 2:5 to 5 per cent. Ady, 'uces to financing institutions with respect to loans a to industrial or commercial businesses: On portion for which financing institution is Obligated - rate charged borrower less commitment rate. b On remaining portion - rate charged borrower. P c4relltta.ents to mnke advances: ' a Direct to industrial or commercial businesses 10 to 25 per cent of loan rate with a minimum b. Toof A per cent. financing institutions - 10 to 25 per cent of loan rate with a minimum of 1 per cent, provided that no commitment shall be given on a loan on which borrower is charged more than 5 per cent per annum. Approved unanimously. 1138 6/5A2 -3-Telegrams to Mr. Davis, Vice President of the Federal Reserve 4.11k of P hiladelphia, Mr. Hays, Secretary of the Federal Reserve Bank ot Cl -eveland, Mr. Leach, President of the Federal Reserve Bank of kichmond, Messrs. Dillard and Hale, Secretaries of the Federal Reserve 44k8 Of Chicago and San Francisco, respectively, stating that the 11°4rd aPPrcves the establishment without change by the Federal Reserve 44* Francisco on June 2, by the Federal Reserve Banks of Cleveland h. '"lehnicnd, Chicago, and San Francisco on June 4, 1942, and by the Fed, f -ral Reserve Bank of Philadelphia today, of the rates of discount 44(1, Archase in their existing schedules. Approved unanimously. Memorandum dated May 29, 1942, from Mr. Goldenweiser, Director Ot the Division of Research and Statistics, recommending that the kiP(51'4/17 a ppointment of Paul G. Hermberg, as an associate economist that Division, be extended for an additional period of not to exone Year from July 31, 1942, with no change in his present salary Ett th o rate of $400 per month. Approved unanimously. serve 8 Letter to Mr. Walden, First Vice President of the Federal Reof Richmond, reading as follows: pers:The Board of Governors approves the changes in the : 48 44e1 classification plan of your Bank and Branches ' equested in your letter of May 28, 1942." Approved unanimously. 1 139 6/5/42 —4— Letter to Mr. W. S. McLarin, Jr., President of the Federal Reserve Bank Of Atlanta, reading as follows: "The Board of Governors approves the change in the Personnel classification plan of your Bank, as requested ln Your letter of June 1, 1942." Approved unanimously. Letter to the Presidents of all the Federal Reserve Banks, read1" as follows: "The Board has received from the War Department a RY of a memorandum dated May 20, 1942, addressed by Lt. Deneral Brehon Soervell m to certain officers of the liar nePartment regarding the procedure to be followed in conwith guarantees, loans and commitments made by the Te qar Department pursuant to Executive Order No. 9112. th'I" Pies of this memorandum are enclosed herewith for e use of your bank. "You will observe that under paragraph 5 of the memo13-' e um all guarantees over 90% regardless of amount must th submitted to the Advance Payment and Loan Section of the 17ar Department for prior approval. This, in effect, inaia . qualification of the provisions of the War Department : l uctions of April 8, 1942 (as modified April 14, 1942) whi vi 1111 c" Permit guarantees not exceeding ra00,000 to be made certain conditions without submitting them to the uepartment for prior approval." r Approved unanimously. or Telegram to Mr. Hays, Vice President of the Federal Reserve Bank -Lancl, reading as follows: tion "Retel May 28 regarding 8-488 as to special conditor ;Prescribed by War Department for section 13 standard °f guarantee agreement. Have consulted informally Pe resentative of War Department, who advises no objectj Iirit : c)n to changing 'War Department' to 'Guarantor' and -liest to 'interests' as you suggest. However, we 1.140 6/5/42 5- „suggest that printing special condition be deferred until Iurther advices from us.” Approved unanimously. Letter to Honorable James V. Forrestal, Under Secretary of the 4/tY, reading as follows: . "There is enclosed herewith a copy of a letter received by us from the Federal Reserve Bank of San Francisco COpy of its enclosure, with reference to the posbility of branches of the Canadian Bank of Commerce ntuated in this country being named as assignees of conLracts cerns. between the Navy Department and shipbuilding conma '4e will appreciate receiving any comments that you thY care to make with respect to this matter in order }Inn we may reply to the letter from the Federal Reserve San Francisco." Approved unanimously. Tele61-am . to the Presidents of all the Federal Reserve Banks, read4._ 4-ng as follows: an ,"A Pawn transaction in which the pawnor is not under lo ' n Personal obligation to repay the pawnbroker is not a fa,T end is not subject to Regulation W. However, the mere -91at the transaction is called a pawn does not mean that aoaf : t is not subject to Regulation IV since there are many 01)1 ; 84-led pawn transactions which do in fact involve an -gation to repay." Approved unanimously. kwe ot Tel egram to Mr. Woolley, Vice President of the Federal Reserve 1.1eas City, reading as follows: ti4t.A"RePlYing your wire re single payment loans under RegTerm 'single payment loan' as defined in sec : is limited to credits 'in form of loan'. Section 1141 6/5/42 -6- "7 is therefore restricted to loans and does not include .!,11gle payment obligations taken by vendor in sale of -1.1sted article. Maturity of obligation taken by vendor ley however, subject to limitation of section 5(a)." Approved unanimously. Letter to Mr. Phillips, Assistant Cashier of the Federal Re- "re Bank of Kansas City, reading as follows: "Thank you for your letter of May 28, 19421 enclosa letter that you received from Mr. R. D. Cline of arthage, relating to the avoidance of Regulation Vi by eritIng furniture instead of selling it. "If the situation in this respect is as serious as ur. th; Cline's letter to you suggests, and particularly if Practice is also being followed in other and larger enters Y it will of course be necessary for the Board o consider action to take care of the situation. nOn the other hand, it is quite possible that the Practice to which Mr. Cline refers may be a violation 01, the ,, egulation as it now stands. The term 'extension defined in section 2(h) of the Regulation, ro' 11des 'any rental-purchase contract, or any contract ba r iathe ailment or leasing of property under which the ee or lessee either has the option of becoming the aTr thereof or obligates himself to pay as compensation theLlIn substantially equal to or in excess of the value as: 11e2ft - You will also observe that the term 'sale', '4"e-tined in section 2(d) of the Regulation, includes a lease bailment, or other transaction which is similar Purposes or effect to a sale'. as Te shall be interested in such further information ReZil may be able to obtain regarding the extent to which VI is being avoided by means of rental plans and ar;— ' 4.ng the question whether or not such rental plans ent °r are not being carried on in violation of the presProvons of the Regulation." ing Z Approved unanimously. Lett er to Mr. Stroud, First Vice President of the Federal Reserve 441k °f Dal, -41.as, reading as follows: "This refers to your letter of May 221 asking as to 114? 6/5/42 -7- "the status of your inquiry relating to the purchase of watches by railroad employees. "After several consultations with persons in the time inspection business who handle the mechanics of the tch purchase plans, it became evident that it would not ue possible to make a ruling which would be helpful in s4114Z this problem. The question now before us is or not the problem is so serious as to warrant antenclinent of the regulation to provide an exception for cases of this kind. 4_ "One of the difficulties we have faced in consider— .7 tI this question is the lack of factual information on toe magnitude of the problem. This we are endeavoring obtain but we should be very glad to receive from you any a dditional information which might be developed in Y°11r area.fl n Approved unanimously. or Letter to Mr. Hale, Vice President of the Federal Reserve Bank van . ,rancisco, reading as follows: "This is in reply to your letter of May 26 enclos— of a letter from the Retail Merchants Credit ,'°elation of Los Angeles asking that Regulation W be ed to give additional time for payment for charge niontIll!ses made during the last few days of a calendar As :a.CoPY Zr me_ "The Board has received similar suggestions from co'chants and associations in other sections of the thtin e tt7, but up to this time has felt, as you feel, that is calendar month provision now contained in section 5(c?1 more desirable than any of the alternatives suggested. Approved unanimously. Letter to Senator Walter F. George, reading as follows: will acknowledge your letter of May 27, 1942 t "4 1 1ch You enclosed a letter of May 23, 1942 from rela; ,4"armon of the Home Supply Company, Albany, Georgia, slam .4-ve to the Board's Regulation Vi dealing with con--r credit. 1143 6/5/42 -8- , "As you know, Regulation W is one of a number of steps being taken to restrain an inflationary rise in the cost ilt.,.11.ving and thus to prevent so far as possible the serious -4.411culties which have always followed such a rise in the past- The tremendous amount by which consumer purchasing Power exceeds the volume of civilian goods available for ItA;Irchase makes it necessary to curtail to the utmost addiorrget oici )tt .hat purchasing power arising from the extension a "The regulation was not intended to be so restrictive to prevent the use of consumer credit where the vital nec i essities of the individual justify its use. Moreover, t4e regulation was not designed with the intent or expectaIf3n that existing businesses would have to be liquidated. was believed that the requirement of one-third down Payment and balance to be paid over twelve months, with Payments of at least 1..25 per week, was not too severe in ew of our present critical situation. anin 'The administration of Regulation W is decentralized brung the twelve Federal Reserve Banks and their twenty-four and it is suggested that if Mr. Harmon has any furticlhes' more er inquiries regarding this regulation he may find it cenvenient to address them to the Federal Reserve Bank Of Atlanta. n 'We are O always glad to receive comments and suggestions the Board's regulations and will give the communication Juu have forwarded careful consideration. As to You.n requested, Mr. Harmon's letter is being returned Approved unanimously. Letter to Senator Richard B. Russell, reading as follows: "This Will acknowledge your communications of June 1, 1942 • enclosing letters from R. E. Davis of the Home Furand Company, j Albany, Georgia, dated May 21, 1942, Geo,°seley of the C. C. Clothing Company, Dalton, Ilia?-La, dated May 27, 1942, relative to the Board's Reg? 1 V; dealing with consumer credit. steps 1 You know, Regulation Vi is one of a number of the Costng taken to restrain an inflationary rise in the: of living and thus to prevent so far as possible %zF etuZhcelifficulties which have always followed such 'oast. The tremendous amount by which conPurchasing power exceeds the volume of civilian 1144 615/42 -9- goods available for purchase makes it necessary to curto the utmost additions to that purchasing power arising from the extension of credit. 4.. "The regulation was not intended to be so restric'I've as to prevent the use of consumer credit where the vital necessities of the individual justify its use. More! ver, the regulation was not designed with the intent or ;Pectation that existing businesses would have to be 1c.11-lidated. It was believed that the requirement of one2-rd down payment and balance to be paid over twelve . 111enths, With payments of at least $1-25 per week, was 11°t too severe in view of our present critical situation. "The administration of Regulation V; is decentralized ' f,_°11g the twelve Federal Reserve Banks and their twentyLlarl branches, and it is suggested that if Mr. Davis or :f Moseley have any further inquiries regarding this ':gulation they may find it more convenient to address them to the Federal Reserve Bank of Atlanta. ges,,."We are always glad to receive comments and sugco' 10ne on the Board's regulations and will give the millunications you have forwarded careful consideration. _ "As requested, the letters from Mr. Davis and Mr. 140'eleY are being returned to you." Approved unanimously. Letter to Mr. Ernest Trigg, President of the National Paint, 1111h aqd Lacquer Association, Washington, D. C., reading as follows: con,.%e regret the delay in furnishing you with this in '1-rmation of your telephone conversation with Er. Chase 4: 4 hich he gave you the information requested in your `'''ervof May 18. question is whether Regulation W, as revised ve May 1942, affects credit granted by a wholeeeler,t°, ° a retailer or by a manufacturer to a wholesaler. or 11 :The Regulation applies, in general, to all sales stalm'sted articles' whether on open account or on an in8ectient basis. 'Listed Articles' are those listed in 13(a) of the Regulation, and include materials pro 'nneotion with repairs or improvements on residential Perty (Group C). 1145 6/5/42 -10- ."However, section 8(f), to which you refer, exempts credit extended to a dealer or a contractor to finance the 1:2_richase of any listed article for resale or installation 'Z the dealer or contractor. For the purposes of this sec;44on a wholesaler, as well as a retailer or a contractor, le regarded as a 'dealer'." Approved unanimously. Letter to Mr. T. R. Smith, Second Vice President of the Topeka Chae, m.sr of ,_ tile American Institute of Banking, Topeka, Kansas, reading as ro,, r "Receipt is acknowledged of your letter of May 27 egarding Regulation V. The answers to your questions are set forth below. sin ,t1 (1) Regulation Wrequires that the maturity of a R -g-Le-payment loan (as defined in section 2(i) of the iegulation, a copy of which is enclosed for your conven4.nce) tion 7f,shall not exceed 90 days. Section 7(a)(2) and sec- :°). mat "k 2) Your second question relates to the maximtun liantY of a loan to pay off a charge account containing mar -e 4 and unlisted articles where all the purchases were th : e Prior to May 6. If the loan is a single-payment loan, the ellswer is contained in the preceding paragraph. If 6 1°an is an instalment loan, the maximum maturity is uto%hs. Section 6(b) and section 12(f). Res (3) You may rely on answers given you by the Federal theeve,Banks. In fact, as you will see from the note on be fs-Lde front cover of the Regulation, inquiries should disressed to the Federal Reserve Bank or branch of the rlet in which the inquiry arises." Approved unanimously. Letter to Mr. J. H. Fox, President of Lion, San Diego, California, 44c4ng as follows: ing R"Thank you for your letter of May 28, 1942, regardhole gulation W, and referring specifically to a loopwhich may exist because of abuse of the so-called 1146 615/42 -11- "Lay-Awayl plan. The Board is interested in the comments erad c onstructive suggestions that we have been receiving rom merchants and others with respect to Regulation W. In this connection we should be most appreciative if You could give us some additional details with regard to the manner in which 'Lay-Away' plans may be in use in IY1°ur section of the country to avoid the provisions of _eglalation W. We should be very glad to have you write !s such further information on this subject as you may e to send, or if you prefer we should be glad to have !?11 take up the matter further with the Los Angeles Branch of Federal Reserve Bank of San Francisco in whose ter1,31.0rY you are located, as the administration of Regulation 'las been decentralized among the twelve Federal Reserve anks and their twenty-four branches." Approved unanimously. Letter to Mr. West, Vice President of the Federal Reserve Bank t4n Francisco, reading as follows: :This refers to your letter of May 18, 1942, encloste lor our information a copy of a resolution passed by ore , 8°ard of Directors of the First Trust and Savings Bank +1, rasadena, California, authorizing the supervisory au;'orities to transmit to Transamerica Corporation, or to 1.;14ch other corporation or individual as Transamerica may or 1Titing request, copies of all reports of examination wle bank. has be"ln view of the fact that Transamerica Corporation come a holding company affiliate of First Trust and of: e . 'gs Bank of Pasadena, it is felt that copies of reports Tat:Tination of the bank made by your examiners subsethe time when Transamerica Corporation became a hold. cor Ing company affiliate of the bank may be furnished the fro1131°1',a:tion in accordance with the authorization received Nith ,e T bank. Such reports should be furnished, however, the '"e definite understanding that they are furnished for 0114.c0nfidential information of Transamerica Corporation with 'for use by the holding company affiliate in dealing it t,a subsidiary bank, and shall not be made available by taird anY other corporation or individual without first obng Permission from the Federal Reserve Bank of San 1147 6/5/42 "Francisco In the event that you receive a request from Transamerica Corporation for such permission, it will be 8i if you will submit the matter to the Board considera tion, with such recommendation as you may deem ' eem appropriate." Approved unanimously. Dkua Letter to Mr. Ford, Cashier of the Federal Reserve Bank of 8) reading as follows: , "Reference is made to your letter of May 12 relative the classific ation by Citizens State Bank, Knox City, en's, of certificates of interest issued by Commodity cliZat Corporation as United States Government guaranteed lgations in its report of condition as of April 4, 1942, , "Your letter states that the cotton loans which were P til°13:rlY included in agricultural loans in Schedule A of t„.8 uecember 31, 1941, report of condition were subsequently ansferred to the Commodity Credit Corporati on, and the suluber bank received therefor a certificate of interest is— bY the Corporation bearing 1-1/2 per cent interest; that ciaL, the certificate provides for the payment of the prin— lal as and when the Corporation realizes on the collateral, aj miluhat any deficiency after application of the collateral the be paid from the general funds of the Corporation; that _ member 1 the 1 notes; bank cannot repurchase or regain possession of and that you construe such certificates as ob— ci,T4.°ns of a governmental agency guaranteed as to prin— v°14-0and interest by the United States Government. Although the certificates of interest have certain to re of securities rather than loans, they seem andrePresent a participation in a pool of cotton notes, 1111d2111Y the method of handling these notes has been changed the arrangement for handling the 1941 crop. While there pay e is an agreement or guarantee by the Corporation to doesanY deficiency upon final liquidation of the pool, this tient not constitute a guarantee by the United States Govern— and isuch as that existing with respect to 3/4s of 1943 of 1945 issued by Commodity Credit Corporation. alember'w-s matter has also been discussed informally with 8 of the staff of the Commodity Credit Corporation, 4 1148 615/42 -13"Comptroller of the Currency, and Federal Deposit Insurance Corporation. We understand that such certificates are being ,!lassified as loans in reports of condition submitted by 'Jenks to the bank supervisory authorities. These certifi?ates are discussed in paragraph 6620 of the Bulletin of th Comptroller of the Currency, dated August 15, 1941, der the heading of 'Limitation on Loans by National "In the circumstances, it seems that these certificat of interest should be reported as agricultural loans. le se advise the member bank accordingly." Approved unanimously. Chairman Eccles stated that the War Loans Committee had coneried the continuation for a further period of the employment of 4"43n R. Cravens as Administrator for the War Loans Committee and had cleeided to recommend to the Board that, effective immediately, his em- be continued on a temporary indefinite basis with salary at the of A15,000 per annum, it being the feeling of the Committee 4lat, although his sala ry at the Cleveland Trust Company was at the IL,te '16,500, the maximum salary for the position of Administrator .43L1c111°t exceed 1.5,000. Chairman Eccles also said that the recom- ktrwation of the Committee was made with the express understanding (1) that Ill'i Cravens Would be subject to all of the rules and regulations Pliea'ble to .4.1te and t division heads, including such matters as annual and sick reimbursement for travel expenses in accordance with the regulations, and (2) that when Mr. Cravens went to : a41 141c1 °r elsewhere on other than official business he would obtain I leave according to the established procedure for the period of 1149 6/5/42 his —14— absence and pay his own travel expenses. Followins, the decision of the rar Loans Committee, Chairman 4c1e8 said, he discussed the matter with Mr. Cravens who in turn took ituip with the President of the Cleveland Trust Company and arranged t(*an indefinite leave of absence from the ban and was now willing t4)accept employment by the Board on the basis outlined above for such 13e11°(1 as might be necessary in connection with the administration of talloairi matters arisinE under Regulation V, with the understanding, /1°17ever, that the employment might be terminated at any time in his clicretion or in the discretion of the Board. Chairman Eccles added tt it --s agreed with 'Ir. Cravens that he would prepare a memorandum Of hi 8 tinderstanding of the terms of his employment, which would be Placed . kt In the Board's files. The continuation of the employment of Mr. Cravens in accordance with the rec°mmendation of the Tar Loans Committee was approved unanimously. Thereupon the meeting adjourned. Assistant Secretary.
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