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507 A meeting of the Board of Governors of the Federal Reserve SYstenawas held in Washington on Friday, March 20, 1942, at 3:45 p.m. PRESENT: Mr. Mr. Mr. Mr. Eccles, Chairman McKee Draper Evans Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Wyatt, General Counsel Mr. Smead, Chief of the Division of Bank Operations Mr. Paulger, Chief of the Division of Examinations Mr. Vest, Assistant General Counsel ALSO PRESENT: Mr. Sproul, President of the Federal Reserve Bank of New York Major Paul Cleveland, Expert Adviser to the Secretary of War Mr. W. John Kenney, Special Assistant to the Under Secretary of the Navy and Assistant Chief of the Procurement Legal Division It was stated that this meeting had been called for the purpose dis cussing a proposed plan under which the Federal Reserve Banks Would act as fiscal agents for the tar and Navy Departments and the 114ritim p °mmission in connection with the financing of war production ' Of e°"tracts. At the request of the Board, Mr. Vest stated that the proposal coriteraplated that an Executive Order would be issued by the President which would authorize (1) the War and Navy Departments and the Maritime °e'rrollission, through the agency of the Federal Reserve Banks, to guarantee 1°4118 Made by commercial banks to contractors and subcontractors in 508 3/201V42 -2- connection with war production, (2) the Federal Reserve Banks, under the provisions of section 13b of the Federal Reserve Act and subject to the l tations of that section, to make loans to contractors and sub- contractors for war production purposes with or without a guarantee from the A— LIAY- or Navy Departments or the Maritime Commission, and (3) the War and Navy Departments and the Maritime Commission to make loans to contractors and subcontractors for war production purposes through the agency of the Federal Reserve Banks. He also said that, as there !night be some doubt as to the authority for the Executive Order, it 1148 Proposed, if possible, to obtain the approval of the Attorney General and the Comptroller General, and at as early a date as possible to have 'e 41 Executive Order and any actions taken thereunder ratified in a Pr°1118i°11 the Which would be included in a deficiency appropriation bill, Third War Powers Bill, or some other appropriate legislation. Mr. Vest add_, QFL that, pending the passage of such legislation, if commercial balik8 were unwilling to accept the proposed guarantee, the Army and Navy 1)"artIrtents and the Maritime Commission would proceed to advance the Nrids themselves through the agency of the Federal Reserve Banks. He tlacie the further statement that the order contemplated that the Board G°Irernore would issue regulations covering the operations of the Federal Reserve Banks and that the Secretary of the Treasury would request the Pederal Reserve Banks to act as fiscal agents for the War and Navy 1)ePartments and the Maritime Commission. In response to a request for his comments with respect to the 509 3/20/42 -3background of the proposal, Major Cleveland made a statement substantially as follows: The problem of financing subcontractors has been getting more and more difficult. They are not getting adequate bank accommodations, either because of their small size or more frequently because of the tremendous pPansion that has been going on. The Reconstruction ,lnance Corporation has the power to do the job but just as not been doing it. It has been putting on too many /festrictions, and, while it has authorized loans, contractors could not consent to the restrictions. Furthermore, it takes months to clear the loans through the Rei(2nnestruction Finance Corporation Office in Washington. result and cases is that, with the tremendous program facing us very day, some method of financing as to be 14 We have been giving strong backing, first to the crd bill, and later to the proposed Federal industrial ,r'rPoration bill. At a conference held last Sunday in P atterson's office, the conclusion was reached that ti„would be impossible to get the industrial loan corporat-j )-n.Over Mr. Jones' objection within anywhere from three ur 8 X months. For this reason, the plan referred to by pa;.1.:, est was proposed. In essence, the Army and Navy Deby—uents and the Maritime Commission would be given power anijxecutive Order to guarantee or participate in guar : at;".of e4s loans made by a bank or any other financing inT -. ° including the Reconstruction Finance Corporation. talelkguarantee would be given through a Federal Reserve local ae our fiscal agent to the extent desired by the bank. The proposed order permits us to guarantee thC-; ALeco -4-1-Y thenstruction Finance Corporation but provides that Reserve Banks shall act as our agents. 0_, The Federal War Department (I am now speaking only for that . would guarantee the local bank in part or 11p 4- nment) w016- Per cent on the basis of two reports, one of which c0 , 1,be a to'(ift-u make production and price report—whether the man money on his contracts. He would furnish that liaison officer of the Army in the Federal Reserve disth whi,h rlet• On the basis of that report and a second report rep- would be an integrity and management and financial 114a , le7t1 furnished as at present by the Federal Reserve - 8, the ' officer, in the case of guarantees on ?r, ooTterl 510 3/20/42 —4— loans up to $100,000, would give the guarantee lonediately at:Id.the loan could be made. On the larger loans, the local 34:laison officer would be allowed, if speed were necessary, aPprove a commitment for a two weeks' period probably Lo the • extent of 50,000. The final approval of the whole lc,Torranitment would be handled by an operations section in ,'”Illngton on the basis of the reports furnished by the -italsoris er and by the Federal Reserve Banks. Reports guaranteed in the field would be furnished to the 1(3ard of Governors and also to the advance payment and '°an section of the Office of the Under Secretary of War. . The working of the system from the point of view of P°11cY would be from the top. The Board of Governors would ; et general regulations with regard to standard security eglarements, standard or flexible interest rates, and pneral matters of policy. These policies would be defled in consultation with a policy committee on which B e Army, Navy, Maritime Commission, and the 1:ar Production oard would be represented. po. There are several advantages to the plan from the f view of expediting our production, one of which haltrpiten: to be that tax amortization certificates will be ilch easier to obtain by a manufacturer where a part of Thel'o is used for the purpose of additional facilities. 'eoc amortization section of the Under Secretary's Of0 4- 7.? has agreed that the reports furnished by the liaison e:ill be a sufficient basis on which to issue cerof necessity. fa„ This type of financing is intended to apply mainly, so sut as the Army is concerned, to the small subcontractor or -sub Who a5contractor and to the medium-size or large contractor 11as a large number of orders and needs help. It would not . or be at least at the present time, to the case the stancemanufacturer whose whole plant is engaged, for inti , in making gun carriages. In that case we would conto use our advance payment method for the reason that are re adv : highly decentralized an have found that the use of d nce payments is a ve Work. very useful tool in speeding up the Z tiftZ There are many subcontractors producing for the Army and the N ThereavY or for the Navy and the Maritime Commission. tiari s very little overlapping between the Army and the le Connission. In these cases, the arm of the sere7 vic• .40r which a majority of the subcontractor's work was beIng done would be expected, if necessary, to guarantee 511 3/20/42 -5- ?al loans made to the subcontractor. We hope it will not be necessary to pay out any cash, but we will put aside a reserve of approximately 20 per cent of the aggregate of outstanding contracts. On the question of volume, we Fontemplate that during the coming year approximately : 9/000,000,000 will be required for anywhere from 10,000 15,000 contractors. That is a rough estimate. There 1111 be q8,000,000,000 of subcontracts and about half 01 them will need money from other than the usual sources. About half of these will need it very badly. This is in terms of working-capital loans primarily and a certain amount of conversion. I am suggesting to the budget People in the War Department that a reserve fund of 500,000,000 be set up originally out of general approPriations, of course that could be increased if necessary. Foiluvling references to various details of the proposed plan and to discussions of the plan which had been had with representatives of -116erested Government agencies, it was stated that a letter trans- "411g the Executive Order to the President had been drafted for the eignature of the Chairman of the War Production Board, the Secretaries q War and Navy, and the Chairman of the Maritime Commission. In re- to an inquiry from Mr. McKee, Major Cleveland said that it was N)ected that the Executive Order would be signed by the President nc3t later than March 23, that the funds would be made available by the .war to the AD t: ::::m yent by March 25, and that the matter would be presented General tomorrow. tain He also stated that there were cer- lirgent cases that should be taken care of promptly, that without r__ yr the adoption of formal regulations the War Department could gllarantees, and that, if the guarantees were not acceptable to e'Rirael ' cial banks, the Department could advance funds directly through 512 3/20/42 the —6— Federal Reserve Banks. 141% Sproul suggested that it would be more satisfactory in such Cases to make direct loans without waiting for the negotiation of guarantees. The procedur e that might be followed in such cases was dis— ell " ed, and Major Cleveland emphasized that it was hoped that the e°11Insrcial banks would advance the needed funds on the basis of a guarantee and that it would not be necessary for the services to ad— vance any appreciable amount of funds. of In response to an inquiry from Mr. Eccles, the other members the Board indicated that they saw no objection to the proposed Plan and that they would favor making the services of the Federal Re— serve 8_ dlIke available in the manner indicated. Ur. Sproul inquired whether, if pursuant to the proposed Ex— ectitive Order the Secretary of the Treasury requested the Federal Re— serve Banks to act as fiscal agents for the bar and Navy Departments alld the ' --- 63-me Commission, there would be any legal question as to the authority of the Federal Reserve Banks to act in that capacity. 111'• Vest replied that there would be no such doubt, whereupon Mr. N'olla stated that there would be no question about the ability of theederaiReserve Banks to do the work as outlined in the plan. Chairman Eccles stated that steps should be taken promptly the s sJib. Ystem to set up the necessary procedure to handle its respon— e under the program in the event it was adopted, and he 513 3/(Z)/42 —7— that arrangements be made to have representatives of the Federal Reserve Banks come to Washington for a meeting at which the Piar13 drafts of regulations to be issued by the Board, and instructi°118 to the Federal Reserve Banks could be discussed. Mr. McKee suggested that Mr. Rounds, First Vice President of the Federal Reserve Bank of New York, and Mr. Newell, of Counsel for the Federal Reserve Bank of Cleveland, be asked to come to Washington for discussions of the matter with members of the Board's .8tart, inls suggestion was concurred in unanimously by the members of the Board. At this point, Messrs. Wyatt, Snead, Paulger, Vest, Sproul, ICeritleY3 and Cleveland 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 ?sclera]. kollaiy. Reserve System held on March 19, 1942, were approved unani- Telegram to Mr. Post, Secretary of the Federal Reserve Bank of 1 acielPhia3 stating that the Board of Governors approves for the Phila‘4elPhia. Bank, effective March 21, 1942, the rates established by the h°aria of d irectors of the Bank of 1 per cent on rediscounts and advances .tc31‘ niekber banks under Sections 13 and 13a of the Federal Reserve Act Per cent on advances to nonmember banks under the last paragraph 514 3/20/42 -8- of section 13 of the Federal Reserve Act, and the re-establishment by the directors without change of the other rates of discount and purchase the Dank!s existing schedule. Approved unanimously. Telegram to Mr. Bowman, Assistant Vice President of the Federal Reserve Bank of Atlanta, stating that the Board of Governors approves for the Atlanta Bank, effective March 21, 1942, the rates established by the board of directors of the Bank of 1 per cent on other?, rediscounts and advances for member banks under Sections 13 and 13a of the Federal Reserve Act, 1-1/2 to 6 per cent on industrial adlrances made u strial or commercial organizations under section 13b, ad ni cir:o :p:cioi a:d commitment rate of 1/4 to 1/2 per cent coll"ing unused portions of lines of credit granted to industrial or e°11ercial or ganizations under Section 13b, and the re-establishment bY the directors without change of the other rates of discount and 1311rchase in the Bank's existing schedule. Approved unanimously. 8ank of Telegram to Mr. Gilbert, President of the Federal Reserve as, stating that the Board of Governors approves for the 411as Bank, effective March 21, 1942, the rate of 1 per cent estab- 118hed by the board of directors of the Bank on loans and advances for kezber banks under Sections 13 and 13a 44c1 the re_ of the Federal Reserve Act, est ablishment by the directors without change of the other 515 W2CV42 rates of Of discount and purchase in the Bank's existing schedule. Approved unanimously. Telegrams to Mr. Young, President of the Federal Reserve Bank of n, Messrs. Sanford and Dillard, Secretaries of the Federal Re"I ' ve Banks of New York and Chicago, respectively, and Mr. West, Vice Pl'esident of the Federal Reserve Bank of San Francisco, stating that the Board approves the establishment without change by the Federal Reserve Bank of San Francisco 1141111:8 of New York and Chicago Reserve 8 of Boston today, in their existing schedules. further st atement as follows: on March 17, by the Federal Reserve on March 19, 1942, and by the Federal of the rates of discount and purchase The telegram to Mr. West contained a call :Changes recommended in your March 19 wire, which ,, or lower rate on member bank 15 day advances sebY direct obligations of U. S. and on 90 day reon Ints and secured by eligible paper than 4-0 t0 7o dayadvances member bank advances secured by U. S. no'iernmennt direct obligations and 90 day advances to rinlember eration.H banks similarly secured, are receiving consid- TP Approved unanimously. Letter to the board of directors of the "Bank of Neosho", Ilectell° 'Missouri, stating that, subject to conditions of membership 111411'el 'ecl 1 to 3 contained in the Board's Regulation H, the Board apI'Wes the s application for membership in the Federal Reserve 8Yete z and bank'for the appropriate amount of stock in the Federal Reserve (3.1 Kansas City. 516 3/20/42 -10Approved unanimously, for transmission through the Federal Reserve Bank of Kansas City. Letter to the Comptroller of the Currency, reading as follows: "This refers to your letter of March 18, 1942, enclosing proposed letters to Bank of America N. T. & S. A. 1111d the National Bank of Washington, Tacoma, Washington, With respect to waiving the submission of reports covering Corporation as a holding company affiliate of ul the respective banks. "The Board approves the transmission of these letters, with the understanding, which it feels is implicit J:11 the letters, that the waiver of the reports involved does not tand that affect in any way the position of your office of the Board that affiliate relationships do exist between the Transamerica Corporation and the Bank io N. T. & S. A. and the National Bank of UashfqtZli; and with the further understanding that any future Waiver of ate af ins report requirements involving these thes1. conwill depend upon all circumstances and Which may be then existing. sn the proposed letters go out, please advise so that we can furnish copies to the Federal Reserve Bank of 00 San Francisco in order that Transamerica rporation may be informed as to the action taken." Bctci Approved unanimously, with the understanding that when a reply was received to the above letter the folloir:ins letter would be sent to Mr. Clerk, First Vice President of the Federal Reserve Bank of San Francisco: co_ "There are enclosed for your information copies of „grespondence, with enclosures, between the Comptroller the Currency and the Board of Governors with respect N. ai1ier of submission of reports by Bank of America S. A. and the National Bank of Washington, Tacoma, washi ngton, covering Transamerica Corporation as a holdCompany affiliate of these banks. "You are requested to fully advise Transamerica CorP°rat* "n of the action taken, specifically pointing out 511 3/20/42 -11that the action covered by such correspondence does not in any way affect the Board's or the Comptroller's views with respect to the holding company affiliate relation;hips between Transamerica Corporation and Bank of America T. & S. A. and the National Bank of Washington. "It is assumed that the banks mentioned will acquaint Tra nsamerica Corporation with the decisions reached and aY furnish it copies of the Comptroller's letters. You are a uthorized to furnish Transamerica Corporation with a topy of the enclosed letter from the Board to the Comptroller of the Currency, which indicates the interpretation e Board places on the Comptroller's letters to the banks i"nv s olved. You are authorized also to furnish a copy of dlie sItIrle c r to the Chief National Bank Examiner of your T Telegram to the Presidents of all Federal Reserve Banks, reading as follows: ',Because of the adoption67 iendment No. 3 to Reg4) f :m Iliatic'n Ili, the list of articles on the back of the Statem?nt.of Borrower (Form F.R. 11 be incomplete beginning March 23, 1942. In view of the paragraph which 12recedes the list of articles on the form, it is not necesthat the use of the forms which theyregistrants discontinue have on would be desirable that hand, but it the u l ignZiri ittls add the new items to the list. gly, it would be appreciated if you would tIggest to the registrants and other interested persons Yclur district, by whatever means you deem appropriate, stkthe following be added to the form by rubber stamp, 231c, "or other convenient means: 'Articles Added March i,-`942: Bicycles, Lawn Mowers, Silverware, Vatches and co,-,c's, Photographic Equipment, Floor Coverings.' Of ,,Ifse, it is also desirable that this same addition be to the form when new supplies are prepared." Approved unanimously. ank Telegram to Mr. Noolley, Vice President of the Federal Reserve f Kansas City, reading as follows: 518 3/20/42 -12-- "Your letter March 17 to Parry. No objection to tur releasing information developed from Registration f atements under Regulation W, or such part of this inormation as you deem to be of interest, provided you 21earlY indicate figures are only preliminary and subject LA) correction or revision." r Approved unanimously, with the understanding that copies of the telegram would be sent to the Presidents of all Federal Reserve Banks. Thereupon the meeting adjourned. Chairman.
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