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U0:1-
A meeting of the Board of Governors of the Federal Reserve
3Ysten1 with the
Federal Advisory Council was held in the offices of
the Bo—,
"
u of Governors in Washington on Monday, May 18, 1942, at 10:30
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Eccles, Chairman
Ransom, Vice Chairman
Szymczak
McKee
Draper
Evans
Mr. Morrill, Secretary
Mr. Bethea, Assistant Secretary
Mr. Carpenter, Assistant Secretary
Mr. Clayton, Assistant to the Chairman
Mr. Wyatt, General Counsel
Mr. Goldenweiser, Director of the Division
of Research and Statistics
Mr. Smead, Chief of the Division of Bank
Operations
Mr. Parry, Chief of the Division of Security
Loans
Mr. Berntson, Clerk in the Office of the
Secretary
Messrs. Charles E. Spencer, Jr., George L.
Harrison, William F. Kurtz, B. G. Huntington,
Robert V. Fleming, H. Lane Young, Edward E.
Brown, S. E. Ragland, Lyman E. Wakefield,
W. Dale Clark, Nathan Adams, and George M.
Wallace, members of the Federal Advisory
Council representing the respective Federal
Reserve Districts
Mr. Walter Lichtenstein, Secretary, Federal
Advisory Council
14i.
Brown stated that the Council met in separate session yestema
Y and that,
while it had not adopted any formal recommendations
resoi
or
Iltions for submission to the Board, it had considered a
number
Illatt
"
8 which it
would like to discuss with the Board and on which
Otswo
5/18/42
the
0
Council would like to express its views.
Mr. Drown then said that the Council felt very strongly that
arlY Plan of
be
compulsory savings as a means of financing the war should
Undertaken only as a last resort, and that every effort should first
be made
to obtain the necessary funds by
voluntary subscriptions and
through the
use of an organized drive to raise funds on that basis.
Re added
that one of the greatest obstacles to the present effort to
obtain
voluntary subscriptions was the reports from Washington to the
effect that
compulsory savings would be necessary, which was making
Ilage
earners and the smal 1—salaried classes unwilling to purchase, on
Ir011atItary
tQ
take.
basis, the securities that they otherwise would be willing
He said that it
was realized that officials in Washington
could not
commit themselves that compulsory savings would not be neces—
but that if
they would withhold comments to the effect that such
4 step
%lad
would be necessary
the present plan for voluntary subscriptions
have a much
greater chance of success.
141". McKee inquired whether the Council had any opinion on the
cille8tion
whether the present program was adequate or was the best way
to approach
the matter, and Mr Wakefield responded with the statement
that the
present
program/ which involved a plan of personal solicitation,
174,111st
getting under way.
Mr. Drown
commented that the Council felt that additional taxa—
4°11 Would be
much more desirable than a forced savings plan.
5118/42
-3In response to an inquiry from Mr. Ransom as to the reasons
for ob'
•
Jectlng
to a compulsory savings plan, M. Brown stated that it
1448i1EP0SSible to eliminate the inequalities and hardships that would
reeult from compulsory savings.
Mr. Wakefield added that any such plan
17°1/14) of necessity, have to be placed on the same basis as income tax
collections because of the many varied situations in which individuals
Nind
themselves, and that it would result in distresses and dislocations
()f Pero
affairs as well as enormous expense on the part of the Treas147.
Ransom questioned whether that would be the case, and said
that the
present voluntary basis had such an element of compulsion in
it that in effect
it came out at the same point as an involuntary plan.
Mr. Wakefield referred to the proposed
2,000,000,000 additional
security taxes and to the broader application of rationing, and
t'ated that
as the latter was applied the need for forced savings would
be eliminated because
there would be no other place for the people to
Put their
funds.
rIOt
Mr- Ransom recognized the difficulties in putting a forced sayfl into
effect but felt that that was not an adequate reason for
doing so, and he expressed doubt that a broader application of rationremove the need for such a program.
14r. Fleming stated he thought that with the application of higher
8 it WOUld
the
be necessary to give some recognition, in determining
ta
'
)( bass, to the payment of debts, and that he had a memorandum on
that
sUbject which he
would turn over to the Board.
954
5/18/42
—4—
Mr. Brown stated that the point the Council wanted to make was
that greater
efforts could be made to make the voluntary program suceessful and that
the comments coming from Washington operated as a
t"fic damper on any efforts to make
it effective.
Chairman Eccles said that so far as he knew there had been
littlp
-1 lf anything, said in Washington on that point since the deciejo
n was reached to adopt the voluntary program, and that the ar-
tica.
-8 Which
Pired
br
had appeared in the press on that subject were largely
bY the press and the financial writers.
Chairman Eccles then stated that a special committee appointed
the
President, consisting of Vice President Wallace, Director of the
1311t Smith, Secretary of Agriculture Wickard, Secretary of the Treas111'11 14"genthau,
Price Administrator Henderson, and himself, had had a
ge staff at work
studying the whole question of inflation, that it
114d b
een estimated
that by September the war expenditure would reach
k5o
0,000 a
day and by the end of the year $200,000,000 a day, that
the a
vallability of consumers' goods would continue to decline rapidly
t0 the
lack of raw materials, labor, and facilities during a period
ot a
l'aPid increase
in the supply of funds available for the purchase
ot
g°°ds, and that the excess of such funds over the anticipated sup4rter
onsumer goods would be between $10,000,000,000 and
15,000,000,000
allowance had been made for increased taxation, contraction of
debt of au
kinds, an increase of $2,000,000,000 in social security payt4erlte
that'841d savings of about $10,000,000,000 a year. He also stated
111'. Henderson was of the opinion that it would be impossible to
95;3
5118/42
-5control prices
or effectively ration commodities if the inflationary
gapwere not
closed, that the German and British Governments had found
itnecessarY to resort to forced savings, and that it was the feeling
c3f the
special committee, after giving several weeks to the study of
the
Problem, that the
adoption of a forced savings program in the
United
States was inevitable. The Chairman made the further comment
that any
effective anti-inflation program would have to cover all
13114es of the problem, including wages and agricultural prices, and
that it would
have to be placed on an involuntary basis as had been
cl°rie in the
drafting of manpower for the armed services.
The special
cortlittee felt
very strongly, Chairman Eccles said, that a program
1101)1d be
adopted in which income tax exemptions would be reduced and
a
withholding tax applied in an amount of at least 10 per cent, and
thetfl a
ddon there should be compulsory saving of at least another
10 Per
cent of
income. This program was believed to be essential to
tinance the
requirements of the Government, and it had been suggested
recognition of the fact that it would not be possible to obtain a
Pl'c'grani which
contemplated a 20 per cent tax on income. The Chairman
added that
even with this program it might be necessary to increase the
844°1111t of
taxes and forced savings and apply some form of sales tax.
4er-
Mr. Wakefield
stated that he did not believe there was any dison the part of the Council with what Chairman Eccles had said
blit that the A;
--Lscussion of the Council yesterday was in the light of a
D14/110...,
'Lich had been
instituted on a voluntary basis, and that that policy
tith
(411c1 not, be
reversed until the voluntary program had been tried.
5118/42
-6Chairman Eccles stated that he was in full agreement with that
1)°8iti°11, that at the moment he would not consider any other
course,
and that
everything possible should be done to make the voluntary pro-
success.
Mr. Kurtz suggested that, if the program were to be placed on
an
invauntary basis as was the case with the selective service, there
sh°)Jad be
recognition of the fact that an individual might have financial
and
economic disabilities which would exempt him
from the financial ob4gations of the
program in the same manner as physical disabilities
would exempt
him from the draft.
He also expressed the opinion that,
heavY sales tax were
applied to sales of other than subsistence
it"18, it would
be an extremely helpful step in the solution of the
Problem.
At this
point, Mr. Goldenweiser withdrew from the meeting.
Following a
discussion of the effectiveness of a sales tax,
tilre -rr180n inquired whether
any thought had been given to an expendithie te"4 instead of an
income tax. In connection with a discussion of
Point/ Mr. Ransom outlined a suggestion which had been made in
444i4 and
amplified in this country under which each individual would
be
or
Permitted to
purchase without tax a stated amount, say 25 shillings,
ttalb
-Pe each
week which could be used for such purchases as he might
clee.
h. lre
'but requiring, if he desired to spend
additional amounts, that
"
'
Pro
gressively greater amount for each additional 25 shillings.
5/18/42
-7--
Mr. Adams stated that the present plan for the distribution of
Gelrernment securities, under which the Series E bonds were handled by
t"reasury and the distribution of other issues was handled by the
e°111Rattees being set
up in the Federal Reserve districts, was not an
effective way to
handle the job, and that it would be his suggestion
that the d
istribution of all Government securities be placed in the
hands of
the Federal Reserve System.
Mr. McKee stated that he had made some informal investigations
various
parts of the country in which pay rolls resulting from war
N'enditlares were
heaviest, that it was his conclusion that individuals
in
those
areas were not purchasing Government securities to the extent that
they should, and that some means mould have
to be found to
bIltIg about
more effective participation. He felt, however, that be/*(41e an
involuntary program was adopted every effort should be made to
kalte the
Voluntary
program a success.
Mr. Brown
thea stated that it was the feeling of the Council
that no
new forms
of redeemable bonds should be issued by the Treasury,
anid
that,
while it was believed desirable to raise the
present investtrient
liMit on
Series F and G bonds to n_00,000, there was danger in ex-
l'141441-11g. this
form of security because of the possibility of increased
Pressure for
redemption. The Council was also of the opinion, he said,
that
with the
possibility of selling 810,000,000,000 to 812,000,000,000
°t
Series E,
P, and G
bonds there would be sufficient redeemable bonds
958
5/18/42
-8-
g(4.11g into the
hands of the public to secure the necessary funds from
that
source, and that by issuing different maturities of non-redeemable
bOrIA-
corporate
funds could be reached as well as with redeemable securities.
ChairmanEccles pointed out that the Federal Reserve System
had taken
the position that a short-term tap issue redeemable after
Sbtill°nthS
upon 60 days' notice would be a desirable part of the fi-
4411cing Program as a
means of attracting short-term corporate funds,
arid that
this matter had been discussed with members of the Council
04
Previous
occasions. He said that, if these funds were left with
bklIcs and
invested by them, the effect would be an inflationary inel'ease
in bank
deposits, whereas if the funds were used directly by
ec*Porations for the purchase of Government securities there
would
be n°
increase in bank deposits and the need for recourse
to the banks
be di
minished, and that in order to reduce to a minimum the extent to
which bank
investment would have to be resorted to for financing
thewa'r needs it would be necessary to attract all
possible funds from
other
s
ources.
In
explanation of his earlier statement, Mr. Brown said that
Islhe't the
Council had in mind was that the average corporation would
154ter to
invest its funds in marketable securities
with definite maand that
more funds could be attracted in this manner than
%tad be
at
tracted by the tYPe of short-term issue that had been
5/18/42
—9—
Proposed to the Treasury by the Federal Reserve System.
Mx'. McKee stated that he could not see how any harm could reUlt from
having such a short-term issue available as a means of effecting the
investment of such amounts of corporate funds as could be attracted by
such an issue.
Chairman Eccles discussed briefly the terms of the short-term
talPissue which
had been proposed to the Treasury and the reasons why
it had
been
suggested as a part of a program to tap all sources of exiating funds
other than bank funds. He referred to the fact that the
8YErtem had
been under pressure to reduce reserve requirements and that
the131.°gre-ril Which had been recommended was for the
purpose of avoiding
that
action as
long as possible.
Mr.
Fleming expressed the opinion that, with the dislocation
that was bound
to take place in bank deposits and as the Governmentaecur,
ltY holdings of
banks became larger and larger, there would be
itler
ea8ed pressure for the protection of those portfolios.
Chairman Eccles responded that such protection already existed
14 the
4qvaric
f°1*111 Of an announced policy on the part of the System to make
es to member and
nonmember banks on the security of Government
obliaat.
1°118 at par, the policy of the System of
supporting the Gov-
'1 t44ent
'
security market, and the
policy of the Federal Reserve Banks
4nt
ng l'eadY to purchase all bills offered them at a rate of 3/8
per
--ch enabled
member banks to adjust their reserve positions
5/18/42
-10cillicklY and in such a
manner as to make the most effective use of the
existing
volume of reserves.
Chairman Eccles then outlined briefly the organizations which
were
being
et up in each Federal Reserve district for the purpose of
distributing
Government securities other than Series E war savings bonds,
44d stated
that the existence of a short-term tap issue would give the
e°mMitte„
something they could use to attract the funds of corporations
tor
wil",:11 they
had no immediate use. He said he felt such an issue would
l'edlIce the
amount of open market securities that banks would be called
1113°11 to take, and
that, if the volume of bank financing of Government
ileecis assumed large proportions, it would be necessary to reduce reserve
Which would result in large excess reserves and a very
411Shorterm rate.
He added that it was hoped it would be possible
t0 hoicl °Pen market
financing to not to exceed $1,000,000,000 a month
krici
-Ls
if that
were
an additional 4$1,000,000,000 through tap issues, and that
possible it was likely that a change in reserve requirements
c°1141 be
avoided for a considerable period of time.
Chairman Eccles also stated that the Presidents of the Federal
Reee
rlie Banks were
calling attention of banks throughout the country
with
e%cess
reserves to the availability of Treasury bills, and some
Or
the
members
of the Advisory Council stated that the smaller banks
riot
h
been interested
in bills in the past and that it would be
gecee
ha4
sal7 t0 do a considerable amount of educational work to bring the
ii
5/18/42
-11-
Illatter e
ffectively to their attention.
On the question of member bank reserves, Mr. Brown stated that
the C°11ncil was in complete agreement with what it
understood to be
the Bcard'e position, that for the present at least the problem of bank
l'es"ves should be
treated as a single problem for the country as a
Whole
, that the
volume of excess reserves was sufficient for the timebeing, and th
at no
effort should be made to force balances into the
New
York market
or action taken looking toward an over-all reduction
l'eserves.
He said that, while the Council realized it might be
tlecessarY to reduce
reserve requirements fairly soon, it was felt
tilat "isting reserves could be mobilized through the use of the bill
14aret, and
that it was necessary that the Treasury obtain its funds
rlic% the
sections of the country where the Government was spending
111°11eY' He
added that the Council was opposed to the discontinuance
Or ilew York 4nd
Chicago as central reserve cities for the reason that
the
c°1'resPondent bank balances and corporate accounts in banks in
cities were more liable
to fluctuations than deposits in other
1.11'8 Of
the country.
Chairalan Eccles referred to the proposal that had been made
1'01
'an am
endraent to the law which would authorize the Board of Gover1°N to change
reserve requirements in central reserve cities or re(I lre
to
cities, and expressed the opinion that it would be
desirable to
'1118 authority
for the reason that it might be found necessary
harie reserve
requirements in central reserve cities without
5/18/42
-12.
teltint similar
action with respect to reserve city banks.
In the
ensuing discussion, Mr. McKee suggested that the amendMent
might be placed
in such form as would insure the maintenance of
somenhat higher
reserve requirements in New York and Chicago in recog/lition of
the central reserve characteristics of those cities and still
Pet
more elasticity
in action by the Board with respect to changes
in
requirements.
There was a discussion of the alternatives that might be available to
the Board of
Governors in the absence of the suggested amendtient and
the reasons why the
law was written in its present form. Mr.
Harrison
referred to the special report which was submitted to Congress
hY the
Board of
Governors, the Presidents of the Reserve Banks, and
the
Federal
Advisory Council on December 31, 1940, and to the recallkeridation c
ontained therein that the authority over reserve requirements
be
Placed in
the Federal Open Market Committee and the Committee authorized to
change reserve requirements for central reserve city banks
°I'
reserve city
banks or for country banks, or for any combination of
these
three
classes. He expressed the opinion that, while from an
ee°11°14c and
financial standpoint it would be well to amend the law
e°8 to
Per
a change in reserve requirements of any one of the
tl
e
classes of
banks, it, would remove much of the fear of improper
14e of
that power
if it were placed in the hands of the Federal Open
ilarket
Committee.
5/18/42
-13Mr. McKee stated that in his opinion a more important amendment
11°111d be one to which he had previously referred in discussions with
alealbere of the
Council which would amend section 19 of the Federal Re"
re Act to
eliminate the provision that no bank shall make new loans
Or
dividends while its reserves are deficient, that in view of the
decision
reached in the case of Michelsen et al. v. Penney et al., 41
811PP. 603, the
directors of banks were fearful of making loans when
their
reserves were near legal requirements, and that in this situation
the recent amendment to the Board's Regulation D to permit the computat14ti
of reserves
on a weekly basis had been of little help in the situatior.
Mr. Brown stated that it was the feeling of banks
throughout the
e°1111t17 that the
Penney case would be reversed in the higher courts, and
Ch4111144n Eccles said that the amendment referred to by Mr. McKee was
4111°11g the a
mendments that had been proposed by the Board, that the Board
did not
'
w to suggest the amendment as separate
legislation, but that,
if there were to be legislation
to permit a change in reserve requirertle4t8
Of
central reserve city banks, this point should be covered.
Comments made by members of the Council at this point
indicated
til4t they would favor
such an amendment, and Mr. Brown stated that the
Iti4ttel‘ W°1-11d
be considered
further in the separate session of the Council
4fternoon.
141'' Brown then said that, while Amendment No. 4 to
Regulation
-Eltbeen in effect
only a short time and it was not yet possible to
Vi h
9i 4
5/18/42
-14-
determine what the
effect of the amended regulation would be, it was
felt that
the inclusion in the regulation of nonpurpose loans up to
4,50n
was not justified by the results that would be obtained, and
that,
411 the smaller
banks particularly it would result in a disturbance
in public
relations. He also said that it was the feeling of the
Covir-4,
-"
4-1- that
considerable pressure had been brought by the personal
loan
e°mPanies to have such loans included in the regulation in the
feaa.
that
otherwise they would suffer loss of business. He added that
the 0
°uncil would prefer to discuss the entire matter at the time of
its
Luxur with the Board when there will have been an opportunity
na
s')(
to
rve the
operation of the amended regulation.
"
Mr. Ransom stated that the reference in the President's anti
On
Wae
gram to the desirability of the payment of personal debt
withou
P
tr°
1. 't or qualification as to amount, that the problem fac-
itie the Board
was whether it should regulate all consumer loans regardlea8 Of amount, that the alterna
tive was to limit the application of
Reat
W to such loans up to .'„1:1,500 and leave other
similar debts
41141'ger amounts
to be handled in a much more flexible manner which
141111c1 Permit
banks and the supervisory authorities to undertake to
41'rY out
the purpose
of the President's program, and that it would
ilaire been
entirely inconsistent to undertake to apply the regulation
t°all kinds of
consumer debt and not include similar loans made by
b414. He made the
further statement that he would like to correct
5/18/42
-15-
allYimpression that might exist that the form of the amendment was in
sense the
result of pressure on the Board from any outside source,
and
that, if on the
basis of experience it was found that any provi-
8i°11 of the
regulation
MS
not practicable or worked undue hardship,
itwas hoped
that the banks and others would bring the matter promptly
tQ
the
at
of the Board.
There ensued a discussion of the provisions of the regulation
Ilith respect to
insurance policy loans, and Ir. Brown stated that
th4 was a matter the Council might
wish to discuss at the time of
itsnext
meeting with the Board.
lir- Brown stated that an important matter which had arisen in
conriection with
loans and guarantees by the armed services and the
ilaritime
Commission under the provisions of Executive Order No. 9112
411c1 the lot,
'
- ard's Regulation V was the question of the authority of
444 t° make loans
and commitments in amounts in excess of the limitns imbosed
by section 5200 of the Revised Statutes on the amount
I‘llich a
national bank might lend to any one borrower. He said the
e°1111eil was familiar
with the letter received by the Board from the
"ice
of the
Comptroller of the
Currency on this subject, but that
he ha
d discussed
the matter with a number of bank attorneys, all of
1714041felt that
notwithstanding the Comptroller's letter
national banks
11(311-14 n°t b protected
if the los
the
loans made by them and guaranteed by
41'illed
services exceeded the legal limit.
Messrs. Eccles and
McKee stated that Mr. Wyatt had received
9'66
5118/42
-16-
4 letter
from Representative Sumner, written at the request of the
Rouse Banking and Currency Committee, asking that Mr. Wyatt draft an
aillenclnient to the
Murray Bill which would exempt from the limitations
"
°I.
4.°11 5200 loans made by national banks to the extent that the
loans
were guaranteed by the Federal Government, and that a letter
eliel°3ing alternative drafts of such an amendment had been prepared
tor
.
". Viyatt's signature
which would go forward today.
*. McKee inquired whether it might be desirable to have repre"titatives of the War and Navy Departments and the Maritime Commission
attend
a meeting
of the Board and the Council this afternoon for the
PlIrPose
of discussing some of the problems that had
arisen in connectiori _
41th
operations under Executive Order No. 9112. It was agreed,
ever,
that these matters should first be discussed by the Board
th the
Council,
following which a determination could be reached
Itether
it would
be helpful to have a discussion with representatives
of the
services.
Thereupon, the meeting recessed and reconvened at 2:45 p.m.
Ilith the eame attendance as at the morning session except that Messrs.
0
1cierlweiser and Fleming were not present and Mr. Vest, Assistant
-erieral
Counsel, and Mr. Cravens, Administrator for the War Loans Comktttee, were
in
attendance.
:
Brown stated that it had come to the attention of the
'Llcia that
the War and Navy Departments were now deleting the
Cit.)
5/18/42
-17-
e°141ter-claim clause in Government, contracts for war materials before
,
they
1Nou1a recognize an assignment of claims arising under the contract,
arld that it was felt that if this practice were persisted in it would
aCt as a major
deterrent to the financing of the war effort.
Chairman Eccles suggested that the Council present the matter
to
the
armed
Board formally with the request that it take it up with the
services, and Mr. Brown stated that the Council would be glad
to do so.
Chairman Eccles referred to the discussion at the morning ses8411 with
respect to the position taken by the System in connection
With the
use of
registered securities in the war financing program and
the
cation during the discussion that the Council as such had
11(3tgiven co
nsideration to that matter. He said that, as one member
°t the
Board, he would
like very much to have the Council give some
thNht to
that phase of the problem as it was felt that it had a very
141Po/tent b
earinP on the whole financing program.
Mr. Brown
inquired whether it was still proposed to issue the
411g-term
tap issue
which was mentioned in the program submitted to the
(1.1481117 on
January 28, 1942, and Chairman Eccles replied that the inkediate
need for such
a security had been met by the 21 per cent tap
recenqy offered.
Mr. Brown stated that, in accordance with
Ch411111 Eccles'
request, the Council would be glad to consider the
4qr
"
--1-itY of a
short-term tap issue and advise the Board of its
1INtion in
the matter.
5118/42
—18—
Mr. Brown then stated that in the opinion of the members of the
°QUI-tell the principal obstacle to the effective participation of banks
financing
under Executive Order No. 9112 and the Board's Regula—
tion D.
" was the reluctance of prime and subcontractors to place them—
selves
In a position where, if the war should terminate and the con—
tram-
were
partially finished, the contractors would find themselves
—Leposition of having large amounts of partially finished material,
141'ee expenditures
for plant conversion, commitments to buy, obliga—
ti°118 in manY cases my times their net worth or capitalization only
134t of
which might be guaranteed by the Government, so that even if
theguaranteed portions were taken up by the Government contractors
1'4)1114 still be in
a position where they would not be able to reconvert
their
Plants to
peace—time operations for a considerable period of
t e
During a discussion of this and other related points, Mr. Brown
etated that
the Council felt that there had been some indication on the
1314t °f the
Board that banks had not cooperated in the financing of war
°11tracts as
wa:ffectively as they could have done. It was made
clear
that
there
no such feeling on the part of the members of the Board.
Mr. Go
ldenweiser entered the meeting at this point.
NIsed
Mr. Cravens
discussed the provisions of sections 5 and 6 of a
Unif°rm form of guarantee agreement which had been designed to
okove so
of the
difficulties in the event of cancellation of a contract.
5118/42
-19-
He said that the present draft of agreement had now been agreed upon
by
the War and Navy
Departments, the Maritime Commission, and the Tar
Production Board and incorporated practically every suggestion that
3
41(lbeen received for the protection of the financing institutions
44(11
'
1°111d make financing operations infinitely easier than had been
the case
under the first draft of the agreement.
Chairman Eccles stated that it was felt that practically everyt
g had been done
that could be done for the protection of the banks
making loans
to finance the war effort, and that it was his personal
view* that
the banks would be much better off if they made these loans
(3r1 this basis
than they would be if the Government were made to feel
that it would
have to do the financing of war contracts itself.
Mr. Brown stated that the point the Council wished to make
that
the
arrangement would not work unless contractors, whether
the3rw
ere Prime or subcontractors, were willinTz to finance their operations
urlder the
arrangement, and that as long as they felt there was
41.1Y po .
8sibilitY of having the financing done by advances from the Gov—
rather than by
loans they would hold out for that type of fisaid that until that problem was solved the banks would
40t hair
e much
opportunity to do much of the financing.
eet „
Chairman Eccles questioned whether it would be possible to
111Pletely away
from advances as a means of financing war orders
'Elted that,
althouph it was hoped that the granting of loans
5/18/42
-20-
4tIdgIlarantees under Executive Order No. 9112 -would work toward a re-
in the number of advances, and the services would endeavor to
advances wherever possible, they would not refuse to make an adif they could not keep production going in any other way.
Following a discussion of individual cases referred to by
Illenibers of the Council of applications for loans, Chairman Eccles
stated
that the Board was
not critical of the effort of the banks
in this field, that the whole idea had been to decentralize the proel'aIti as much as
possible and utilize the banking facilities of the
eelltitrY, and that it was
hoped by this procedure to save the Governtent a
considerable amount of money and assist the banks throughout
the e011.ntrY by affording them an opportunity to make war loans. He
44° "Pressed the
opinion that in cases where applications were made
'
1)S individuals
or concerns without experience, capital, or integrity
theY should be
turned down no matter what the terms of the proposed
4anmight be.
lir, Cravens stated that the sections of the War and Navy Detents and
the Maritime Commission having responsibility for operat4ria
under
Executive Order No. 9112 were new and in the stage of
°111124ti°n, but that they had shown a most cooperative attitude and
114(1 been
entirely Vlljg in all cases to reconsider any conditions
had be
en applied whenever it was shown that such conditions were
11°tPracticable and should
be adjusted.
Br(mn inquired as to the reason for the policy requiring
971
5/18/42
that a
-21-
subcontractor borrow to finance his requirements when the prime
contractor, who had obtained an advance from the Government but was in
a P"iti011
to borrow without obtaining a guarantee, was lAlling to ad-
vance
funds to the subcontractor. Mr. Cravens stated that he had heard
qflo i
nstance in which there had been objection to such advances by
the Prime contractor but
that, since the services were under obligation
to
see that
advances by the Government were used for proper purposes,
they might
object to advances to the subcontractor in cases where there
Was some
inherent weakness in the corporation itself.
Followin
7
c. a discussion of the volume of loans that had been
4144 since
the adoption of the Executive Order and Regulation V, Mr.
Ilrown
stated that there
were certain applications for loans in connection
with which
the moral and financial risk was such that the banks
11("1.11c1 not
make the loans, and Messrs. Eccles and McKee stated that
cases of
this kind should
go to the Reconstruction Finance Corporatto
ri.
In response
to an inquiry, Mr. Cravens stated that the servs
had made
tee
there w_s
d•
one or two direct 100 per cent loans in cases in which
no basis for
bank participation but that these were being
'
estIraged as
much as possible,
The
which he
discussion was concluded by a statement by Chairman Eccles
expressed
the opinion that it was important that the banks
-Pate In
making war loans under the provisions of the Executive
972
5118/42
-22-
%ter nt, .
-the Board's regulation and that they give their best efforts
11 an attempt to
make the program succeed.
Mr. Brown replied that the
bailk8 were anxious
to have it succeed and were doing all they could in
that.
There was unanimous agreement that it
would not be necessary at this time to have
a meeting of the Board and the Council with
representatives of the services.
Thereupon the meeting adjourned.
logatu,hn
Chairman.
trIAlt".
Cf
1..
7
Secretary.
@FedFRASER