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1011 A meeting of the Board of Governors of the Federal Reserve SYsteni Was held in Washington on Friday, May 22, 1942, at 11:30 PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Fccles, Chairman Ransom, Vice Chairman Szymczak McKee Draper Evans Mr. Morrill, Secretary Chairman Eccles read the following letter dated May 19, 1942, Which he had received on May 21, 1942, from Secretary of the Treasury )4or genthau: ti an examination of the Continental Illinois -eNaBank and Trust Company of Chicago, a situation has l'°rIls to light about which I think you should be advised. enclosing herewith excerpts from the examination rechl ' a;;' from which you will note that Mr. Frank J. Lewis, Chicago, hasthe Board of the Federal Reserve Bank of been tu4 securities, placing large subscriptions to Governborrowing a part or all of the ten per the eel d0wn Payment required of the Continental Bank, and beW selling his securities received on allotment to that ' I or a substantial profit. ,I shall welcome an expression relative thereto from -s Board of Governors." The excerpt accompanying Secretary Morgenthau's letter was also l'e4(13 ancl in the discussion which ensued all of the members of the Board 17el'e 4greed that, while apparently not illegal, the transactions referred were hig t()hly unethical in view of the position of Mr. Lewis as Class C 4 1 1,e krketor and Chairman and Federal Reserve Agent at the Federal Reserve or ChicaC° Which, inlai et ni ton to its relation to the System open r4alltet account, was fiscal of the Treasury in connection with the .11atee and ma rketing of Government securities, and in view of the 1012 51 /42 -2ilr ' ther fact that the transactions involved loans by a member bank the chairman of which was also a director of the Federal Reserve Bank of Chicago6 At the conclusion of the discussion it was agreed: 1. That Chairman Eccles should communicate with Mr. Lewis as soon as possible for the purpose of arranging with him to come to Washington in order that the Board might obtain his resignation; 2. That Mr. Cagle, Assistant Chief of the Division of Examinations, should go to Chicago as soon as possible, preferably arriving there on the morning of Monday, May 2 , 1942, to make an investigation with a view to determining the possibility of other persons or institutions, not mentioned in the excerpt from the report of examination of the Continental Illinois National Bank land Trust Company, having knowledge or being i mplicated in any way; 3. That Chairman Eccles should advise President Young of the Federal Reserve Bank of Chicago of these developments; and 4. That Chairman Eccles should advise Secretary Morgenthau of the receipt of his letter and the action taken by the Board. At 41,4 '"J'S 411(ikr. point, Messrs. Bethea and Carpenter, Assistant Secretaries, Clayton, Assistant to the Chairman, came into the meeting, and acti0 the r1 stated with respect to each of the matters hereinafter referred t° taken by the Board: The minutes of the meeting of the Board of Governors of the Nteralli,eserve System held on May 21, 1942, were approved unanimously. Telegrems to Messrs. Hays and Dillard, Secretaries of the Fed.I'lleeerve Banks of Cleveland and Chicago, respectively, and Mr. Ckicilveli.' Chairman of the Federal Reserve Bank of Kansas City, stating l01:3 5/22/42 0 thet the Board approves the establishment without change by the Federal Reserve Bank of Kansas City on May 20 and by the Federal Reserve Banks of Cleveland and Chicago on May 21, 1942, of the rates of discount and purcivlse in their existing schedules. Approved unanimously. Telegram to Mr. Leach, President of the Federal Reserve Bank of Richillond, stating that the Board of Governors approves for the Bank the foliolying rates on advances and commitments under Section 13b of the Fed"al Reserve Act and the establishment without change of the other rates qclisecunt and purchase in the Bank's existing schedule, effective May 23 '1942: A ylci evances made direct to industrial or commercial busict!ses, including advances made in participation with "er financing institutions - 21 to 5 per cent. C° me_Iranit c. ments to make advances direct to industrial or comnLlal businesses 10 to 25 per cent of loan rate with ' 3-1111-11n of 1 per cent. Advance over 4, 8 -0 financing institutions, including loans taken 1. 10'110m financing institutions under commitments. ''rtion for which financing institution is obligated 2. 11 rate charged borrower less commitment rate. erna g portion - rate charged borrower. COt to make advances to financing institutions which that no commitment shall be given ona loan on cent) UOrrMer is charged more than 5 per - 10 to 25 4" ' 4 cent of loan rate with minimum of per cent. Approved unanimously. Tele gram to Mr. prancisco, Hale, Secretary of the Federal Reserve Bank of the r stating that the Board of Governors approves for the Bank °1411ing rates on seoel.,4 advances and commitments under Section 13b of the 1 Reserve Act and the establishment without change of the other 1014 51122/42 -4rates °f discount and purchase in the Bank's existing schedule, effective lta•Y* 23, 1942: On advances direct to industrial or commercial organiza— tions, including advances made in participation with Other , -P4-Lnancing institutions — to 5 per cent. On advances to financing institutions: 1. Portion for which financing institution is obli— at : t. c1 — rate charged borrower less commitment 2, Remaining portion — rate charged borrower. On CO ',willmatments to make industrial advances: ." Direct to industrial or commercial organizations — 10 to 25 per cent of loan rate with minimum of 2, To per cent. financing institutions (provided that no commit— ment shall be given on a loan on which borrower , is charged more than 5 per cent): ;a) portion of loan — 4 per cent. ( p) Undisbursed Disbursed portion of loan — 10 to 25 per cent of loan rate with minimum of 1 per cent. r Approved unanimously. Me morandum dated May 19, 1942, from Mr. Pager, Chief of the Divi&Zonations, recommending that, effective as of the date upon he enters upon the performance of 10 his duties, James Knight be ap— itited as an A ssistant Federal Reserve Examiner on a temporary basis, With sala ry at the rate of , 4t 01,4 q,600 per annum, and with official headquarters acso, Illinois. Mlich BY unanimous a vote, Mr. James Knight was ,PPcinted on a temporary basis as an LO examiner —a.mxne Federal Reserve of the Banks, member banks Federal Reserve System, and corporations anIng under the provisions of Sections 25 n -- A5(a) of the Federal Reserve Act, for all ;Ijposes of the Federal Reserve Act and of all marbactT, of Congress to examinations Y, , lor, or under pertaining Boar Y the direction of the r`' of G overnors of the Federal Reserve 1015 5/22/42 -5System, and was designated as an Assistant Federal Reserve Examiner, with official headquarters at Chicago o Illinois, and with salary at the rate Of ft,600 per annum, all effective as of the date Upon which he enters upon the performance of his duties, Letter to Mr. Peyton, President of the Federal Reserve Bank of ItiruleaPolis, reading as follows: " G cersover,Referring to your letter of May 15, 1942, the Board of " °r8 approves payment of salaries to the following offiof the Bank for 19L,1 the period July 1, 1942, to May 31, inclusive, at the rates fixed by your Board of Directors: Annual Name Title Salary H. C7753, Personnel Officer 7,000 G. e t± H. McConnell Assistant Vice President 7,000 Turner Assistant Cashier 5,000 Larson Assistant Cashier 5,000 Ohnstad Auditor 5,000" Approved unanimously. Letter to Mr. Caldwell, Chairman of the Federal Reserve Bank of IC141s8 City, reading as follows: "Referring to IG4)vernors app roves ij),cers of the Bank --s rates fixed by your letter of May 7, 1942, the Board of payment of salaries to the following offor the year beginning June 1, 1942, at your Board of Directors: Annual R. r Title Salary R. Leedy President 20,000 j °$ Koppan v. 17, Heim , First Vice President 13,500 Vice President and Cashier 13,200 I), W°011ey Vice President and Secretary 8,500 I'krA P * 148, Jr. Assistant Vice President 8,000 Assistant Cashier 7,200 17m.111‘phillips rark Assistant Cashier 6,500 T' Bruce Assistant Cashier 5,500 Robb Manager, Research and A. Statistical Dept. 6,000 Wardell SI Auditor 8,500 1016 5/22/42 -6"Name ) .1Terl, vse ra l-_19.4 t. Olson 8. A. Drown H. L. Stempel Q.44.119 .....Q L. B. Mathes Davenport h Br Title 2 Annual Salary Managing Director Cashier Assistant Cashier ',,l0,000 Cashier Assistant Cashier ,(:t 5,000 3,600 3:2(0 L. H. Earhart Managing Director 10,000 G. 1" O. P. Gregory Cashier 6,000 Cordill Assistant Cashier 4,800 Prepared"The Board has requested me to that advise you it sEtt 0 at this time to approve the salary fixed by your Board ci,ulrectors for Mr. G. H. Pipkin, Managing Director, Oklahoma yeZ Branch, but approves payment of a salary to him during the • fix.a beginning June 1, 1942, at the rate of ,t8,500 per annum, lf e" by your Directors at such rate." Approved unanimously. TelegraM Or pi --7eland, to Mr. Hays, Vice President of the Federal Reserve Bank reading as follows: "in answer to Charge your wire of today. Any interest rates 5,d on loans under Executive Order 9112 in excess of or'l* cent whether after maturity or interest on Interest" railiii°th ! livisey will be regarded as a violation of the maxiraues e stablished by the Board." Approved unanimously. Telegr,_ curl to Mr. Of Lon- 're, Director of the bar Production Loan Agency peciera the1 Reserve Bank of St. Louis, reading as follows: that "Retel may 21, as standard procedure, would prefer 18 e P°rm P*11- 577 be forwarded to Board on date guarantee tiojecuted and mailed or delivered to financing institut° *e,, n case You refer to it will not now be necessary to Form F.R. Ilotat' " i ln°is Tool and 577 covering 1'7,500 guarantee of loan Machine Company. Suggest, however, that Port -0:°n °f ca ncellation of original guarantee be made assigned on 7411Mbe,, -°vering 4,800 guarantee. guarantee may guarantee." be Such -' Previously assigned in your office to 44'7,500 Approved unanimously. 1017 5/22/42 -7Letter to Mr. Phelan, Assistant Vice President of the Federal Resew've Bank of New York, reading as follows: mr "There is enclosed herewith a copy of a letter from J. Brett, Editor, Fur Trade Review, of May 15, 1942. Y °ur cooperation in answering Mr. Brett will be appreciated. ,,APparently Mr. Brett's inquiry relates to section * covering lay-away plans. However, it seems obvious _at lf delivery of a listed article is not made until full Payment has been received, no extension of credit would be olved. It would also seem unobjectionable to delay delisted article until payments by the customer the required down payment provided the remaining balance be put on an instalment basis complying with the • IV* T ."Mr. Brett has not been advised of our reference of Inquiry to you." Approved unanimously. Letter to Mr. Hays, Vice President and Secretary of the Federal erve 4K of Cleveland, reading as follows: in " Reference is made to your letter of May 14, 1942, Y°u call attention to the fact that, under Regutra.„ .— 1 " a8 it now stands, a dealer may sell a house on whatever instalment terms he chooses, while a mia;; 1 4 or other lending institution is limited to a maxia trnritY of 12 months if it makes a loan to purchase that-4_,er in an amount of less than $1,500. You suggest ' of th'ue Board might give consideration to the amendment : , r egulation so that such loans would be exempt. Board give is glad to have this suggestion and will befor careful study. It relates to a problem which is be cr,e several other government agencies and they will therlaulted. In the meanwhile, if you develop any furthe- :Lacts on the subject the Board would like to have ' °rought to its attention." 4 Approved unanimously. Letter to the Attorney General, reading as follows: 1018 5/22/42 -8"As you know, pursuant to the authority contained in the ecutive Order issued by the President on August 9, 113941 (Federal Register, August 13, 1941, Page 4035), the Board of Governors of the Federal Reserve System some time -g° issued its Regulation IV relating to consumer credit. "The Board has felt that persons subject to the regul-ation should have a reasonable time within which to familrize themselves with the application of its provisions R2d uP to this time, therefore, the Board and the Federal C os?rve Banks have relied largely on educational activities la bring about compliance with the requirements of the regut,1°11- However, it is felt that it is now appropriate for and the Federal Reserve Banks to take additional sitle Board i_eps to deal with violations of the regulation. Accordthe Board has prepared a program outlining steps et_ich.it feels at this time should be taken to enforce e 13n 3 Z With the requirements of Regulation W. There copy of this program, together with a copy l letter Fea which the Board proposes to send to the various wt;Tral Reserve Banks, and it will be appreciated if you to' se whether or not your office has any objection Lt,nadvie Board's program as outlined in these documents." r Approved unanimously, together with the following letter to the Presidents of all the Federal Reserve Banks, which it was understood would be sent upon receipt of advice from the Department of Justice that it had no objection to the proposed plan of enforcement: "Under date of October 10, 1941 (S-368), the Board Wrote viol i.Y°u with regard to obtaining corrections of apparent lati i°118 of Regulation VI. It was assumed that most vioas C8 were the result of inadvertence or misunderstanding °ti the ';„ meaning of the provisions of the regulation. ' -inoe that time many Registrants have had an opporther '7 to familiarize themselves with the regulation and tha , e,InaY be instances where violations are willful rather re,2,tezhe r -1 -,8`4-1t of inadvertence or ignorance. The Board grZ pat it has a responsibility to provide such a Fovrith enforcement as will bring about general compliance "e requirements of the regulation and in some degree Prey.ent Willful violations. To this end, the Board has 1019 54W42 -9approved a program of enforcement, a copy of an outline of which is for action enclosed. Certain parts of the program cal by the various Federal Reserve Banks, and it is requested that your bank proceed in accordance with this Program. "After consultation with representatives of the DePartment of Justice it has been decided that, for the Present at least and in the absence of exceptional circumstances, violations will not be reported to the DePartment of Justice in the first instance. However, in lepases where the _! instituted, circumstances warrant, proceedings will as set forth in the outline, to determine onether or not the Registrant's license should be susd. The Board may wish to bring some of the cases the latter category to the attention of the Department At justice for possible prosecution by that Department. the present time, however, it is desirable that every ofort be made to secure compliance on the part of perco2 having obligations under the regulation, and it is uemplated that criminal action will he taken only in Cases 4lnvolving willful and aggravated violations. ln connection Closed with subdivision II(B) of the enof , Program relating to proceedings for suspension tem 4--cense in the case of willful violations, it is concovipl'ated, of course, that if any case should be dislatr'ed where the failure of a person subject to Reguof 4t-171.1V to comply with the registration requiremelts a tulle r egulation is apparently willful, you will make orde te r report of the facts in such case to the Board in that it ,11 . 1.g the case to the attention of the part lim,ent = of respect to subdivision I(A)(3) of the enclosed pro4 101;am relating to solicitation of the cooperation of not tis,uPervisory agencies, it is suggested that your bank 8teps to work out a program with such agencies i-).1.i.the Bo Board has reached agreement with the Federal elgselt Insurance Corporation, the Comptroller of the I entincY, etc., with respect to their cooperation as it ma°ned under subdivision I(A)(2). In this connection, cont,Y be mentioned that it is contemplated that in our of sZet t: with the National Association of Supervisors a e Banks we will solicit their cooperation at this a rkAmpi,,OnlY as to banks. However, it is believed that in er of States the bank supervisory agency also :r 1020 5/22/42 -10u tsupervises and examines other classes of lenders subject ao R egulation V. We will advise you as soon as practicable 8 . t,0 the agreements we have reached with the Federal De'1osit Insurance Corporation, the Comptroller of the Currency, etc., and in the meantime you may wish to contact iLle bank supervisory agencies and any other similar agencies 1:,Your district to 61°n W other than determine what lenders subject to Regubanks come under their jurisdiction. ,r "The Board desires to emphasize that the enclosed progam of enforcement is not intended to diminish in any way thee educational activities of your bank with regard to the BeTtlrements of Regulation;ç through trade associations, .er Business to i Bureaus, the press, by furnishing speakers nterested groups, or by any other appropriate means." Terlh Letter to Mr. L. P. Harrington, Secretary, Phil A. Halle, Memphis, e, reading as follows: reN "This will acknowledge your letter of May 15, 1942, rring to a problem you are faced with under the pro00--°fle of the Board's Regulation 17 concerning charge ac25tht You point out that you close your books on the da„.2 °I each month and purchases made during the last five pigh:fsetshe month are billed with the following month's A_ e "YOU will understand, of course, that the regulation require 4J-endar month, a merchant to bill as of the end of the It merely provides that if the purchases thea-V calendar month are not paid for by the 10th day of re.12.48.ee°nd calendar month thereafter the account is in de' Hand must be treated as provided in the regulation. clu_. Some merchants, we understand, have come to the concat it would be more satisfactory for the merchant othe et_ customer to bill as of the end of the month while but "ave found ways of continuing their present practices ? ment-"°ing their customers of the regulation's requireall s.;# 1°Ten if you did not change your own practice at Would seem that the customer would receive a bill if "?se items he prior to the time that he must pay for them Is to avoid default. stI?,u may be sure that this problem is having our carerule but our study so far indicates that the present "ails !Probably preferable on the whole to any of the aule alternatives. 1.021 5/22/42 th "Administration of Regulation 1; is decentralized among e Federal Reserve Banks and their branches, and since u are , the Federaln district served by the Memphis Branch of the _ Reserve Bank of St. Louis, it is suggested that any purthsr communication you may wish to send on the subject se a ddressed to that office. The address is 3rd and Jefferon Streets, Memphis, Tennessee." T Approved unanimously. Letter to Mr. John Burgess, Vice President of the Northwestern National B and Trust Company, Minneapolis, Minnesota, reading as follows: "The Board wishes to thank you for the constructive sugge • publis sitlion in your letter of May 12, 1942 that the Board which would tell persons subject to • a Pamphlet Regulaf-10n W what they 'can' and 'can't' do under its kerms. 1 , ,ei "The edulc: 3 Trilgis particularly concerned about the prob? Registrants as to the regulation's reuhlrements. It recognizes that a regulation which has tt :force of law and must be worded accordingly is someeso iffioult for a person not a lawyer to understand. a b 'auch attention has been given to this problem, and No ( P:klet of the kind you suggest has been considered. a dciltleorsiclusion has been reached. There are several ) however. One is that the statements made tionnever be quite as precise or complete as the regulaof diff ' Another is that the regulation covers a number L.:!nt types of business, and what is of interest to one 7 4,1Pe is not intor The Board of interest to another. has seen much evidence to indicate that, best persons in each branch of the trade would knov,f most mecl how to select and edit the questions and answers o the bsiFnificance to that branch. In the banking field, 0041et brought out by the American Bankers Associa“ when Regulation Viwas first issued seems to have been need f 1, 13eful -- but we have been told that they doubt the eems: r revising that booklet since the regulation now be better understood than it used to be. 1Zati Important factor in the situation is the decentralpA on of the -der, ]. administration of Regulation Ti among the Reserve Banks and their branches, each of which is 1022 51122/42 -12H3CPeeted to use appropriate means of educating the Registrants in its own territory. "You may be sure that the problem will have continuing St udY on the part of the Board and its staff." Approved unanimously. flg as Letter to the Presidents of all the Federal Reserve Banks, readfollows: "Pursuant to the request contained in the Board's let Banitcer S-202 of January 24, 1940, the Federal Reserve s have been furnishing the Board of Governors with i;11.hly reports, form F.R. 494, of Federal Reserve Bank hei cers' and certified checks which apparently had been coil f°r a period by other banks, had been pledged as d a'eral for deposits, or had been turned over to bank eosit 01-3 who apparently had no intention of promptly terserlting them for payment. As indicated in that letthe idea of reports were requested in order to afford some the effect of this practice upon the amount ol 0asits subject to reserve requirements under der Section p7e,,Llend to insurance 12B of the Section under assessments T Reserve Act. inri.; These reports are no longer needed for the purposes ,,,r4-cated and, ---, tier,ttaccordingly, th they need not be prepared here- g 7 Approved unanimously. Thereupon the meeting adjourned. Chairman.
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