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77S Minutes of actions taken by the Board of Governors of the Federal Reserve System on Tuesday, May 31 1949. The Board met in the Special Library at 2:50 p.m. PRESENT: Mr. Mr. Mr. Mr. Mr. McCabe, Chairman Eccles Szymczak Vardaman Clayton Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Riefler, Assistant to the Chairman Vest, General Counsel Leonard, Director of the Division of Bank Operations Mr. Millard, Director of the Division of Examinations Mr. Mr. Mr. Mr. Mr. Mr. Before this meeting the Presidents of the Federal Reserve Bawl, submitted a memorandum covering topics discussed in their 4Parate meeting on May 21 19491 which were to be reviewed with the B041.4 . in the joint meeting to be held today at 3:30 p.m. The mat— tOrs were discussed and it was understood that responses would be kade sUbstentially along the lines recorded in the separate minutes °r th,t theWi Mr. Szymczak inquired whether the Board should discuss Presidents at the joint meeting the recommendation approved bY the Personnel officers of the Federal deserve Banks at their l'ecent.np4; 111-- Q1:11g at Atlanta with respect to the regular meetings of 811ch of?. -leers. It was agreed that the matter need not be discussed this time. 779 5/3/49 -2Mr. Nelson raised the question whether the suggestion of the 80Etrd that two of its members or a member of the Board and its staff be selected as associates of the Investment Committee of the Federal Reserve Retirement System would require an amendment to the Rules 44d Regulations of the Retirement System. It was the view of those Pr'esent that the Rules and Regulations should not be amended and that the suggested association should be an informal one. At this point Messrs. Riefler, Vest, Leonard, and Millard with drew and the action stated with respect to each of the matters hel'einafter referred to was taken by the Board. Minutes of actions taken by the Board of Governors of the Fecle 11E11 Reserve System on May 2, 1949, were approved unanimously. Letter to Mr. Gidney, President of the Federal Reserve Bank or Cleveland, reading as follows: "In accordance with your letter of April 25, 1949, :11,d uPon the basis of the understanding stated therein, :le Board of Governors approves the payment of a retainer ;ee at the rate of $5,000 per annum to the firm of Squire, .4.anders and Dempsey as Counsel for the period from May 1 rough December 31, 1949." Approved unanimously. Letter to the Honorable Maple T. Han, Chairman of the Fed- /3eP0sit Insurance Corporation, reading as follows: For some time the Board has had under consideration the a, question whether trust funds held by a member bank 4:lch are commingled and placed in a single deposit ac'U the bank's own banking department may properly 7Si 5/3/49 -3- "be classified as time deposits for reserve purposes under the Board's Regulation D. "The auestion arose several months ago as the result of the adoption by a New York trust company of a practice under which a portion of trust funds previously deposited in its banking department on a demand basis was reclassified as a time deposit, open account, another portion was reclassified as a savings deposit, and the remainder was continued as a demand deposit. Generally speaking, the Portion of the funds of any particular trust included in each of these deposit accounts is not specifically identified. As the result of some publicity given that case, a number of member banks in other parts of the country have adopted, or have considered adopting, a similar practice. In some of the New York cases, interest is paid by the banking department on the savings deposit and on the time deposit, open account, but only in an amount sufficient to Permit the trust department to credit interest on the funds of certain court trusts with respect to which interest is required to be paid under State law; and consequently the trust department does not credit interest to all trust acwhose funds are included in the time and savings „ clePosits. In other cases it is understood that the trust lunds are deposited on a time basis without provision for Payment of any interest. "The Board gave some consideration to the possibility 1/ taking the position that trust funds so deposited in fe banking department may properly be classified as time Posits if the portion of trust funds placed in such a , ePosit is determined on the basis of an estimate of the ;ggregate amount of trust funds which will not be needed 1,7 disbursement by the trust department within the near f4._ture, notwithstanding the fact that there is no identiJ-eetion of the interest of each trust estate in such dePosit. tot s After careful study of the matter, however, it has is amed desireable to adopt this position, and the Board (n(Yw considering an amendment to the Board's Regulation tl.,0I1t1 a similar amendment to Regulation Q) under which e deposit of trust funds on a time basis in the banking eaP O ! 4 rtment of a member bank would be permitted only if tru" time deposit account includes the funds of a single or if the records of the bank show the interest of a;un trust in such deposit account. A copy of the proposed endment to Regulation D is enclosed. r 4 I. 5/3/49 —4— “The Board has requested the Federal Reserve Banks to submit any views which they may have regarding the proposed amendment to the Board's regulations with the next 30 days with the thought of publishing advance notice of the proposal in the Federal Register as promptly as possible. The Board will be glad to receive also any comments Which your Corporation may care to submit with respect to this matter.” Approved unanimously, together with a similar letter to the Honorable Preston Delano, Comptroller of the Currency. Letter to the Presidents of all Federal Reserve Banks, reading as follows: "A Federal Reserve Bank has reported the case of a registrant whose business consists entirely of selling vacuum cleaners at a price of less than OM. An investigation recently completed showed violations of both the d°1411 payment and maturity provisions as they existed prior to Amendment No. 4. However, in view of Amendment No. 4, tensions of credit in connection with the sale of vacuum cleaners in this price range are no longer subject to the yegulation. The Reserve Bank considered that this regis;rant would normally have been classified on report form R. 639 as a Class B violator and would have been called for a disciplinary conference. ta "Since the purpose of disciplinary conferences and, fact, the overall purpose of the enforcement program to obtain compliance with the provisions of the regulalal°11, the Bank decided that a disciplinary conference should ,?t be called in this case. However, the Bank felt that should not remain silent about the violations in past nsactions and decided to write the registrant asking for 1Pl anati0n5 of the violations and to obtain assurance from a e.registrant that in the event its business operations arin became subject to Regulation WI because of the hanthing, of higher-priced merchandise or further changes in gulation's provisions, it would comply strictly with the re 1.* gulation's terms. pro 'The question arose as to how the violator should tA, PerlY be classified on report form F. R. 639. Since -e number of such cases where registrants handle exclu- 7 c 782 5/V49 -5- m sively articles costing less than 0_00 will be small, such violators should not be reported as either Class A or Class B but should be commented on under item '1' of the additional information required on form F. R. 639." Approved unanimously. Letter to the Presidents of all Federal Reserve Banks readtrig as follows: "In reply to a recent inouiry concerning Regulation W, the Board has issued the following interpretation: "The Board has been asked whether an arrangement emPloYed by a Registrant to promote the sale of listed articles is permitted by Regulation W. The Registrant delivr,rs t? a customer - a prospective purchaser- a used listed artl:cle pursuant to a so-called 'rental contract' of indefi/Islte duration, but terminable by the customer or by the .legistrant upon default in the agreed monthly rental charge. :9:though such contract indicates that the article so delivered is not for sale, the Registrant agrees to give the Ilstomer as a credit on the purchase price of a new, simi! .-.ar listed article, a sum equal to the first five monthly ! Ilstalments of rent, should the customer decide to purchase 714-1 new article. The case as presented shows that approxi7:telY 85 to 90 per cent of the rentals result in purchases, J Per cent of which are on an instalment basis. "Viewed in the light of all pertinent facts and conferations, arrangements of the foregoing nature look tothed negotiation of sales and, at the outset, should with the requirements of section 6(g) concerning i171.11verie5 in anticipation of instalment sales. AccordglY, the Board's view is that arrangements of the type question are not permitted by the regulation." Approved unanimously. tio Fie Letter to the Presidents of all Federal Reserve Banks, readfollows: "In reply to a recent incuiry concerning Regulation W, Board has issued the following interpretation: "The Board has been asked whether a certain arrangeten+ " lor the promotion of sales of listed articles by a the 5/3/49 -6- "Registrant is permitted under Regulation W. The Registrant sets aside for a customer a new listed article which is not to be delivered until there has been an accumulation of the required down payment on that article. For the custarlier's use in the meantime, however, the Registrant delivers another, similar listed article to the customer Oh loan. Although there is no rental agreement between the parties, the payments made by the customer towards the required down payment on the new article set aside are entered in the Registrant's records as 'rental allowor 'reconditioned allowance'. . "In the Board's view, such an arrangement is not permitted by the regulation. The delivery of the article for the customer's use pending accumulation of the required dOwn payment on the new article set aside precludes such '?-xl arrangement from any benefit of section 6(e) concernirig bona fide 'lay-away' plans. Furthermore, viewed in Idle light of all pertinent facts and considerations, such z!i . I1 arrangement would be contrary to section 6(g) or sec11 Yn 6(i) concerning, respectively, delivery in anticipalcrn of an instalment sale and evasive devices." Approved unanimously. APProved:
@FedFRASER