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899
A meeting of the Board of Governors of the Federal Reserve
System
was held in Washington on Friday, May 8, 1942, at 12:45 p.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Eccles, Chairman
Ransom, Vice Chairman
Szymczak
McKee
Draper
Evans
Mr.
Mr.
Mr.
Mr.
Morrill, Secretary
Bethea, Assistant Secretary
Carpenter, Assistant Secretary
Clayton, Assistant to the Chairman
The action stated with respect to each of the matters hereinafter
referred to was taken by the Board:
The minutes of the meeting of the Board of Governors of the
Federal Reserve System
held on May 7, 1942, were approved unanimously.
Telegrams to Mr. Treiber, Secretary of the Federal Reserve
Bel*of New York, Mr. Leach, President of the Federal Reserve Bank
of Richmond,
Messrs. Dillard and Stewart, Secretaries of the Federal
Reserve Banks of Chicago and St. Louis, respectively, Mr. Ziemer,
Vice
President of the Federal Reserve Bank of Minneapolis, Mr. Stroud,
First Vice
President of the Federal Reserve Bank of Dallas, and Mr.
Hale q
3 -ecretary 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 on May 5, and by the Federal Reserve
/3ankp
oi New York, Richmond, Chicago, St. Louis, Minneapolis, and
aalla.s on
May 7, 1942, of the rates of discount and purchase in their
e("isting schedules.
Approved unanimously.
S;00
5/8/42
-2Telegram to Mr. Hays, Secretary of the Federal Reserve Bank
of Cleveland, stating that the Board of Governors approves for the
Bank the following rates on advances and commitments under Section 13b
of the Federal
Reserve Act and the establishment without change of the
Other rates of
discount and purchase in the Bank's existing schedule,
effective
May 8, 1942:
On advances direct to industrial or commercial organizations, including advances made in participation with
other financing institutions - 2-1/2 to 5 per cent.
On advances to financing institutions:
1. Portion for which financing institution is obligated - rate charged borrower less commitment
rate.
2. Remaining portion - rate charged borrower.
On commitments to make industrial advances:
1. Direct to industrial or commercial organizations
10 to 25 per cent of loan rate with minimum of
1/2 per cent.
2. To financing institutions (provided that no commitment shall be given on a loan on which borrower is charged more than 5 per cent):
(a) Undisbursed portion of loan - 1/4 per cent.
(b) Disbursed portion of loan - 10 to 25 per
cent of loan rate with minimum of 1/2
per cent.
Approved unanimously, together with
a telegram to the Presidents of all the
Federal Reserve Banks, except Cleveland,
notifying them of the above rates.
Letter to Mr. Bryan, First Vice President of the Federal Reserve
Bank
of Atlanta,
reading as follows:
n The
Board of Governors approves the changes in the
5/8/42
-3-
"personnel classification plan of your Bank and Branches
as requested in your letter of May 4, 1942."
Approved unanimously.
Letter to "Haddonfield National Bank", Haddonfield, New Jersey,
reading as
follows:
"The Board of Governors of the Federal Reserve System has given consideration to your applicat
ion for permission to exercise fiduciary powers, and grants you
authority to act, when not in contravention of State
or local law,
as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee,
receiver, committee of estates of lunatics, or in any
Other fiduciary capacity in which State banks, trust
c?mPanies or other corporations which come into competition with national banks are permitted to act under
the laws of the State
of New Jersey, only in the specific
trusts in which The Haddonfield National Bank, Haddonfield, New Jersey, had been appointed and was acting
on the date the Haddonfield National Bank was authorized
by the
Comptroller of the Currency to commence business,
the exercise
of all such rights to be subject to the
?r:ovisions of the Federal Reserve Act and the regulations of the Board of Governors of the Federal Reserve
System.
f.
"This letter will be your authority to exercise the
;'.-duciarY powers granted by the Board pending the preparation
of a formal certificate covering such authorization,
Which will he forwarded to you in due course."
Approved unanimously, together with
a letter in the following form to Mr. Hill,
Vice President of the Federal Reserve Bank
of Philadelphia:
. "There is enclosed herewith a copy of the letter
!
Iblch the Board has today addressed to the 'Haddonfield
r.rational Bank', Haddonfield, New Jersey, granting that
bank restricted
authority to exercise fiduciary powers
2111Y in the specific trusts in which the former, 'The
Haddonfield National Bank', had been appointe and
d
was
acting on the date the Haddonfield National Bank was
902
5/8/42
-4-
authorized by the Comptroller of the Currency to commence business.
"When the liquidation of the trust department of
the old bank has been completed and the applicant bank
has obtained a clear title to the securities now pledged
with the Prerogative Court for account of the old bank's
fiduciary activities, the Board will be glad to give
further consideration to the application for full fiduciary powers upon receipt of a recommendation from your
bank in the premises."
Telegram to the Presidents of all the Federal Reserve Banks,
reading as follows:
"War Department, Navy Department and Maritime Commission have prepared a proposed standard form of guarantee agreement in consultation with representatives of
the Board.
Proposed standard form is based upon form
now being used
by War Department, in the preparation
of which we
had the benefit of your suggestions. The
latter were very helpful and we will appreciate such
comments, if any, as you may have' on new standard form.
Sections 5 and 6 of proposed agreement are complicated
and longer
than desired, but it is felt that protection
for financing institutions and borrowers in case of cancellations by the
Government is not only equitable but
necessary to insure success of financing program. In
Other respects it has been the purpose of the agencies
!
,
,c. keep the
length and number of provisions to a minimum.
he proposed
standard form is to be used in guaranteeing
financing institutions other than Reserve Banks but it is
contemplated that a similar form with appropriate changes
-11 be used in guaranteeing Federal Reserve Banks on
made by them. Kindly send any comments you may
_
aye by mail or
have
wire to reach us not later than Tuesday,
,"Y 12th, and in making suggestions for changes it will
°e appreciated if the specific language necessary to accomplish the purpose can be set forth. Text of proposed
Standard form follows:"
T
Approved unanimously.
Telegram to Mr. Olson, Assistant Vice President of the Federal
Reserve Bank
of Chicago, reading as follows:
5/8/42
—5—
"Re your wire to Cravens yesterday regarding distribution of guarantees executed on behalf of Navy Department, duplicate copies of Navy Department guarantees, as
well as War Department guarantees, should be forwarded to
Board. Board will in turn turn them over to proper authorities in those Departments."
Approved unanimously.
Telegram to the Presidents of all the Federal Reserve Banks
Prepared by Messrs. Ransom, Szymczak, and McKee in accordance with
the
action taken at the meeting of the Board on May 5, 1942, and read-
ing as
follows:
"Referring to the joint announcement by the Comptroller of the Currency,
the Federal Deposit Insurance Corporation, and the Board of Governors of the Federal Reserve
System with respect to the amortization of loans to individuals for nonproductive purposes, as stated in the
announcement, the examiners for the respective agencies
Will be expected to pay particular attention in the course
of their
future examinations to loans of individuals for
1,11_onproductive purposes, determine the facts as to the
oank's policy with respect to repayments, and explain in
!their reports to what extent the bank has a program or
intends to put into effect a program for the reduction
of such
debt by payments at regular intervals. It is expected that the supervisory officials of the Reserve Banks
and the
examiners shall use their influence to see that a
Ijogram is inaugurated along the above lines by all banks
that have not heretofore had
a definite plan of amortization.
"One of the stated objectives in the President's
v?n-point over-all program to keep down the cost of
lying is the use of income to retire personal indebtedI:less. The announcement by the Federal supervisory authorities applies
to all nonproductive indebtedness. You
.”°1-11-d impress upon all banks you examine that orderly
l
iquidation of nonproductive indebtedness, irrespective
of amount, is
expected.
"The announcement was made and these instructions
r
904
5/8/42
-6-
"have been issued to direct attention to the part which
the borrowing public, the banks and the supervising authorities have been called upon to play in an announced
national economic policy."
Approved unanimously.
Letter to Mr. Kennel, Assistant Counsel of the Federal Reserve
Bank of
Boston, reading as follows:
"This is with further reference to your letter of
April 24, 1942, which asked about the classification of
lamp shades and fluorescent lights for purposes of Regulation W.
"The Board agrees with your view that lamp shades
sold separately are not subject to the regulation. As
You suggest, shades should be considered replacements
or repair parts which are discussed in ruling W-62. The
revision of the regulation has no effect upon the status
of shades.
"Your letter also asked about fluorescent lights.
You will note that the revised regulation has added a
nri classification, Group A-22, 'lighting fixtures deSigned for household use'. This classification includes
fl-uorescent lighting equipment if it is of household design.
. "Many fluorescent lighting fixtures of household
design are used both in homes and commercial establishments and these are subject to the regulation no matter
wthere they may be installed. It is only those fixtures
hat are designed solely for use in commercial establishments that are beyond the scope of the regulation."
Approved unanimously.
Letter to Mr. Hale, Vice President of the Federal Reserve Bank
c
Of
-an Francisco, reading
as follows:
"This is with further reference to your letter of
April 21, 1942, which asked about the classification of
silver-backed toiletware for purposes of Regulation W.
"It is the Board's opinion that such toiletware is
included in Group A-32 of section 13(a) of the revised
906'
5/8/42
—7—
ft
regulation, 'Silverware (including flatware and hollow
ware, whether solid or plated)'.
"You will note that a slight change was made in the
Wording of this classification when the regulation was
?'evised. The word 'including' was added to the matter
in the parenthesis. The effect of this change is to
broaden the classification so that it covers not only
flatware and hollow ware but also other merchandise made
of silver or silver plate."
Approved unanimously.
Letter to Senator Walter F. George, reading as follows:
"Receipt is acknowledged of your letter of April
30/ enclosing an inquiry you had received from Mr. F.
9. Roesel who
writes to you about the regulation of
instalment buying.
"Mr. Roesel's letter is not dated but presumably
it was
written before the President sent his message of
April 27 to Congress and on the evening of April 28 made
a radio
address, in both of which the background to the
regulations of prices and consumer credit was
discussed.
"In conformity with the program which the President
set forth in
his message of April 27, the Board has again
aTended Regulation Vg, which in its new form became effective on May 6,
1942. The purpose of this regulation, particularly in its
present form, is to help make effective
he last
point in the seven-point program set forth in
the
President's message of April 27. The President's
words were as follows:
'To keep the cost of living from spiraling upward, we must discourage credit and instalment buying, and encourage the paying off
of debts, mortgages, and other obligations;
for this promotes savings, retards excessive
buying and adds to the amount available to the
creditors for the purchase of War Bonds.'
"It is true, as your constituent says, that the regloufations of instalment buying have affected the business
many dealers,
not only in furniture but in other cornThe regulation of instalment credit is not the
,nly factor in this
situation however. Of equal or greater
lmportanceis
the curtailment of production for the sale
9i)$
5/8/42
"to civilian
Civilian consumers of products which are needed by
the armed forces or absorb labor, material, and equipment
needed by those services. The Board is not indifferent to
the consequences of its regulat
ion and has sought diligently
to make the regulat
ion as equitable as possible without
impairing its effectiveness. Besides studying carefully
all aspects of the problem, it has continuously consult
ed
the representatives
of those lines of business immediately
affected and it welcomes at all times the suggestions and
comments of those who are subject to its regulation.
. "In addition to the copy of Regulation IV already mentioned, there is enclosed a copy of a Statement for the
Press released May 6 which gives the substance of the regulation in condensed form.
"Mr. Roesel's letter is returned herewith."
Approved unanimously.
Telegram to Mr. Knoke, Vice President of the Federal Reserve
Bank
of New York, reading
as follows:
"Retel May 8. In conformity with approval informally
given by three of your directo
rs and with the understand11:1g that the action taken by your officers will be subI!itted to your board of directors at its next meeting
for
rormal ratification and approval, Board of Governors approves your bank's advising Banco de la Republica Oriental
el Uruguay that
your bank is willing to make at any time
!.rld from time to time any loan or loans to the Banco de la
rtePublica Oriental del Uruguay on the following terms and
c°nditions:
.a,) the amount to be advanced not to exceed
,-5,000,000 in the aggregate at any one time
outstanding, to be secured by refined gold bars
earmarked in your vaults in its name of a value
equivalent to at least 111 0/0 of the aggregate
amount of loan or loans outstanding from time to
time.
(b) such loans to run for three months but no
loan to mature later than May 10, 1943(o) interest to be at your Bank's discount rate
for the amounts actually advanced.
5/8/42
-9-
"Participation in loan or loans by other Reserve
Banks is approved and they are being advised accordingly
by letter."
Approved unanimously.
Letter to Yr. Woolley, Vice President of the Federal Reserve
Bank of
Kansas City, reading as follows:
"This refers to your letter of February 10, 1942
addressed to Mr. Leo H. Faulger, Chief of the Board's
Division of Examinations, regarding the question whether
amounts deducted by a bank from its employees' salaries
for Social Security taxes should properly be shown as
deposits or as other liabilities. You also raise the
question whether amounts accrued by the bank for payment
of its taxes
under the Social Security Act and under
State unemployment tax laws should be carried as deposits.
."It appears that under the Social Security Act the
tax imposed upon employees is required to be collected
by the
employer by deducting the amount of such tax from
the wages as
and when paid and that every employer so required to deduct the tax is expressly made liable for the
payment of such tax. In the present case, therefore,
the bank
deducts the amount of the tax from the salary
of the
employee and is then itself legally liable for the
payment of such tax. In these circumstances it is the
f
View of the
Board that amounts so required to be deducted
employees' salaries and to be paid by the bank under
Tihe Social
the
Security Act are not to be regarded as deposits
or reserve
purposes but should be shown in condition reports as 'Other liabilit
ies'.
"With respect to amounts accrued by the bank for the
Purpose of meeting taxes imposed upon it under the Social
Security Act or under State unemployment tax laws, it is
the Board's
opinion that such amounts likewise should not
Properly be classified as deposits but should be shown by
t he bank
as 'Other liabilities' in the account 'Interest,
,taxes,
and other expenses accrued and unpaid.'"
i
Approved unanimously.
Letter to Mr. Day, Chairman of the Conference of Presidents,
908
5/8/42
-10-
Federal Reserve Bank of San Francisco, reading as follows:
"Thank you for your letter of April 22 advising
the Board that the joint report of the Insurance Plan
Committee and the Standing Committee on Insurance, dated
February 200 has been approved by a majority of the boards
of directors of the Federal Reserve Banks, and that the
two committees are now at work preparing an agreement
under which the Banks can operate a self-insurance plan.
"Vie note that you have charged the Standing Committee on Insurance with the duty of continuing the study
?f this problem in accordance with recommendation (6)
In the joint report."
Approved unanimously.
Memorandum dated May 4, 1942, from Mr. Paulger, Chief of the
Diviaion of Examinations, recommending that the budgets for the year
1942 for the
bank examination departments of the respective Federal
Reserve Banks
be approved as submitted by the Banks in the following
a lounts:
Eadttal_Rauxima_had
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Approved unanimously.
Budget
$ 68,940
348,170
147,818
126,381
99,282
56,800
232,627
85,752
45,419
63,538
46,915
119,651
Thereupon the meeting adjourned.
Secretary.
41'Proved:
Chairman.
@FedFRASER