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1.142 A meeting of the Board of Governors of the Federal Reserve stem was held in Washington on Wednesday, September 10, 1941, at 430 p.m. PRESENT: Mr. Ransom, Vice Chairman Mr. Szymczak Mr. Draper Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Goldenweiser, Director of the Division of Research and Statistics *. Ransom stated that he, Mr. Goldenweiser, and Mr. Sproul, illicient of the Federal Reserve Bank of New York, met this morning 1:111111.1essrs. Bell, White, Haas, and Murphy, of the Treasury staff, and lie88118. Viner and Stewart, consultants of the Secretary of the Treasury, 841cl that this afternoon the same group met with Secretary Morgenthau. 48414 that as a result of the discussion at the morning conference l ePort Oh ' monetary controls required for the emergency had been 4el'eed 11Pon for submission to the Secretary of the Treasury and to the 8°ard and at the meeting with the Secretary in the afternoon Sec— c/11 t}10 /4()rgenthau, having read the report, stated that any decisions matter should be reached before the end of the month and that 44trid. lid was entirely open except that he felt that if reserve require— re to be raised by the Board under its existing authority it be clOne in one step and that announcement should be made not th411 30 days prior to the date on which the increase would take 1143 9/10/41 effect. He also agreed, Mr. Ransom said, that there was no reason w1V the whole matter should not be explored by members of the staffs 1 the Board of Governors and the Treasury. The report referred to by Mr. Ransom, which was in the followform, was then read: "In making specific recommendations on monetary credit controls to be undertaken at this time, the gr°1113 wishes to make it clear that it views these measres as a part of the Government's broad anti-inflation Pr Which includes increased taxation, encourageof Treasury financing out of savings, as well as dire price controls, priorities, and other policies. 14.7;.9.EIIL'22.-9_S_ft2D_S..2Ma7gredit. a Stricter regulation sume "Among the principal purposes of regulation of conr credit are the diminution of the pressure of cons er demand on t durable goods that require defense maials and the dampening of an inflationary rise in lees- The present regulation represents the first m ;t!!? in this untried field of economic control and is ei:ulttedlY liberal. This group recommends that the list uniarticles covered by the regulation should be constantly tic ,:r review with respect to both extension and contracwh-" 1 and that the terms of credit should be tightened, it : ne‘rer in the opinion of the Board of Governors and deeiconsultative committee such action would promote the red obt= and would be administratively feasible. and Zlull cons 143Using is expressly exempted from the control of umer c-eedit set up under the Executive Order. This ;:.,°1113 be lieves that housing credit, whether extended or ionsored by governmental or private agencies, should also b in e be subject to regulation. The group recognizes that sal„s,ablishing controls in this field, it may be necesmf ' t r "ti follow highly selective policies in order to perThe e erection of low cost housing to meet urgent needs. the r1 : 1 (311P recommends that immediate steps be taken by pedel,j dit a• -L Loanuthorities to explore this matter with the M.th uonsInc.Administration and other agencies concerned 1144 -3"The group recommends that the field of rural electrification be explored to determine wheth er it should be subject to control in whole or in part, and wheth er existing promotional activities of the Federal Governlent, in this field should be curtailed or eliminated. 212 ital-MATIMilial=5-gli-laa= "This matter has been referred to a subcommittee, representing the Board of Governors and the Treasury, Which will submit a report. 11, 2.2 . Bank loans - other than for defense purse. "This subject is under consideration by a subcom711. .-Ltee, consisting of a representative from the Treasury Mptroller of the Currency) the Board of Governors, the Federal Depos it Insurance Corporation. 44. .c.altr21_91_13anis Credj "It is °J reserve the consensus of the group that the problem requirements should be considered in conjunchlon with the question of what additional powers should e l'equested to control banking operations. It is agreed that steps shoul d be taken to retard inflation through restraint on bank credit expansion, but these steps must Lpt interfere with the Treasury's ability to finance deat as low rates as can be maintained without danger economy. The group believes that the following un6erdependent steps should be taken and that an agreedal ZI. announcement of policy should be made prior to the --our ire_en m t of any major Treasury financing. of t It is clearly agreed by the group that all four lie Pr°Posals listed below are to be considered and treatedas integral parts of one whole, that agree ment to , !uPon the acceptance of all four proposals prior act:41e next long-term Treasury financing; and that no be taken in the interim with respect to any of , thel pr 'bur unless there is agreement on all of them. The °PcTal-s are: (a) That reser ve requirements be increased to the full extent permitted by prese nt law; (b) That legislation be requested by the Administration for new powers over the volume of bank credit, and that the form of such powers be agreed upon by the Board of Governors and the Treasury; Z 1145 9/10/141 -4- "(c) That such additional selective credit controls as the Treasury and the Board of Governors agree are necessary and practicable as further steps to counteract inflation be recommended or adopted; (d) That the Board of Governors and the Treasury both feel that the appropriate procedure with respect to the Government Security Market is that a pattern of interest rates deemed desirable should be determined from time to time and that when determined the monetary authorities shall support such pattern with such measures as may be necessary, including Open market operations by the Federal Reserve System. ad "Any question of publicity with respect to the policy opted tion Luy under (d) shall be a matter for special determinathe two groups." Mr. Ransom stated that the effect of the report was to present to the Board and the Secretary of the Treasury the question whether I'le8entA 4 --v-LlieS 3clke a Study ' 4 the c)r the of the Board and the Treasury should be requested to of the matters covered by the report for the purpose of g upon the detail s of a program, that it involved no commitment Part of the Board, but that, having participated in the writing report, he felt that with respect to paragraphs 4(a), 4(b), 4(o), he was committed, until the announcement of the next major Treasury r. lnancing operation, to the action proposed in these paragraphs. qade +1, -Lie ' 4 4-urther statement that Mr. Sproul commented during the 41114rene 1(4 es at the Treasury that participation by the Federa l Open l'ket e, ilLvilittee appear ed to be an essential part of any over-all prothat 'night be adopted and that Mr. Sproul was advised how the Re if 4'6 9/10/41 -5d'ussions between representatives of the Board and the Treasury had d eveloped and that the Board and the Treasury would be glad to have , c- representative of the Federal Open Market Committee particiPate at — 'V further conferences that might be held on the matter. (r° Ransom also said that, in his opinion, time was of the essence ez1c1 that the Board should reach a decision promptly on the question %tette r it should instruct Mr. Gold enweiser and other members of the Illoardte, Staff to proceed with representatives of the Treasury on the 1°Izt stim --T of the problems presented by the report for the purpose Of d et erm'---,Lang . whether the details of a program could be agreed upon. Reference was then made to reports submitted by subcommittees 414)(linted during the conferences at the Treasury on non-defense bank 10411 -8 and the regulation of capital expenditures and capital issues, 44(1 it W48 he stated that copies of these reports would be made and fur- L.° the members of the Board in due course, together with copies the report set forth above. 441the a less the Copies of the reports have been placed In the discussion which ensued, Mr. Ransom suggested that in event the Board should request members of its staff to participate &11 developing the details of a program, it should be understood that the stAidy shoilld not be based on the premise that the "ceiling plan" r increasing Ot required reserves was the only solution for the problem eXcesa reserves, but that all probable solutions should be considered, 47 -6and that, if a conclusion were reached that a certain plan was prefel le, the advantages and disadvantages of that plan as well as other fe-asible plans should be stated. Mr. Goldenweiser raised the question whether the best procedure ' k'tad be for the representatives of the Board and the Treasury to work tther, or whether the two groups should first work separately to deterMine their respective views and then meet together for the purpose °f resolving any differences. Ur. Ransom emphasized that it was agreed during the conferences at the later Treasury that any action taken should be taken promptly and not than the September 30 and that if action were going to be taken by Board to increase reserve requirements it should be during the illent period when, because of the large volume of sales of defense cs bonds and tax notes, the Treasury was out of the market for rIg term fund5. . At the conclusion of the discus81°n, Mr. Szymczak moved that Mr. Goldenweiser, together with Mr. Williams, Associate Economist of the Federal Open Market Committee, and such members of the Board's staff as Mr. Goldenweiser might select, be requested to work with members of the Treasury staff in the development of the details of a program that would be acceptable to the Board and the Secretary of the Treasury, it being understood that the question raised LT Mr. Goldenweiser with respect to the method of procedure would be left to him 1148 9/1o/41 -7for determination in consultation with Under Secretary of the Treasury Bell. This motion was put by the chair and carried unanimously. In a subsequent discussion, Mr. Ransom suggested that Mr. Clayton be added to the staff committee contemplated by Mr. Szymczak's Mcq40n in order that Mr. Clayton might keep Chairman Eccles advised of developments. This suggestion was agreed to unanimously. At this point Mr. Sproul, President of the Federal Reserve Ilatik of Ilew York joined the meeting and Mr. Ransom advised him of the ael4c)n that had been taken by the Board, particularly with respect t° the inclusion of Mr. Ulliams as a member of the staff group to l'i(*k out the details of a program. Ur. conterences Ransom then stated that thecircumstances in which the with the Treasury developed were substantially as fol- lows: Some tirne ago a member of the Treasury staff asked if Mr. Murphy °11141 °QM° O'Ter to the Board's offices for the purpose of ascertaining the of its with respect to the problem of excess reserves. Ph Assis::n af trDirector of Division of Research and tiati, came over and after th the with him, it was felt that tter 1114)11 saould be reviewed with the Secretary of the Treasury, where- arl'atigerrtents were made for a conference which took place at the rrl'eatlry. and at which all(1 nrld there were present, in addition to the Secretary Secretary Bell, several members of the Treasury staff, and 1149 -89/10//41tiessrs. Jacob Vinery Walter W. Stewart, qme Secretary Morgenthau made it clear full s tatement of the Board's views and dad to consider the whole matter, and, and Lauchlin Currie. At that that he would like to have a that the Treasury would be accordingly, arrangements were ni4cle for d iscussions by representatives of the Board and the Treasury. Several such conferences were held which culminated in the two confeences at the Treasury yesterday. At this point Messrs. Thurston, Goldenweiser, and Sproul left the m eeting and the action stated with respect to each of the matters heei cuter referred to was then taken by the Board: Letter to the Presidents of all Federal Reserve Banks transkittlrig forms for use in connection with the next call for condition rePorts of State member banks and their affiliates. Approved unanimously. Dire Uemorandum dated September 4, 1941, from Mr. Goldenweiser, of the Division of Research and Statistics, recommending, nce with the policy adopted by the Board on July 7, 1939, h th114 :713ect to employees attending the Littauer School of Harvard that Haskell ,. P. Viald, a junior economist in the Division Ile'earch and S tatistics, be granted leave of absence without pay rn oct °ber 3, 1941, ti to June (, 1942, inclusive, for the purpose of illt) the Littauer School of Harvard University as a fellow. The IllernO, N4r1 als0 r ecommended that payments of the Board and Mr. Wald Of 11_50 9/10/41 -9to the Retirement System in his behalf be discontinued during the Period of his leave without pay. Approved unanimously. Memorandum dated September 5, 1941, from Mr. Tyatt, General Coun,. recommendim, that the salary of Mrs. Frances C. Cashell, sten• er In the Office of General Counsel, be increased from !41,560 to " 00 per annum, effective as of October 1, 1941. Approved unanimously. Memorandum dated September 8, 1947, from Mr. Wyatt, General Cottnsel, r eferring to the action taken by the Board on August 22, granting military leave to Walter E. Paul, a clerk in the office of General Counsel. The memorandum stated that since that nta 141'' Paul has been notified that he would not be called for duty 8°r1le time in October, or possibly later, that he desired to refl the Board's service until he actually reports for duty and that it via reccmmended that the action previously taken by the Board he 411*Icled 80 that mr. Paul's military leave will commence when he act4 reported for duty. Approved unanimously. 13.t* Letter to Mr. Gidney, Vice President of the Federal Reserve Q11 Ne17 Yc'rk, reading as follows: lette:-Al accordance with the request containedappointi.„ in your kent of September 5, the Board approves the °4 'Joseph Cincotti, Miles R. Ellison, and Frank 1 9/10/u -10- McGee as assistant examiners for the Federal Reserve Bank of New York. Please advise us of the effective dates, L. mia, lr Board also approves the designations of Raymond Leonard M. Shayne, and John H. Vier as special assistant examiners, with the understanding, of course, that they ,0 will not be transferred permanently to examination 1,, ri< without the Board's prior approval." Approved unanimously. Letter to Mr. Sproul, President of the Federal Reserve Bank of le171'ork, reading as follows: 6 "Receipt is acknowledged of your letter of September 1941, referrinf, further to the matter of exchange v sits of staff members between your Bank ' and foreign ?entral banks, and outlining definite proposals author32ed bY your directors for the exchange of men with the anco Central de la Republica Argentina. "It is understood that you contemplate sending to Ar gentina Mr. O. Ernest Moore, Chief of your Foreign Res tlearch Division, for an over-all period of approximately ejee months, and Mr. Thomas Roche, of your Foreign Ex2ange Division for an over-all period of perhaps four Ziths, It is understood further that your Bank will 041Tnue to pay their salaries at the annual rates of round ' -(X)L and 4"2. 300 respectively, also pay the cost of tirip transportation amounting to from 61,000 to usX° Per man depending upon the form of transportation and) in addition, pay each man a per diem allowance '•°0 for each day actually spent in Buenos Aires. and "These proposals meet with the approval of the Board ra,, You are authorized to proceed with the necessary arre"ggements. It is assumed that you will advise the Board eitlr'ing the final arrangements when they have been conillsie td and report in due course on the outcome of the had .8 ' It is noted in this connection that you have wolardications that other Latin American central banks tO awa''.1elcoms such visits but that it is your intention It the results of the visits to Argentina before ,'"mIttin„ - Yourself to similar exchange visits in the t Approved unanimously. 1152 9/10/41 -11Letter to Mr. Hitt, First Vice President of the Federal Re8"1e Bank of St. Louis, reading as follows: "In accordance with the request contained in your letter of September 3, the Board approves the appointIT,e_rit of William R. Mueller as an assistant examiner for 'fle Federal Reserve Bank of St. Louis. Please advise us of the effective date. The Board approves also the designation of Orville H. Bleckman as a special assistant ,e_xanuner in order that he may lend clerical assistance 'o Your regular examiners, such approval being with the Ilnderstanding that he will not be transferred permanently to examination work without the Board's prior approval. "It has been noted that Mr. Mueller is indebted to member bank in St. Louis, but it was indicated that a n„,at 8 rrangements could be made to transfer the indebtedCee lsewhere, and it will be expected that that will u„4,,c_1(Ine in order to bring the matter into conformity the Board's policy on this subject as outlined in s'e etter X-7638 dated October 14, 1933 (Loose-leaf ervIce #9180)." Approved unanimously. Letter to the board of directors of "The Capon Valley Bank", 'kt nsirille, West Virginia, stating that, subject to conditions of kette p1,4 numbered 1 to 3 contained in the Board's Regulation H, the kard approves the bank's application for membership in the Federal e aYstam and for the appropriate amount of stock in the Federal erze of Richmond. Approved unanimously, together with a letter to Mr. Leach, President of the Federal Reserve Bank of Richmond, reading as follows: tern a"The Board of Governors of the Federal Reserve SysPPr°ves the application of 'The Capon Valley ,Bank', 1153 9/10/41 -12- "Wa rdensville, test Virginia, for membership in the Fed?ral Reserve System, subject to the conditions prescribed in the enclosed letter which you are requested to forward to the Board of Directors of the institution. Two copies such letter are also enclosed, one of which is for your ?-les and the other of which you are requested to forward to •the Commissioner of Banking for the State of West Virglnla for his information. It is assumed that you will follow to a conclusion 1e matter of the bank's reducing to within statutory limits .L.!',no excessive balance with a nonmember bank." 130ston Letter to Mr. Curtiss, Chairman of the Federal Reserve Bank of reading as follows: "Referring to your letter of September 4, 19, 0_ the 13°ard does not contemplate making any changes in the clasSifiCation of member banks in your District for electoral PurT) L°8es and accordingly the classification which has effect since August 1935 will apply for the forthoinIng regular election of Class A and Class B directors me'Tber banks in Group 1. for it is noted that you know of no reason at this time , a recl assification of member banks for electoral pureoses.” Approved unanimously. t-grik of Letter to Mr. toolley, Vice President of the Federal Reserve nsas City, reading as follows: 1,q11 "Reference is made to your letter of September 4, Gr0advising that the board of directors of the Stock th;,-"st Bank of Wheatland, li:heatland, VToming, has au7-1 (ged a remodeling program at a cost of approximately ia ' es , of which ' N_,000 is to be added to the bank premand t e°1111t, 4,000 to furniture and fixtures account, remainder to be charged to expense. .1.1bIrtit4.n,view of your recommendation and the information trans 'eu, the Board will interpose no objection to the8.n action under the condition of membership numbered Approved unanimously. 1154 9/10A1 -13Letter to Mr. Evans, Vice President of the Federal Reserve Bank of Dallas, reading as follows: "This refers to your letter of August 22, 1941 with !nclosure, regarding the question whether a note given to the First State Bank of Taft, Texas which was signed by the President's wife and also by the President 'for legal PlirPoses only' should be considered a violation of the provisions of section 22(g) of the Federal Reserve Act. The attorney for the bank has advised that there is no 4 Personal liability upon the President in the circumances of this case, and your General Counsel has advised that this opinion is well supported by decisions of Texas f c°11rte provided the proceeds of the note were used solely ) ' 11.e. wife's benefit (which you state seems to be the Case) and : the signature of the husband was attached in ood faith solely for the purpose of making the note enar-csable against the wife, It is also noted that you the !atisficd, in view of your Counsel's opinion, that 0,e,u.ransaction involved no violation of section 22(g) Federal Reserve Act. law .:It is not entirely clear whether under the Texas en,It would be possible for the holder of the note to and°1'ce it against the community property of the husband a eri,wife• However, on the basis of the information pretho'V and the opinion of your Counsel, it appears that we /r esident is not personally bound on the note and in _eel that it is not necessary to take any further steps Qonnection with the matter." r Approved unanimously. Tele gra.ra to the Presidents of all of the Federal Reserve Banks g as follows: tion to serirr V-45. The phrase 'principal amount' in secof Regulation IV means the principal amount lent obligor, excluding any interest, finance charges, cIllete,c ole4 charEes and insurance costs, whether or not det-,r - 'n advance. a (p-r xa rap1P, if a borrower receives 975 but signs notborrower °II a discount basis for f'1,020, the loan is in a 11,55 9441 . PrInclpal amount' of less than l".1,000 within the meaning of section 5(b)." Approved unanimously. Telegram to the Presidents of all of the Federal Reserve Banks ' l eading as follows: "Reg• 1-.-46. The classification 'musical instruments Pcsed principally of metals' does not in general inguitars, mandolins, accordions, clarinets, 0b09s violins, li or bassoons. Certain models of some of these instru1L'Il,!flts, however, have metal bodies or tubes, in which case eY are included in the classification." T Approved unanimously. Telegnam to the Presidents of all of the Federal Reserve Banks riga follows: t-47. Questions have been received as to ether an extension of credit which, upon its face, is 0;PaYable in only one scheduled payment is an extension nstalment credit if, at its maturity, a partial payrtie't and the balance is renewed. 'Answers to such questions depend upon whether or n°t the the, re are any agreements or understandings between Por' -arties at the time the extension of credit is made. crej" uPle, if at the time a particular extension of is made the Registrant and obligor have an undera' 101; that the obligor will be required to make only Pti-aipayment at maturity and that, upon making such PaYraent, the balance will be renewed, the extenviitli °I credit is an extension of instalment credit notProv-nanding the fact that the obligation, upon its face, -'es or repayment in only one scheduled payment." r Approved unanimously. T7legraM to the Presidents of all of the Federal Reserve Banks 'III -8 f011OWS: 11.56 9/10/41 -15- "Reg. V-48. An inquiry has been received regarding the appli cability of section 6(a) of Regulation V to an extension of credit made by a builder covering the cost Of build ing a home and secured by a first lien on the real estate upon which the home is to be constructed. . , "The general principle applicable to these cases Is that the mortgage and the contract or contracts for the extension of credit and the construction may be regarded i as Parts of a single transaction and that the facts exstIng on the date of completion may be used in determin°g the appli cation of the regulation. Consequently, the is of the opini on that the extension of credit may beard et regarded as secured by a first lien on improved real within the meaning of section 6(a). The general Principle is similar to that discussed in the second paragl'aPh of r Approved unanimously. Telegram to the Presidents of all of the Federal Reserve Banks as follo ws: Reggian, R.eg- V;-49. The Board has received a question under u lonWwhich may be stated as follows: 'If an extension of credit which was originally ”de as a 3 months credit conforming to secti on (f) is renewed or revised, must it be limited to a maturity of 3 months from the date of the renewal or revis ion, or may it have a maturity of as much as 18 months from the date of the renewal or revis ion as in the case of a credit ieh was not originally under section 6(f)? 'the renewal or revis ion of such a credit "curs on or after Novem ber 1, does it require a s tatement of necessity as specified in sec,;i°11 8(a)?' limite ', A renewal or revision of a 6(f) credit is not the r"- uo a matur ity of three months from the date of Illattql tewal or revision, and is limited only to a maximum \I-sten °f 18 months from the date of the renewal or recredit "8 in the case of renewals or revisions of other 8 under the regulation. If the renewal or revision 57 L 911W41 -16- occurs on or after November 1, and alters the terms of r?Payment to terms which would not have complied withsectIOn 6(f) in the first instance, the renewal or revision 111,7 not be made unless a statement of necessity is accepted in good faith as specified in section 8(a). ca2. The preceding paragraph would not apply in the t) ss of the first renewal or revision on or after Septem, er 1 of a credit which was originally extended before 0 0etptember 1. As indicated in ';:-19 and 1-28 in discussing m e,r_ Pre-September credits, any pre-September credit ue.renewed or revised once without the statement of rice h sslty and on any terms which the Registrant would ve tion.granted in good faith in the absence of the regula, "3. It is important to note, as pointed out in v:-19, uaT, ,ssection 8(g) prohibits any extension of instalment ,a.redit in connection with which there is any evasive side re? IlLe for the subsequent renewing or revising of the credit. Any n renewal or revision beyond the period origir 17..f Permissible for the credit : must be the bona fide 0.1, 11-!-t of some development coming after the making of the ride8 extension of credit. Unless it is such a bona 13 result of a subsequent development, it is prohibited section 8( ) Approved unanimously. , &.4 am to Mr. Day, President of the Federal Reserve Bank of 'San Pra c • n Ise°, reading as follows: for house"The c lassirication 'plumbing and sanitary fixtures , inst hold use' includes water softeners for household the 7:11ation. VTe are at present engaged in determining Or schnical th h0usehold factors which distinguish a water softener installation from water softeners for other an house hold use. Approved unanimously. Idem -Qranclum dated September 8, 1941, from Mr. Parry, Chief of the ' thQ of Security Loans, recommending, for the reasons stated Irteril0 1‘andlirtl, that 150 be added to the item of Furniture and 1158 9441 -17%IiPment in the 1941 non-personal budget of the Division of Security Loan Approved unaniniously. Thereupon the meeting adjourned. ce Chairman.
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