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1159 A meeting of the Board of Governors of the Federal Reserve SYste ill was held in Washington on Thursday, September 11, 1941, at 11:30 PRESENT: Mr. Ransom, Vice Chairman Mr. Szymczak Mr. Draper Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Wyatt, General Counsel Mr. Dreibelbis, Assistant General Counsel Mr. Cravens, Consultant in the Division of Security Loans Mr. Dembitz, Special Assistant in the Division of Security Loans Mr. Solomon, Assistant Counsel Mr. Chase, Assistant Counsel Mr. Ransom stated that there had been some delay in sending tt)the Federal Reserve Banks replies to questio ns presented by 111/c1" Re gulation W and that the purpose of this meeting was to ta'iti what, if anything, could be done to expedite the replies. /14ePointed out that one of the most troublesome questions had them ascerIt arisen connection with the application of the Regulation to arrangements 1111d" Which musical instruments were leased with an option to purchase, 411c. Ransom inquired whether the elimination of musical instruments 4°13a the liof enumerated articles in the Supplement to the Regula4°11 Would reduce the effectiveness of the Regulat ion to any material e'ltent. The opinion was expressed and generally concurred in that thei 'fleltleion or exclusion of this item would not change materially the of the Regulation and that if the matter were being 11_60 ecxisidered originally it might well be excluded, but that to amend the Regulation at this time to eliminate musical instruments (other than Pianos) undoubtedly would result in numerous requests for the ellIei°n of other articles now enumerated in the Supplement and that, therefore such action should not be taken at this time. Mr. Dreibelbis submitted and there was read a draft of telegl'414 to the Presidents of all Federal Reserve Banks as follows: 4. "Reg. W-52. The Board has been asked several ques;;L?ns about the application of Regulation Vi to a case in a Registrant rents a piano or other listed article to "? a customer and the rental contract includes an option glving the customer the right to purchase the article. Which"Executive Order No. 88!4.3, under the authority of Regulation Vi is issued, and section 2(b) of the gUlation„ define 'extension of credit' as including be ,"1.21Y rental-purchase contract, or any contract for the 0 ; Jament or leasing of property under which the bailee of lessee ..• has the option of becoming the owner thereTherefore the type of contract to which the in(11417 relates is W, subject to the provisions of Regulation such :"Under these provisions it is necessary that, under del. contract, the Registrant obtain, at or before the to of the article to the lessee, a deposit equal wo the amount of the down payment which the regulation tide require upon an instalment sale of the listed aran , and that the lease call for periodic payments in Is4,,81110unt not less than the amount of the instalments 8talnieRegulation Vi would require on an extension of intiele nt sale credit arising out of the sale of the ar-his • In the event that the lessee decides to exercise ollo?Ption to purchase the article, these payments, inof ' ) 1 1ng the deposit, under the lease will serve in lieu whic2th the necessary down payment and the instalments nal would have been due between the date of the origiciesdease and the date the option to purchase is exer'and the balance of the sale price may be paid 1161 9/11/o. -3- instalments subject to the final maturity of 18 months from the date of the original lease. In the event that the lessee decides not to exercise his option to purchase, the “.egistrant may return to him the difference between the payments, including the deposit, which the lessee has 'bade and the amount of rental that may have been agreed 'pi for the period that the lessee has retained the arlele, and it is permissible for the lease to contain a Provision to this effect. , "It should be noted that the regulation does not apto a bona fide rental agreement under which the lessee does not receive a transfer of ownership, does not obligate himself to pay as compensation a sum substantially TIal to or in excess of the value of the article, and does not receive an option to purchase." ! In response to an inquiry from Mr. Ransom as to whether any illt"Pr'station other than the one suggested in the above telegram was PlIteticable, Mr. Dembitz stated that Mr. Brown, Special Assistant in the Illifision of Security Loans, had studied the matter and had advanced the ellstion that, since agreements of the kind referred to were bona ti4el'ental agreements not entered into for the purpose of evasion, the P"iti°n should be taken that it was permissible to make them withto Regulation W and that, if the lessee should elect to ch4e the i nstrument, he should be required at the time of such electict "° make a down the /1 payment equal to the down payment required by 4tion in leae connection with an ordinary purchase of the article any rental payments that had been made. . At the 8°n of the conclusion of the discustwo positions, the interpre- tation contained in the telegram submitted by Mr. Dreibelbis, which was concurred in by Mr. Wyatt, was approved unanimously. 1162 9/11/41 -4There ensued a discussion of problems involved in other questions that had been submitted by the Federal Reserve Banks under ReglatkonI7 and of the steps being taken by the staff to determine the tost effective solutions. Upon inquiry by Mr. Ransom, it was stated that from the information available it appeared that at least some of the Federal Reserve Banks had received a large number of inquiries ich they had not been able to answer promptly. It was also stated that 80me of the Banks, including the Federal Reserve Bank of New c3r1t) had not adopted a policy of giving wide publicity to the interPratations Of the Board, and at Mr. Ransom's suggestion, Mr. Szymczak 4greed to suggest to Mr. Sproul, President of the Federal Reserve Bank °t New York, that the Bank review its policy in this connection. Mr. Dreibelbis stated that it was possible for the staff to IIPProach the task of preparing answers to questions submitted by the Nterel Reserve Banks either from the standpoint of trying to anticikta Most or all of the questions that might arise in connection with Pa/tictaar practice and to draft an answer covering all such ques"a or to confine the answer to the specific statement of facts subflitted, and that his preference would be to follow the latter course. It was agreed unanimously that the latter procedure should be followed whenever it was possible to do so. During a further discussion of inter pretations of Regulation W, unanimous approval was given to the following tele.81 ' am to the Presidents of all Federal Reserve Banks: 1163 9/11141 -5- "Reg. 1";-51. The classification 'household furnaces and heating units for furnaces (including oil burners, gae conversion burners, and stokers)' includes heat generating sources such as furnaces and boilers, and appurtenances which form a part of such sources, individually O' c ollectively installed, when such sources or appurteIllances are designed for actual net out-put of 240,000 per hour or less. For purposes of determining M? maximum amount of credit the bona fide cash purchase PT .1.?e of such equipment is considered to include the cost (1. Installation and the cost of accessories such as fuel storage tanks, heat control units, or coils for heatrg domestic hot water installed at the time of the in:allation of the furnace, boiler or heating unit. The elasslfication does not include piping, ducts, radiators, : onvectors, or registers installed in connection with mrh equipment, but it is to be noted that these items , 4Y all within the classification of materials and seres referred to in Group E of Part 1 of the Supplement." Unanimous approval was also given to the following telegram to Mr. Hale, Vice President of the Federal Reserve Bank of San Francisco: An "Assuming order is received by Sears Roebuck in Los Haly gel " and goods are shipped from there to purchaser in • transaction is not exempted by section 9(i)." At this Point Messrs. Wyatt, Dreibelbis, Cravens, Dembitz, °14/111 ezid Chase left the meeting and the action stated with respect to e ach of the matters hereinafter referred to was then taken by the 1304r t Tel egram to the Presidents of all of the Federal Reserve Banks 1.141444 g as follows: tie "Referring last paragraph Board's letter R-880, tioa'ee furnish, in the same form as Table 2, two addiaepnal tabl es, one showing the dollar amount of demand or ic)peaits excluding interbank deposits on June 30, 1941, nks in eachgroup, and d the other showing the dollar 1164 —60 amount of change in such deposits between June 1938 and 1941 of banks in each group. These new tables should be ; )e mailed as soon as practicable. The forms requested In the Board's telegram of September 6, showing the in1 ,ormation for individual member banks, should be forwarded 60 Board as soon as the additional tables have been comPleted.n Approved unanimously. M emorandum dated September 9, 1941, from Mr. Nelson, Assist- ant Secretary, recommending (1) that Marion E. Wright, a page, be ap111411ted on a permanent basis as a stenographer in the Secretary's Office, with salary at the rate of ,i'1,440 per annum, effective Sept e 16, 1941; and (2) that Thomas H. Gad be appointed on a tem- P°I ' EtrY basis for an indefinite period as a page in the Secretary's °trice 'with salary at the rate of lq.1 260 per annum, effective as of the date Upon which he enters upon the performance of his duties af tel.' halting Dassed satisfactorily the usual physical examination. Approved unanimously. tar* Tel egram to Mr. Stewart, Secretary of the Federal Reserve ' ct 8t. Louis, reading as follows: AS the suggested in your letter of September 4, 1941, tor -°ard has changed the classification of member banks roll the , Purpose of electing Class A and B directors of 'ank so that Group I will consist of banks with cap with and surplus of 500,000 and over, 2 of banks Group 50.0 (7)4pital and surplus of over 100,000 but less than of 4q0.‘ 9 ) ?6orc al.nG drms3 ..of banks with capital and surplus Approved unanimously. Letter to the board of directors of "The Liberty Bank", Ada, 1165 9/ivia -7Stating that, subject to conditions of membership numbered 1 t0 3 contained in the Board's Regulation H, the Board approves the bank t 8 aPplication for membership in the Federal Reserve System and tQr the - appropriate amount of stock in the Federal Reserve Bank of Cleveland. Approved unanimously, together with a letter to Mr. Fleming, President of the Federal Reserve Bank of Cleveland, reading as follows: "The Board of Governors of the Federal Reserve Systera n,, approves the application of 'The Liberty Bank', Ada, '."10, for membership in the Federal Reserve System, subijvie_?t to the conditions prescribed in the enclosed letter rif-ell You are requested to forward to the Board of Dia;ctors of the institution. Two copies of such letter tLe also enclosed, one of which is for your files and s e other of which you are requested to forward to the 4:17 : . reir . Ident of Banks for the State of Ohio for his inwith "It is noted that with respect to savings deposits drallals the examiner, on page 16 of the report of e)cami n — for membership, states that the 'bank has no not. regulations, and writte'r°n pass-book does not provide for be lee. It is assumed that the bank's attention will D Called to ta N• ?-nd that, the requirements of the Board's Regulation in order to comply therewith, the bank will to41e such action as may be necessary to reserve the right inteequire the depositor to give notice in writing of an wit1,1,31ded withdrawal not less than 30 days before such ,,trawal is made." Letter to the Securities & Exchange Commission, reading as -4.01firs: twee It is understood, from informal conversations beelZ.Members of the staffs of the Board and of the Se& Exchange Commission, that an investigation has made by representatives of the Commission covera ctivities of the trust department of the Monti' 41 State -ank, Monticello, Iowa, as trustee for the 1.166 9/11./41 -8- 'Commercial Investment Corporation of Davenport, Iowa, nOW in receivership, and that a report covering the investigation has been made and filed with the Commission. t IS also understood that a copy of the report has been lurnished the Department of Justice for such action as that department might deem necessary to take. "In view of the implications present under the circUTstances, possibly having an important bearing upon the atilltY and integrity of the managing officers of the Statet bank, which is a member of the Federal Reserve Sys_e-, it will be appreciated if a copy of the report of ,rur investigator is furnished to the Board. If no copy J's available, or if, because of its confidential nature, wyou are unwilling to release it, please advise if you oTil d Permit an inspection thereof to be made in your lee by Messrs. Baumann and Chamberlin of the Board's 'gal and examinations staffs, respectively. "The report requested is desired for informational nrPoses of the Board in connection with its supervision State member banks, and would, of course, be held °-trictlY confidential." I r Approved unanimously. Nadi_ ug Tele gram to the Presidents of all of the Federal Reserve Banks as follows: piece"Reg- W-50. The Board has been asked whether a in of furniture, such as a table, lamp, or bed, havisg,4 radi0 built in and a composite part of the article The ' o be classified as household furniture or as a radio. com,elassification depends upon the relative value of the th4;°nent parts. If the value of the radio is greater pieceth?, value of the table, lamp, or bed as a separate as furniture, then the article is to be classified radio," Approved unanimously. Tele gram to the Presidents of all of the Federal Reserve Banks as follows: "Reg. 111-53, An inquiry which may be stated as follows 1161 9/11/41 -9has been receive d under Regulation 17: "Section 8(d) refers to statements of necessity .a .s provided in paragraphs (a), (b) and (c) of section 44 However, paragraph (c) does not contain the words 'statement of necessity'. Is the 'written statement' described in section 8(c) to be regarded as a 'statement of necessity'? If the answer is in the affirmative, would it be desirab le as a practical precaution for any rnk or other lender extending instalment loan credit to :lake, in every case, the written statement referred to ln section 8(c)? "The written statement referred to in the last sentence of section 8(c) is not a 'statement of necessity' of the kind referred to in section 8(d). Section 8(c) refers to stateme nts of necessity only to the extent that ti incorporates by reference certain requirements of 'sec2r1 8(a) or 8(b), including the provisos thereof'. With respect to last part of inquiry, see VI-33." Approved unanimously. Telegram to the Presidents of all of the Federal Reserve Banks re4Cling 48 folioWs 10ws "Reg. 1-54. An inquiry which may be stated as folhas been received under Regulation W: ti "Section 8(a) provides that the requirements of secr •18.8(a), (b) and (c) do not apply 'to any renewal or 1.: 83 . ;°n' of an extension of credit made prior to September provides in effect that any such extension of credit Do.rje renewed or revised once on or after September* ret'hesame principles apply to an extension of credit to colZe an obligation held elsewhere, assuming the latter an extension of credit made prior to September 1? and tl:Section 8(e) refers specifically to section 8(c), 0 13f r.a";:21e the same principles apply as in the case or elPles are revision by the original obligee. These discussed in W-19 and W-28." Approved unanimously. Tele gram to the Presidents of all of the Federal Reserve Banks g f011owst. 1168 -10"Reg. V55. A question has been received under RegulationIV concerning a sum of 5O to $100, sometimes called a 'pack', which a dealer may at times include in the price of an automobile as quoted to customers. When the automobile is sold, all or part of this sum may be eliminated from the price actually paid by the purchaser, either by an increase in trade-in allowance or by way of discount °r1 cash purchases. The question is whether, in deterifling the maximum credit that can be extended to the "tomer, such an extra sum of 5O to p100 may be included, ,?"ther as part of the 'bona fide cash purchase price' of the automobile and accessories or, in the case of a new au tomobile, as part of Item 1 or Item 4 of Part 3(a) of the Supplement. i "In determining what is the 'bona fide cash purchase Pr P theCel0-, a given automobile to be used in determining maximum amount of credit under Part 3, padding of any such as the 'pack referred to in the question It is to be eliminated from the price actually paid by :_Le customer by an increase in trade-in allowance or by e other device -- must be excluded. In the specific of a new automobile the maximum credit value can in ke noevent exceed 66 2/3 per cent of the sum of Items 1 tio( ) c)ugh 4 of Part 3(a) of the Supplement, and a 50 to co„sum such as that described in the present question LLou not be included in any of these four items." Z Approved unanimously. ()1% the Letter dated September 8, 1941, from Mr. Hays, Vice President p ederal Reserve Bank of Cleveland, inquiring as to the correcte of terisiori Proposed rulings by the 8 of instalment credit bank under Regulation VI (1) that ex- covering the sale of pianos to churches not exempt from Regulation IN, and (2) that the down payment re"ired bY the 10 co, "egUlatiOn must be made at or before the time of the referred - of the installation of gas appliances in the circumstances to in the interpretation and the unpaid balance must have a rriatilritY of not exceeding 18 months from date of completion. 1169 9/11/41 -11The Secretary was requested to advise Mr. Hays by wire that both rulings were correct. Letter to Mr. Day, President of the Federal Reserve Bank of Sari Francisco, reading as follows: "I have brought to the attention of the Board your Wire of September 3 in response to the Board's letter of August 26 in regard to the decentralization of the adminis, tfation of Regulation W and particularly with respect to "flephase of it which involved the designation of a specific officer at the head office and at each branch to be in charge of this activity. "It is recognized by the Board that the organization ateach Federal Reserve Bank and branch should be such that it will be flexible and most responsive to every de/Ilnand that is made upon it and that the organization finally ads up in the President of the Bank as its chief execu,silre officer. At the same time, as you know, it is also '11 essential characteristic of every sound organization l,an.that responsibilities for particular activities be 130 da :stributed that there will be some officer below the .jesldent who will be primarily responsible for each pareme1112 .-ar function. The organization of your own Bank exeaP lfies this point of view because you have assigned ' a ctivity to a particular department, at the head of ch there is an officer who, directly or indirectly, Ports to the President. This is as it should be because a 18 not expected that the President shall be tied to °ne department more than to any other over which he greral supervision. fro In the setup of each Federal Reserve Bank, aside hasnibits routine operating functions, recognition also bili +?en given to the fact that there are certain responsivie:'les of the Board of Governors for which special prohasr been made. These relate principally to bank vhich ati°n and to statistical and research functions, Agent were formerly under the Chairman and Federal Reserve 131,11 3 and more recently to the Defense Contract Service The Board has a special responsibility with redoun: administration of Regulation :tp ii?t which was Under an Executive Order that placed the responaa -Lor the regulation upon the Board of Governors - appropriate agency of Government. j 9/11/41 —12— "In its relations with the Federal Reserve Banks with respect to the functions for which the Board has a special responsibility, it has always found it of particular help to be able to contact an official who has been specifically , a,ssigned by the Bank to supervise such functions. The Board believes that its responsibility can be met most sat3:sfactorily, from the standpoint of the Government and of the public, if there is a designated official at each Re— ,serve Bank familiar with the subject with whom matters can i!s_e taken up directly both by the Board and by the public. :t, seems to the Board that this procedure is in substance the same as that followed with respect to all the functions u_i the Bank since certain officers at both head offices !ITIld branches are assigned to perform specific functions. all these cases, however, it is assumed, as a matter ocourse, that every officer, regardless of his designa— i3a1111! functions under the general supervision of the Pres— ent, who, under the law is the chief executive officer / of the Bank. "All of the other eleven Reserve Banks have followed the an,suggestion embodied in the Board's letter of August 26, tu%the Board feels that it will make for better results n1-3Thout the System in the discharge of the special re— ' lbiliV imposed by Regulation W if the same procedure u-Llorded in the case of your Bank." j 4 Approved unanimously. Cablegram dated September 5, 1941, addressed by Alvin Smith of the 1318e(3/111t Corporation and Credit Men's Association of Honolulu, Hawaii, t° R(Ilt %gent of the Office of Price Administration and Civilian Supply 411db7 the latter referred to the Board for consideration. The cable— that RelationW be amended to make it applicable to of instalment credit in Hawaii. The Secretary was requested to cable sttieldt e hat his suggestions were being t Lett, r to Ill% Sproul, President of the Federal Reserve Bank 1171 9/4/41 Of New York, -13reading as follows: "This refers to your letter of September 5, 1941, With regard to factors responsible for an estimated over.111n of P90,443 in the budget estimate for air condition-ng Your building and asking that the Board interpose no Objection to an increase of ,''92,500 in the approximate total expenditure. "It is noted that of the estimated increase in the expenditures necessary to complete the installation of air co nditioning, !!',20,350 is attributed to increased Cost of labor and material due to conditions caused by defense. Work and priorities orders and that :In_1,528 is to improvements in design to afford flexibility and 4111. Tmomies in operation. let 'In view of the various conditions set out in your and the action of your board of directors, the to ter a,ard will interpose no objection to the expenditure of .vProximatelv . ,/65 1 Ingn 5000 for air conditioning your build. Approved unanimously. 1.1r. Draper suggested that the Board authorize the payment of the cost of luncheons served in the Board's dining room today to Messrs. klIdirestoUlton, President of the Chamber of Commerce of Caracas, Of ezilela, and Jesus Herrara-Mendoza, President of the Central Bank lietleZtlela. Approved unanimously. Thereupon the meeting adjourned. Secretary. Abh, Ore Vice Chairman.
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