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1.802 A meeting of the Board of Governors of the Federal Reserve System was held in Washington on Monday, September 14, 1942, at 2:00 p.m. PRESENT: Mr. Ransom, Vice Chairman Mr. McKee Er. Draper Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman The action stated with respect to each of the matters hereinafter referred to was taken by the Board: Letter to Mr. Meyer, Assistant Cashier of the Federal Reserve Bank of Chicago, reading as follows: 'The Board of Governors approves the following changes ,a,21.the personnel classification plan at the Head Office and vetroit Branch as submitted with your letter of September 1, 1942: Pages 11-A and 11-B of the Head Office plan, reflecting increases in the maximum annual salaries of the Assistant Supervisors in the Mail Department (Day and Night Forces) from t1,500 to $2,000. Pages 207 to 211 inclusive of the Head Office plan, and page 63 of the Detroit Branch Plan, reflecting the change in the name of the Installment Credit Department to Consumer Credit Department. "In view of the special circumstances governing the app,ointment and the relationship of the Executive Manager of the victory Fund Committee, it is felt that the position does not Properly come within the scope of the personnel classification II:t,110 Accordingly proposed page 215 as submitted with your ,_et_ter is not approved. For your information, none of the l'irsonnel classification plans of the other Reserve Banks Provides for such a position." Approved unanimously. 803 9/14/42 -2Letter to the board of directors of the "Arkansas Trust Com- PanY", Hot Springs, Arkansas, stating that, subject to conditions of membership numbered 1 to 6 contained in the Board's Regulation H0 the 8°ard approves the bankts application for membership in the Federal Reserve SYatem and for the appropriate amount of stock in the Federal Reserve Bank of St. Louis. The letter also contained the following special comments: . "The Board is prescribing the conditions of membership °Fdlmarily prescribed for banks exercising fiduciary powers When they are admitted to membership and it will not object, und?r condition of membership numbered 1, to your bank reV1119-ng the exercise of such powers, as is now contemplated. is understood, of course, that when such business is ungertaken, your bank will have qualified personnel and be o therwise equipped to handle it in a proper manner. "It appears that your bank may have certain powers rolch are not being exercised and which are not incidenta l to the conduct of a banking and trust business, and atten1°n is called to the fact that it will be necessary under condition of membership numbered 1, to obtain the Board's ermlssion before exercising such powers. In this connecion, it is understood that there has been no change in the !cope of the corporate powers exercised by the bank since lt applied for membership." t Approved unanimously, together with a letter to Mr. Davis, President of the Federal Reserve Bank of St. Louis, reading as follows: "The Board of Governors of the Federal Reserve System apyes the application of the 'Arkansas Trust Company', Hot tPrings, Arkansas, for membership in the Federal Reserve Sys" tem, subject to l t the conditionse enclosed prescribed in the Which you are requested to forward to the Board of Direc2' 18 of the institution. Two copies of such letter are also n?losed, one of which is for your files and the other of : 111-ch you are requested to forward to for the Bank Commissioner the State of Arkansas for his information. r 1804 9/14/42 -3- "It is assumed that you will follow the matter of the bank's bringing into conformity with the provisions of law d the Board's regulations the savings accounts referred °n Page 16 of the report of examination for membership." r Letter to Mr. Evans, Vice President and Secretary of the Federal Reserve Bank of Dallas, reading as follows: "This refers to your letter of September 5, 1942, en,&sing copies of correspondence between your bank and The First National Bank of Galveston, Galveston, Texas, with respect to the question whether the latter bank may lawfully aceePt, under the provisions of the Board's Regulation Q, a savings deposit from an army post exchange. "It is understood that the army post exchange here involved is of the same type and character as the post exchanges operated in many army camps and posts through the United States; that --s i+ primary purpose is to provide soldiers with a convenient and readily accessible mercantile establishment where they may purchase various items of merchandise at reasonable prices; 'ad that, while it makes a small profit on its sales, the making of such profit is incidental to its principal purpose of being a service organization for the benefit of service men. the basis of these facts, it is the view of the Board that :he army )ost exchange in question may not be regarded as i an 'organization operated primarily for religious, philanthrope, charitable, educational, fraternal or other similar purP)ses and not operated for profit'; and that, accordingly, tlInds deposited by it in a member bank do not constitute savngs deposits within the meaning of the definition of that "I'm contained in Regulation Q. "Several years ago, in reply to a somewhat similar in41111-17, the Board stated that where funds are held by a lcus:°diant for the benefit of the members of a certain service ; rganization and are, in fact, used only for educational and _..?ereational purposes, no objection ,would be offered to the ' 1--”sification of such funds as savings deposits if they ot herwise Set forth complied with the requirements of the definition in Regulation If in the present case further --1Yormation should come to you which indicates that the funds ,f the post exchange here involved are, in fact, used solely 0° 4 educational or recreational purposes, the Board would s' - er no objection to the classification of such funds as avings deposits. 7 1805 9/14/42 -4- "In this connection, it is suggested that consideration Tight be given to the transfer of the funds in question to interest-bearing time deposit accounts." Approved unanimously. Letter to the Presidents of all the Federal Reserve Banks, reading as follows: 4.. "For your information and that of your Counsel in connec' 1°n with Regulation V and other loan transactions, there are enclosed two copies of the opinion of the United States Circuit Court of Appeals for the Second Circuit in the case of 4,1 2S1 .lag..E2 V. Lehinan which was decided August 19, 1942. "This case was first heard by the Circuit Court of Appeals in May 1942 and a decision was rendered on May 21, 1942, reported in 128 Fed. (2d) 564, to the effect that, Under New York law, an assignment of monies to become due under a contract under certain circumstances is invalid as 1 einst a trustee in bankruptcy. On a petition for a re7 hearing briefs were filed on behalf of several New York uanks and by Reconstruction Finance Corporation in support Of the petition. In the opinion herewith enclosed, the Circuit Court of Appeals has reversed its previous decision and in effect, therefore, has upheld the validity of Such an assignment as against a trustee in bankruptcy." Approved unanimously. Letter to Mr. B. B. Griffith, Assistant to Director of Finance t the united States Maritime Commission, reading as follows: "It will be recalled that at the conference on August 1942, with reference to loans under Executive Order 9112, view was expressed that the position heretofore taken h respect to the charging of more than 5 per cent interest n guEranteed loans after maturity should be reversed, and alSO that the advice given in your letter of July 3, 1942, with respect to a special condition where interest after turity is greater than the normal loan rate might be canel It was requested that letters be prepared to carry °Ilt this view. "It has heretofore been the position of the Board and Gr the Services that in no event should any interest rate D.B.Yable by the borrower in connection with a guaranteed "" ) an, whether interest after maturity, interest on overdue n r 1806 9114/42 "interest, or otherwise, exceed the maximum rate prescribed for guaranteed loans, namely, 5 per cent per annum. Since the conference on August 12, this matter has been the subject of further discussion and consideration, and the Board feels that the position heretofore taken on this question is correct and should not be modified at this time. If the Present position on this Question is maintained, it is as!umed that you do not desire to make any change at this time in the advice given in your letter of July 3, 1942, with respect to a special condition where interest after maturity is greater than the normal loan rate. "In the circumstances, we have not undertaken to prePare any letters along the lines suggested at the meeting on August 12. We trust that this disposition of the matter will meet with your approval, but if not, we will, of course, be glad to consider the matter with you further." Approved unanimously, together with similar letters to Mr. Sidney A. Mitchell, Chief of Finance Section of the Office of Procurement and Material, Navy Department, and Colonel John C. Mechem, Chief of the Miscellaneous Branch, Fiscal Division, War Department. Letter to Mr. Dillard, Vice President and Secretary of the Federa Reserve Bank of Chicago, reading as follows: "This refers to your letter of August 18, 1942, enclosv, a copy of a memorand um dated July 31, 1942, from the House"old Finance Corporation to all of its Western branch offices, 'elating to the preservation of Statements of Borrower obtained pursuant to Regulation W. You point but that, because O the present inability to obtain additional filing equipment, because the Corporation does not carry more than one loan contract with a borrower at the same time, there being frePent consolid ations of old loans with new cash advances, the has advised its Western brahch offices that they feed retain only the last two Statements of Borrower. "As you know, the question of preserving old records is 5ler study but has not been settled. It involves a number of ,':umPI : exities, among which is the necessity of designating the ,rticular records which are to be kept on file. In the mean, 1111e, it would not seem desirable to make a special rule with respect to the Statement of Borrower. t 1_807 9/14/42 -6- Me feel that the procedure proposed by Household Finance Corporation would not be suitab le for adoption when a time-limit rule for the preservation of records is preScribed, inasmuch as it would often result in the destruction of records that would be essential to an investigation of transactions occurring quite recently. In addition, both the Statem ent of Borrower and the Statement of Necessity instruct Registrants to keep the statements 'on file'. There.ore, the Regulation in effect requires these statem ents to be retained until such time as a rule with respect to time liuuts is prescr ibed. %Idle we are not unmindful of difficulties that may be experienced in securing adequate filing or storage space, lich records as are required for an adequate enforcement of the D suegUlatiOn must be °reserved. We assume that part of the loan records are preserved for the period of limitation of actions under State law which, in some cases, exceeds l'hree years, the applicable Federal limitation for prosecution of offenses. The addition of the Statement of Borrower to these records would not seem to create an undue burden for the Regist rants." 5 Approved unanimously. Or Letter to Mr. Hale, Vice President of the Federal Reserv Bank e S5n Francisco, reading as follows: "This refers to your letter of August 29, 1942, relating to the application of Regulation Vito the use of 'merchandise orders' which are sold on credit by stores and lich may be presented to such stores in payment for merchandise subsequently purchased, either by the persons to Whom, such orders were sold or, as is frequently the case, j i other persons. It seems that you are interested priin those cases where such orders are sold in charge accounts. "In view of both sections 11(a) and 11(e), the Board agrees with your view that the use of 'merchandise orders', 1.1111 4, may be used in the purchase of listed articles, would violate the restrictions of the Regulation applicable to ',:f_lrge accounts so long as any such order is not charged in ' Qin account that is in default and default is deemed to oc14 'Upon failure to pay for any such order within the period 2ecified in section 5(c). Of course, in some cases, this l l ipt be more strict than is actually required by the Regu"n; but, under such procedure, as you point out, there V 1808 9/14/42 -7- "would be no need for restricting or policing the use of such orders, and they could be accepted by the store as the equivalent of cash. "As you know, a merchandise order which has not been paid for, could not be used as the required down payment in an insale in view of section 11(e)." Approved unanimously. Letter to Mr. Allan C. Stevens, President of the Great Eastern Fire I nsurance Company, White Plains, New York, reading as follows: "Thank you for your letter of September 4 replying and c ommenting on our letter of August 19 regarding the application of the Board's Regulation W to the financing of fire and casualty insurance Premiums. "We gather from your letter, and from the letter of Mr. Edward I. Taylor which you enclosed, that the insurnnce Pmpanies have used and will continue to use their influence toward the use of notes payable to the lending institutions, rather than 'payee notes', in the financing of such premiums. Such notes payable to lending institutions are, as set forth in our letter to you dated July 23, subject to the restrictions of section 6 of Regulation?! unless they fall Within the class exempted by section 8(g). Consequently, i,nell-ITuence by the insurance companies will result in a for notes given in payment of premiums, where made r $1500 or less, to meet the conditions specified in see0n 8(g) of Regulation W. . "It would apoear that the making of notes under the proof section 8(g) will permit the financing of premiums i-La basis that will be quite satisfactory to most policy holders, who may desire to save money by taking policies for more than one year and yet pay their premium costs in conenient instalments, but will cause the tatal amount of credit that will be outstanding to be somewhat less than would be the case if the notes did not conform to the reof section 8(g). This effect on the amount of is, of course, a desirable one from the point of view _f the Board, and the Board therefore does not see any reason for amending the regulation in this respect. "The foregoing discussion may seem to suggest that Regulation?! ought to be amended so that 'payee notes' given J r 1809 9/14/42 -8- it • in Payment of insurance premiums will also be subject to the restric tions of the regulation. At the present time, however, the amount of credit that would be eliminated by such an amendment does not seem to be sufficient to justify the necessary amendment of the regulation, particularly in view of the Board's desire to avoid complicating the regulation by adding further provisions that are not absolutely necessary.n Approved unanimously. Letter prepared for the signature of Ur. Ransom to Mr. Lawrence 14* c, Smith, Chief of the Special War Policies Unit, Departm ent of Justice, l'eaaing as follows: "In the absence of Chairman Eccles, I acknowledge receipt of your letter of September 1, 1942, with further reference to the offer of the Council of State Governments to assist in obtaining legislation or administrative acState tion to facilitate the war effort. Board':In,response to your suggestion, Mr. Walter Wyatt, the s General Counsel, has been designated to deal with t Council of State Governments and representatives of the States in the subsequ ent development and handling of the !liggestions contained in Chairman Eccles' letter of August 41, 1942.n Approved unanimously. Thereupon the meeting adjourned. Assistant Secretary. Approved: Vi e Chairman
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