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1208 A meeting of the Board of Governors of the Federal Reserve krstexawas held in Washington on Wednesday, September 17, 1941, at 10145 a bra, PRESENT: Mr. Mr. Mr. Mr. Ransom, Vice Chairman Szymczak McKee Draper Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Wyatt, General Counsel Mr. Dreibelbis, Assistant General Counsel Before this meeting Mr. Ransom brought to the attention of the nierabers of the Board, who were in Washington, a letter dated Septq lber 4, 1941, from Rolf Nugent, alternate for Mr. Henderson, Administratr, -4* of the Office of Price Administration, on the consultative el4kittes created by executive order 8843, in which Mr. Nugent sugeested ) for reasons stated in the letter, that the Board would find it adva Dosed Ur ntageous to select a small technical advisory committee cornof in Persons who were intima tely acquainted with operating practhe various fields covered by Regulation WI Consumer Credit. Pans _ °R1 stated that he had given careful consideration to Mr. opirtiort suggestion and he outlined briefly the reasons why, in his 'it should not be adopted at this time. Mr. Morrill was requested to prepare a letter to Mr. Nugent which would be sent on approval by Mr. Ransom, advising that his letter had been brought to 1209 9/17/41 —2— the attention of the members of the Board, and that it had been decided that no action would be taken with respect to appointment of the suggested committee at this time. There was presented a letter dated August 6, 1941, from Mr. 81514°111) President of the Federal Reserve Bank of New York, referring to th --e Policy followed by the Federal Reserve Bank of Boston for a Period of over two years of declining to participate in new foreign Etee°11nts, including accounts for foreign governments, opened and main— tained , 05T the New York Bank in accordance with the established procedure, 411c1 stat int that in view of the large amounts involved and because the 441 ' al Reserve Bank of Boston was not only declining participation in tlell central bank accounts, but, by declining to participate in newly °Perled government accounts which took the place of accounts previously raiiIntailled in the names of central banks of the respective countries, lae efrettively reducing the aggregate amount of its participation in 411 toreign a ccounts, the matter had been taken up with Mr. Young, Pl'esident of t, e nBoston Bank, and that copies of the resulting cor1'41)ondence were being sent to the Board. The letter stated further that the toston ill thirty...three Bank was participating to the extent of 4'53,782,000 accounts and had declined participation in the amount clf 28,463,000 , -1.fl twelve accounts, that up to the present time the 4" Y°rk Bank had not a::::::d participation to the remaining Federal Tie Barlks in the not taken by Boston, but that after 1210 sing the matter with the directors of the New York Bank it was fe4Ahat ' it would be appropriate and in accordance with established Dolt, ' -Y to offer such participation to other Federal Reserve Banks, and that 4.1_ 'ne Board's approval of this step was requested. Mr. Sproul's letter had been circulated before this meeting among the members of the Board who were in Washington. Durin had been a discussion of the letter, Mr. Morrill stated that he advised informally by Knoke, Vice President of the Fed- erel Reserve Bank of New York, that, if the Board were agreeable to the remaininr, Federal Reserve Banks' participating in Boston's share the twelve accounts, Mr. Sproul would take the matter up with the Pre . "flte of the Reserve Banks at their forthcoming conference. Mr. McKee gg s e that r. Morrill be requested to prepare suetdM atidetibmit to the Board for approval letters to the Chairman of the Nlel,al R eserve Bank of Boston requesting a more precise statement of th ereasorls or the policy of the Boston Bank of not participating in the aeeottnts in question, and to Mr. Sproul stating that the Board ap111'°11e8 the Federal Reserve Bank of New York offering, and the remaining Nieral Reserve Banks accepting, participation in the shares in foreign 4ec°11/1ts not accepted by the Boston Bank. This suggestion was approved unanimously, Vest, Coni deration was also given to a memorandum prepared by Mr. Ass; -Lstant General Counsel, under date of August 30, l9/41, in .47% 44 Asi AL- —a- 9441 -4- 111114h reference was made to the question presented to the Board by the Co mptroller of the Currency and the Federal Reserve Bank of Dallas Ilether an officer of a member bank, who was also serving as a director arid as a member of the discount committee of the bank should be regarded as an executive officer within the meaning of Regulation 0, 14E418 to Executive Officers of Member Banks, notwithstanding the adoption of a resolution by the board of directors, providing that he is t1Qtauth0rized to participate in the operating management of the bank. l'henlemorandlun, after stating that the overwhelming majority of opinions er'esaed by the Federal Reserve Banks in response to the Board's letter q‘1114. 17, 1941, on this subject, (R-856) were that the officer should 11°tbe c°11sidered an executive officer, reviewed the principal argu44Itts on both sides of the question and expressed Mr. Vest's personal Itiew that an officer in the circumstances described should be regarded Eta 44 e'•(ecutive officer within the meaning of the Regulation. The memoranchz; cIN.sion which had been circulated before this meeting, stated that a kricieci on the matter was principally one of policy as the answer deon the waY in which the Board decided to interpret the provisions "it8RegIllati On. In a discussion of the application of a ruling that an officer ase under consideration would be an executive officer within rcntlaiOns of Regulation 0, it was pointed out that such a ruling tileall that an officer who was also a director would become an '10111 4 1212 VIN41 —5-- eecutive officer whenever he became a member of the discount committee notwithstanding a resolution of the board of directors that he waS °t authorized to participate in the management of the bank. Mr. McKee suggested that, in order to distinguish between the ere service on the discount committee was in the capacity of a °Iirecto _ 0 4rom the case where service on the committee might be in the c4Pacit7, - of an officer, the Board take the position that in the case t4ider, c°nsideration, whenever the bylaws of the bank provided that rflember of the board of directors should serve in rotation as kerilber s of the discount corrdnittee and the directors did, in fact, %Ire on the committee in accordance with that provision, the officer iOlilcI not be an executive officer within the meaning of Regulation 0. every This suggestion was approved unanimously, and Mr. Vest was requested to prepare for consideration by the Board, drafts of letters to the Federal Reserve Banks and to the Comptroller of the Currency advising them accordingly. offiee Mr. Ransom stated that he was opposed in principle to "inactive" and that he had previously taken the position that inactive o1 of hanks should not be exempt from the provisions of Regulation t4t he was still of that opinion, but that as long as the Board ad11E*" to its present policy on that point he saw no objection to the rul41 'forth above. N341,7 WYatt stated that about 5:30 yesterday afternoon, Under SecOf the Treasury Pell called him on the telephone and said that 1213 9441 -6- for some time the Treasury had been thinking about trying to get legi lation to eliminate discrimination between direct and fully guaranteed 6b1 igations of the Government, that there were various statutes which -44-lainated between the two classes of obligations including some provisio . ns In the Federal Reserve Act relating to their use as a basis r the extension of credit by the Federal Reserve Banks, and that he -Like to know how the Board felt about the matter. The members of the Board who were present indicated that they saw no reason to object to the Treasury seeking such legislation, but SzYiliczak suggested that, before anything was said to the Treasury the matter, it be discussed with Chairman Eccles. Uth the approval of the other members of the Board, Mr. ransom requested that Mr. Wyatt, with Messrs. Clayton and Thurston, discuss the matter with Chairman Eccles over the telephone, it being understood that if Chairman Eccles saw no objection to the Treasury seeking legislation, Mr. Clayton or Mr. Thurston would so report to Mr. Bell, stating that the Board had no objection to offer and that, lf desired by the Treasury, Mr. Vyatt would be requestee to work with the Treasury on the technical phases of the legislation. f ieference was then made to a memorandum dated September 12, l'°111 Mr• Coldenweiser calling attention to an informal request relll the -ate Department that the Treasury and the Board of Governors 11141crize to technical experts from their respective staffs to go to Cuba 6.4ist - n 1' eveloping legislation to establish a central bank in 1214 9/17/41 —7— ellbai the D and recommending (1) that Chandler Morse, Associate Economist in sion of Research and Statistics, be authorized to make the trip toCuba with the understanding that the question of the expense involved 17°414 be determined by negotiation with the State Department on the ass'1:11Picn that the Board would pay Mr. Morse's salary and the Board's contributions to the Retirement System in his behalf during his absence and the State Department would pay his necessary travel and subsistee expenses, and (2) that, in the circumstances in which the request c'tthe State Department was made, the Board suggest to that Department that it would be best if the head of the mission to Cuba came from the 3al'cl's Staff since the purpose of the mission related to a central matter. The memorandum also stated that if the Board agreed With the second recommendation, it was suggested that it designate Mr. 4e1clenweiser _ to go to Cuba for a few days and, if for any reason that not feasible, that Mr. Gardner be sent. Mr* Ransom stated that in view of the current, discussions being )4cilleted with representatives of the Treasury on the subject of action be ta.leri wthe field of credit control, Mr. Goldenveiser could not be 'sPared at the present time, and that he would suggest that the Board 1)11‘°l'e the recommendation with respect to Mr. Morse and that Mr. 51411Weiser Lc u requested to advise the State Department that if it believed to be desirable that an operating man be a member of the n to c„a, the Board would join with the State Department in 04 M 0...JL+11-0 9/17/41 -8- ng the Federal Reserve Bank of New York to make an employee availalae for that purpose. This suggestion was approved unanimously. The meeting then recessed and reconvened at 3:15 p.m. with the same attendance as at the morning meeting except that Mr. Morrill 1"" not Present and Mr. Parry, Chief of the Division of Security Loans, and*. Cravens, Consultant in the Division of Security Loans, were in attendance. Mr. Ransom referred to the informal discussion in the Board aterday roottlYe morning of proposed bases for the determination of the .1.1m credit value of automobiles for the purposes of Regulation W d stated that as a result of that discussion it had been decided to l'ee°111mend to the Board the adoption of an amendment to Regulation W Mlich would, in effect, provide that whenever the manufacturer had adtised Or recommended a delivered price at the factory that price .%11.1d be used, and that, whenever such a price had not been advertised, the lila:x.11111m credit value would be based on the advertised price for the corresponding 1941 model increased or decreased by the percentage 11 Which the manufacturer's wholesale price to the dealer for the 194 model was increased or decreased from the wholesale price for the 1941 model. He stated that if the Board was willing to adopt 4111 e. mendment he would sugges t that the proposed amendment be etit to alltOMObile Manufacturers-, the National Automobile Dealers °16 9/17/41 -9Association, the three principal automobile finance companies, the American Finance Conference, and other interested representatives of the "trade" with a request that any suggestions that they might wish t°offer be submitted to the Board not later thela six o'clock on the afternoon of September 18, 1941. He added that if this suggestion adopted, it was anticipated that the proposed amendment would be , suorrdtted to the Board for final action on Friday, September 19. The members of the Board indicated that they were in agreement with the procedure suggested by Mr. Ransom and unanimous approval was given to the following telegram to be sent to the parties mentioned: "Eoard has under consideration the following amendment to Regulation W: 'Part 3(a) of the Supplement to Regulation W is hereby amended to read as follows: '(a) The maxilnun credit value of a new automobile shall be 66 2/3 per cent of the bona fide cash purchase price of the automobile and accessories (including any sales te•Xes thereon and any bona fide delivery c harges) but such maximum credit value shall in no event exceed 66 2/3 per cent of the sum of the following items: '(1) The manufacturer's retail quotation at factory, or the equivalent of such Ac_lotation. (For the purposes of this regulac'lon, this means the retail delivered price Zfle tigc%Itzbile with standard equipment at as advertised, or as suggested °r recommended to dealers, by the manufacturer, a or in the case of a 1942 model for which such price has not been so advertised or suggested recommended, it means the price last so ador suggested or recommended for the "43rrespondin 1941 model, increased or decreased 9/17/41 -10the percentage by which the manufacturer's Wholesale price of the 1942 model is increased or decreased from the manufacturer's wholesale price of such 1941 model.) '(2) Transportation charges from factory to point of delivery as suggested or recommended by the manufacturer for inclusion in the retail delivered price at that point, or in the absence of any such suggestion or recommendation then an amount substantially equal to the freight by rail from factory to that point; '(3) Any Federal, State, or local taxes not included in the foregoing; and '(4) Any bona fide charges for delivery or accessories not included in the foregoing items. 'In case the automobile is sold for delivery at the factory, by a dealer in a given place to a resident of such place or its vicinity who actually intends to bring the automobile to such place or vicinity and use it there, an amount equal to the freight from the ...ctory to such place may be included.' he : If You have any suggestions or comments regarding f 1°regoing proposed amendment it will be appreciated : 11 7211 will submit them by wire through the Secretary of e7 c_ oard of Governors at Washington so that they may be e nved before 6:00 p.m. Eastern Standard Time Thursday, 13''erlIber 18.” f At this point Messrs. Parry, Dreibelbis and Cravens withdrew tl'°111 the meeting, and Messrs* Goldenweiser, Smead, Vest, Thomas, Horbett, qaff) )4,4, 11 t Longstreet, Despres, Piser, Kennedy, and Musgrave of the Board's and John H. Williams, Associate Economist for the Federal Open Committee, entered the room, Mr- Ransom stated that this meeting constituted a resumption c).r the weekly IIleetinrPs commenced last July for the purpose of discuss- le a %les of topics as set forth in a memorandum prepared by Mr. Q A C-0 3-1.3 9/17/41 -11G°1denweiser under date of July 14, 1941, but that the meeting today w°12.4 be devoted to a discussion of the problem of excess reserves Member. banks. Mr. Goldenweiser referred to possible changes in the volume ess reserves over the next year and discussed briefly the factc)rs that would affect total reserves. He then stated that, in ac%mance with action taken by the Board, members of the Board's staff 171-11iams, representing the Federal Open Market Committee, had been the discussin with members of the staff of the Treasury Department objectives, and the form of, action to deal with the excess re- situation, and that although no final decisions had yet been 4i -Lc had been agreed that any action taken would have the folng objectives: (1) to place restraint on the expansion of bank )0eits, (2) to avoid the creation of a situation in which any bank 11°1114 be obli,=.ed to liquidate loans or investments, (3) to continue a iltrietent kke ail amount of excess reserves to enable the banking system to Clefense loans that might be necessary and to purchase such 644011/1ts of to take, Government securities as it may be found necessary for them Where it It°1 and (4) to place the Federal Reserve System in a position vias gain in contact with the market and could, through open operations and other actions, exercise some influence on the of bank credit. these four objectives in mind, he said, it was assumed 1219 9/17/41 -12- in the discussions that action would be taken by the Board of Governors to illcrease reserve requirements to the maximum permitted by present 1417) that any further authority over bank reserves would be in such fetrill as would apply to both member and nonmember banks, and that the Present reserve classification of banks would be chanced so that action e()uld be taken with respect to New York City banks, reserve city banks, 61)1j41t17Y banks, or with respect to any combination of these classiticatl"°11s- He added that there was also agreement that presumably Ithatever new powers over reserves were sought they would not need to aPi)1Y to time depo its as it was felt that the requirement of 6 per eent °fl such deposits was satisfactory. Ur. Goldenweiser then stated that the objectives stated above e°1114 be a chieved by having additional powers on a percentage basis vilthsonie kind of moratorium provision that would (1) exempt banks 111,i in the event of further increases in reserves would be defi* 111 required reserves, from penalties for such deficiencies and the Prohibition against making loans or paying dividends while thei r sel,ve reser,res ;ere deficient, or (2) require banks with deficient re- 11' 'maintain P°sit, dollar for dollar reserves against additional de- such time as they had increased their reserves to the 11.11red level. Another form of action, Mr. Goldenweiser stated, would be to Plan by which a higher percentage of reserve requirements .1220 9/17/41 -13- be applied to additional deposits, with the provision that, len Id a bank had or acquired reserves equal to a stated percentage °tits total demand deposits, its required reserves thereafter would be that percentage of such deposits. He also said that the third alternative discussed during the e°zIferences was the "ceiling plan" which would provide for a reserve l'ecillirement on additional deposits of something less than 100 per Cent, possibly 50 per cent, and that the representatives participating &tithe conferences favored that alternative which, if applied after 4"44)n bY the Board to increase reserve requirements to the maximum now authorized would permit a further expansion of bank loans 641(1 illvestments of between six and seven billion dollars, which, it ItEl felt, should be adequate for the time being. He added that it P°88ible that the reserve requirement on new deposits might be q)terl at some point higher than 50 per cent, depending on the needs tor I,"8"8urY and defense financing, and that at present he would favor higher rate. the He made the further statement that there was agreement among representatives that the present was an opportune time to request technical a mendments to the present law, (1) to permit the counting " '1411.1t cash as reserves which would have the advantage of appealing 4()/lraeniber banks which for the first time would be affected by Fedellq law relating to reserve requirements, and (2) to impose a higher 44) 1221 9441 -14- l'eserve requirement on inter-bank deposits and to authorize any bank t4)e°111Aas reserves the portion of its deposits with other banks that slleh other banks were required to hold as reserves with the Federal Re" 8 e Bank. 44 ETeaLtay Of the That, he said, would also be acceptable to nonmember banks reduce the effect on central reserve and reserve city banks lof bank deposits. He concluded with the statement that if these two changes in the Present law were adopted it would be necessary to change the perceritages at required reserves to offset the effect of the amendments the Ircaume of bank reserves, after which any new increases in rea"ve l'equirements that might be agreed upon would be applied. During a discussion of points raised in connection with Mr. Ozoltle nweiser t s statement, Mr. Williams said that, while there were 8(3141e questions in his mind, particularly with respect to the Niell'e Percentages that should be applied, he felt that there was eirel'784'gUment for the exercise by the Board of its remaining authority toi„ 'crease reserve requirements, that he regarded the present as an bent time to effect the two amendments in the law proposed by 0:4:CierlWeiser which he (Mr. Williams) regarded as being basic and prel' 'nary to any further action, and that beyond that 13()tnt h e would favor the adoption of a conservative policy with ret° further increases in reserve requirements. *Is Ransom referred again to the position of the Treasury 1222 9/17/4:1 -15- that anY decision with respect to the action to be taken in connection reserve requirements should be made before the end of this month 48the Treasury felt that it would be necessary to make some announcethe early part of October of major Treasury financing and that alin°uncement of any action with respect to reserve requirements should be,, "Luse before that time. He also discussed briefly the position of the Tr easurY representatives that before action was taken by the Board 1414r its existing authority to increase reserve requirements, a deeision should be reached as to the form that any additional powers reserves should take, and he suggested that in these circumstances, kase, Gol denweiser and Williams be requested to continue the disellesion 8 wlth the Treasury for the purpose of reaching a decision on the Whole p rogram as promptly as possible. PNti Mr. McKee inquired whether the Federal Deposit Insurance Cor- was represented in the discussions being carried on and it Stated that Mr. Crowley, Chairman of the Federal Deposit Insurance e°1130rati -°111 was being informed of developments and members of the staff the on -11Pc/ration were working with representatives of the Board the and 8 urY on the matter. Mr. Gadenweiser stated that if agreeable to the Board he Wow -41 ' /14411ce tik,le a to writinr,the statement which he made earlier in the 8 a basis for further discussions with Treasury representst4e., c` on Friday of this week. "23 9/17/41 —16— Mr. Ransom suggested that, before the memorandum referred to Ur. G oldenweiser was sent to the Treasury, Mr. Clayton or Mr. Thurston ascertain the views of Chairman Eccles and whether, in view of .1..1, wge fact that further discussions with members of the Treasury's atattluidoubtedly would result in a definite agreement on a program be recommended to the Board and the Treasury, he had any suggestions to nlak e as to the procedure to be followed. t There was unanimous agreement with Mr. Ransom's suggestion. At this point Messrs. Thurston, Wyatt, Goldenweiser, Smead, Vest, Z41114, Horbett, Gardner, Longstreet, Despres, Piser, Kennedy, Musgrave, 411(11q1liams left the meeting, and the action stated with respect to ea ch ot the matters hereinafter referred to was then taken by the Board: The minutes of the meeting of the Board of Governors of the Fed— eral Reserve System held on August 22, 1941, were approved unanimously. The minutes of the meetings of the Board of Governors of the PecteN. Reserve System held on August 25, 26, 27, 28, 29, September ' 4 51 6/ 8, 9, 10, 11, 12, 13, 15, and 16, 1941, were approved 4-'tlle eNti. actions recorded therein were ratified unanimously. The minutes of the meeting of the Board of Governor of the Fed— serve SYstem with the Federal Advisory 194.1 Council held on September 3 were approved unanimously. MeM°randum dated September 15, 1941, from Mr. 8eere Nelson, Assistt4171 recommending that Bruce Bishop, a guard in the Building rt/Itti.0_ 118 and Ma intenance Section of the Secretary's Office, be 9/17/41 -17- granted leave of absence without pay beginning September 16, 190, ile ' rthe purpose of entering active duty with the United States Naval leserve, and that he be granted the benefits provided in the policy ackl)ted IV the Board on November 14, 1940, and amended on August 20, 1%1, f°r all employees entering military service. Approved unanimously. Bank Telegram to Mr. Evans, Vice President of the Federal Reserve of las, reading as follows: 191., "Board approves appointment, effective October 1, of Roy J. Smith as an examiner for Federal Reserve Banic of Dallas." Approved unanimously. Nadi_ e elegram to the Presidents of all of the Federal Reserve Banks a8 follows: cei "Reg- W-63. The following question has been reAf,Yed under Regulation W and has been answered in the deal 'Used car has unpaid instalment contract. May liseder Pay off unpaid contract, apply the equity in the cliff car against down payment on new car and finance the Of ti7irenee (assuming it is not more than 66-2/3 per cent the : 11 weash Price) between the equity and the price of car over 18 equal payments?'" Approved unanimously. Telegram ta the Presidents of all of the Federal Reserve Banks g as aws "Re , %dait g- 1-64" Inquiries have been received as to appli31' of Regulation V; to a case where vendor of a listed 9/17/41 -18- article requests a prospective purchaser to allow him to install it in prospective purchaser's home 'on trial' or on approval' for a 60-day period. The prospective purchaser agrees and at end of 60-day period decides to purchase the article. At what time is the sale of the article t° be regarded as having been made? "Assuming that the transaction is entered into in Food faith and not for the purpose of evasion, the Board of the opinion that if the prospective purchaser has the right to return the article to the pros1D ctive vendor at any time within the 60-day period, and ! he prospective purchaser does not make, and is not 711gated to make, a deposit or payment of any kind to pir prospective vendor unless and until he informs the arZP?c i t ve vendor that he has decided to purchase the the date of sale, for the purpose of Regulation 131,111aY be regarded as the day on which the prospective th chaser informs the vendor of his decision to purchase e article ,, Approved unanimously. Telegram to the Presidents of all of the Federal Reserve Banks as follows: to "Local managers of Better Business Bureaus may call er cooperation in obtaining compliance with Regulaun Think such cooperation may be quite useful." Approved unanimously. Telegram to Mr. Swanson, Vice President of the Federal Reserve f 1Tin readinE. as follows: ilemo nY ,°ur wire September 15 statin,; , two questions under te):Z4Li". W. Re your second question, if Registrantexedit Which he knows ,o or has reason to know is to Placp - credit held by another Registrant, section 8(c) s hi% on same basis as Hence l the other Registrant. of te , 31113jeot to same restrictions in the absence a ces8i-ent of necessity and also may grant the same con°Iris if he accepts the statement of necessity in he i; 1226 9/17/43. -19- "good faith as provide d in 8(d)." Approved unanimously. Mr. Szymczak suggested that the Board authorize the payment of thec°8t of luncheon served in the Board's dining room today to Mr. Leo 'r$ C1°711517, Chairman of the Federal Deposit Insuran ce Corporation. Approved unanimously. Thereupon the meeting adjourned. f Vice Chairman.
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