The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
1083 A meeting of the Board of Governors of the Federal Reserve aYstem was held in Washington on Tuesday, September 2, 1941, at 11:30 IL PRESENT: Mr. Ransom, Vice Chairman Mr. Szymczak Mr. Draper Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary The action stated with respect to each of the matters hereinafter referred to was taken by the Board: Memorandum dated August 27, 1941, from Mr. Thomas, Assistant 4rector of the Division of Research and Statistics, recommending that Ray Wood be appointed as a junior economist in the Division "esearch and Statistics, with salary at the rate of 1,2,600 per an411m 'elfecttve as of the date upon which he enters upon the perform. Of als duties after having passed satisfactorily the usual physica l elc4dnation. Approved unanimously. Memorandum dated August 27, 1941, from Mr. Nelson, Assistant Seel'eta 171 reading in part as follows: 1 "There is attached a copy of an Act approved August G41914-13 providing that employees of the United States ord:,/,nTent who have heretofore or who may hereafter be of eu to active duty with the military or naval service eat;"e United States shall be entitled to receive compento 1°n for their accumulated or current accrued leave or the,-Lect to have such leave remain to their credit unt1.1 Actlx: return from such service. It is believed that this aPPlicable to employees of the Board, but not to -141oyees of Reserve Banks. 9/2/za -2"At the time of adoption of the Board's policy with respect to employees called into military or naval service, the question of payment for accrued leave was given consideration, but the policy as finally adopted provides that each employee receive one month's unearned salary, and that hiS accumulated leave remain to his credit until he returns. ,"-Ls Policy may be continued and would be consistent with the Act passed on August 1, 1941 in cases where employees elect to have their leave remain to their credit until they return to the Board's employ. However, should an employee to be paid for his accumulated leave a decision must be _ e 1:eade whether he should be paid for accumulated leave in dddition to the one month's unearned salary, or whether the : !?unt of unearned salary paid should be treated as an off' against any payments which it is necessary to make for accrued leave. RECO MMENDATION: pa., "It is recomme nded that the amount of unearned salary 1(1 to employees called into military or naval service be ctreated as an offset against any compensation due for ac__ ed leave in cases where employees request payment for . 1c11 leave, but that cases where employees elect to have in rheir accrued leave remain to their credit pending their smPloyment, no offset be made against such leave." Approved unanimously. Letter to the board of directors of the "Community Bank, Steel143 tLc18 ss°uri", Steelville, Missouri, stating that, subject to condior 4 membership numbered 1 to 3 contained in the Board's Regulation the el7Q. Board approves the bank's application for membership in the Fed- qeserve System and for the appropriate amount of stock in the FedReser,_ ve, Bank of St. Louis. Approved unanimously, together with a letter to Mr. Davis, President of the Federal Reserve Bank of St. Louis, reading as follows: terii "The Board of Governors of the Federal Reserve Sysapproves the application of the 'Community Bank, 9/2/0 . -3"S teelville, Missouri', Steelville, Missouri, for membership in the Federal Reserve System, subject to the conditions prescribed in the enclosed letter which you are requested to forward to the Board of Directors of the i nstitution. Two copies of such letter are also enclosed, one of which is for your files and the other of ich you are requested to forward to the Commissioner °I Finance for the State of Missouri for his information. 'It has been noted that estimated losses shown in the report of examination for membership were ordered charg off at the close of the examination and it is as.stu Lnied that the charge-offs have been made. Accordingly, the condition of membership regarding the elimina, v 1°11 of losses has not been prescribed; however, if it ' t:a? not already been done, definite advice should be ob,lned prior to admission of the bank to membership that ' 4Ie losses have been eliminated." n Letter to the board of directors of the "Farmers State Bank of ple", Temple, Texas, stating that, subject to conditions of member- N M.14) ntimbered 1 to 3 contained in the Board's Regulation H, the Board appi, °ves the bank's application for membership in the Federal Reserve 8teill and for the appropriate amount of stock in the Federal Reserve 8ank °I. Dallas. . Approved unanimously for transmission through the Federal Reserve Bank of Dallas. Letter to Mr. Mercer, Vice President of the Federal Reserve tank c't Richmond, reading as follows: 23 is made to your letters of August 20 and itrference the '74J-, submitting for the Board's consideration, under expePr?visions of an applicable condition of membership, Mat idl llres and proposed expenditures totaling approxigal 1111'431,200 by the Union Trust Company of Maryland, °1 ' e, Maryland, for the purpose of purchasing the 1086 9/2/41 —4— "leased land on which part of the main office building is located and for certain improvements in the main office and two branch office buildings. "In view of the circumstances as outlined in your letters, and in accordance vith your recommendations, the Board interposes no objecti on to the expenditures and proposed expendi tures for such purposes, and you are requested to advise the bank accordingly." Approved unanimously. Letter to Mr. Peyton, President of the Federal Reserve Bank of flea Pc)lis, reading as follows: 19) "Referring to your letters of August 4 and August 1941, ti -Lication the Board of Governors has changed the classiof member banks for the purpose of electing Class B directors of your Bank so that Group 1 will con.1-st of banks with capital and surplus of over 250,000, °P 2 of banks with capital and surplus of over r75,000 ,i 250,000, and Group 3 of banks with capital and sur' us of 75,000 and less." J Approved unanimously. the Tele. dated August 30, 1941, to the Presidents of all of Federal Reserve Banks reading as follows: re "Reg. 1,-12. Certain questions have been received zerrding the status under Regulation W of commitments e to September 1 to extend credit after September 1. Q; UeCtiOn 9(d) of the regulation exempts 'any valid 0, ntract made to September 1. An earlier ruling the oard Board has indicated that this exemption applies to commitnent made prior to September 1 with reto a moderni zation job that is in process on August 31. order to clarify further the application of this r0 ri) :1?lon to outstanding commitments, certain general applicable to such commitments are set out be- P in se"1. . The underlying principle is that the exemption tomb etl°n 9(d) for 'any valid contract' made before Sepels 1 aPplies not only to an extension of credit actually 1087 9/2/41 -5IT made before that date, but also to a valid contract to make a contrac t. The exemption, therefore, includes a valid commitment made in good faith before September 1 to extend credit after September 1, and includes also the credit extended pursuant to such a commitment. "2. In order for the exemption to apply there must have been a valid contract. The general test is that the borrower should, in the absence of the regulation, have been unable to maintain a suit for damages if the credit 1.94 not been granted pursuant to the contract. Some of the .requirements for such a contract may be briefly sum, riarlzed: (a) Even an exact agreement on the sale of a Particular article is not necessarily an agreement to exend credit therefor. There must have been a valid contract relatin g to the credit. Where there is ambiguity as to Whether the contract included credit arrangements, relatively little proof would be needed in the case of a contract for a unique or 'custom built' item, as for exTPle a home modernization job, to show that the contract d id; t Include credit arrangements; but in the case of a oi-la,ndard article the presumption would be strongly the more than way. (b) There must in any case be considerably general negotiations or indefinite 'understands' that the credit would be extended. There must have n exactan agreement to extend the credit and a reasonably agreement as to terms and amount. (c) While not w;"Ys essential, the case is much clearer if there is „ltten evidence of the commitment. The time as of which extensi . of credit is itself dated is not important, onth fioant date being that of the prior commitment. e tie 3. Substance and good faith rather than technicaliis 3 and formalities control in determining whether there valid pre-September contract. The most elaborate wirttena, re-' 10cuments do not constitute such a contract unless they lalf 3 rent a bona fide commitment made as a part of a reguusiness -sulation.n transaction and not as a means of evading the Z Approved unanimously. Telegram dated August 30, 1941, to all Federal Reserve Banks as follows: , `T. 1,-13. The classification household furniture mirrors, unpainted furniture, stools, kitchen or fast room sets, porch tables, chairs, and swings, and 9/2/4i -6-“kitchen cabinets but does not include pictures or clothes hampers.” Approved unanimously. Telegram dated August 30, 1941, to all Federal Reserve Banks l'eacling as follows: n i W-14. The following articles are not included ; 11 anY of the classifications of listed articles: toasters, .12,9c1 mixers, roasters, air circulating or ventilating fans Clock'2-11e than attic fans or air conditioners, waffle irons, s, carpet sweepers not electrically operated." Approved unanimously. Telegram dated August 30, 1941, to the Presidents of all of the leral Reserve Banks reading as follows: pe ."Reg. 1%-l5. Section 4(d) of Regulation IV does not inrTIt sale of listed article for payment in five equal uents soaced at three month intervals." Approved unanimously. Telegram dated August 30, 1941, to the Presidents of all of the R eserve Banks reading as follows: 11-16. A case has been presented to the Board riot "'en blai take a dealer selling a listed article in Group D does note from the purchaser payable to the dealer, instead, according to arrangements with a bank, takes 114:11 the purchaser a note payable to the bank. Since the hasebis not secured by the listed article, the question een presented whether the transaction is an extenwhin of instalment sale credit subject to section 4, in the t, case a down payment would be required, or whether loan'ransaction is an extension of unsecured instalment credit subject to section 5(b), in which case the )1,,Yment would not be required. question is covered by section 2(d) of the regsalel°11 cre. That section defines an 'extension of instalment dit' as an extension of instalment credit which 1089 9/2/41 -7"is made 'by any seller' and 'arises out of the sale of s.uch listed article', and it specifically states that the definition applies whether the seller is acting 'as principal, agent or broker'. "It is accordingly clear that the extension of credit here • in question is an extension of instalment sale credit, and as such is subject to the down payment requirement." Approved unanimously. Telegram to all Federal Reserve Banks reading as follows: "Reg. W-17. The classification 'household furniture' does not include china dinner sets, stainless steel cooking Utensil sets, or silver-plated flatware." Approved unanimously. Telegram to all Federal Reserve Banks reading as follows: 0 1,1-18. "Reg, The classification 'household electric ganst includes electronic instruments and electric ac,s1:°n instruments designed for use in homes. It does not clude ecclesiast ical models the cases of which are 9 cially designed for use in churches or for similar use.n j V Approved unanimously. Telegram to all Federal Reserve Banks reading as follows: ; Reg. 1.-19. In order to clarify the status of rene/7 Ile ss, revisions and consolidations (or 'add-ons') under tcj 0n 1, during the period until November 1, when seci and 8(b) on these subjects become effective, general principles applicable to such transactions lngithis period until November 1 are set out below: ten, Any instalment credit which was originally ex1.22-LII22.2LTILIcL may be renewed or revised once cn ,ould after September 1 on any terms which the registrant regui ve granted in good faith in the absence of the In the case of the renewal or revision of a 1, which was originally extended on or after September the renewal or revision of a credit which was origY extended before September 1 but has already been t';:a 1.090 9/2/41 -8"renewed or revised (or consolidated with a new credit) on or after Septemb er 1, the credit as renewed or revised maY not have a maturity beyond 18 months from the date of the renewal or revision. This 18 months limitation, however, does not apply to a renewal or revision which relates to an obligation of a member of the armed forces of the United States incurred prior to his induction into the service, or which is necessary for the Registrant's Protection in connection with an obligation which is in clefault and is the subject of bona fide collection effort by the Registrant. . "2. The mere act of consolidating two separate obligatl°ns, or of 'adding-on' one obligation to another, can Confer no greater privileges than would apply if the obliPtions were treated separat ely. Accordingly, any new extension of credit which would be subject to a down payment quirement if made alone, is subject to the same require'nit if consolidated with, or 'added-on' to, an outstanding oL uigation. 13 13. Similarly, in determining the terms of repayment ,ser'!lissible when an extension of credit is consolidated with, 'added on to, an outstanding obligation of the same obit is necessary to consider (a) the terms on which he outstanding obligation could be renewed or revised (for an!;t is what its consolidation may in effect accomplish), the terms required for the additional extension of tdlt if it stood alone. The consolidated obligation may noe b Provide for repayment at a slower rate than would have aesen permissible if the outstanding obligation were revised te Permitted by the regulation and the new credit were ex : welided in accordance with the regulation but the two credits re ?lot consolidated. stat 4. While sections 8(a) and 8(b) which require a fecjment of necessi ty in certain cases do not becomeeflire until whi lve November 1, section 8(g) of the regulation, an ls in full effect beginning September 1, prohibits extensio n of instalment credit in connection with which newl: ls anY evasive side-agreement for the subsequent reof or revising of the credit. Therefore, any extension on 4-nstalment sale credit or instalment loan credit made tensor n after Septemb er I cannot be the subject of any conwhir̀,hraneous agreement, arrangement or understanding by evar-1. renewal s or revisions are to be used as a means of 'lng the requirements of the regulation. Any renewal 1091 9/2/0. -9"or revision must be the bona fide result of developments after the making of the original extension of credit. Jnless it is Unless such a bona fide result of a subsequent dev elopment, it is prohibited by section 8(g).t1 Approved unanimously. Telegram to the Presidents of all of the Federal Reserve Banks re'ading as follows: "This is in response to questions in several telegrams received in reply to our wire regarding distribution of Board's interpretations of Regulation W. We have delayed replying until we heard from all Reserve Banks. The Th°110wing methods include all those reported by the Reserve zanks. "When interpretations are received they are furnished immediately to all officers and all employees engaged in a8uralnistering Regulation at branches and head office. PerT1° ,118 who have asked specific questions are advised at once. interpret ations are furnished promptly to local repre17ntative s of the press at head offices and branches, to newspaper and others on mailing list, to retail credit : h sriations, and to interested trade organizations whose ' a offices are in Reserve Bank district. They are also Znt to all banks and other financial institutions, which a e requested to make them available to local financin g tneies and vendors who might not otherwise be informed. bus?rPretations are included in bank circulars or monthly in pess reviews and supplements. They are also being used areforum and panel discussions. All who desire to do so authorized to quote or make copies. and The Board gives general approval to these methods the °elieves that every Reserve Bank should use as many of d e methods as IC deems desirable in order to effect wider Lribution of information. It is important, particularly at thi_ 14 13_ time that those primarily affected by Regulation : in given fullest opportunity to gain correct understandofits purposes and meaning. on a "We will be glad to receive any advice you can give of t;?sticm of practical value, form or content, or methods and' Z a ie(13„/Listributing proposed compilation of questions e Approved unanimously. 1_092 9/2/41 -10Telegram to Mr. Fleming, President of the Federal Reserve 8ank of Cleveland, reading as follows: "Re Hays letter of August 29 enclosing seven interpretat' lons of Regulation V:which your bank has given and proPcses to include in weekly bulletin, these interpretations ) to be Pear correct, but in your interpretation of section v sa, on meaning of bona fide, which is correct in substance, 4_1(31c1 suggest changing words 'mere fact that transaction ' a ces form of coming within section 6(a) for purpose' to mething like 'mere fact that first lien is taken for pur!Te', in order to avoid any implication that mere 'form' ' 6)1 (a.. rsact101 is sufficient to bring it under section ?( Approved unanimously. Letter dated August 30, 1941, to Mr. Cheyney, Vice President the N . ational Retail Furniture Association, prepared by Ir. Parry in accorcia nee with the action taken by the Board on August 27, 1941, and --1-n,; as follows: to "Careful consideration has been given by the Board t Y°11r suggestion of August 26 to Mr. Ransom that at the ; cl e,°f Your Eastern Convention, September 15-17, a distal-s-L°n group might be set up with our participation to the Ingtort. place of a proposed meeting with us here in livash"Not the manifest advantages of this suggestion withstandinp the lt seems best from our point of view to follow is inginal plan of having a meeting in Washington. This yea-",accord with the Board's established practice of many maijs standing. It would also afford us opportunity to ture Sure 'that at all interested elements of the retail furnibusiness, geographically and otherwise, and perhaps it ,Ted -'elat businesses, may be in attendance. In addition, inas. uld afford us more time to get ready for the meet- of! h e 4Z"n your permission, however, we should like to '"e Privilege of having present at some of the meetings 1093 9/2/41 —11— 11,4, -1- Your convention men from the staff of the Federal Reserve Bank of Philadelphia and perhaps a member of the Board's staff." Approved unanimously. Letter to the Presidents of all of the Federal Reserve Banks r'eading as follows: ."Mr. Allan Sproul, Chairman, Presidents' Conference ,ommittee on Defense Savings Securities, has furnished the Board with conies of his correspondence with you with respect to the Defense Savings Bond Program. . "It is noted that all Federal Reserve Banks have now 4 8 ,s1ped officers to establish and maintain contact with Savings Bond organizations in the States of , ter lr Districts. It is also noted that Mr. Sproul has aaed You of the names of the members of the staff of the ard of Governor Governors who, under the general direction of McKee, will maintain contact with the Defense oarvings Bond organization at Washington and between that ganlzation and the Federal Reserve Banks. th "Mr- Sproul indicates in one of his letters that if hee experience in the Second District is at all typical, 1,10anks it will be found that the State organizations th -4-.InglY accept the cooperation of the Reserve Banks and !they should be able to help the State Committees in g.n17 gan a 'ing their work and, where the work is already orin furthering their sales progra m. In order that the Board may be kept currently inas to the part the Federal Reserve Banks are taking maloTlecti°n with the Defense Savings Bond Program, it ste '? appreciated if you will advise the Board what witlipls nave been taken to establish and maintain contact of,the Defense Savings Bond organizations in the States of Jc)ur District and furnish it, not later than the tenth or j e ell month, rith a brief statement of the activities th, :r liaison officer at your Bank in connection with rrogram.n X r e Approved unanimously. 1_094 Thereupon the meeting adjourned.
@FedFRASER