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1849 A meeting of the Board of Governors of the Federal Reserve Systern Was held in Washington on Monday, September 21, 1942, at 11:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Ransom, Vice Chairman Szymczak McKee Draper Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Thurston, Special Assistant to the Chairman Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Thomas, Assistant Director of the Division of Research and Statistics It was 15, stated that following a release to the press on September 1942, of the Federal Reserve Bulletin for September, which contained an art. lele entitled "Bank Credit, War Financing, and Savings", Mr. Flynn, ' 6er for The Wall Street Journal, discussed the article with Mr. Thomas 1 after which Mr. Flynn wrote an article which appeared in The Wall 44et J°11rnal this morning and which, after referring to the statement e°11 tain.A" - in the Bulletin article that the growing volume of bank deposits and cur re c,5r holdings was available for such use as the owners might wish to PUt the_111, stated that officials said that this means that the Federal Iteee i8 , me concerned about the volume of savings and cash in the hands of but is downright alarmed about the lack of control over the of the funds. The article also said that Federal Reserve officials kirt„ '116 that personal savings, in the form of bank accounts, may be i"lat i°118 '17 if there is nothing to prevent such savings from being tapped 1850 9121/42 -2- sPending. A front page note on the article stated that savings ac- e°111ft8 might be subjected to some form of control, according to Federal Reserve officials, to prevent the inflationary effects which would result irthey were extensively tapped for spending. M. Thomas stated that he had said nothing to Mr. Flynn that would illetitY the statements contained in the article with respect to savings 11"'°11nts and that Mr. Flynn had promised to make a correction. It was ale° stated that the difficulty came from. Mr. Flynn's having referred to Persclial Sag5 as being in the form of bank accounts rather than savings illthe hands of individuals from earnings. It was also pointed out that de attention were paid to the article it might result in large with4ralvals Of savings balances to avoid restrictions on savings accounts, and that the question was what, if any, action the Board should take to conet the objectionable statements contained in the article. Mr. McKee suggested that probably the best way to approach the ot New would be to have Mr. Sproul, President of the Federal Reserve Bank York, talk to Mr. Grimes, the editor of The Wall Street Journal, in New loric -4'd get him to correct the statement. The suggestion was also rilsde that 4.. - -LI this course were followed the Board might issue a brief stateellt den Ying certain statements contained in the article. 141'• Ransom called Mr. Sproul on the telephone and discussed these —118 with him, and Mr. Sproul stated that he would talk to Mr. Grimes kid cala_ mr. Ransom again. Shortly thereafter Mr. Sproul called and stated that he , uttu talked to Mr. Grimes, who had been preparing to write an edito°n th -e basis of Mr. Flynn's article, and that he thought there were 1 851 9/z/42 —3— se'le People in Washington who had the idea of controlling savings accounts. Ur. s Pl ' °111 said that he told Mr. Grimes that the Board was going to issue a denial and that so far as we knew no one in Washington had any idea with respect to the control of savings accounts, whereupon Mr. Grimes said he th°11ght it was important to correct the article and that he would get in t°11ch with Mr. Flynn and call Mr. Sproul again. Following the conversation with Mr. Sproul, it was understood that Illeasra 82ymczak, Thurston, and Goldenweiser would draft a brief direct 81-stene—, for the press for consideration by the Board following a further conversation with Mr. Sproul this afternoon. T hereupon, the meeting recessed and reconvened at 2:35 p.m. with the a ame at as at the morning session except that Mr. Clayton, Asai ' 4allt to the Chairman, was in attendance and Mr. Thomas was not pres— tt. The draft of statement prepared in accordance with the understand— trig', .1.-e ed at the morning session was discussed and certain changes were Rested therein. While the discussion was in progress, Mr. Sproul called °I1 the telephone and said that Mr. Grimes had called again and that, while Niat ter felt that Mr. Flynn had received the impression conveyed by the kttiele tom,. from his conversations in Washington, he (Mr. Grimes) was agreeable ' 4 4`41.11g a " correction. tO-kr. Thomas Jan Mr. Sproul also said that Mr. Flynn wanted to talk about the matter and that he had suggested to Mr. Grimes that teak to Mr. Ransom. 18-4) 944/42 -4- Ur. Ransom then read to Mr. Sproul over the telephone the draft Press statement, and Mr. Sproul said that he thought that was the kind Of stat ement to make. Mr. Ransom also stated that if the statement were Of issued It would be sent to all of the Federal Reserve Banks for their intclrilistions At the conclusion of the conversation with Mr. Sproul, upon motion by Mr. Szymczak and by unanimous vote, the following statement for the press was approved for immediate release, with the understanding that a copy thereof would be sent to the Presidents of all the Federal Reserve Banks for their information: wrhe Board of Governors of the Federal Reserve System wishes to deny a report printed in the Wall Street Journal of September 21 to the effect that Federal Reserve officials are contemplating Some form of 4,„rIle control of savings accounts. This report may be in:7rPreted to mean that Federal Reserve officials are considering e interference with the individual's freedom to use his savg8 account. This is not true." Ir At this point, Messrs. Thurston and Goldenweiser left the meeting, e action stated with respect to each of the matters hereinafter reterr ed to was then taken by the Board: The ainutes of the meeting of the Board of Governors of the Federal SYatem held on September 19, 1942, were approved unanimously. Letter to Mr. Paddock, President of the Federal Reserve Bank of reading as follows: Boa„"In accordance with your request of September 17, 1942, the fic:,.0f Governors approves the change in your personnel classive;::10n plan involving the establishment of the position of Inal;:ilgator (Page 103), Consumer Credit Department, with maximum teg1 salary of $35600, covering duties in connection with " -Lation VI - Consumer Credit." Approved unanimously. iDO 9/21/42 —5— Letter tq the board of directors of the "Stockmen's Bank", Gillette, Wyoming, stating that, subject to conditions of membership 1111111bered 1 to 3 contained in the Board's Regulation HI the Board ap1)1‘°11es the bank's application for membership in the Federal Reserve SYsteni and for the appropriate amount of stock in the Federal Reserve of Kansas City. Approved unanimously, together with a letter to Mr. Leedy, President of the Federal Reserve Bank of Kansas City, reading as follows: ap "The Board of Governors of the Feder] Reserve System , 1 7 Pr ves the application of the 'Stockmen's Bank', Gillette, Hyo • ming, for membership in the Federal Reserve System, subto the conditions prescribed in the enclosed letter 04 ";, ch You are requested to forward to the Board of Directors °le institution. Two copies of such letter are also enone One of which is for your files and the other of : th le,1 You are requested to forward to the State Examiner for State of Wyoming for his information. "It is assumed that you will follow the matter of the bringing into conformity with the provisions of law the Board's regulations the savings account listed on !16 of the report of examination for membership, and an of reducing to within statutory limits the excess baltaZ , in a nonmember bank. It is noted that you have already be'"en to the bank with reference to the fact that the numr ti of directors fixed in the articles of incorporation is 44:e while the number elected at the last annual meeting was 11;7 and eight are now serving. Please advise us when this received appropriate corrective action." a Letter to the Presidents of all the Federal Reserve Banks, prePlitNI in accordance with the action taken at the meeting of the Board on Se AtettaDe 18, 1942, and reading as follows: etr "The Board of Governors has amended its Regulation A, eetive immediately, by adding the following sentence at he end of subsection (h) of section 1 thereof: 9/21/42 -6- "The requirement of this section of the Regulation that a note, draft or bill of exchange be negotiable shall not be applicable with respect to any note, draft or bill of exchange evidencing a loan which is in whole or in part the subject of a guarantee or commitment by the War Department, Navy Department, or United States Maritimep, Commission pursuant to Executive Order No. 9112.' i_J-?ase have the necessary copies of the amendment printed for distribution in your district. "In connection with notes evidencing loans guaranteed under Executive Order No. 9112, the question has been raised whether ch a note which is otherwise eligible for discount or as collateral for advances by a Federal Reserve Bank under section 13 of the Federal Reserve Act is rendered ineligible by the fact that the note incorporates by reference the terms of the standard form ,t,guarantee agreement used by the War Department, Navy Department : 41Q Maritime Commission, providing for suspension of maturity of o _Part or all of the guaranteed loan in the case of cancellation t?rmination of one-fourth or more of the borro,;er's war pro'110,10n contracts. "Although by reason of this provision the note is subject to a c,o.ntlngency in which maturity may be suspended, the maturity on the face of the note will not be more than 90 days at the time of acquisition by the Federal Reserve Bank, and, pending cluej ancellations of one-fourth or more of the borrower's war pro44 , 1°n contracts, which may or may not occur in the future, the co e will in all cases be payable at its expressed maturity. Acoerdindly, the Board is of the opinion that the fact that the susa,;Isir3n of maturity provisions of the standard form of guarantee i'eement are incorporated :n the note does not render it inelRg etble for discount or as collateral for advances by a Federal serve Bank under section 13 of the Federal Reserve Act. Howt,?r, when cancellation or termination of one-fourth or more of ,L_tetbo rrol7er's war production contracts in the manner indicated 11 he standard form of guarantee agreement has occurred, susbutsi°11 of maturity is no longer dependent upon a contingency corPaY be effected merely at the will of the borrower and, acin the Board's opinion, such notes if then offered mailtdiscount may not be considered eligible. As a practical Banker, if, when such notes are offered, the Federal Reserve i„0, ha8 reason to believe that cancellations in such amount are ent the notes should not be acquired by the Reserve Bank -""rn section 13 of the Federal Reserve Act. i Another question which has been raised in this connection -8 wh her a ecL.et note evidencing a loan guaranteed pursuant to Ex14"Ive Order No. 9112 which is otherwise eligible for discount ; 1855 9/21/42 7,193Y a Federal Reserve Bank is rendered ineligible by the fact that the note is issued under a revolving fund arrangement !hereby the financing institution is obligated to extend credup to a specified maximum amount over a specified period of "i°11th8 or years. Upon the maturity of the 90-day note the fi41.1nelng institution can be required by the borrower to lend he same amount for another 90 days, and the proceeds of the second note can be used to pay off the first. This commitment, however does not affect the Federal Reserve Bank, and it is esuTed that the Reserve Bank in discounting such note or acePting it as security for an advance will have no obligation or, commitment to extend or renew the credit at maturity or to accept other notes in lieu thereof. The Federal Reserve Bank 1 t herefore, legally entitled to require payment at the end the the0 0 ion, Y period. Accordingly, in the Board's opinion, that such a note may be a part of a revolving fund arfat:Igement of the kind described does not prevent its being el..1,11Dle for discount or as security for an advance under section ' 4 3 of the Federal Reserve Act." : 4 Approved unanimously, together with identical letters in the following form to The Honorable Robert P. Patterson, Under Secretary of War, The Honorable James V. Forrestal, Under Secretary of the Navy, and the United States Maritime Commission: on b Ypu know, Federal Reserve Banks in executing guarantees tie ?ualf of the War Department, Navy Department or Maritime CornPursuant to Executive Order No. 9112 act as fiscal agents lat'lle United States. If and when they discount or accept as colyruieral for advances paper evidencing such guaranteed loans, they arid of course, be acting not as agents but in their own behalf in accordance with the provisions of the Federal Reserve Act. to "Questions have been raised with the Board of Governors as It,Whether ether notes evidencing loans guaranteed pursuant to Execor.°Ie Order No. 9112, which are otherwise eligible for discount ee4.? collateral for advances by a Federal Reserve Bank under by 511,:°n 13 of the Federal Reserve Act, are rendered ineligible the—°vieions of the standard form of guarantee agreement or by fact that the loans are made under a revolving fund agreement. tv le "There is enclosed herewith for your information a copy of Pecte_fr which the Board is addressing to the Presidents of 811 obs Reserve Banks with reference to these questions. You will ina:I've that the Board has amended its Regulation A so as to elimnt " dthe requirement of negotiability with respect to paper guaraee- Pursuant to Executive Order No. 9112 and has indicated its 1856 914A2 "view that the other questions raised do not affect the eligibilit y of notes evidencing guaranteed loans if such notes are ol,herwise eligible. It may be, therefore, that paper evidencing loans guareraunder the Executive Order will be offered to the Fedl Reserve Banks for discount or as security for advances : ndl if such paper is satisfactory to them, that they may aceN it in accordance with the provisions of the Federal ReServe Act.H Letter to the Presidents of all the Federal Reserve Banks and to the man aging Directors of the Detroit and Los Angeles Branches, reading as follows: . "As you know, there has been increasing concern among 11;311-nesses engaged in war production as to the risks in3_fl the renegotiation of war contracts by the Price ;;Qustment Boards of the Army, Navy, and Maritime Commis. Tolle hing on this problem, there is sent to you herew111h fesr Your information a release dated August 10, 1942, of t:he War Department Price Adjustment Board, entitled n41'InciPles, Policy and Procedure to be Followed in Rec'a'g,(1.1ationt. Although the contents of this release were se ed in recent circulars of the Commerce Clearing House ativice and of Prentice-Hall, it may not have come to your yon etl .t . The enclosed release may be of assistance to m:,111 answering inquiries that may arise in connection "'Lin ne gotiations for guarantees under Regulation V." Approved unanimously. Eta to) Letter to Lieutenant Colonel Paul Cleveland, Chief of the Loan A, ) aQvance Payment and Loan Branch of the War Department, reading "In accordance with your memorandum of September 10, z.:""' regarding the cancellation of terminated guarantee e!ments, there is transmitted herewith a copy of letter eroeIved from Mr. A. Phelan, Assistant Vice President, Fedti;k.Reserve Bank of New York, dated September 17, 1942, enng a list of guarantee agreements executed by the Fed".1- Reserve Bank of New York on behalf of the War Department 19In iZ 1_857 9/21/42 -9- under Executive Order 9112 which have been cancelled as the result of their termination, together with a copy of a form of • notice of termination which is being used by the Fedcral Reserve Bank in this connection. m "You will note that the Federal Reserve Bank proposes to Y its form of termination notice by the addition of the sentence quoted in the last paragraph of Mr. Phelan's letter." Approved unanimously. Letter to Lieutenant Colonel Paul Cleveland, Chief of the Loan Section Advance Payment and Loan Branch of the War Department, reading a8 tollows. "For your information there is transmitted herewith a coPY of a letter received from Mr. R. B. Hays, Vice Pres— ident and Secretary, Federal Reserve Bank of Cleveland, dateddum September 17, 1942, with reference to your memoran— euZtptember 10 1942, regarding the cancellation of tent. agreements which have been terminated. Yotr i at— ter 1°11 is invited to the last paragraph of Mr. Hays' let— me- l'egarding the cancellation of copies of guarantee agree— rite which may have been given to borrowers." Approved unanimously. Letter to Colonel John C. Mechem, Chief of the Miscellaneous 4neh P Ais cal Division of the War Department, reading as follows: re "Reference is made to our letter of September 15. , 1942, Bartrding furniture and equipment to be used by the Reserve (.),i -1.11 flo. orityork for the War Department under Exec— ive der 10 "Advice has been received from the Federal Reserve Bank in reton that it will be willing to waive the claim of $72.75 or°4-uded in their June voucher for reimbursement of the cost th:ertain furniture and equipment purchased. If you wish, vjrefore, this amount may be deducted from the Bank's June licher it will not be necessary to return the voucher." Approved unanimously. I8-S 9/21/42 -10Telegram to Mr. Hays, Vice President of the Federal Reserve Bank Of Cleveland, reading as follows: "Reference your letter September 18 concerning charge-send trans,.cti(pns under Regulation W. A draft of a possible amendment will 17 1 sent to the Reserve Banks for comment within a day or two. In of this program there is no possibility of an amendment prior to uo the dates mentioned in your letter." Approved unanimously. Letter to Mr. Hays, Vice President of the Federal Reserve Bank of Cleveland, reading as follows: c "This is in reply to your letter of September 14, 1942 conan R. J. Miller, Vice President and Comper of inquiry of Mr. the Peoples Pittsburgh Trust Company, Pittsburgh, ,!nnsylvania, relative to the retention of records for the pur' t u se of Regulation W. le have found this question unusually difficult. One of the ve PrinciPal questions is whether the Board should prescribe sPecific rules with respect to keeping of records, describ: 41g them in some detail, or should rely on broad rules indicPtng the genen-il nature of the records. Furthermore, would it be 1:Issible to lay down rules for any one type of business without ney s consideration of the rules to be prescribed for other busiof ses? Presumably it would be desirable to have some degree -,,,if°PrilitY. A third question is whether it would be wise to declirl meal'-le the matter prior to the time when the Banks have had a sure of experience under the enforcement program. Enforcement m4. activities will tend to indicate the records which will be seful in detecting violations. wri4.,'In order to start the exploration of this subject, we have ' thenen to all of the other Federal Reserve Banks asking for opinions relative to the problem you have presented. Reth-eshave been received from all but two of the Banks. One of interesting questions raised is whether or not we should rethe retention of the lender's application form which, conte.not directly related to the regulation, nevertheless often lfls information of much use to the investigator. lea 'You will understand that we have regarded this whole probhaveas perhaps somewhat less pressing than others with which we old been faced, inasmuch as the regulation is now but one year and it has not seemed to us that there would be a very large 1859 9/4/42 nv-, Volume of loans made under the regulation which have so far bee paid up in full. We recognize that the storage problem Of considerable moment to the Registrants but are under :Ile impression that most of them already preserve a substanI'lal share of their records for some period of time subsequent to the payment of the obligations. In this connection, they Probably governed largely by State statutes with respect to 1,0 limitation of actions. It may be that it will be desirable to devote a few TazUtes to this subject at the meeting at Philadelphia on September 24.tt Approved unanimously. Letter to Mr. Hale, Vice President of the Federal Reserve Bank "a4 Francisco, reading as follows: 'Thank you very much for your letter of September 8 forward a copy of a letter which you received from Ur. Joseph E. ingDryer, of San Diego, and a copy of your reply to him. "Ile are also glad to know, of course, that Mr. Dryer is 4greement with the intent and purpose of Regulation W and t081,!nc0untered a favorable attitude among the public. As ps,"'s suggestion with respect to the extension of credit to me'PlIs subject to military service, the Board is in agree44 with the answer that you gave to him." Approved unanimously. eral Letter to Mx. Ashley, Assistant Federal Reserve Agent at the Fed"serve Bank of Dallas, reading as follows: in "Reference is made to your letter of September 11 regardseg the proposed discontinuance of the position of Federal ReIlfe Agent's Representative at the El Paso Branch. at "The proposed arrangement is similar to that in effect number of Federal Reserve Bank branches and meets with 17 Board's approval, with the exception that it is not bebeeved desirable that the 1928 series Federal Reserve notes sidissued to the branch. Instead, it is suggested that contem" ,ation be given to an arrangement for holding these notes azier „arilY under dual control of an officer of the branch A021 the Federal Reserve Agent and Assistant Federal Reserve t's4ut along the general lines of the agreement regarding cusb ( If unissued Federal Reserve notes at a Federal Reserve Branch to aPPearing on pages 2064 and 2065 of the Federal Reserve "e-Leaf Service." Approved unanimously. 1860 9/21/42 -12etter to the Comptroller of the Currency, reading as follows: "It is respectfully requested that you place an order with the Bureau of Engraving and Printing supplementing the order of June 17, 19420 for printing of Federal. Reserve notes of the 1934 series in the denominations and amounts stated for the following Federal Reserve Banks: DenomNumber of inat ion sheets Amount New York 1,750,000 0.05,030,000 $5 PhiladeloLlchhia 750,000 45,000,000 5 ond 50 60,000 36,000,000 Atlanta 601000,000" 1,0001000 5 Approved unanimously. Thereupon the meeting adjourned. APProved: V cc Chairman.
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