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1101 A meeting of the Board of Governors of the Federal Reserve 4.8tenl was held in Washing ton on Thursday, September 4, 1941, at 1:30 PRESENT: Mr. Ransom, Vice Chairman Mr. Szymczak Mr. Draper Mr. Morrill, Secretary Mr. Thurston, Special Assistant to the Chairman Mr. Parry, Chief of the Division of Security Loans Mr. Dreibelbis, Assistant General Counsel Mr. Cravens, Consultant in the Division of Security Loans Mr. Ransom stated that there had been under discussion the Problem Presented by the fact that one of the principal automobile 44Ntacturers, the Chrysler Corporation, had not announc ed delivered Prices for 1942 models of automobiles manufactured by it, which had l'hised the question of the action to be taken by the Board in view of Patt 3(a) of the Supplement to Regulation WI Consumer Credit, which Prolrides that the credit value Vi a new automobile shall be 662/3 Per cent of the bona fide cash purchase price of the automobile but no event in excess of 66 2/3 per cent of the sum of certain items &11°.Uctirig the advertised delivered price of the automobile with standard eqlzipment at the factorY- He said that there had been proposed an klierldntent to the Regulation or a ruling to clarify this point, providtrig tr, ' -1 the use of the last delivered price advertised by the manufacttlber. for a co rresponding model, that he had discussed the matter with 1102 W41 0 President Keller of the Chrysler Corporation who was in Lashington 14*1Y, and that, among other things, Mr. Keller said that, while his e°rPoration had not yet adverti sed delivered prices for its 1942 111°cIe1e, the question of policy as to whether or when it would advertise silch Prices had not been determined. Mr. Ransom added that Mr. Keller had taken the position that it would be better if Regulation 7: did not l'equire a H -own payment in connection with the purchase of a new autoeven though that might involve shortening the term within which the instalment credit involved would have to be liquidated, and that he did not seem to be particularly disturbed about the possible effects Of the proposed amendment or ruling in the event the Board adhered to the Present Policy regarding a down payment. There followed a discussion of whether the action of the Board should take the form of an amendment or ruling under Regulation IV, and it was agreed unanimously that the determination of that question should be held in abeyance for the time being, and that, regardless of what form the action took, the proposal should first be submitted to the Federal Reserve Banks, the President of the Federal Advisory Council, the automobile manufacturers, the National Automobile Dealers Association, the three Principal automobile finance companies, the American Finance Conference, the members and their alternates of the advisory committee created by the President's executive order vesting consumer credit control ?-11 the Board of Governors, and such other interested parties as might be determined by Mr. Ransom, it being understood that those to whom the inquiry was addressed would be requested to submit such suggestions as they might have to offer not /03 9/4/La -3later than 1:00 p.m. on Monday, September 8, 1941. At this point Messrs. Parry and Cravens withdrew from the meetin • Mr. Ransom reported that this morning he and Mr. Goldenweiser attended a conference in the office of the Secretary of the Treasury at Which there was present Secretary Morgenthau, Messrs. Jacob Viner, 17a1ter 11;. Stewart, and Lauchlin Currie, Under Secretary Bell, and lie'll '°us members of the Treasury staff including Messrs. Haas, Murphy, and Bernstein from the Division of Research and Statistics of the Ill'ea8ur1. Mr. Ransom then made a statement substantially as follows with respect to what occurred at the conference: gr Secretary Morgenthau stated that he had read with a mreat deal of interest Mr. Goldenweiser's memorandum to th Haas under date of September 2, 1941, which discussed Tre question of the advisability of deferring long—term ine !urY financing until after a decision had been reached banit:Ile matter of raising reserve requirements of member st s, that the members of the Treasury staff had been jortil Ying the matter, but that he had not formed an opin— Ran;and that he would like to hear whatever views Messrs. stand— Poi n and Goldenweiser wished to present from the stand-11 ' of the e Board of Governors. 11,„t1r. Ransom stated that the first and most important T-Lon that he wished to raise was whether the Treasury re for l a decision as to when it might enter the market he 11;ng—term funds and Secretary Morgenthau replied that to (17reached A. no decision and that he would like Mr. Bell Iscuss the matter. L had, 1112. Bell indicated that the Treasury's point of view morei )6 been definitely determined and would not be until ' nformation was available as to the volume of sales 1104 9/4/43. -4of tax notes and defense savings bonds. However, he indicated the feeling that the Treasury might get along very well without long-term financing before the middle of October. Mr. Morgenthau then stated that he mould prefer not to make any statement that might bind him to defer Treasury financing until a particular date, but would watch develo pments, as had been his custom, before making a decision. Mr. Ransom then outlined the views of the members of the Board of Governors as he understood them from informal discus sions which had taken place, and which were su stantially along the lines indicated in Mr. Goldenwelser's memorandum to Mr. Haas. He emphasized that it was the over-a ll feeling of the members of the Board that nothing should be done that would conflict with the Government's defense effort or interfere with the financ ing of ,fl that effort and that, therefore, in the opinion of the ' embers of the Board, agreement on the course to be followed with respect to reserve requirements was essential. He I added that, in connection with the question whether eser:ve requirements should be raised to the full extent . 1"mitted by existing law, there was also the question nether action should be sought, either through legislacn or throug h an executive order, to authorize the Board Governors to absorb additional amounts of excess reserves to whatever extent might be necessary, and that it toll-Labe difficult to show the consistency of taking steps 1. curb inflationary developments by such measures as price 4tat1ons and consumer credit regulation without also ;:4111 steps in the over-a ll field of credit control to inetrict the availability of bank credit through increases t4_reserve requirements . He also said that, while selech e credit controls, such as consumer credit regulation, use Place in the program, the problems involved in the yith°f such controls were new and complex and experience ser4 them had been extremely limited, that they involved thef " Y questions of discrimination, and that he believed uthey would not prove to be an adequate means of dealWith the over-all problem of expansion of bank credit. 1r. Ransom then discussed various aspects of the intere2, rate problem involved in Treasury financing and the 8y8t . 1°11 of the open market policy of the Federal Reserve m thereto, and stated that the Federal Reserve author ' iltvli;pre not so much concerned with the establishmen t and enance of any fixed rate of interest on Treasury 1105 9/4/41 —5— o bligations as they were with reaching an agreement with the Treas ury on the important problem of what to do about an interest rate which had been steadily declining and might reach a real danger point at some time. He remarked that in the recent past a rate of 2 1/2 per cent on longterm Treasury obligations seemed to be regarded as reasonable, Where as today, due to a steadily rising Government ifond marke t, there were a number of people who seemed to think that a 2 per cent rate would be adequate, and that he felt that some effort should be made to put a floor 1!Icler rates which might otherwise continue the decline that had been taking place for some time. He felt that ?yeloPments growing out of such trend, if conti nued, 1:1,1ght entail difficult problems for the national econow. nc,seid that because of these considerations he hoped m s he believed he was expressing the view of the other embers of the Board - that the Treasury and the Board Wouldm reach an understanding at the earliest possible as to the policy to be followed with respect to Treasury 0 , easurY financing, as well as with respect to action reserve requirements both under existing statutory 4ulthority and under ,,ained any new authority that might be ob• r Mr. Goldenwp the v, articipatedI•n the discussion of ser ' crlous points presented by Mr. Ransom. th In response to a request of Secretary Morgenthau for Views ate of Messr s. Viner and Stewart, Mr. Viner responded on length With a statement which showed that his thoughts eral he general subject were fully in accord with the Fedye position. He stressed particularly the need vo, an immediate decision on the questions of policy inacitYe and also for a determination of the question whether an`dlltlonal authority was needed to absorb excess reserves, rea stated that the latter point should be considered In exies -ng a decision whether to utilize the remainder of the m Ing authority of the Board to increase reser ve requireto thAtthis point it ,Aas stated by Mr. Bell that fairness uveninvesting public required that some indication be to the action that would be taken by the Board xlsting authority and whether additional authority in :17sollght in order that the market might not be left continuous uncertainty on these important questions. 9/4/41 -6- Mr. Stewart's remarks were in agreement with the comments made by Mr. Viner. He made it particularly clear, however, that his attitude towards the question of giving new authority to raise reserve requirements would depend on the formula that would be used, and his remarks indicated that he was opposed to the extension of the present P szj e;:dtbiu, of raising reserve requirements by percentage that he would favor the so-called "ceiling" Plan which is also favored by Dr. Goldenweiser. The members of the Treasury staff did not express themselves, but it was indicated that there was not comPlete agreement among them. Mr. Currie was invited by Secretary Morgenthau to his views if he wished to do so, and he stressed 'e importance of the earliest possible decision on the qu estions of policy. epr 4 Toward the conclusion .'stry indicated that he had of the conference, the Secre_ made up his mind that a decision d uQuld be reached in the matter at the earliest possible ,ate, and to that end he requested that Messrs. Ransom Go ldenweiser r. with members of the Treasury staff confer i rr the purpose of agreeing upon a statement (1) of the nobl ema 112 involved, (2) of the points of difference, if %Y,', between the Board of Governors and the Treasury, and of the extent to which there was agreement. Secretary be genthall requested that another conference on the matter held in 4-11 office on Wednesday, September 10, 19L1. At this point Messrs. Thurston and Dreibelbis left the meeting L. the,ccaon stated with respect to each of the matters hereinafter l'efe red to was then taken by the Board: Te legram to Mr. Leach, President of the Federal Reserve Bank and reading as follows: uReP ' errallg your telephone inquiry Board is of the aa °T1 that Federal Reserve Act is not to be construed Banrcr7.11entin_c; a Class C director of a Federal Reserve .Lro Coo M serving as a director of the Central Bank for Peratives.n Approved unanimously. 1107 9/4/41 -7Letter to Mr. Luhnow, Editor and Publisher of Trusts and Es- tates, reading as follows: , "This refers to your letter of August 25, 1941 to m.r. Wyatt inquiring whether, in the absence of legislation !Pecifioally authorizing the establishment of common trust lunds, such a fund can be established and maintained in conformity with section 17 of the Board's Regulation F .and, th be entitled to the favored tax status accorded -Lunds which are so maintained. "Subsection (a) of section 17 of Regulation F provides, in part as follows: 'Funds received or held by a national bank as fiduciary may be invested collectively in any Common Trust Fund established and maintained in accordance with the provisions of this section whenever the laws of the State in which the national bank is located authorize or permit such investments by State banks, trust companies, or other corporations which compete With national banks: Provided, however, That funds shall not be invested in a Common Trust Fund of the type provided for in subsection (d) of this section unless such investments are specifically author ized by the State statutes,* vide ."Accordingl y, a common trust fund of the type profor in subsection (d) of section 17 can not be maintheed by a bank in conformity with the regulation unless ?Latutes of the State in which the bank is located sli'..73-fically authorize the investment of trust funds by 0;i'lse institutions in such common trust funds. On the cluierpand, specific statutory authorization is not reed for common trust funds of the types provided for ubsections (b) and (c) of section 17 and a bank can a fund of either type in conformity with the regpe,a°n if the law of its State, statutory and otherwise, co;Ztis the investment of trust funds therein. In this 5u0he7tion, it should be borne in mind that, even though stat 447sstments otherwise are prohibited by the law of a the 7) . they may be permitted where they are authorized by rma of a trust instrument. The foregoing answers your question as to whether -LS possible to maintain a common trust fund in conformity I 1108 9/y41 -gthe Board's regulation in the absence of specific statutory authorization but we wish also to point out that determination as to whether an investment of trust funds in a common trust fund conforms with the regulation can be ma(le.only on the basis of the facts of the particular case ?onsidered in the li;ht of the applicable State law and thC above -quoted and other provisions of the regulation." Approved unanimously. Telegram to the Presidents of all of the Federal Reserve Banks l'ekling as follows: . articles are not included The follong vri "Regarof the classifications of listed articles: Auto011e trailers whether designed for use as living quarters °therwise, or motor vehicles designed for use as ambu_Lances or hearses." in d 1 Approved unanimously. Telegram to all Federal Reserve Banks reading as follows: g. W-24. Inquiries have been received as to whether Re w-t-Lation W limits the amount of an instalment loan (as dist' tr lnguished from the maturity of the loan) when the Regislia12:t knows the loan is for the purpose of purchasing a cj!ed article but the listed article is not pledged as terlateral for the loan. The answer is that unless an exof instalment credit is made by the seller of the deselh Cle (whether as principal, agent or broker) as st7ed in section 2(d), or unless the extension of in1,4-uttent credit is secured, or to become secured, by a e nt1K 0 t5 , u p rchased listed article as described in section present regulation does not limit the amount of of ,redit (as distinguished from its maturity) regardless a ,:ine lender's knowledge that it is to be used to purchase J_Isted article." Approved unanimously. Telegram to all Federal Reserve Banks reading as follows: 1109 9/4/41 -9- "Reg. W-25. An inquiry which may be stated as fol— lows has been received under Regulation W: 'May first mortgage under section 6(a) be considered "first lien" even though a prior lien for current taxes not due and payable exists un— der State law?' "The Board is of the opinion that in such a case the laxst mortgage is a 'first lien' under section 6(a)." Approved unanimously. Thereupon the meeting adjourned. Secretary. Vice Chairman.
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