Full text of Minutes of the Board of Governors of the Federal Reserve System : Meeting Minutes, September 6, 1944, Volume 31, Part 3

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1325

A meeting of the Board of Governors of the Federal Reserve
SYstein

was held in V,ashington on
Vvednesday, September 6, 1944, at
11:00 a.m.

PRESENT:

Mr.
Mr.
Mr.
Mr.

Eccles, Chairman
Ransom, Vice Chairman
Draper
Evans

Mr. Bethea, Assistant Secretary
Mr. Carpenter, Assistant Secretary
Mr. Clayton, Assistant to the Chairman
The action stated with respect to each of the matters herein—
te
l'eferred to was taken by the Board:
The

minutes of the meeting of the Board of Governors of the

41. averve System held on September
5, 1944, were approved unani—
111°/1414.
lf,etaorandum dated August 29, 1944, from Ur. Thomas, Assistant
kreet of
the Division of Research and Statistics, recommending that
e toll
°wing increases in basic annual salaries of employees in that
°4 be approved, effective September 16, 1944:
„Naze
Designation
t}1111:,,,,e8s) C
aroline IL
lea.nor M.
%',.:1)e) Cora
Jean
411~4) Vera
Myers

Library
Library
Library
Library

Assistant
Assistant
Assistant
Aid

Salary Increase
From
To
;$2,100
2,160
11800
1,440

,-;2,300
2,300
1,980
1,620

Approved unanimously.
tieraorancturn
the

of this date from Er. Thomas, Assistant Director of
n of Research and Statistics, submitting the resignation of




1326
9/6/44
—2—
lilies

Alice Coffman as a clerk in that Division, to become effective

as°ftthe close
of business on September 12, 1944, and recommending
that
th
resignation be accepted as of that date or at an appropriate
e4lierdate if she uses any annual leave prior to leaving the service

"he Ikerd

on September 9, 1944.
The resignation was accepted as rec—
ommended.

Ilenlorandum of this date from Mr. Thomas, Assistant Director of

the

-1113.si
°n of Research and Statistics, submitting the resignation of

icath

e-Yn E. Grimes as a clerk in that Division, to become effective

Of

the r.

he close of
business on September 6, 1944/ and recommending that

"ignation be accepted as of that date.
ommenT
de
The
hd.resignation was accepted as rec—

Meill°randum of this date from the Personnel Committee submitting
t4t16111e Of Rosco
4

Clil'Ettor

of

Stone, a farmer of Hickman, Kentucky, for appointment

the Louisville Branch of the Federal Reserve Bank of

441°114 for the unexpired portion of the term ending December 31, 1946,

L

:
rn
e (1)
e
Z
ee
di
that the Chairman of the Federal Reserve Bank of

44intinent
13t al)po

d to ascertain informally whether Mr. Stone would
and (2) that the appointment be tendered if he would

441A,




Approved unanimously.

1_321
9/6/44
_3_
Telegram to Mr. Peyton, President of the Federal Reserve Bank
"ilineapolis, stating that, subject to conditions of membership numl*ed1 to 3

contained in the Board's Regulation H and the following

4Pecial co
ndition, the Board approves the application of the "Liles
Cl%r8ank, Miles City, Montana", Miles City, Montana, for membership
&li the
Federal Reserve System and for the appropriate amount of stock
tilthe
Federal Reserve Bank of Minneapolis:
"4. Such
bank shall pay no dividends to common stockholders until the surplus account has been increased
to not less
than twenty per cent of its capital and,
within such time as may be deemed reasonable by the
Federal Reserve Bank of Minneapolis, such bank shall
strengthen its management in a manner satisfactory
to the
Federal Reserve Bank."
The
teleg
requested that the Federal Reserve Bank advise the apkitant
bank of the
Board's approval of the application and conditions
kekb
ership
prescribed, together with necessary instructions as to
the
procedure for
accomplishing membership, and stated that a letter
containing
detailed advice regarding such approval would be forwarded
to the
applicant bank through the Reserve Bank.
Approved unanimously.
43

'emorandum dated September 5, 1944, from Chairman Eccles reading

Co '
4()rl March 26 1942, the Board created the War Loans
dire
for the purpose of supervising, under the general
Peci:til°11 of the Board of Governors, the activities of the
nierri
:
a„
-`
, Reserve System as Fiscal Agent for the Lar Departecutl? "avy Department and Maritime Commission
under
-ExOrder 9112. '




1328

9/6/44
-4"On July 3, 1942, in connection with a rearrangement
assignments among individual Board members, the Board
;.:43andsd the responsibilities of the tar Loans Committee
include the administration of Federal Reserve activities
to industrial loans under section 13(b) of the
edsral Reserve Act.
co "No further change has been made in the scope of the
yommittee's responsibilities since that time although, as
1411 know, the Contract Settlement Act as approved on July
re
'
'
944, and there has been considerable work done during
oircent months in shaping up a program for the financing
vi
:
Ilar contract termination. Moreover, the Board has re—
its Regulation V so that it relates both to loans
44r Executive Order 9112 and under the Contract Settle—
the,
Act. I therefore recommend that the authority of
nain.4ar Loans Committee be broadened to include the ad—
thelstration of Federal Reserve activities pursuant to
Provisions of the Contract Settlement Act of
1944."
Of

Approved unanimously.
1.9L,

In a letter
addressed to the Board under date of September 4/

„
-I runckley, Director of Contract Settlement, stated that he ap—
kiroved
alld co
ncurred in the schedule of fees and rates in connection
With te
rnlination guarantees and loans under Regulation V as proposed
14 the. ,
1
-,Joarcps letter
of September 2, 1944All steps preparatory to putting the
termination loan program into effect hav—
ing been completed, the following unani—
mous actions were taken by the Board:

1.

Effective September 11, 1944/ Regulation
Financing of War Production and War
Contract Termination, as amended to
read as follows:

11,




1329

9/6/44
-5"FINANCING OF VAR PRODUCTION AND EAR CONTRACT
TERMINATION
"REGULATION V
"Revised Effective September 11, 1944
"SECTION 1. AUTHORITY
to t
s regulation is based upon and issued pursuant
u he
.Jav‘,0_ Executive Order of the President, No. 9112, dated
t.";r1 26, 1942 (herein called the Executive Order), sec',°11 7 of the Act of June 11, 1942, 50 U.S.C. (Appendix)
1 v7,
i'
the Contract Settlement Act of
1944/ approved July
1944 (herein called the Settlement Act) and various
Visions of the Federal Reserve Act, and has been apci bY the
Director of Contract Settlement.1
0ECTION 2. OBJECTIVE OF THE FEDERAL RESERVE SYSTEM
c,x, The objective of the Federal Reserve
System in
0
;4.1-75-ri
t g out the purposes of the applicable provisions
1._;41e Executive Order and of the Settlement Act is to
cVlitate and expedite the financing of contractors, suba4tractors and
others in connection with war production
tio in connection with claims arising out of the terminaer44 of war contracts or operations. The Board of Govae4r8 of the Federal Reserve System and the Federal Reobloe,Banks will cooperate fully in order to achieve this
cle;:e
'
ive. The Federal Reserve Banks have heretofore been
seelgnateci as fiscal agents of the United States by the
3 iterpe,
tary of the Treasury pursuant to the terms of the
Il ive Order and are authorized by the Settlement Act
to;
age4,6 on behalf of the contracting agencies2 as fiscal
or 4,
8 of the United States in carrying out the purposes
'
t ue Act,
SECTION 3. OPERATIONS OF THE FEDERAL RESERVE BANKS
to th4The operations of the Federal Reserve Banks pursuant
merit A Provisions of the Executive Order and of the Settle'
cl et Will be conducted, under the supervision of the
t()al,,
c01% °f Governors of the Federal Reserve System, in accort;nee with such instructions as may be issued by the
agencies.

4

W

lfthe

1942E-Xecutive Order, section? of the Act of June 11,
naerIt
'
Aand Pertinent provisions of the Contract Settlezp6 ,-et of 1944 are printed in the Appendix.
salerm 'contracting agency' is used herein with the
Act- T,eaning as that given it in the Contract Settlement
(I'L 1944.




1330

9/6/44
—6—
"SECTION 4. RATES
"Rates of interest, guarantee and commitment fees,
:td "her charges with respect to loans made or guaranteed
ole or in part by any contracting agency through the
4eneY of any Federal Reserve Bank will from time to time
bet Prescribed,
0.
either specifically or by maximum limits or
8171Twise, by the Board of Governors of the Federal Reserve
o'enlviith the concurrence of the Director of Contract
uettlexent.
"SECTION 5.

RESPONSIBILITY AND EXPENSES OF
FEDERAL RESERVE BANKS
"No Federal Reserve Bank shall have any responsibility
(71: acc
ountability except as agent in taking any action un1.4,the Executive Order, the Settlement Act, or this regu—
e
n. In any case in which any Federal Reserve Bank
make or participate in making any loan, discount ad—
ag"eeey guarantee or commitment as agent of any contracting
set Y under authority of the Executive Order or of the
out -Lement Act, all such funds as may be necessary to carry
are anY obligation assumed on behalf of such contracting
froneY shall be supplied by and disbursed under authority
'
;
rtia
8uch agency in accordance with such procedure as it
by .:etlire. Each Federal Reserve Bank shall be reimbursed
un;lca contracting agency for all expenses and losses
perir
„licling, but not limited to, attorneys' fees and ex—
of litigation) incurred by such Federal Reserve
behaai
tbn acting as fiscal agent of the United States on
the
of such contracting agency under or pursuant to
'42cecutive Order or the Settlement Act.
"SECTION 6. REPORTS
Federal Reserve Bank shall make such reports
ellair Board of
Governors of the Federal Reserve System
the t require with respect to its operations pursuant to
Or t,?rms of the Executive Order or the Settlement Act and
''18 regulation."
2.

Effective September 11, 1944, the last
sentence of subsection (h) of section
1 of Regulation A, Discounts for and
Advances to Member Banks by Federal Re—
serve Banks, was amended to read as fol—
lows, with the understanding that the
Federal Reserve Banks would be requested
to have copies of the amendment printed
for distribution in their respective
districts:




1331

9/6/44
—7-114e requirement of this section of the regulation that a
i!'e, draft, or bill of exchange be negotiable shall not
'
e aPplicable with respect to any note, draft, or bill of
ellange evidencing a loan which is in whole or in part
' subject of a guarantee or commitment made pursuant to
,!_e
4K cutive
Order No. 9112 or the Contract Settlement Act
(:If 1944."

j

3. The follov,ing letter to the Presidents
of all the Federal Reserve Banks, together
With the fees and rates referred to there—
in, was approved, with the understanding
that copies of the letter would also be
sent to Colonel John C. Mechem of the Vvar
Department, Lieutenant Commander Donald
P. Welles of the Navy Department, Mr.
R. E. Anderson of the United States Mari—
time Commission, and Honorable Robert
H. Hinckley, Director of Contract Settle—
ment:
On A "A8 You know, the Director of Contract Settlement
a 'Ilagust 18, 1944, issued his General Regulation No. 1,
1 e°AY of which was sent to you under date of August 25,
1.11
91
Prescribing procedures and policies to be followed
tiair,
guaranteeing of termination loans by the Lar and,
pave Departments and the Maritime Commission, through the
Actelal
' Reserve Banks, pursuant to the Contract Settlement
eft °f 1944. The steps necessary to put the program into
eet have now been completed.
has "Effective September 11, 1944, the Board of Governors
anci , evised its Regulation V, Financing of Vvar Production
the "ar Contract Termination, in the form enclosed with
the /2c/ard t s letter of August 12, 1944. Effective as of
bis
'
arne date, the Board has amended its Regulation A,
se c°unts for and Advances to Member Banks by Federal Re—
t,,Banks, by changing the last sentence of subsection
(h) e
section 1 of that Regulation to read as set forth
the
Board's letter of August 12, 1944.
and,..:PlIrsuant to section 4 of the revised Regulation V,
nierrCI-t,ih the concurrence of the Director of Contract Settle—
'ule Board has prescribed, effective September 11,




1.332
9/6/44
-8trio,,
the folloidng schedule of guarantee and commitment
fees with respect to termination (T-Loan) guarantees and
nu.

1 Per
an

80
85
90

GUARANTEE FEES
ON TERMINATION LOANS GUARANTEED PURSUANT
TO THE CONTRACT SETTLEMENT ACT OF 1944
cent of
Guarantee Fee
(Per cent of interest
arateed
payable by borrower
on guaranteed portion
of loan)
or less
10
15
20

95
Over 95

30
50

MAXIMUM COMMITMENT FEE
THAT UAY BE CHARGED BORROWER BY FINANCING INSTITUTION
1/4 of 1 per cent per annum' or
A flat fee of not to exceed .50.002
1), "The Board has also fixed, with the concurrence of the
e rector of
Contract Settlement, a rate of 4-1/2 per cent
s the
maximum interest rate on T-loans.
of
4In order to achieve uniformity, the above schedule
rearantee and commitment fees and the maximum interest
rene have also been prescribed by the Board, with the concurantee of the Director of Contract Settlement, to govern guareelli.
e!
e Of V and VT loans, under Executive Order No. 9112 exwhi'l,
eu on the revised form of 1944 V-Loan Guarantee Agreement
ill be prescribed in the near future.
the case of both T-loans and V and VT loans, no terexc'
10n fee, service fee, or other fee of a similar character,
a
charges covering out-of-pocket expenses, may be charged
borrower
v/Tower by a financing institution.
eta_ lin his General Regulation No. 1, the Director approved
Loa7ard forms of T-Loan Guarantee Agreement and Termination
but4 Agreement with Explanatory Notes regarding their use;
arfptIl? Regulation provided that technical amendments not
rzert-ebIng policy might be made in the Termination Loan Agreethe Explanatory Notes by agreement among the tar
or"avY Departments, the Maritime Commission and the Board
Governors
Pursuant to this authority, the tar and
1
0 be based
on average daily unused balance of the maxi—
Ilium principal amount of the loan.
ra.thout regard to the amount or maturity of the commitment.




133
9/6/44
-9'Navy
Departments, the Maritime Commission aria the Board
,4 Governors have agreed to certain minor technical changes
the form of
Termination Loan Agreement and in the Exf_anatorY Notes. Otherwise, the forms enclosed herewith
:
1 use in
connection with T-Loans are the same as those
Whichm_
were appended to the Director's General Regulation
"u, 1 of August
18, 1944.
pr "In connection with the inauguration of the T-Loan
°gram, the following documents are enclosed herewith:
1. Photostats of letters of instructions
to all Federal Reserve Banks from the War Department and the Navy Department, aated September
4,
and August 29, 1944, respectively, with respect
to
termination loans and guarantees; and duplicate
originl prepared on 'ditto' machine of letter
of instructions from the Laritime Commission to
all Federal Reserve Banks, dated
August 22, 1944,
with respect to termination loans and guarantee
s.
2. Photostat of memorandum from the Honorable Henry L. Stimson, Secretary of War, to
the
Under Secretary of War, dated July 24, 1944, delePting authority and discretion under the Contract
Settlement Act of 19411; and photostat of letter
from the Under Secretary
of War dated July 24,
1944,
to the Chief of Staff and to the Commanding
C
prienerals of Army Service Forces
and Army Air
2rces, delegating authority and discretion under the
Contract Settlement Act of 1944, to be
exercised to the extent and in the manner pre?ribed by the tar Department Procurement Regula,:mns. .(With respect to the last-mentioned docu;
Lent, the War Department Procurement Regulations
,e:ve not yet been issued; but adequate delegations
,
authority to Financial Contracting Officers of
the War
Department to act in connection with ter;'ll'Uon guarantees and loans are contained in
Zection 1 of the tar Department's instructions
to the
Federal Reserve Banks referred to in
Paragraph 1
above.)
Hon 3. Photostat of memorandum signed by the
orable James V. Forrestal, Secretary of the
"417, dated August 29, delegating to the Chief

Z




1334
9/6/44
-10'of Procurement and Material authority with respect to loans and certain advance payments under
the Contract Settlement Act of 1944; and photostat
Of memorandum from the Chief of Procurement and
Material, dated August 30, 1944, to the Assistant
Chief of Procurement and Material in Charge of
Procurement, redelegating such authority.
4. Copy of Supplement No. 1 to General
Order No. 57 of the United States Maritime Commission, delegating certain authority with respect to the execution of guarantees on behalf
of the Maritime Commission under section 10 of
the Contract Settlement Act of 1944. (This document was published in the Federal Register, Vol.
9, No. 175, p. 10719, September 1, 1944.)
5. Photostats of letters from the tar Department, Navy Department, and Maritime Commisdated September 4, September 2, and September
5/ 1944, respectively, authorizing the use of the
standard form of T-Loan Guarantee Agreement and
standard form of Termination Loan Agreement, together with Explanatory Notes with respect to
such forms.
6. One duly authenticated copy each of the
standard form of T-Loan Guarantee Agreement, the
form of Termination Loan Agreement, including the
EXhibits thereto, and Explanatory Notes regarding
the use of such forms in the form as approved
bY the Director of Contract Settlement on August
18/ 1944, supplemented by certain technical amendTents not affecting policy in the form of Termina'don Loan Agreement and Explanatory Notes. These
f°rms, all bearing the date of September 1, 1944,
were enclosed in identical language with the let,.1,srs
.
from the tar Department, Navy Department, and
Maritime Commission referred to in paragraph 5

above.
,. 7. Photostat of letter from Director of

'Inance, Maritime Commission, dated September 4,
1944, designating as Maritime Commission representatives for termination loan guarantees the
?ersons now authorized to act as such with respect
") guaranteed loans under Executive Order No.
9112.

i




1335

9/6/
—11—
"A separate letter is being sent you enclosing a
for
r711 of application for T—loan guarantees. A supply of
s Printed T—Loan Guarantee Agreement and Termination
4.an Agreement with Explanatory Notes and of the applica—
;
Ii°11 form will be dispatched to your Bank in the next day
'
1 '0
4. 4 and should reach all Federal Reserve Banks not
Ga
e6er than September 11, 1944. A supply of the Director's
eZrral Regulation No. 1 will also be sent you at the
--e time in printed form.
it . "Pending receipt of a supply of the printed forms,
in 1! suggested that your Bank prepare a circular to financ—
tj Institutions in your district with reference to this
or, sr, to be dated September 12, 1944, and to be mailed
0
; Lhat date. This circular should include in its text
fe as an enclosure the schedule of guarantee and commitment
ans
cis and maximum rate of interest, as specified above,
A„ should also
enclose a copy of the T—Loan Guarantee
e.,°'.??ment, Termination Loan Agreement, Explanatory Notes,
Lloation form, and the text of the Director's
General
g
ontaation No. 1. It is suggested that in your circular
ic.the subject you call particular attention to the pol—
l" prescribed by the Director in his Regulation.
.
the ,i"It is contemplated that a press statement regarding
--Lo"
aa program will be issued by the Board of Gover—
ior
thes
release on September 11, and we will wire you
text of such statement before it is released."

j
C

e
tor.

as

Letter to the Presidents of all the Federal Reserve Banks read—
follows:

:7°11
find enclosed a memorandum from the l'ar
pa;ir6ment, dated September 5, 1944) signed by Colonel
rez Cleveland, Chief, Advance Payment and Loan Branch,
re;!'cling the submission of statements of guarantee fees
-lved on terminated guarantee agreements.




Approved unanimously.




1336

Thereupon the meeting adjourned.

Assistant Secretary.