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The Papers of Charles Hamlin (mss24661) 369_02_001- Hamlin, Charles S., Scrap Book — Volume 253, FRBoard Members ! 205.001 - Hamlin Charles S Scrap Book - Volume 253 FRBoard Members Form T. Ft.131 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Office Correspondence The Files Date August 12, 1941 Subject: After correspondence with Mrs. Hamlin (see letters of May 25 and June ,1I the items attached hereto and listed below, because of their possible confidential character, were taken from volume 253 of Mr. Hamlin's scrap book and placed in the Board's files: VOLUME 253 Page 26 Confidential - Earnings and Expenses of F.R. Banks, April 1934. Page 93 Memo to Mr. HPTIllin from. Mr. Goldenweiser re article, "Federal Reserve", in the May 1934 issue of Fortune. Page 97 Memo to Mr. Goldenweiser from:Messrs. Gardner and Thorne re present status of German indebtedness to foreigners and of reparations. Page 106 Reasons of Mr. Hamlin for voting "Aye". Pagp 138 Confidential - Earnings and Expenses of Federal Reserve Banks, May 1934. Page 153 M.emo to Mr. Hamlin from Mr. Wingfield re Admission to membership of trust companies. Le4_ CONFIDENTIAL Not for publication B-811 1934 EARNINGS AND EXPENSES OF FEDERAL RESERVE BANKS, APRIL Federal Discounted bills Purchased bills U.S. Govt. securities $2,487 39,472 50,197 11,267 $1,631 $247,872 1,311,467 Richmond Atlanta Chicago St. Louis 5,128 2,150 1,920 648 Minneapolis Kansas City alias San Francisco TOTAL Apr. 1934 Mar. 1934 Apr. 1933 110 Bank Boston New York Philadelphia Cleveland Jan.-Apr .19314 1933 3,750 1,660 1,551 266,427 333,955 Other sources Total 10.1 9.9 16.6 (J.3 10.7 $178,563 2,346,803 233,275 227,639 20,653 41,044 371,627 29,543 5.1 11.3 35.S 9.1 67,211 99,393 1,379,960 126,545 4.1 6.8 33.0 5.8 -15,818 25,267 1,455,175 61,470 19,744 19,566 2.9,740 61,499 8.2 82,198 72,832 110,041 252,036 8.7 5.4 8.6 7.2 36,041 6,121 94,610 77,186 $158,l73 1 614,817 207,280 248,196 $94,945 759,482 124,821 104,798 10.8 15.5 135,309 1°5,914 311,7138 119,233 136,266 108,712 314,349 122,423 94,806 145,740 99,772 203,175 96,216 147,164 101,314 206,534 690 654 2,121 542 18,772 3,628 156,919 149,756 685,976 151,966 1,553 5,817 485 812 407 519 1,972 1,357 113,280 145,746 122,801 260,776 720 14,652 5,796 5,108 115,960 166,730 131,054 268,033 121,978 134,849 1,069,407 687,725 16,788 16,585 275,769 117,549 3,894,697 105,443 5,333,547 935,515 10,246,864 April 1934 January Current net earnings Ratio Less accrued to dividends and Total paidnet charges in cap- (current) to profit and loss ital Per cent 3,213,926 483,020 442,720 $164,038 585,104 200,754 241,816 4,293 11,698 2,927,102 15,345,091 Total $253,118 1,374,299 332,101 13,817 352,994 6,221 $1,128 19,610 146,850 135,254 663,163 147,106 4,069,855 Exclusive of cost of F. R. currency 1 Current net earnings Ratio to paidTotal in capital Per cent Current expenses Earnings fro:2 Reserve 34 Anril of Month 9.7 5.7 9.1 7.0 $347,685 4,138,906 2,407,449 2,461,14.144 1,677,462 13.9 130,245 4,351,534 2,439,551 2,529,906 1,821,628 14.7 129,910 4,402,188 2,432,861 2,790,071 1,612,117 13.1 4,726,332 6,677,567 13.9 9,912,259 0,677,567 13.9 439,461 16,589,826 9,455,938 3,594,474 13.5 66 6,693,1 13.5 66 457 6,693,1 540,697 17,056,623 9,038,461 10,363, ------------------------------------ -----------------------------------FEDERAL RESERVE BOARD DIVISION OF BANK OPERATIONS MAY 11, 1934. VOLUME 253 PAGE 26 • looym,No. 131 Office Corresponitence To Mr. Hamlin From Mr. Goldenweise FEDERAL RESERVE BOARD Date May 11, 1934 Subject: __ "Federal Reserve" in the May 193.4,issue of Fortune OPO 16-852 The article in the May Fortune about the Federal Reserve System is written in a popular vein by a writer or writers with only superficial understanding of the System. grasp the problems involved. It bandies phrases and does not The discussion is colorful and dramatic, but muddled, inconsistent, and often inaccurate. The author probably had no particular intention to be critical, and was led into it by the fatal attraction of gooa copy. The critical aspects are included to clad drama--the Federal Reserve Board is always t%‘e villain, the New York Reserve Bank always the hero. Although the Board is represented as favoring automatic control, it is stated that it forced the Chicago bank to reduce its rate in 1927. It is pictured as being bewildered and frightened and as acting with confusion and deLuring the depression it was "engaged in the most flagrant inter- lay. ference with Economic Law", with no understanding of the true significance of its acts. Governor Strong had practiced "social statesmanship" and was magnificent, although his leadership led to disaster. It would alipear that the New York Bank had nothing to do with the policies followed by the System during the current depression. Important points of the criticism center around a few leading points; VOLUME 253 PAGE 93 2. (1) The framers of the Federal Reserve Act wished to insure the separation of credit control from Government dictation. After passing through several phases, the Federal Reserve System in the present administration is completely under the domination of the Treasury. The Roosevelt revolution has not taken place in industry or in agriculture, but in the country's credit system. "It has changed the control of credit from a theoretically automatic and thermostatic control exerted by one of the cleverest mechanisms of the age to an intentional and volitional control exerted by the human hand." The desirable next phase would be to turn control of the System back to those who had been trained in the spirit of central banking. The only Americans Who are competent central bankers are those who were Governor Strong's understudies during his lifetime. (2) In working out their design the framers of the Federal Reserve Act estqblished what they believed to be an automatic mechanism, but Governor Strong, who dominated the System from an early date, believed "in the regulation and the direction of the flow of credit according to human wisdom for human needsft. The automatic mechanism was designed so that discount rates, which would control currency and credit, woulei be determined by reserve ratios. (3) The Board was a reluctant follower of Governor Strong and his philosophy of management through the open-market instrument, the power of which had not been foreseen by the framers of the Act. The chief objective of Governor Strong's easy money policy, namely the S 3. restoration of the gold standard, particularly in England, is now well recognized as having been premature. "In the end he was de- feated and his position discredited." ()4) After Governor Strong's death in 1928, the System lacked strong leadership, although the Federal Reserve Board was dominant. It wished to return to the automatic control philosophy. In dealing with the problem of 1928 and 1929, however, its capacity for vigorous action was palsied by recollection of the recriminations of 1920-21. Among other things it did not make effective use of the discount rate. In connection with this phase the author stresses particu- larly the existence of divided counsel in the System. Be character- izes the "warning policy" as a failure. (5) During the first two years of the depression "the System badly rattled by the violent criticism of its conduct in 1929 adopted, but without conviction, an easy money policy", which resulted in substitution of U. S. securities for gold and commercial paper as a backing for currency and involved flagrant interference with economic law. A summary of the whole of the author's critical argument is given in his own words as follows: "The important point is that the automatic Federal Reserve System of November, 1914, had come a long and laborious way to the threshold of the New Deal. It had been pleasantly prostituted by the Treasury during the War. It had virtuously attempted to return to pure banking thereafter. It had been divided in its counsels. It had yielded at last to the superior force and intelligence of Governor Strong of the New York Bank. It had practiced for the better part of a decade the policy of social and economic en- 4. gineering via the control of the credit system in which Governor Strong believed. That policy had collapsed with the collapse of Governor Strong's most ambitious project and his subseciuent death. In violent and frightened reaction the Reserve Board and the governors of many of the banks had attempted to return to the formalism of pure banking. And that reaction though confused and defeated by the necessities of the aepression was still the policy of the dominant faction in the Reserve when Mr. Roosevelt took office. The result, inevitably and immediately, was a head-on collision." The writer contrives a few neat categories and tries to force experience into them, but experience does not accommodate itself to anything so neat. In the first place, the design of the Federal Re- serve System was not for a purely automatic mechanism, but always contemplated management of credit in the public interest, and this has been fully recognized by the Board botil in its acts and in its statements. The dramatic effects produced through the picture of the struggle between "Governor Strong and the Board" are not convincing to one who knows the facts. There was no continuous struggle. when the system as a whole inclined toward 11 There were times more management in the public interest" and other times when it was more inclined toward automatic controls. Action taken in 1919-1920 was in accord with the auto- matic standard, because reserve ratios did fall close to the minimum reiuirements. The Board was not opposed to shaping its policies in the t public interest during the har, and the author acknowledges this. Neither did the Board during the emergency of the present depression rely on the automatic factors of reserve ratios and rates in meeting the uation. Its open market policies prior to :larch 4, 1933, bear witness • • 5. to this and the author acknowledges it. it "without conviction" is not clear. Just what he means by dOing It's just a journalistic phrase that reveals the author's desire to minimize what does not fit into his pattern. In regard to the 1927-1929.episode the Board's ideas at the time were not determined by any consideration of the reserve ratio. The writer belittles the results obtained by the policy pursued at that time, the heavy indebtedness of member banks, the rise in money rates, the cessation f an increase in the volume of bank credit, and especially the decline in V bank loans to brokers. The Board is criticized for not raising rates further and at the same time for causing a rise in loans by others through making rates high. That these loans were made through and encouraged by New York member banks, and especially by one or nore directors of the Federal Reserve Bank of New York, is not criticized by the writer. The whole problem of that period is far too complicated and too much the result of many uncontrollable forces to permit the placing of blame for its consequences upon any one group. The author's implication that a 6 per cent rate in February would have saved tne situation is one that it woula be difficult to sustain. Regarding future control of the System, the author is not aware of amental alternative that faces the System: it must be dominated by New York or by Vtashington. It is certainly not clear whether rk is better fitted than Vdashington to practice "social statesmanand it is quite clear that the country would not aabmit to New York ination. In general, the article is not important andthough clever in places, shows little understanding of the fundamentals of the situation. • Y? aj:Gi Q, oi ) f,,,,,G,,,,wtat„ •,, of„ VOLUM 253 PAGE 97 3c11 FormNo.131 Office Corresportence To From__ FEDERAL RESERVE BOARD Yr. Goldenweiser . rriflex. &,71 a_ Ehae MaY 3, 1934 Subject: The present status of German <43..t/ indebtedness to foreigners and of oro reParations. W-852 I German indebtedness to foreip:ners Since the run on Germany in June 1931 and the establishment of a rigorous control over the e=port of capital, the German authorities have taken periodic censuses of German indebtedness to foreigners. A series of totals based upon these censuses is shown in the table below: GERMAN FOREIGN INDEBAEDNESS, JULY 1331 - DECEMBER 1933 Dec., 13331/ o reich marks Sept. Feb. Sept. Feb. 1 2 1* 2 1933 193 Reported indebtedness: 7.4 10.3 10.2 6.g Long-term 9.3 S.7 7.4 5.0 Short-term (2.5) (3.0) (4.1) (4.3) (Standstill) 19.5 19.0 14.8 Total ..........! 12.8 Uhrenorted indebtedness, shares,and property (esti. m-ted) 4.2 4.2 4.3-5.3 Nov. 1331 July 1 10.7 10.7 10.5 13.1 10.6 10.1 (5.0) (5.4) (6.3) 23.8 21.3 20.6 5.3 5.3 5.9 Grand total (partly esti°. 23.43.S-24a25.3 26.6 19.0 . mated) fur Institut Research Economic 1J- Estimate by the German Institute for Konjunkturforschung). The figures in the above table for nunre7Dorted indebtedness, shares, and property" represent estiaites by the German authorities of such items as debts too small to be reportt , eign interests not represin tan 5,000 reichsmarks), shares and other forfixed indebtedness, subsidiaries of foreign comnanies, and foreign-owned real estate in Germany.. The December figure- the talae above represent an estimate by the German Institute for Economic Research and are incomplete. The latest full report of indebtedness is taat for the end of September 1933. German foreign indebtedness by countries is shown in the table below for September and Feb- Mr. Goldenweiser Page 2 May 3, 1934 ruary 1933, the figures for February being given in order to show the situation just previous to the depreciation of the American dollar. GERYAN FOREIGN INDEBTEDNESS IN 1933 BY COUNTRIES Country . United States . Netherlands Switzerland . . Great Britain . France Bank for International Settlements .. Sweden Belgium . Czechoslovakia . Italy ... . Denmark . Other countries 14,841 18,967 Total • Long-term Total Feb. Sept. Sept. Feb. 4,721 7,733 3,000 5,196 2,964 3,334 1,529 1,823 2,540 2,693 1,052 1,202 811 1,080 1,751 2,124 492 477 842 774 ----246 610 158 102 215 259 54 185 166 59 ----120 159 84 83 141 138 49 ----51 171 875 328 1,118 7,436 10,265 Short-term Sept. Feb. 1,721 2,537 1,435 1,511 1,438 1,491 940 1,044 350 297 610 246 101 113 126 112 120 159 57 55 49 51 704 790 7,405 8,702 The depreciation of the American dollar is reflected in the table above in the decline in terms of reichsmarks of German indebtedness to the United States and to other countries as well -- for German dollar obligations were held abroad as well as in the aiited States. Lie reichsmark equivalent of the same dollar debt was about 35 percent less in September than in February. Not all the change, however, is to be attributed to depreciation of the dollar and other currencies. ment. There was a considerable amount of actual repay- The Reichsbank repaid in full the emergency credit extended in 1931, as did the Golddiskontbank; and other debts were reduced through sinking fund operations or, in the case of short-term funds, the failure to make complete use of lines of credit. • Er. Goldenweiser Page 3 May 3, 1934 The service of German debt to foreigners has been lightened not merely by currency depreciation and repayments of principal, but by reductions in the rate of interest on the standstill credits and by the imposition of a partial moratorium on Dayments in foreign currencies beginning July 1, 1933. The effect of the :aoratorium is not shown in the table below, which shows the scheduled annual service of German foreign indebtedness in reichsmarks. ANNUAL SERVICE OF GEREAN FOREIGN I:DEBTED:ESS BY COUNTRIES In millions of reichsmark September l933-3# Interest on Sinking Long-term Short-term fund debt debt Country United States ..... Netherlands . . Switzerland . Great Britain . France .. Sweden .. . . Belgium . Italy Czechoslovakia .... Denmark Other countries 188 84 61 51 26 6 3 4 --___ 10 74 68 70 34 10 4 3 1 99 52 20 22 6 2 1 2 361 204 151 107 42 12 7 7 5 1 6 1 19 1 5 2 34 . 433 289 211 933 Total Total February 1933-34 605 237 190 140 47 16 9 7 7 2 39 Total 1,299 It is upon the reduced amount of reichsmark payments shown in the table above that the Government has now imposed a partial transfer moratorium. Ex- cept for the Dawes Loan, no sinking fund payments whatsoever are being transferred into foreign currencies. Full interest on the You loan is being transferred and interest on the standstill credits is being paid in foreign currencies in accordance with the latest standstill agreement. Interest on the rest of the German indebtedness, however, is being Paid only in part in foreign currencies, the remainder being paid in scrip. '.2he scrip, which is 4 Mr. Goldenweiser Ppze 4 May 3, 1934 a reichsziark claim, can be held as such unused or else converted into foreign currency at a heavy discount. The foreign bondholder who converts his scrip gets a total payment in his own aarrency of about three fourths of what his coupon calls for. Even this amount may be reduced as a result of the conference now in nrogress in Berlin. Reparations Until the Lausanne Agreement of 1932 is either ratified or rejected, Germany is under no obligation to make any reparation payments. This situ- ation and the legal obligations that would ensue upon ratification or rejection are briefly covered in the following Paragraphs. At the time of the Hoover moratorium Germany was making monthly reparation payments under the agreement signed at the Hague on June 20, 1930. This agreement together with sunplementary documents is published in the Federal Reserve Bulletin for April 1930, p. 172-249, and the schedule of reparation Payments is set forth on page 181. 1L.e last payment made by Germany under the Hague Agreement was that for June 15, 1931. By that time the international financial crisis had broken and the so-called Hoover moratorium was announced suspending all reparation and war debt payments for one year beginning July 1, 1931. Before the end of the moratorium year the countries concerned in reparations met at Lausanne to make a new settlement. At the outset of the conference -- on June 16, 1932 -- representatives of the governments of the United Kingdom and Uorthern Ireland, France, Italy, Belgium, and Japan signed a declaration stating that they were of the opinion that the execution of the payments due to the ••• • • Mr. Goldenweiser May Page 5 3, 1934 powers ParticiPating in the conference in resnect of reparations and war Not all the debts should be reserved during the period of the conference. reparation creditors were renresented in this declaration, but no German reparations were in fact due July 15. The conference ended on July 9, 1952, with the nrovisional signinE of the Lausanne Agreement which, together with sunplementary documents, is Printed on pages 497-504 of the Federal aeserve Bulletin for August 1932. One of the groun of agreements signed by the whole conference stated that until the agreement with Germany covering reparations was finally ratified or rejected, the effects of the June 16 declaration suspending German payments should be continued. An accompanying proces-verbal stated that the reparation creditors would not ratify the main aEreement finally until a satisfactory se-Ltlement had been reached between them and their own creditors -- the reference being clearly to the United States, which was not represented at the conference. This "satisfactory" settlement with the United States has never been attained; and the main Lau,sanne Agreement remains hanginE in mid-air. This then is the nresent status of German reparations. None are reouired until the Lausanne Agreement is finally ratified or rejected. If it is ratified, German reparations will be reduced to 3,000,000,000 reichsmarlcs of 5 percent bonds of the German Government to be sold to the investing Public through the agency of the Bank for International Settlements over a Period of time. The annual service of the entire lSSUB will be only about one tenth of the maximum annuities under the Hag-ue Agreement. If the Lausanne Agreement is rejected, then the Hague Agreement and the old schedule of annuities will again become • Goldenweiser Page 6 May effective. 3, 1934 Since, however, the Lausanne Agreement has neither been ratified nor rejected, Germany is for the time being under no obligation to make any reparation payments. A call to the State Department to confirm our understanding that no Note: one of the six countries with power to hill the Lausanne Agreement had in fact rejected it met with the suggestion that if we would , send them a written incuiry they would have the matter checked. The matter was not considered of sufficient importance to nush that far. If it is considered desirable, however, the check can be made. • June10, 1934. Mr. Hamlin stated that he voted "Aye" for the following reasons: 1. Because the admission of a solely a trust business, amount of deposits or of be inconsistent with the Reserve Act. VOLUME 253 PAGE 106 trust company doing having no substantial commercial paper, would purposes of the Federal 2. That such trust com2anies would not carry any substantial amount of reserves with the Federal reserve bank, and therefore would contribute nothing to strength of the System. 3. That the admission of such trust companies to memberghip would probably, in the opinion of the public at least, place u2-)on the Federal Reserve System a moral obligation, - in case of trouble growing out of the administration of trusts, w_ich latter ccnstitites substantially the only business by virtue of which these corzoanies would have been admitted to membership, - to grant relief to trust beneficiaries through advances to the trust com-,-,anies, which relief the Federal Reserve System could not grant in any substantial amount under existing laws. B-811 C ONFIDENTIAL Not for publication RESERVE BANKS, MAY 1934 EARNINGS AND EXPENSES OF FEDERAL of Month Earnings from - Federal Reserve Bank Discounted bills Purchased bills U.S.Govt securities Other sources 431,634 35,518 126,939 4,270 43120 558 158 152 $250,222 1,304,188 268,195 337,070 $1,0,9 5,122 301 5,846 Richmond Atlanta Chicago St. Louis 2,467 1,933 751 426 62 57 207 25 160,390 138,089 682,616 143,522 5,590 4,c73 18,23o 3,878 Minneapolis "Kansas City Dallas San Francisco TOTAL May 1934 Apr. 1934 MAY 1933 Jan.-May 19.34 1933 1,326 3,462 841 1,105 23 49 151 166 114,790 146,707 125,230 263,168 2,295 17,318 1,543 5,331 Boston New York Philadelphia Cleveland 1,768 3,939,187 130,677 3,394,697 768 16, 8 ,97 121 792 890,93-3 132,059 3,346, 868,404 119,317 19,284,278 6,224,479 1,067,574 13,593,656 FEDERAL RESERVE BOARD DIVISION OF 3Ara OPERATI JUNE 13, 1934. January - May 194 1 1934 Curront net earnings Current net Ratio Less accrued Current expenses earnings dividends and to Total to io Rat ive Exclus paid- net charges dpai al Tot al Tot t of cos in cap- (current) to Total in of F. R. ital profit a-:1d. lciss capital currency Per cent 8202,811 9.6 $1425,1469 3.6 00 5 5,2 ,78 $17 $77 $252,985 $172,590 3,9)40,443 16.1 2,770,342 726,517 14.3 9 ,90 618 5 ,56 592 342,157 426 45, 1,3 672,560 10.4 4 189,539 14.4 ,05 206 4 ,16 193 254,641 3 395,533 536,615 10. 895 3.7 93, ! 43 5 ,4 ,33 253 246 347,333 -10,250 4.8 99,152 7.6 941 31, 81 ,56 136 4 ,14 135 42,829 7.6 168,509 136,869 6 10. 476 39, 1; ,48 105 6 ,75 103 144,957 1,781,301 33.9 1,795,678 300,463! 401,341 37.7 298,289 75,342 701,804 9.9 162,496 35,951 10.5 116,900i 115,.449 152,651 45,163 8.9 107,089 591 9.7 24, 543 93, 210 93, 1,078 . 4 5.2 115,43 56,741 909 4.5 15, 7. ,62 151 1 ,21 ,234 150 101 5.5 167,536 136,562 7.9 521 26, 4; ,24 101 6.9 99,850 127,765 75,797 306,L04 54,363 6.0 215,)4o2 213,557 269,77o May 71,336 4,192,963 2,419,120 105,443 4,138,906 2,407,449 128,471 4,498,255 2,237,835 510,797 20,782,796 . 11,875,058 569,168 21,55)4,87711,276,297 2,474,3341 2,461,444! 2,309,576i 12,387,095 12,673,032 1,715,134 1,677,462 2,188,579 8,395,701 8,881,81+5 13.3 13.9 17.2 13.9 14.3 8,395,701 8,881,845 VOLUME 253 PAGE 138 13.9 14.3 5,697,042 5,000,616 f/fer 1.4-- Form A.131 Office CorresporMence To MR. HAMLIN From HR. WINGFIELD May 28, 1934 FEDERAL RESERVE BOARD fate_ Subject: Admission to membership of trust companies. tr 16852 Pursuant to your request there will be briefly described below the cases in which the Board has ruled on the question whether a trust company or other institution not doing a commercial banking • business should be admitted to membership in the System. It is possible that there are other cases on this point but a rather hasty search of the Board's files has disclosed the following such cases: In 1925 the Federal Reserve Agent at Atlanta requested advice as to the eligibility of the Southern Trust Company of Clarkesville, Tennessee, for membership in the Federal Reserve System. It appeared that this trust company was authorized to do both a banking and trust business but that it confined itself exclusively to the handling of first mortgage real estate loans and the administration of trust estates. It had no commercial deposits or other demand liabilities. The Board advised the Agent on November 5, 1925, on this point as follows: "The second paragraph of Section 9, however, provides that the Federal Reserve Board in passing upon applications for membership shall consider 'whether or not the corporate powers exercised are consistent with the purposes of this Act'. Inasmuch as the Southern Trust Company does not do any banking business the powers exercised by this company cannot properly be considered consistent with the purposes of the Federal Reserve Act, and the Board would not, therefore, approve an application for membership from this trust company." In 1930 the Federal Reserve Agent at Cleveland requested advice as to whether institutions the great bulk of the assets of which are of a kind ineligible for rediscount or purchase by Federal reserve banks should be admitted to membership in the Federal Reserve System, VOLUME 253 PAGE 153 Mr. Hamlin - 2 and in reply the Board advised the Agent on December 11, 1930, as follows: "ection 9 of the Federal Reserve Act places a responsibility upon the Board in passing upon applications for membership, to consider not only the financial condition of the applying bank and the general character of its management but also whether or not the corporate powers exercised are consistent with the purposes of the Federal Reserve Act. It seems clear that when the operations of an institution result in the accumulation of assets almost entirely ineligible for rediscount, affording it no recourse to the Federal reserve bank in times of need, the business in which it is engaged is not of the character contemplated by Congress for member banks of the Federal Reserve System, and accordingly its operations are not consistent with the purposes of the Federal Reserve Act." In 1931 the Board considered an application for membership from the Fiduciary Trust Company of New York City. It appeared that the institution, which was being organized, proposed to limit its activities to purely fiduciary work and to the receipt of deposits not involving lines of credit and did not intend to do a commercial banking business. In these circumstances the Board advised the bank that it was not willing at that time to admit the institution to membership. The reasons for the Board's decision are not stated in the letter of advice, but it appears from the Board's minutes of June 3, 1931 that it was the consensus of opinion that the matter involved questions of policy which could not be decided by the Board at that time but that no action should be taken by the Board which would prejudice the standing of the Fiduciary Trust Company or the future consideration of its admission to membership after the hoard had an opportunity to observe its actual operations over a reasonable period of time. In 1924 the Federal Reserve Agent at St. Louis raised the question whether the Trust Company of St. Louis County, Clayton, Missouri, should be - 3 properly admitted to membership in the Federal Reserve System. It appeared that the commercial banking business which was formerly transacted by this trust company was then being handled almost entirely by a newly organized national bank which was operating in connection with the trust company. This office advised the Board that the institution was technically eligible for membershipbut that the ( Luestion of its desirability for membership was a matter for the discretion of the Board. It appears from the Board's minutes of June 41 1924, that the Board instructed that the Federal Reserve Agent be advised that the Board sees no reason for refusing to admit the trust company and that he should forward its application with any further reasons he may have for disapproving it and with information as to whether the ownership of the trust company and the national bank is the same. So far as can be discovered from a search of the Board's files no application for membership by this trust company was ever submitted to the Board. It will be observed that the position taken by the Board in this case in 1924 was contrary to the position taken in the other and later cases referred to above. Respectfully, iL M gruder ingf Assistant Counsel.
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