The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
COPY X-7014 COLQUITT, PARKER, TROUTMAN & ABKWRIGHT Attorneys at Law Suite 1607 William-Oliver Bldg. ATLANTA, GA. November 4, 1931. Mr. Walter Wyatt, General Counsel, Federal Reserve Baord, Washington, D. C. Dear Mr. Wyatt: I thank you f o r yours of October 28th, enclosing copies of c e r t a i n correspondence passing "between you and Mr. Wallace, counsel to the Federal Reserve Bank of Richmond, with r e f e r e n c e to the decision of the Circuit Court of Appeals f o r the Fourth Circuit i n the case of Gamble v. Wimberly. 44 Fed (2d) 329. I have read the enclosures with i n t e r e s t . I h e s i t a t e to disagree with you and with Mr. Wallace as to the soundness of the decision, p a r t i c u l a r l y since I have never c a r e f u l l y studied the question. I t seems to me, however, that the decision i s unobjectionable so f a r as Federal Reserve Banks are concerned and i s probably c o r r e c t . Of course, i f the court meant to say, or i f any court should ever hold, t h a t c o l l a t e r a l in the hands of the Federal Reserve Bank could not be u t i l i z e d f o r the purpose of paying i n t e r e s t and t h e expenses of l i q u i d a t i n g or preserving the c o l l a t e r a l , the e f f e c t would be f a r - r e a c h i n g . I do not think, however, t h a t the court i n the case c i t e d meant to so hold nor do I b e l i e v e that any court would ever go to t h a t extent. Similar questions have a r i s e n several times i n t h i s d i s t r i c t as between the Atlanta bank and various r e c e i v e r s of national banks and I have h e r e t o f o r e advised the Atlanta bank t h a t the receivers could not pay dividends a f t e r the p r i n c i p a l of the obligations had been extinguished by p r i o r dividends and collections made on c o l l a t e r a l . I t may be that my ready acquiescence i n the decision of the court i s because i t accords with my p r i o r advice to the A t l a n t a bank. In any event, we have never had any d i f f i c u l t y here nor has the handling i n accordance with t h i s p r a c t i c e (so f a r as I have been advised) worked to the detriment of the Reserve Bank. I t has been the immemorial p r a c t i c e of the Compt r o l l e r , i n l i q u i d a t i n g national banks, never to declare X-7014 COLQUITT, PARKER, fROUTMAN & ARKWRIGHT Continuation Sheet Mr. Walter Wyatt - #3. 11-4-31. dividends f o r the purpose of paying i n t e r e s t u n t i l the p r i n c i pal of a l l proven claims has been paid and then only "by a special dividend covering i n t e r e s t . In other words, the Comptroller's o f f i c e has always taken the p o s i t i o n t h a t d i v i dends paid on claims f i l e d with the receiver cannot be u t i l i z e d f o r the purpose of paying i n t e r e s t u n t i l the p r i n c i pal of a l l claims has been paid i n f u l l . Whether or not t h i s p r a c t i c e i s j u s t i f i e d by the general law or the National Banking Act I do not know. I am c e r t a i n , however, that i t e x i s t s . In the case of rediscounts, our bank of course undertakes to make c o l l e c t i o n both from the maker and out of any c o l l a t e r a l pledged f o r the payment of the rediscounted item. Such coll e c t i o n s as a r e e f f e c t e d from the maker or out of c o l l a t e r a l (and I am speaking now of c o l l a t e r a l pledged s p e c i f i c a l l y f o r a p a r t i c u l a r item as distinguished from general or marginal c o l l a t e r a l ) are applied on the p r i n c i p a l of the o b l i g a t i o n as are dividends paid by the receiver upon h i s c e r t i f i c a t e issued upon the claim based upon the rediscounted item. When the p r i n c i p a l amount of the c e r t i f i c a t e i s paid or s a t i s f i e d from any or a l l of the sources mentioned, the r e c e i v e r ' s c e r t i f i c a t e i s surrendered but the discounted note i s held u n t i l i n t e r e s t has been p a i d , according to the tenor of the c o n t r a c t . In the case of the d i r e c t note of a member bank, c o l l e c t i o n s made of c o l l a t e r a l pledged f o r the payment of such note are credited when and as received and applied i n reduct i o n of the p r i n c i p a l as are dividends paid by the r e c e i v e r . We would not, however, surrender such note nor r e l e a s e any c o l l a t e r a l u n t i l i n t e r e s t and expenses had been collected out of the c o l l a t e r a l . I understand that collections made on marginal or general c o l l a t e r a l (that i s , c o l l a t e r a l held f o r the payment of any and a l l obligations of the insolvent bank) are held unapplied u n t i l there i s a f i n a l accounting as between the receiver and the Reserve Bank. Shortly a f t e r the decision of the court i n the Gamble case one receiver of a national bank did w r i t e a l e t t e r which was susceptible of the construction t h a t , i n h i s opinion, the Federal Reserve Bank could not c o l l e c t out of c o l l a t e r a l and/or dividends more than the amount of the p r i n c i p a l of i t s debt. We wrote him, s t a t i n g that while we did not expect to receive dividends from h i s t r u s t a f t e r c o l l e c t i o n s from a l l sources, including dividends, had been s u f f i c i e n t to extinguish the p r i n c i p a l of the obligations of h i s t r u s t , we would hold the c o l l a t e r a l f o r the payment of i n t e r e s t and expenses. The X-7014 COLQUITT, PARKER, TROUTMAU & ARKWRIGHT Confcihtlktion Sheet Mr. Walter Wyatt - #3. 11-4-31. receiver then r e p l i e d that we had misunderstood h i s l e t t e r and that he had not intended to contend that we would not have the r i g h t so to u t i l i z e the c o l l a t e r a l . Thanking you again f o r your courtesy i n sending me copies of the correspondence r e f e r r e d t o , I am Very t r u l y yours, (S) Robt. 8. Parker. RSP/w. Copy t o : Mr. M. G-. Wallace, General Counsel, Federal Reserve Bank of Richmond, Richmond, Virginia.
@FedFRASER