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X-7686 (INTERPRETATION OF BANKING ACT OF 1935) Copies t o be s e n t t o a l l Federal r e s e r v e b a n k s . November 16, 1933. Mr* Eugene M. S t e v e n s , F e d e r a l Reserve Agent, F e d e r a l Reserve Bank of Chicago, Chicago, I l l i n o i s . Dear Mr. S t e v e n s : R e f e r e n c e i s made t o your t e l e g r a m of November 1, 1933, r e g a r d ing t h e a p p l i c a b i l i t y of S e c t i o n 8A of t h e Clayton A n t i t r u s t Act t o a d i r e c t o r of a n a t i o n a l bank s e r v i n g as an o f f i c e r or d i r e c t o r of a c o r p o r a t i o n "which i s not a bank, banking a s s o c i a t i o n , or t r u s t company and which o c c a s i o n a l l y makes loans secured by i t s own s t o c k or which occa~ s i o n a l l y makes loans secured by stock or bond c o l l a t e r a l t h r o u g h t h e c a l l loan market or o t h e r w i s e . S e c t i o n 8A a p p l i e s t o any c o r p o r a t i o n ( o t h e r t h a n a mutual savings bank) "which s h a l l make loans secured by s t o c k or bond c o l l a t e r a l t o any i n d i v i d u a l , a s s o c i a t i o n , p a r t n e r s h i p , or c o r p o r a t i o n o t h e r t h a n i t s own s u b s i d i a r i e s " . The wording of t h e p r o v i s i o n would seem t o l e a v e no room f o r a c o n s t r u c t i o n which would make i t i n a p p l i c a b l e t o a c o r p o r a t i o n making l o a n s secured by i t s own s t o c k ; and, f o r t h e same r e a s o n , t h e s e c t i o n i s a p p l i c a b l e t o a c o r p o r a t i o n making loans t h r o u g h t h e c a l l loan market or o t h e r w i s e on stock or bond c o l l a t e r a l . Under t h e p r o v i s i o n s of S e c t i o n 8 of t h e Clayton A n t i t r u s t Act, t h e F e d e r a l Reserve Board i s a u t h o r i z e d , under c e r t a i n c i r c u m s t a n c e s , t o i s s u e p e r m i t s c o v e r i n g s e r v i c e s of t h e kinds r e f e r r e d t o i n S e c t i o n s 8 -2and 8A. X-7686 I /t t yh However, t h e p r o v i s i o n of S e c t i o n 8 which a u t h o r i z e s t h e Board t o i s s u e p e r m i t s r e f e r s only t o banking i n s t i t u t i o n s of c e r t a i n c l a s s e s , and t h e Board i s , a c c o r d i n g l y , w i t h o u t a u t h o r i t y t o i s s u e p e r m i t s i n v o l v i n g r e l a t i o n s h i p s between n a t i o n a l banks and non-banking o r g a n i z a t i o n s which come w i t h i n t h e p r o v i s i o n s of S e c t i o n 8A. R e f e r e n c e has been made t o t h e p o s s i b l e broad e f f e c t of a s t a t u t e f o r b i d d i n g t h e d i r e c t o r s of a n a t i o n a l bank t o serve as d i r e c t o r s of o t h e r c o r p o r a t i o n s making such l o a n s , b u t as you a r e of c o u r s e aware, t h e F e d e r a l Reserve Board i s n o t a t l i b e r t y t o c o n s t r u e a s t a t u t e i n a way which would c o n f l i c t w i t h t h e p l a i n meaning of t h e words used by Congress» I t should be n o t e d , however, t h a t S e c t i o n 8A r e f e r s t o any c o r p o r a t i o n which " s h a l l mate" loans of t h e kind d e s c r i b e d , and, i n t h i s c o n n e c t i o n , your a t t e n t i o n i s d i r e c t e d t o p a r a g r a p h ( 3 ) of S e c t i o n IV(b) of t h e B o a r d ' s R e g u l a t i o n L d e a l i n g w i t h i n t e r l o c k i n g d i r e c t o r a t e s and o t h e r r e l a t i o n s h i p s under t h e Clayton A n t i t r u s t A c t . The s t a t u t e does not r e f e r t o t h e b u s i n e s s which may have been t r a n s a c t e d by a c o r p o r a t i o n i n t h e p a s t , b u t r e f e r s o n l y t o t h e b u s i n e s s c u r r e n t l y and p r e s e n t l y t r a n s a c t e d a f t e r t h e e f f e c t i v e d a t e of t h e s e c t i o n ; and, t h e r e f o r e , t h e p r o h i b i t i o n s of S e c t i o n 8A a r e i n a p p l i c a b l e t o a d i r e c t o r of a n a t i o n a l bank who s h a l l s e r v e as a d i r e c t o r , o f f i c e r or employee of a c o r p o r a t i o n , or a s a member of a p a r t n e r s h i p , which i n t h e p a s t has made loans secured by s t o c k or bond c o l l a t e r a l , i f such c o r p o r a t i o n or p a r t n e r s h i p s h a l l make no loans of t h a t c h a r a c t e r a f t e r J a n u a r y 1, 1954. Very t r u l y y o u r s , (Signed) Chester M o r r i l l Chester M o r r i l l , Secretary.
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