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X-7910 INTERPRETATION OF BANKING ACT OF 1933 (Copies to be sent to all Federal reserve banks) June 8, 1934. Mr. Eugene M. Stevens, Federal Reserve Agent, Federal Reserve Bank of Chicago, Chicago, Illinois,. Dear Mr. Stevens: The Board has given consideration to Mr. Young's letter of May 14, 1934, replying to the Board's letter to you dated April 25, 1934 regarding the applications under Section 32 of the Banking Act of 1933 of , . , , to serve at the same time the Bank of , , and the , copy of , and , Mortgage Investment Company, . The Board has also examined the photostatic First Mortgage Collateral Trust Bond issued by the Mortgage Investment Company and the photostatic copies of financial statements of the company for the years 1931, 1932 and 1933 which were inclosed in Mr. Young's letter. It appears that the Mortgage Investment Company was incorporated for the purpose of furnishing investments secured by first mortgages on local real estate; that the bonds are issued by the company in denominations of and each, bear coupons for the payment of interest semi-annually, and are payable to bearer x-7910 322 Mr. Eugene M. Stevens — 2 at the end of a period not exceeding six years; that they are issued in series not exceeding v and are secured by first mortgages on real estate totaling at least the same amount. It further appears that the mortgages are allotted to the particular series of bonds which they secure and are assigned, presumably by the mortgage company, to the Bank of and to Mr. of trust executed for that purpose. , as co-trustees, under a deed It appears that the company does no business other than has been here described. It is stated that the bonds are issued principally for sale locally, are not registered or listed on any exchange and are not actively traded in. The bonds issued by the Mortgage Investment Com- pany appear to be obligations of that company and are not the type of bond or note usually given by a borrower as secured by a mortgage on real property. / evidence of a debt While the mortgages taken by the company are held in trust as security for the payment of the series of bonds to which they have been allotted, particular bonds are not directly identified with particular mortgages, and in this rospect differ from the usual real estate mortgage note. On the basis of the foregoing, the Board believes that the bonds which the Mortgage Investment Company issues are "securities" within the purview of Section 32, and that the company is "engaged primarily in the business of purchasing, selling, or negotiating" such securities. * Therefore it appears that the relation- ships covered by these applications are of the kind which Section 32 was designed to terminate. X-7910 Mr. Eugene M. Stevens — 3 Accordingly, it is suggested that you notify the applicants that the Board is unable to find that it would "be not incompatible with the public interest to issue permits under Section 32 to serve the Bank of ment Company. , and the Mortgage Invest- It will be appreciated if you will advise the Board what steps the applicants intend to take in order to bring the relationships referred to in the first paragraph of this letter into conformity with the requirements of that section. Very truly yours, (Signed) Chester Morrill Chester Morrill, Secretary .
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