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308 S-214 Sec. 5136 E.S.-15 INTERPRETATION 0? LAW OR REGULATION (Copies to Be Sent to All Federal Reserve Banks) March 13, 1940 Mr. Federal Reserve Bank of Dear Mr. , President, , : Reference is made to your letter of March 5 regarding the Bank, , , a prospective applicant for membership in the System. It is the Board's view that the provisions of Section 5136 of the Revised Statutes do not make it necessary for a bank applying for membership to reduce excessive holdings of individual issues of securities to within the limitations prescribed for member banks or to dispose of nonconforming issues acquired prior to membership. Furthermore, it is not the general practice of the Board to require, as a condition of membership, that banks bring their securities account into conformity with Section 5136 and the regulations issued thereunder. Whether requirements should be made in an individual case depends upon the circumstances in that case. With regard to the . Bank, it appears from the information submitted by you, and from the latest report of examination of the bank by the Federal Deposit Insurance Corporation, that the bank is in good asset condition except for its securities account, and the securities account does not seem to present an insurmountable problem. The total carrying value of securities represents a relatively small portion of the bank's total assets and provision has been made for probable losses in the account. Therefore, if your office is satisfied with the character of the new management and with its ability to effect the improvements needed, the Board would not make any requirements of the bank regarding the securities account, unless, of course, the bank is now subject to requirements imposed by the Federal Deposit Insurance Corporation or the State authorities in this connection. 309 S-214 Sec. 5136 R.S-15 -2- With respect to the other question presented in your letter, the Board is not inclined to the view that the filing of the application for membership by the __________________ Bank should necessarily be deferred pending the outcome of present efforts of the bank to adjust and improve its securities portfolio. Such conclusion is based on the fact that the bank is apparently in acceptable asset condition and under capable management, and on the assumption that better progress can be made by the bank within the System than without. If the bank files its application for membership, it will, of course, be necessary to clear the case with the office of the supervising examiner for the Federal Deposit Insurance Corporation and it is assumed that you will ascertain, also, whether the bank is subject to any requirements which the State authorities may have imposed. Very truly yours, (Signed) L. P. Bethea L. P. Bethea, Assistant Secretary.
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