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1
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
X-9410
January 2, 1956.
Dear Sir:
Recently I received from Mr. Stevens, Chairman of the Federal Reserve Bank of Chicago,
&
letter
quoting a resolution adopted by a clearing house association rec·ommending that the Federal Reserve Banks of
St. Louis and Chicago select as their member of the
Open Market Committee a man of wide experience in business and financial affairs who is not an officer of
either bank.
The letter was considered at a meeting of the
Board today and I am inclosing, for the information of
the board of directors of your bank, a copy of my reply
whlch was approved by the Board.
Very truly yours,
Inclosure.
TO CHAIRMEN OF ALL F. R. BANKS EXCEPT CHICAGO.
2
COPY
X-9410-a
January 2, 1936.
Mr. E. M. Stevens, Chairman,
Federal Reserve Bank of Chicago,
Chicago, Illinois.
Dear Mr. Stevens:
Your letter of December 16 in which you quoted a resolution of
a clearing house association recommending that the Federal Reserve
Banks of St. Louis and Chicago select as their member of the Open
Market Committee a man of wide experience in business and financial
affairs who is not an officer of either bank was brought to the attention of the members of the Board.
In this connection several in-
fornal in0ui.ries which have come to the attention of the members of
the Board of Governors indicated that there
w~s
doubt at some of the
Federal reserve banks as to what course should be followed with respect to the selection of their r-epresentatives to serve after March
1, 1936, as members of the Federal Open Rfurket Committee.
'fhe law is silent as to the procedure which shall be followed b,r the boards of directors in the selection of such representatives and it does not place upon the Board of Governors of the Federal
Reserve System any duty or responsibility with respect to the determination of such procedure.
However, since the question has arisen
the Board feels that it may be of some assistance to the directors
of the Federal reserve banks by giving them its views and
s~ggestions
regarding these matters.
Without reviewing in detail the history of the legislation,
it is clear that throughout the discussions the persons whom the
X-9410-a
-2-
proponents of representation of the Federal reserve banks on the Open
Market Committee had in mind were the Governors of the Federal reserve
banks, as shown for example by the recommendations of the American
Bankers• Association, the Reserve City Bankers' Association, and the
Federal Advisory Council.
When, in addition to this, the fact is
taken into consideration that the amendment took away from the Federal
reserve banks the power of declining to participate in open market
operations recommended by the Federal Open Market Committee and instead made the decisions of the committee binding upon the banks, it
becomes especially significant that the members of the committee to be
selected by the banks are referred to in the amendment as "representatives of the Federal reserve banks".
The Board therefore believes that
it is clear that the Congress intended that these members should be
persons in position to present
adeqlli~tely
the views of the Federal
reserve banks and to speak authoritatively for them.
Aside from these considerations it is evident that any person having otherwise satisfactory individual qualifications who might
be selected from outside the official personnel of the Federal reserve
banks would almost certainly have or represent interests of a business
or investment character which might affect his action as a member of
the committee.
Even though not influenced by his personal interests,
their existence might affect the public interpretation·of the actions
of the Federal Open Market Committee in which he participated.
More-
over, he could not be intimately acquainted with the affairs of the
3
4
-3-
X-9410-a
member banks and the Federal reserve banks, the financial policies of
the Government, and other phases of monetary matters to the extent
that would be d.esirable and as fully as would be possible in the case
of representatives who served only the Federal reserve banks.
A~hough
he would have a vote, his contribution to the deliberations of the
committee would be more likely that of a consultant or adviser called
in at the meetings than that of a true spokesman for the Federal reserve banks.
It is apparent that the situation also presents the question
of an appropriate method by which the directors of the banks may contact each other and determine their selections in a mutually satisfactory manner and it seems to the Board that this might be accomplished
by preliminary meetings between committees of directors of the banks
who could be authorized to formulate procedure and make recommendations
for the consideration of the full board of directors of each Federal
reserve bank concerned.
The Board will be glad to be adviseq as to the views of the
directors of your bank regarding these suggestions.
Very truly yours,
(Signod)
M. S. Eccles
rvi. S. Eccles,
Chairman.
5
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
,.
X-9411
January 3, 1956.
Revised Regulations Governing Telegraphic
Transfers and Federal Reserve Leased Wires.
·near Sir:
The Governors' Conference on October 25, 1935, approved a
report of its standing committee on collections recommending that
transfers of funds be made by the Federal Reserve banks for nonmember
clearing banks at their expense over commercial wires and that a list
of nonmember clearing banks be included in the semi-annual par list.
The Board of Governors of the Federal Reserve System concurs in this
recommendation and will arrange to have a list of nonmember clearing
banks included in the
semi-a~ual
par listi
Regulations governing
the use of Federal Reserve leased wires for the purpose of making
telegraphic transfers and otherwise as contained in the Board's letter
X-4099 of June 21, 1924, are amended as follows:
1. Telegraphic transfers of funds over the leased wires
will be accepted from and paid to member banks o1uy. They must represent bank balances and can be made only for round amounts, i. e.,
multiples of $100. The term "bank.balance" shall be construed to
mean an accumulE,~.tion of funds comprising an established uccount
carried by one bank with another bank.
2. The information given in telegrams transferring funds
over the leased wires must be limited to the name of the sending member bank, name of its correspondent member bank requesting the transfer, name of the member bank receiving credit, and name of its correspondent member bank.
- 2 -
X-94.Ll
3. The Federal reserve code, including test word, must
be used for all messc.ges involvin~:{ the tram·fer of funds and, in
the interest of economy, aLL other telegrams should be sent in code
·nhen its use shortens the meeso.ge rna terially.
4. In addition to the usual mail advice to the bank
receiving credit for telegraphic tr&nsfers of funds, immediate advice
by telegrap).'l, dr otherwise, should be ~iven by the Federal reserve
bank receiving the transfer in cases •::here th<> sending bank or the
credited bank has stated that other than the usual mail advice is
neCElSSary, or where the nature of tlw transaction or the amount involved
indicates that the addi tiono.l expens<;; is justified, as to which the
receiving Federal heserve bank wilJ. t3Xt:.rcise its discretion. All such
wire advices. should be at the expense of the bank receivihg dredit and,
therefore, should be sent collect.
5. hequests for telegraphic tre.nsfers of funds for consummation on date of receipt should not be accepted by Federal reserve
banks later than thirty (~0) minutes prior tc· the closing hour of the
Federal reserve bank to which tram;f'er is to be made. Any telegraphic
transfers of funds requested after such timt! will be ma.ie at the discretion of the Federal reserve bank recsiving credit.
6. The leased wires shall net be used for tracing or adpayment or non-payment of' any nun-car:;h cc.;llectlon i terns, nvr
for transferring the proce~ds ~hereof.
V:J.Sl.n~
7. The leas6d wires shall not be used for reconciling exceptions in accounts bet ·8en Federal l'(,St~rve banks, except where a loss
might ue involved.
8. Any loss re:ml tine; from negligence on the part of the
Federal reserve system in the transmi::roivn of' telegrams transferring
funds over the J.ea sed wires thr·vugh rc:l<:q st& tions shall be borne by
the sending Federa.l r8serve l.lank, ··unlet:s responsibility can be definitely placE:d upon the F'ederul. reserve bank to which the telegram was
addressed.
9. Teleg:mm;:.; must be ·Norded &s concisely as pc)sslblo. 'I'elegrams should net be r:;ent .:h·.:;n cummunic::·~ic·n by mail ';:ill suffice. For
the purpose of enforcln;; thest.: rc.;ulat:L<;ns, provisj_cm should be mads in
each Federal reserve: bank so thEt-~ ~i.llY m.i.suse of the lr:.ased ·.vires ·.dl:J.
be brou:;ht to the attcntiun of a dc:'Sit";l1ated ufficer for reft::renca to
the originating department, ::;r, in the ca0c of incorr,ing mt:ssage!:!, to
the sending Federal reserv~ bank.
The follo•xln;; clG.uscs und<>r the respective he&dings shou,Ld
I
,l
be included by all FGdoral heservo banks in thGir circuh.rs to membt::r
6
- 3 -
X-9411
and nonmember clearing banks relating to teJ.egraphic transfers of funds.
ThANSFEhS CJVEh. LEA::-I@.JilhES
1. Only transfers of bank balances in round amounts, that
is multiples of ~100, will be mude over the Feaeral reserve leased wires.
The term "bank balance" shall be construed to mean an accumulation of
funds comprising an eBtablish(~d account mCJ.intained by a member bank with
its Federal reservE: bank or wl th another n1cmber bank.
Telegraphic transfers of funds over the leased 'Hires ·::ill
be made for and paid to member banks only. Such transfers will he made
without cost to member banks.
2.
z,. The descriptive da.ta in telegrams transferring bank balanc.es
over the leased wires must be limited to the amount to be transferred,
name of the member bunk to receive credit, and ·nhen necessary, name of
its correspondent member bank, and name of membE:r bank ·itith which request
originated.
4. Transfers of the proceeds of indiv:l.d.uul cc.llecticn items
will not be made over the leased <vires.
5. Th8 Federal reserve banks maintc:in, at large expense, a
leased wire systein over which it :ls necessary to transmit a heavy volume
of important communications. Member banks are requested to cooperate with
us in attempting to avoid overdrowdil1g the leased ~vires by not ntaking
requests for tele~ra.phic transfers of small amounts, or those ;c;hich can
be made as ·nell through the maiis.
1. Telegraphic transfers of funds for any :purJ_Jose and in any
amount and ''li thL·Ut limitation as to descr lptive dr.~.t\'..1 ·;dll be made over
the c01nmercial telegraph wires for member banks. i.hile such transfers
will be acceptt3d from and paicl to member banks only} they may be for the
use of any btcnk 1 individual, firm or C-Jrpcro.tion.
2. TeJ.e~~raphlc tn,nsf.;;rs of br..ul{ balLO.nces in round ttmounts,
that is multiples cf ~100 1 1v.i.ll be made over the cor.unercial telegraph
'tdres for nonmember c1Garin,:; b:.nks. Such tr&nsfers Hill be accepted from
any member bank for the credit of any ncnm<:mbcr cl.:;aring bank, and from
any nonmember clearin;; bank fer the credit of any member bank or any
other nonmember clearing bD.nk.
3. Tho cc.st of o.ll telegrams bt;;t•Neen Fdderul reserve banks
transferring funds over the commerch.l telegraph wires will be chu.rged
to the member and nonmember clearing banks for which the transfers are
made. i;1emter and n·~n:nuJber clearing banks should prepay the cost of
''
....
8
X·-9411
- 4 -
telegrams requesting such transfers, and telegrHms to member and nonmember
clear"ing banks advising credit ~.rill be sent "Colloct'1•
..
LIABILITY OF THE FEDERAL hBSEFcVE BANK
The Federal Reserve Bank of
will use due
diligence and care in the transfer of funds by telegraph to the roceiving Federal resE:::rve bank for credit to the account of the payee bank,
but will not be responsible for errors vr delays caused by circumstances
beyond its control,
Very tru.l.y yours,
. 11. n .. ._; \...... . ~.:_,~.·.it·.'!Ii 0..·
. ~/fJvv~
Chester ivlorrill;
Secretary.
'1'0 ALL GOVE.hNORS.
'
9
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAl. RESERVE BOARD
X-9412
January 4, 1936.
Dear Sir:
The Board is in receipt of a letter from Dr. H.
s.
Cumming, Surgeon General of the United States Public Health
Service, asking that the Board und the Federal Reserve banks
cooperate with the Public Health Service in an Occupational
Morbidity and Mortality Study being conducted by it.
It is understood that a representative of the Public
Health Service engaged in this study will call at your bank
to obtain certain information regarding its personnel, and
the Board will appreciate your cooperating with him in the
study.
Any information made available to the Public Health
Service will not be published separately as coming from your
bank but will be combined with other similar data so that the
identity of the institution from which specific information
is obtained will not be disclosed.
Very truly yours,
Chester Morrill,
Secretary.
TO ALL GOVERNORS EXCEPT AT ATLANTA
10
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD .
X-9413
January 4, 1936.
SUBJECT:
Annual Reports of Federal
Reserve Agents
Dear Sir:
Several of the Federal Reserve Agents during recent years in submitting their respective annual reports to the Board for approval prior to release have been sending in such reports in duplicate.
The extra copy submitted in these instances has proved
helpful, and it will be appreciated if each Federal
Reserve Agent, in submitting his forthcoming and future
annual reports, will supply the Board with two copies
instead of one.
Very truly yours,
Chester Morrill,
Secretary.
TO ALL FEDERAL RESERVE AGENTS
11
,I-,
FEDERAL RESERVE BOARD
WASHINGTON
•.
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
January 4, 1936.
Dear Sir:
In the last few weeks the amount of industrial loan applications received by the Federal Reserve banks, and particularly
the amount of such applications approved, has increased relatively
little.
Recent studies which have been made, particularly one by
the Committee on Direct Loans of the Associated Business Papers,
indicate the existence of some feeling that the Federal Reserve
System would have many more applications if a more intensive effort were made to acquaint prospective borrowers with the facilities open to them and to bring to the attention of member banks the
desirablity of making industrial loans under cover of Federal Reserve bank commitments.
As you know, the Board feels that it is important that
each Federal Reserve bank have some qualified person available at
all times to explain to prospective applicants for industrial advances what the Federal Reserve bank is prepared to do and how they
should proceed in order to obtain an advance.
It is, of course, ap-
preciated that the person having this responsibility should be fully
familiar with the Federal Reserve bank's policies and able to appraise
··A\
fairly accurately the financial problems of prospective applicants.
12
X-9414
- 2 -
He should also be able tc. convince applicants of the Reserve ba11k 1 s
desire to do whatever it can, consistently with the terms of section
13b, to make credit available to them.
In view of the expressed feeling that the System has not
{
done all that it should to implement the provisions of Section lob,
)
it will be appreciated if you will address a letter to each bank in
your district, requesting its assistance in furthering the industrial
loan program.
A draft of a letter which it is suggested you use in
this connection is attached.
Very truly yours,
Chester Morrill,
Secretaz•y.
Attachment.
TO ALL GOVEHNORS.
13
X-9414-a
DRAFT UF LETTEh Tv ~AEri1BLh iu\W !~0NMEIABEh. EANKS
Information 'il'hich has recently come to the attention of the Board of
Governors of the Federal Heserve System indicates the existence of some feeling that the Federal Reserve System has not done all that it could to make a
success of the industrial loan program authorized by Section 15b of the Federal
Reser~e
Act.
This section was adopted June 19, 1934, and as you recall,
authorizes the Federal Reserve banks to make credit available to established
industrial and commercial enterprises for the purpose of replenishing working capital, for periods not exceeding five years.
It has been the aim of the Board, the Federal lteserve banks, and the Industrial Advisory Co1nmittees to make such credit available to all borrowers
who are in need of working capital and to whom advances could be made on a
reasonable and sound basis.
To that end special efforts have been made to
bring the provisions of the sectiun to the attention of memtor and nonmember
banks and industry in general, and applications for such credit have
proved whenever possible.
b~en
ap-
It may: be th;;,.t there are now no enterprises in your
community which are unable to obtain needed v10ridng capitcl from the usual
sources and to Hhich loans for this purpose could be made en
sound basis.
ti.
reasonable and
This bank desires particularly, however, to cio what it can for
industry in its district, and if you knov: of t.cny instances, or hear of any
instances] ahere worthy
enterprises in need of 11orking capital have been un-
able to obtain it, we shall appreciate your bringing them to our attention.
Under the provisions of the Act the Federal Reserve Banks are authorized
·to make these loans either direct to borrowers or in participation with financing institutions.
If you are interested in participating in any loans, the
...
14
X-9414-a
- 2 -
liquidl ty .:.·f which may be guaranteed by the Federal heserve ba:1k and your loss
limited to a maximum of 20 percent) this bank will be glad to CCloperate with
you in any way it cu.n vii thin the law.
Very truly yours,
1_5
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OPFICIAL. CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-9415
January 4, 1956.
SUBJECT:
Code Word Covering New
Issue of Treasury Bills.
Dear Sir~
In connection with telegraphic transactions in Government securities between Federal
reserve banksj the following code word has been
desighated to cover a new issue of Treasury Bills:
"NOYGLE" - Treasury Bills to be dated
January 8, 1956, and to mature October 7, 1956.
\
This word should be inserted in the Federal Reserve Telegraph Code book, following the
supplemental code word "NOYFUL" on page 172.
Very truly yours,
J •. c. Noell,
Assistant Secretary.
TO GOVERNORS OF ALL F. R. BANKS
1.6
X-9416
January 4, 1956.
SUBJECT:
Regulation R - Relationships with Dealers
in Securities under Section 32 of Banking
Act of 1955.
Dear Sir:
There are inclosed three mimeographed copies of a revision
of Regulation R relating to "Relationships with Dealers in Securities under Section 52 of the Banking Act of 1955" in the form
adopted by the Board on Januury 4, 1956.
Tho regulation as so re-
vised is effective on January 4, 1956.
In order to expedite the distribution of the regulation,
you are requested to have copies printed and to forward one or more
copies to each member bank in your district as soon as possible.
The "X" number appearing on the inclosed copies of the regulntion
should, of course, be omitted.
An
official print of the tegulation will be prepared by the
Board, and you are requested to advise the Board at your early convenience as to the number of copies of such print which you desire.
Very tTQly yours,
Chester Morrill,
Secretary.
Inclosures.
TO ALL FEDERAL
RESERVE AGENTS
17
Y..-9416-E.
BOAhD OF
GOV.Lft~'Jl:RS
UF THE FEDLhA.i... hr-SEhVE SYSTELl
1\.ELATICl~SHlPS
UlJDEB. SEC'i.' ION
This
~2
f>ITH DEi,LEi,S li::J L•t.CUhiTIES
OF THE Bfi.NKI.l~G ACT OF 190~·
as print~.;;d her8if>ith
iE in the form &s revised
effective January 4, 1906.
reci'Ul~~ticn
18
X-9416-a
(Note
Lo
(Lev~;:rsc
printer:side of cover pa,;e)
Any inquiry r;::Latin; tc' thh. regulcticn should be addressed
tG the Federal heeerve Pgent at the Feder~l hesarve bGnk of the distri.:ct in ·:::hich the inquiry :::,.rises.
X-9416-c.
li.EGULATIGN
R
hevlsed~
eff'ectiv8 Januar.1 4; 1806.
(Superseding hegulatic·n .h vf .i9;:,0)
hfi..tSL:NSHIP.::.. :\lJ:H D:L;,.l,l:,J.;,~; lN ~LCU1·.i'ITSS
UNDl;;n SECTL:~N ~;2 l.F' l.'HL Blu~Kit~G J..Ct vF 195~
Thh ret;u.Lation is based upvn and issued IJUrsue.n t to the provisions of section
~2
cf the Banking P.ct of 1955} •,·,h.ich is published in the
Appendix nereto.
SECTF;N 1.
Pli.OHI13.£T.IU;~s.
Under sect.ion 52 of the B&nking Act of
l~3~)
except as herein-
after stated in section 2, no officer, o.irector 1 or emplo;,;ree of any corporation or uninccrportited associaticn, nc> partner or ernplc.,yee of any partnership, and no individual} primarily en5f... ged in the issue, flotation, underwriting, public sale, or distribution, at z,;holes&le cr retail, or through
syndicate pa.rticipati0n, of stocks, bonds, or other similar securities,
can legally be at the s!lme time Dn officer, director, or employee of an.;r
member bB.nk of the Federal lie:;;.erve Sj-stem.l
lTherefore; by it:;, terms,~ section 52 dos::; nCJt apply (a) T~:.. t:' perse::;:"! 'i'iho is not an officer J director, or employee
of a member bank of the Fsder.:.:.l hoscrve Syst<::m;
(b) To a pers:..m (l) :,h() .is not an officer, riirector J or employee of a corpc:ratj Cd or unincorpc.ratod a::;sccia~ion primarily engaged in
the issue 1 floto.tion, un:iE:r';-Iritln:;, public B&le, cr distribution 1 at whvlesale or retail, or throu;~h ~;y-nJlcate pc.rticipatlon, of stocks, bonds; or
other similar s~:;curities, (2) who is not c.~. partner or employee of a partnership primarily so engaged:~ and (5) 1:ho is not, in his individual capacity,
primarily so engaged.
A broker who is en.;a6ed E>clely in exe-cuting orders for the purchase and sale of securities en b8h&lf uf other~:: ln the open .market is not
engaged in the business ref .;rred to in section ::;.;:: •
19
20
X-9416-H
-- 2 -
SECTICtN 2.
EXCEP'I'IuNS.
Pursuant to the authoxlt:/ vested in l t by section 32, the
Board of Governors of the Fadera.i heserve: Sys t(jJr, hereby permits the
.
f o 1.lo;nng
re.La t'J.onsh'
.J.ps:""9
Any officer, diroct,or, or empL...,yee of any corporation or unincorporated t'issociation 1
&~1;','
partnu· or ;:;mp1oyec C.·f any partnership,
or any individual, not engaged in the issue, flotation, undt:r·.'!riting,
public sale Y or distribution, at
~vholesale
or rctrl.il, or through syndi-
cats participation, of any Jtvcks, bunci.s, or other similar securities
except t.:mds, notes 1 cert:Lf icat0s of indebtedness) and Treasury bL. ls
of the United States, obligations fully ._;,'UarantE:ed both as to principal
and interest by the UnitHd States, G.ebenturer:,
i~,sued
by Fede-ral Inter-
mediate Credit banke, bonds issued by Federal Land banks) and genr:::ral
obligations of Territori(3S 1 dependencies and insular possessions of the
United States, may be at the same time an officer, director, or ernplvyee
of any member bank of the Federal heserve System, except when otherwise
prohibited. 3
SECTIGN 5.
.A:'IJENDlv!ENTS.
ThG ri::_;ht to al t6r, amenJ) cr repeal this regulath. n, in ·i;hole
or in part, is s:x.pressly l'(::Sorved.
2Under section 02, as amended effective January 1, 19~6, the Board
is authorhed to except limited classes of relationships from the prohibitions of the statut-e, un.j0r certain conditions; but the Board can
make such exceptions only by general rt':gulatio:;ns and is not authorized
to issue individual permits.
5section a of the Clayton Act is applicable in certain circumstances
to interlocking rc:Lativnships betv1uen member banks c..nd private bankers}
and other banks, banking associations, savings banks and trust companies.
See 11.egulation L of the Board of Governors of the Federal Roserve System.
21
X-9416-a
C:ection 17(c) of the Pub.:.ic Uti.Lity J.ct of 1935 is applicable
in certain circumstances to interl.:..cking relationships between banks and
private bankers (and corpor;'itl:.Jns •.>~mod by b&nks and private bankt!rs),
and public utility ccmpanies &no public utility hoiding companies. Inquiries rc;:;arding ·.:.hi.:; s0ctlon should be add1·essed to th8 Sccuri ties and
Exchanst2 Cc.mmission and nt,t :.c ths b<A;.rd of Govsrnvrs of th.. Federc...l feeserve .System.
Sectir,n 5J5 ( 1) of the Fe;:ier:tl Pc;:~r ..,ct .is Etpplicabl::: in certain circumstancf.:.s to lnter .lockln,g rGlatlom>hip;c bGt':':ee.n pu11ic utility
companies ccnd tanks and bankers th&t are authvrizcd by law to unde:rwrite
or participate in the marketing uf :::ecurities of a public utility. Inquiries r0gardin5 this section ;:::houlJ b8 addre ss.:.:d to the FGderal Power
Commission und nvt to the Board of Guverncrs of the Fedcrctl R121serw: System.
22
X-9416-a
- 4 -
i\.PPEHDL\
G'l'b'ITJ'l'OhY PhOVl.SIC:NS.
Secti:m 5:~ ·Jf the brmking Act uf u~~il (U.S. C. , title 12)
sec. 78)} as a.manded by section
tive January l, 1936, reads us
~J7
of the Be:.nklng .ret oi' 1955, effec-
follow;:;~
Sec. 52. No officer; director, cr omp.loyGe of
any corpe:raticm or unlnc<.-rpurat~d <wsc,ciutiln 1 n;.; pc...rtner ur em.pluyee of a:·1y partncr~,hlp; and nv lmli vidual 1
primarily eng~'>,6ed in the L=.:.su0, flc;-c.a.tion, u.nderv,ri ting 1
public sale, or distribution, at :·;-holesr:;.l€ ,r retail, or
through syndicate par·ticip~:, tion, of stcclu:; oondc, or
other similar SE:..CUl'ltios, shall s~Srv;:. the :::arne.; tlme a.s &n
officer, dirocte;r ~ or enrpL'Yt!c:: <f L<ny mGmb0r bank sxcept
in limited classes of c'='.ses in ivh.lch the E>oc:rd of Governors
of the Federal Heser·,ie System rr.uy al.Lo-:v such service by
general regulat-ions vvhE::n in the ,judgment of the said Board
it would not unduly influence the investment policies of
such m€mbc:c bank or th,; o.dvice it glves its custcm0rs regarding inve:-stmcnts.
23
X-9417
January 4, 19:36.
SUBJ~CT:
Regulation L - Interlocking Bank
Directorates under the Clayton Act.
Dear Sir:
There are inclosed three mimeographed copies of a revision of Regulation L relating to "Interlocking Bank Directorates
under the Clayton Act" in the form adopted by the Board on January 4, 19:36.
The regulation as so revised is effective on
January 4, 19:36.
In order to expedite the distribution of the regulation,
you are requested to have copies printed and to forward one or
more copies to
sible.
e~ch
member bank in your district as soon as pos-
The "X" number appearing on the inclosed copies of the
regulation should, of course, be omitted.
An
official print of the regulation will be prepared by
the Board, and you are requested to advise the Board at your
early convenience as to the number of copies of such print which
you desire.
Very truly yours,
Chester Morrill,
Secreta:ry.
Inclosures.
TO ALL FEDERAL RESERVE AGENTS
24
X-9417-a
BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
INTERLOCKING BM~K DIRECTORATES
UNDER THE CLAYTON ACT
REGULATION L
This regulation as printed herewith
is in the form as revised
effective January 4, 1936.
25
X-9417-a
(Nato to printer: )
(Reverse side of cover page)
IN~UIRIES
REGARDING THIS REGULATION
Any inquiry relating to this regulation should be
addressed to the Federal Reserve Agent at the Federal Reserve
bank of the district in which the inquiry arises •
•
26
X-9417-a
C
(j
N T E N T S
Statutory Provisions - - - - - - - - - -
l
Sec. l.
Prohibitions
- - - - - - - - (a) Direct~rs 1 officers, end employees uf
member banks - - - - - - - (b) Private bankers
- - - - -
2
Exceutions - - - - - - - - - - (a) Per2cns other than private bankers or
directors, officers; or employees of
member ba~-.:s - - - - - - - - - (b) Banks not organized m1der Nation~l
Bank Act, State law, or laws of
District of Columbia - - - - ·· (c) Helaticnships lawfully existing on
August 2::,, 1955.
- (d) Exceptions applicable tv directors·,
officers, and employees of member
banks - - - - - - - - - - - - (e) Exceptions applicable to private
bankers - - - - - - - -
2
Sec. 2.
4
Sec. 5.
/
-
-
-
-
2
2
2
2
3
4
5
Relationships permitted by Board
(a) Iliorris Plan bank or similar institutic·n
(b) Pending consolidation or merger - - - (c) Application pendin;-~ on August 23 1 19~)5 (d) Excepti0ns applicable ~c a private canker
6
6
7
Sec. 4.
EnfcrcemE.:nt -
3
Sec. 5.
Amendments
9
Appendix
5
7
10
...
X-9417-a
REGULATION L
Revised Effective January 4, 1956<
(Superseding Regulation L, Series of 1955)
INTERLOCKING BANK DIRECTORiiTES
UNDER THE CLAYTON ACT
STATUTORY PROVISIONS
This regulation is based upon and issued pursuant to the
provisions of section 8 of the Clayton Act, the pertinent parts of
which are published in the Appendix hereto. 1
l
Section 52 of the Banking Act of 1955 is applicable in certain
circumstances to interlocking relationships between member banks and
underwriters and dealers in securities. See Regulation R of the
Board of Governors of the Federal Reserve System.
Section l7(c) of tho Public Utility Act of 1955 is applicable
in certain circumstances to interlocking relationships between banks
and public utility companies and public utility holding companies.
Inquiries regarding this section should be addressed to the Securities and Exchange Commission and not to the Board of Governors of
the Federal Reserve System.
Section 505(b) of the Federal Power Act is applicable in certain circumstances to interlocking relationships between public utility companies and banks which are authorized by law to underwrite or
participate in the marketing of securities of a public utility. Inquiries regarding this section should be addressed to the Federal
Power Commission and not to the Board of Governors of the Federal Reserve System.
X-941'1-a
SECTION 1.
PROHIBITIONS
Under section 8 of the Clayton Act, except as hereinafter
stated in section 2:
(a)
No person who is a director, officer, or employee
of a member bank of the Federal Reserve System cun legally be at
the same time a director, officer, or employee of any other bank,
banking association, savings bank, or trust company organized under
the National Bank Act or organized under the laws of any State or
of the District of Columbia;
(b)
No private banker2 can legally be at the same time
a director, officer, or employee of any bank, banking association,
savings bank, or trust company organized under the National Be.nk
Act or organized under the laws of any State or of the District of
Columbia.
SECTION 2.
EXCEPTIONS
The provisions of section 8 of the Clayton Act:
(a)
do not apply to a person who is neither a private
banker nor a director, officer, or employee of a member bank of the
Federal Reserve System;
(b) do not prohibit a private banker or a director, officer, or E;mt)loyee of a member bank of the Federal Reserve System from
being at thG same time a director, officer, or employee of any number
of other banking institutions not organized under the National Bank
2The term "private banker" means an unincorporated individual
engaged in the banking business or a member of an unincorporated
firm engaged in such business.
,.
-D-
X-9417-o..
ACt or under the laws of any State or of the District of Columbia 5 ;
(c)
do not prohibit, until February 1, 1939, any interlock-
ing relationship involving a member bank, which wa.s in existence on
August 25, 1935, the date of the enactment of the Bunking Act of 1935,
and which, at that time, wns lawful under the Clayton Act, either (a)
because it ~as authorized by n permit4 then in effectS or (b) because
it was otherwise not sub'ject to the prohibitions of the Clayton l!.ct6;
-'
3In other words, the provisions of section 8 of the Clayton rtCt
do not prohibit a private banker or a director, officer, or employee
of a membur bank of the Fedural Reserve System from being at the same
time a director, officer, or employee of any number of the following:
(e.) Joint Stock Land banks, Federal Land banks, Federal heserve banks, Federal Intermediate Credit banks, The Central B<knk
for Cooperatives, Federal Home Loan banks, foreign banking corporations organized under section 25(a) of the Federal heserve
Act, and other institutions organized under laws of the United
States other ~ the National Bank act;
(b) Banking institutions organized under the laws of territories, dependencies, or insular possessions of the United Stutes,
such as the Philippine Islands, Puerto Rico, Hawaii, or the Canal
Zone, and not organized under the National Bank .net; and
(c) Banking institutions organized under the laws of foreign
countries.
Federal Savings ant Loan Associations and Federal Cre~it Unions
are not organi::::ed under the National Bank J~ct or under the laws of any
State or of the District of Columbia, and therefore are excepted on
that ground irrespective of whethor they are "banks" or "banking essociations" within the meaning of the statute.
4Relntionships which were lawful on August 23, 1935 becnuse &uthorized by a permit then in effect vmre lawful within the meaning of
this exception irrosp0ct.i vc~ of whether the permittee was then al::>O
serving in other relationsh:lp:J which were within the prohibitions of
tho Clayton .Act but which were not authorized by such permit.
5 rt is immaterial whethc;r or not such p£:)rmit contained a provision
limiting its duration, l)rovidecl i t wo.s in effect on J·.ugust 23, 1935.
6The provisions of the CL·.ytun Act regarding interlocking ba~
c:drectorates in effect prior to tl.Ugust 23, 1935 are <:.n&lyzf~d in .hegulation L, Series ·Jf 1933, vvhich was published in the Federr.l Jieserve
Bulletin for November 1933, pugo 711.
30
-4···
(d)
X-94JJ-.::t
do not prohibit a director, officer, or employee of a
member bank of the Federal heserve System from being at the same time
a director, officer, or employee of any number of the following (1) Banks, banking associations, savings banks, or
trust companies, more than 90 per cent of the stock of which
is owned directly or indirectly by the United ~tates or by
any corporation of which the United States directly or indirectly owns more than 90 per cent of the stock;
(2) Banks, banking associations, savings banks, or
trust companies which have been placed formally in liquidation or which are in the hands of receivers, conservators,
or other officials exercising similar functions;
(3) Corporations principally engaged in international or foreign banking or banking in a dependency or insular possession of the United States which have entered into
agreements with the Board of Governors of the Federal Reserve
System pursuant to section 25 of the Federal Reserve Act;
(4) Banks, banking associations, savings banks, or
trust companies, more t.han 50 per cent of the common stock
of which is owned directly or indirectly? by persons who own
directly or indirectly7 more than 50 per cent of the common
stock of such member bank;
(5) Banks, banking associations, savings banks, or
trust companies not located and having no branch in the same
city, town, or village as that in which such member bank or
any branch thereof is located, or in any city, town, or village contiguous or adjacent thereto8;
7The following are clea~ illustrations of indirect ownership;
(1) where more than 50 per cent of the stock of one bank is owned by
the other bank; (2) where more than 50 per cent of the stock of one
bank is held in trust for the sharE~holders of the other bank; and (3)
where more than 50 per cent of the stock of one.bank is o~ned by a corporation, all the stock of which is owned by the shareholders of the
other bank.
8The Board has interpreted the term "contiguous 11 as referring to
cities, towns, and villages whose corporate limits touch or coincide
at some point, and has interpreted the word "adjacent" as referring to
cities, towns, and villages which, although not actually 11 contiguous 11
within the above interpretation of that word, are located in such
close proximity and are so readily accessible to each other as to be
in practical effect a single city, town, or village, as for example,
cities, towns, or villages separated only by a water-course, or a
suburb of a city separated from that city by an intervening suburb.
-5-·
X-9417-a
(6) Banks, banking associations, savings banks, or
trust companies not engaged in a class or classes of business 9
in which such member bank is engaged;
(7)
(e)
Afutual savings banks having no capital stock;
do not prohibit a private banker from being at the same
time a member of any number of firms of private bankers, or from being
at the same time a director, officer, or employee of any number of the
following:
(1) Banks, banking associations, savings banks, or
trust companies, more than 90 per cent of the stock of which
is owned directly or indirectly by the United States or by
any corporation of which the United States directly or indirectly owns more than 90 per cent of the stock;
(2) Banks, banking associations, savings banks 1 or
trust companies which have been placed formally in liquidation or which are in the hands of receivers, conservators,
or other officials exercising similar functions;
(3) Corporations principally engaged in international
or foreign banking or banking in a dependency or insular possession of the United States which have entered into agreements
with the Board of Governors of the Federal Reserve System pursuant to section 25 of the Federal Reserve Act;
(4)
Mutual savings banks having no capital stock.
SECTION 3.
hELATIONSHIPS PERMITTED BY BOARD
In addition to any relationships covered by the foregoing
exceptions, not more than one of the following relationships is hereby
9The phrase "class or classes of business" refers to the various
types of business engaged in by such institutions involving relationships with customers, such as (1) receiving commercial deposits, (2)
receiving savings deposits, (3) carrying checking accounts, (4) making commercial loans, (5) making real estate loans, (6) making loans
on stock or bond collateral, (7) making "personal" loans of the character usually made by Morris Plan ur Industrial banks, (8) engaging
in corporate trust business, and ( 9) engaging in inc.ividual trust
business.
32
-6-
X-9417-a
permitt8d10 by the Board of Governors of the Federal Reserve System
in the case of any one individual:
(a)
Any private banker or any director, officer, or em-
ployee of a member bank of the Federal Reserve System may be at the
same time a director, officer, or employee of not more than one
Morris
Plan bank, cooperative bank, credit union or other similar
institution;
(b)
Any director, officer, or employee of a member bank
of the Federal Reserve System may be at the same time a director,
officer, or employee of not more than one other bank, banking association, savings bank, or trust company if the records of both
institutions show that active consideration is being given to the
consolidation or merger of such member bank and such other bank,
banking association, savings bank, or trust company, or that active
consideration is being given to the purchase of a substantial portion of the assets and the assumption of a substantial portion of
the liabilities of one such institution by the other; provided that
no interlocking relationship permitted pursuant to this paragraph
shall continuo for a period or periods aggregnting more than six
11
months ;
10 The provisions formerly contained in section 8 of the Clayton
Act authorizing the issuance of individual permits by the Board were
repealed by section 529 of the Banking Act of 1935, and the Act now
provides that the Board "may by regulation pe:~mi t such service as a
director, officer, or employee of not more than one other such institution or branch thereof * i~ -r~ • " (See first paragraph of section 8,
quoted in the Appendix to this Regulation.) Accordingly, individual
permits will no longer be issued,
11 rn the case of any rolationehip existing on the date this
regulation becomes effective, such six months period shall begin to
run on the effective date of this regulation.
33
X-9417--a
- '? -
(c)
Any director, officer, or employee of a member bank
of the Federal Reserve System who had filed an application for permission to serve two or more banks within the prohibitions of
section 8 of the Claytoo
Ac•~,
which had been receiv'->d at the of-
fices of the Board in Washington, D. C., or at the offices of u
Federal Reserve Agent on or before August 25, 1935, and on which
the Board had not taken adverse action prior to that date, may
serve any member bank named i.n such application and eny other one
bank, banking association, savings bank, or trust company named
in such application until the next election of directors of such
institutions or until March 1, 1956, whichever is the earlier;
(d)
i-.ny
private banker
!lll:ty
be at the same time a director,
officer, or employee of not more than one of the following:
(1) A bru1k, banking association, savings bank,
or trust company organized under tho laws of any State
or of the District of Columbia which is not a memb0r
bank of the Federal Reserve System;
(2) A member bank more than 50 per cent of
the common stock of which is ovmed directly or indirectly by such private banker or qy a firm of privnte
bankers of which he is a mc:nbor;
(5) ~~ member bank not located and having no
branch in the same city, tovm, or village as that in
which such private banker or a firm of private bankers
of which he is a member maintains a place of business,
or in an~ city, town, or village contiguous or adjacent
theretol2.
'
(4) A member bank not engaged in a class or
classes of businessl5 in which such private banker or n
firm of private bankers of which he is a member is engaged;
12 see footnote 8, page 4.
15
see
footnote 9, page 5.
34
X-9417-a
- 8-
(5) A bank, banking association, savings bank,
or trust company within the prohibitions of section 8
of the Clayton Act, which was included in an application
under the Clayton Act filed b,y such private banker,
which had been received at the offices of the Board in
Washington, D. C., or at the offices of e. Federal Reserve
Agent on or before August 25, 1955, and on which the Board
had not taken adverse action prior to that date; provided,
that the provisions of this paragraph (5) shall be effective
only until the next annual election of directors of such
institution or until March 1, 1956, whichever is the earlier.
SECTION
(a)
Action
BY
4.
ENFORCKMENT
Federal Reserve Agent.
Each Federal Reserve
Agent shall cause the information contained in reports of examination of member banks and other information available to him from
other sources to be analyzed in the light of the provisions of
section 8 of the Clayton Act relating to interlocking relationships involving banks; and, in the case of any apparent violation
of that section, shall communicate with the banking institutions and
with the director, officer or employee involved, with a view of ascertaining whether the relationships involved are in conformity with
the law, and, if not, obtaining compliance with the law.
(b)
Reports to Board.
In each case in which, after taking
the steps outlined above, the Federal Reserve Agent finds that the
relationships involved. are in violation of the law and have not
been brought into conformity with the law within a reasonable time
after the matter was brought to the attention of the banking institutions and the officer, director or employee involved, the
35
- 9 -
Federal Reserve
~gent
X-9417-a
shall report the fucts to the Board of
Governors of the Federal Reserve System with a recommendation as
to the action to be taken.
SECTION 5.
.t\MENDMF..NTS
This regulation is subject to amehdment or repeal, in
whole or in part, in the discretion of the Board of Governors of
the Federal Reserve System.
-J.O-
APPENDIX
~TA'fUTORY
PROVISIONS
Section 8 of the Clayton Act (U.s.c., title 15, sec. 19), as
amended by the Banking Act of 1935, reads in part as follows:
SEC. 8. No private banker or director, officer, or
employee of any member bank of the Federal Reserve System or any
branch thereof shall be at the same time a. director, officer, or
employee of any other bank, banking association, savings bank,
or trust company organized under tho National Bank Act or organ.ized under the laws of any State or of the District of Columbia,
or any branch thereof, except that the Board of Governors of the
Federal Reserve System may by rcgulation permit such service as
a director, officer, or employee of not more than one other such
institution or branch thereof; but the foregoing prohibition
shall not apply in the case of any one or more of the following
or any branch thereof:
(1) A bank, banking association, savings bank, or trust
company, more than 90 per centum of the stock of which is owned
directly or indirectly by the United States or by any corporation of which the United States directly or indirectly o•vns more
than 90 per centum of the stock.
(2) A bank, banki.ng association, s&vings bank, or trust
company which has been placed formally in liquidation or which
is in the hands of a receiver, conservator, or other official exercising similar functions.
(3) A corporation principally engaged in intorno.tional
or foreign banking or banking in a dependency or insular possession of the United States which has entered into an agreement
with the Board of Governors of the Federal Resorve System pursuant to section 25 of tho Fuderl'll Reserve Act.
(4) A bank, banking association, savings bank, or trust
company, more th[ill 50 per centum of the common stock of which is
owned directly or i1~irect~ by persons who own directly or indirectly more than 50 per centum of tho common stock ::Jf such member bank.
36
37
X-94l7 ...r.
(5) A bank, banking association, savings bank, or trust
company not located and having no branch in the same city, town,
or village as that in which such member bank or any branch
thereof is located, or in any city, town, or village contiguous
or adjacent thereto.
(6) A bank, banking association, savings bank, or trust
company not engaged in a class or classes of business in which
such member bank is engaged.
(7)
A mutual savings bank having no capital stock.
Until February 1, 1959, nothing in this section shall
prohibit any director, officer, or emplqyee of any member bank ·
of the Federal Reserve 8,ystem, or any branch thereof, who is lawfully serving at the same time as a private banker or as a director, officer, or emplqyee of any other bank, banking association,
savings bank, or trust company, or any branch thereof, on the
date of enactment of the Banking Act of 1955, from continuing
such service.
The Board of Governors of the Federal Reserve System
is authorized and directed to enforce compliance with this section, and to prescribe such rules and regulations as it deems
necessar,y for that purpose.
*********
When any person elected or chosen as a director or :officer or selected as an employee of any bank or other corporation
subject to the provisions of this Act is eligible at the time of
his election or selection to act for such bank or other corporation in such capacity his eligibility to act in such capacitr
shall not be affected and he shall not become or be deemed amenable to any of the provisions hereof by reason of any change:in
the affairs of such bank or other corporation from whatsoever
cause, whether specifically excepted by any of the provisio~s
hereof or not, until the expiration of one year from the da~e of
his election or employment.
FEDERAL RESERVE BOARD
WASHINGTON
X-9418
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
January 6, 1936.
SUBJECT:
Eligibility for membership of
State banks which have issued
deferred certificates to depositors.
Dear Sir:
As you know, the Board has heretofore had under consideration the question whether State banks which have issued to certain
depositors certificates which are payable after· other claims of depositors and other creditors shall have been provided for but whlch
are payable before thG payment of any dividends or distribution of
any assets of the bank to its stockholders are eligihle for admission
to membership ln the FedPral Reserve System.
In this connection,
please see Board's letter of September 21, 1933 (X-7598).
The Board recently had occasion to reconsider this question
on the basis of an application for membership ·vvhere the bank involved
had issued and outstanding certificates of the kind described above,
and admitted the bank to
membt~rship
subject to the following condi-
tion, among others:
18.
Such bank shall stamp, as soon as practicable, in
legible form on each certificate for stock of the
bank outst.s.nding, and, so long as the legend referred to below is applicable, shall sthmp in legible form on each certificate issued upon transfer
or in lieu of the certificates new outstanding a
legend reading substantially a::; follows:
39
-~-
X-9418
Before any dividend or distributicn of any kind
or character is rnnde to stockholders as such,
the outstandinc; C£::rtificates of Be:neficial Interest issued by the bank to depositors who waived
the p£Jyment of a part of their :h~posi ts at the
time of the reorganizHt.Lon of the bank in 193~
pursuant to a Depositor·s Agreement, a copy of
which is on file with the
must be paid.
(In the event that shareholders of the bsnk fail
or refuse to surrender their stock certificates
for the purpcE.e of enabling th.:~ bank tc place
thereon the legend referred to in the foregoing
condition numbered 18, this condition will bE: considered as having been cumplied ·:iith by the inclusion in each published st!;.tement of condition
of the bank of appre;pria.te information showing
the relatiun of the rights of the holde,rs of outstanding Certificbtes of Beneficial Interest to
the; rights of stockhclders.)
It is the vie-:: of the Board that, in acting on applications
for membership, any oblir.;fltivn of a bank en cortificutes of the kind
ref~rred
to above should nvt be included in determining ;·:heth<::r or net
the capital of the bank is impairt::d.
Accordingly, you are advised
of the action 'i:hich v:us recently taken by the Board fer your guidance in connection with any similar cases which may arise in your
district.
Very truly yuurs,
Chester Morrill,
Secretar;;r.
TO ALL FE.DERAi, hEEEhVE J:.GENTS.
40
X-9419
INTEPYRETATION OF BANKING ACT OF 1933
{Copies to be sent to all Federal reserve banks)
December 25, 1935.
Mr. -----~:--' President,
The
National Bank,
Dear Sir:
This refers to your letter of December 2, 1935, regarding the
ruling published at page 609 of the September, 1934 Federal Reserve
Bulletin with respect to the renewal of certificates of deposit prior
to maturity.
That ruling reads, in part, as follows:
"It appeared that the practice described involves
merely the making of a new contract of deposit which is to
take effect on the date of maturity of the original certificate and that no part of the funds evidenced by the
original certificate is withdrawn until the maturity of the
renewal certificate. In the circumstances the Federal Reserve Board s~~ted that there is no provision of law which
would preclude adoption of this procedure, and the Board
has no objection thereto."
It is understood that you wish to know whether in such a situation your bank may pay the interest on the original certificate of
deposit at the timo of tho renewal prior to the maturity of the original
certificate.
Of course, the payment of interest before it has actually accrued amounts to the payment of a somewhat higher rate than if tho
interest wero paid after its accrual; and in paying interest on a certificate of deposit prior to the maturity of the certificate your bank
should not pay a rate of interest in excess of that permitted under
41
X-9419
the Board's Regulation Q which relates to the payment of deposits end
interest thereon.
There is ulso the possibility that interest might
become payable and, by agreement of the parties, be added to a deposit
in such a manner as to become a portion thereof and become subject to
the same provisions with respect to withdrawal as the other portions
of the deposit.
However, if the permissible rate of interest is not
exceeded and the interest has not become payable and been added to
~~e
deposit in such a manner as to become a portion thereof, there is no
prohibition in either the law or the regulation against the payment of
interest on a certificate of deposit before the maturity of the certificate.
If you have any further inquiries in this connection, it is
suggested that you communicate with the Federal Reserve Bank of
--------- which will be glad to advise you regarding such matters.
Vcr,y
(Signed)
truly yours,
Chester Morrill
Chester Morrill,
Secretary.
42
INTERPRETATION
X-9420
BANKING ACT OF 1935
(Copies to be sent to o.ll Foderal reserve banks)
Jc:cnuary 6, 1936.
W. H. Fletcher,
Acting Federal Reserve Agent,
Federal Reserve Bank of Clevol~nd,
Cleveland, Ohio.
Mr~
Dear Mr. Fletcher:
This refers to your letter dated December 10, 1935, with
reference to the question whether a member bank is required to terruinate or modify certificates of deposit of indefinite maturity, of
the type inclosed in your letter, in order to conform to the provisions of the supplement to Regulation
(~,
as revised effective January
l, 1936.
It is understood that the certificate to which you refer
is payable at any time upon 31 days' written notice of intended withdrawal.
The certific11to contains the following provision: "Interest
payable for full months only at two pur cent per annum, .if loft six
months or longer."
In its letter dated September 27, 1933 (X-7622) the Board
statoci that it is tho duty of a member bank to terminate or modify a
certificate of' deposit of indefinite maturity as soon as possible so
as to bring it into conformity with the provisions of Regulation Q.
Such letter also contained the following paragraph:
"Unless, therefore, ·there is some provision in
the certificates of deposit to which you refer
which would indicate an intention of the parties
that the bank may not terminate the contract contained in such c. certificate at its option ~md
without li!:ibility, it is suggested that you advise
43
Mr. W. H. Fletcher - 2
X-9420
member banks in your di~trict which have such
cortificat.;s outstanding that they should ter..
minatu or modtfy such certificates of deposit as
abov~1 stated after giving reasonable notice to
the depositors of their intention to do so."
It seems possible that the provision in the certificate
of deposit under consideration, to the effect that interest is payable
upon the certificate only if the funds are left on deposit six months
or longer, rnay indicate an intention of the parties that the bank may
not terminate the contract contained in the certificate at its option
and without liability prior tb the expiration of such six months'
period.
Otherwise, the bank could keep the deposit for five months
and then terminate the contruct and escape from payment of interest
for such five months' period.
Without attempting to determine whether such an intention
is indiccted by the above-mentioned provision, the Board will offer
no objection to the payment by a member bank on a certificate such
as that inclosed in your letter, which was outstanding on December 1,
1935, of interest at the rate of two per cent per annum until the
expiration of six months from tho date on which the depostt was made.
Very truly yours,
Chester Morrill,
Secretary.
X-9421
INTERPRETATION
BANKING ACT OF 1955
(Copies to be sent to all Federal Reserve banks)
January 7? 1956.
Mr.
, Assistant Vice President,
------- Bank & Trust Company of
,
Dear Sir:
This refers to your letter dated December 15, 1935, in which
you request a ruling upon the question whether the Christniar Club accounts of your bank constitute savings deposits within the definition
contained in section l(e) of the revision of Regulation Q , effective
January 1, 1936.
Inclosed with your letter was a specimen of the
Christmas Club book used by your bank and a specimen of the card on
which the bank keeps a record of the deposits made in such accounts.
The first paragraph of section l(e) of the recent revision
of Regulation Q states thut "the term 'savings deposit' means a deposit, evidenced by a pass book,
* ~r
1~
"
The last paragraph of sec-
tion l(e) of such regulation reads as follows:
"Every withdrawal made upon presentation of a
pass book shall be entered in the pass book at the
time of the withdrawal, and every other withdrawal
shall be entered in the pass book as soon as practicable after the withdrawal is made."
In view of the above provisions_, it is the opinion of the
Board that the term "pass book" as used in such definition means an account book in which
depo~its
and withdrawals are entered.
It appears that the Christmas CJ.ub book inclosed with your
45
X-9421
- 2 ...
letter is a book containin6 coupons Whl.ch o.re stamped "Paid 11 at the
time tho deposits are made ::,nd art: torn out by the bank and retained
for its records as evidenc..:; of each of th•3 50 weekly deposlts or "paymeuts" made by the depositor.
The book also contains a stub for each
coupon which is stamped to E:ho·w that a deposit has been made, such
stub being retained by the depositor.
It appears, however, that such
./
book contains no provision for entries of withdrawals and, accordingly,
it is the view of the Board that it. is not a "pass book" ·Ni thin the
meaning of such term as used in section l.(e) of Regulation Q.
Since
• the Chrtistmas Club book does not constitute a "pass book" within the
meaning of such section, the deposit is not a savings deposit even
though i t may have some of the other characteristics of a savings deposit.
However, as indicated in footnote 2 of the recent r·evision of
Regulation Q, such a Christmas Club account may constitute a time deposit, open account if it meets the other requirements of the definition conudned in section l(d) of such regulation.
If you hc;,ve any further question regarding th.Ls matter or
any similar matter, it wi1.l be appreciat(:;d if you will communicate
with the Federal Reserve B~nk of ------------------' which will be
glad to answer your inquiries.
Very truly yours,
Chester Morrill,
Secretary.
4-6
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESEf!VE BOARD
X-9422
January 9, 1956.
Dear Sir:
There are enclosed herewith copies of
statement rendered by the Bureau of Engraving
and Printing, covering the cost of preparing
Federal reserve notes for the month of December,
1955.
Very truly yours,
0. E. Foulk,
Fiscal Agent.
Enclosure.
TO ALL F. R. AGENTS.
X-9422-a
Statement of Bureau of Engraving and Printing
for furnishing Federal Reserve Notes
December 1 to 51, 1956.
Series 1954
$5
$10
$20
$50
15,000
$1000
~5000
Total
Sheets
$",100
$500
12,000
7,000
1,500
750
100
50
226,400
~;19,470.40
16,000
11,000
2,150
1,800
250
100
81,300
6, 991.80
156,250
15,457.50
219,900
18,911.40
$10000
Amount
Boston, •••••••••• 144,000
16,000
New York, ••••••••
so,ooo
Philadelphia, •••• 100,000
16,000
20,000
12,000
6,000
1,500
750
Cleveland, ••••••• 158,000
25,000
56,000
14,000
7,000
850
850
•••••••• 107,000
15,000
51,000
10,000
s,ooo
168,000
14,448.00
Atlanta, ••••••••• 100,000
70,000
40,000
n,ooo
S,OCJO
226,000
19,456.00
Chicago, •••••••••
84,000
50,000
84,000
14,000
7,000
259,000
20,554.00
St. Louis, •••••••
44,000
50,000
20,000
10,000
4,000
128,000
11,008.00
Minneapolis, •••••
56,000
10,000
15,000
7,000
2,000
70,000
6,020.00
Kansas City, ••••• 118,000
20,000
20,000
10,000
5,000
175,000
14,878.00
Dallas, •••••••••• 102,000
89,000
41,000
8,ooo
4,000
244,000
20,984.00
59,000
14,000
6,000
288,000
24,768.00
t1111000
158!000
59!000
~chmond,
San Francisco, ••• 209,000
Total •••••••• 12182!000
4091000
6!000
41150
100
450
100
250 2,219!850 $190,907.10
2,219,.850 sheets,@ $86.00 per M, ••••••••• $190,907.10
~
~
..
48
FEDERAL RESERVE BOARD
X-9425.
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
January 11, 1956.
Dear Sir:
There are inclosed herewith six copies of a tentative draft
of Regulation U -- Loans by Banks for the Purpose of Purchasing or
Carrying Equity Securities Hegistered on n National Securities
Ex~
change -- including ns a foreworc1 an explanatory statement to accompany the tentative draft.
Additi0nal copies arc being sent under
separate cover.
This tentative :"lraft is under consideraticn by the Boc.rd}
but before taking action the Boar(1 is submitting it for criticisms
and suggestions.
It will be appreci[lted, therefore, if you and the
officers and counsel of your
ban1~
will study this draft and forward
your comments anc suggesti,)ns thereon as promptly as may be possible.
In addition, please submit copies of
the~
tentative draft and the
explanatory statement to such member and nonmember banks, represent['<ti ves of securities exchanges, etc., as you may consider a.<!visable,
and obtain from them suggestions anc? criticisms in writing, the origi...:.
nals thereof to
b~3
forwarded to the Board as soon as received.
All comments anc: suggestions should be forwr..rrJed to the
Boar':1 within thirty do:ys after the date of this letter.
.........
4-9
-
X-9425
2 -
You will note that section 4 of the tentative draft provides
that the maximum loan values of registered equity securities, for the
purposes of the regulation,
sha~l
be such as the Board may prescribe
from time to time in supplements to the regulation.
Two alternative
drafts of such a supplement are attached to the regulation.
One of
these includes the statutory requirements that were adopted in Regulation T for brokers and dealers.
In the other, the method of determin-
ing margin requirements differs from that in Regulation T.
It is the
present intention of the Board, in the event that a different method
is prescribed for banks when Regulation U is issued, to modify Regulation T so as to bring the method of determining margin requirements
for brokers and dealers into conformity with that for banks.
Attention is called, however, to the fact that the Board has
authority to change
margi~
requirements from time to time, and the in-
elusion of the figures in the tentative supplement to Regulation U
based upon the statutory formula is not to be taken as indicating that
the Board has undertaken to decide at this time what margin requirements
will be included in the regulation when it shall be finally approved
promulgated.
Very truly yours,
Chester Morrill,
Secretary.
TO ALL FEDERAL RESERVE AGENTS.
a~
50
January 10, 1936
(Tentative draft of regulation prepared at direction
of Board of Governors of the Federal ~eserve System
but not yet acted upon by the Board of Governors.)
BOARD OF GOVERlWRS
OF THE FEDERAL RESERVE SYSTEU
LO.ANS BY BA."'rKS
FOR THE PURPOSE OF PURCHASING OR CARRYING
EQ.UITY SECURITIES REGISTERED O::!T A NATIOKA!.. SECURITIES
REGULATION U
EXCHA.~GE
51
(Reverse side of cover page)
INQUIRIES REG.ARDETG THIS R3iGUL.ATI ON
Any inquiry relating to this regulation should be addressed to the Federal Reserve bank of the district in which
the inquiry arises.
''I
52
EXPLANATORY ST.ATE:1E~·JT TO ACCOMP».TY TENT~!iTIVE DRAFT OF REGULATION U
The T'ri:nary purpoae of Re~:;uletion U, of which a tentative ('!'aft is attached, is to prevent circu:.wontion of the objects of Regulation T by borrowing fro:n banks for the purpose of purchasing or carrying stocks on ter:·,s more
favorable tha:c1 those prescribed for security loans by brokers
~me.
dealers.
Borrm·ring fro"' ba."1ks for any pur-vose except the purchasing or carrying
of registered equity securities-- i.e., ic1 ge:1eral, listed stocks-- ls not
subjected to !':'largin re0uire·"1el1ts prescribed in this regulation.
General
bcmkine pre1ctices with respect to loans for industrial, ac;ricultural, a::1d
co":'l::ercial purposes would not be
affecte~.•
recardless of whether these
loans are secured or unsecured, and 'if securec'l., reo:;ardloss of the character of the collateral.
The regulation does not a.'l:?lY to a"ly of a ba:1kr s loa.1s, no Y!!atter for
what purpose, to a borrower none of whose loa;.'ls with the bank are secured by
an equity security registered on a national securities excha:c'1ge.
In case· the collateral for a loan includes registered equi t~r securities,
the loan will be subject to the
re('~ulation
U:'lless the loan is not for the
purpose of purchasing or carrying such securities,
A. bank which wishes to
establish the fact that such a loa:n is not subject to the regulPtion, ::1ay do
so by obtaining
a'1
a}nr•',:n·in.te stater1ent fron the borro•7er.
Loans :"lade for the pur:)ose of purchasing or
not re.e:istered gp_
Nothin,~
Q;
:.1ational_ securities
in the regulation
~·rould
exch~m.::;e
carryin,~
securities that are
are exe:"lpt fro·,., the regulation.
require the liquidation of any
lo~:m
made
before the effective date, or any loan, whene'ITcr r!adc, by reason of a decline
in the narket velue of the collatergl.
53
Explanatory Statement--page 2
Margin requirements to be prescribed :from· time to time by the 'Board
will be promulgated by issuing supplements to this regulation.
of such a supplement are attached to the regulation.
Two
sa~ples
one of these includes
the requirements that were adopted in Regulation T for brokers and dealers.
In the other, the method of d.etermining margi:1 requirements differs from
that in Regulation T.
It is the prese•1t intention of the 'Board., in the
event that this different method is prescribed for banks when Regulation
U is approved and issued, to modify Regulation T s• as to bring the method
of determining margin requirements for brokers and dealers into
with that for banks.
confo~ity
54
CONTENTS
Sec. 1. Scope and effective date of regulation ••••...••••• 1
Sec. 2, Definitions ........................... ~ ...... ., ... • 2
Sec.
3. Reaulated loans and exempted loans
(a) Regulated loans •.••••.••••..•..•. · •. •. • • • 3
(b) Exempted loans •••••••••••••••••.••. • .• · •• 3
Sec.
re~lated loans
(a) Conditions for making re:;u.lated loans ••••
(b) Definition of maximum lo;:m value • • • . . • • • •
(c) Maximum loan value of reF!;istered eaui t~r
securities when re~ypothecated ••··•··•·••
(d) Current market price •• , . . . • . . . . . . . . . . . • • .
(e) Lowest market price ......................
4. Makine of
Sec. 5. Maintenance of rer;ulated loans
(a) Liquidation not required •••.....•.....•••
(b) Definition of required collateral •••.••••
(c) Changes in required collateral ••••..•.•..
(d) Time allowed for changing collateral •• , ••
(e) Securities involved in reorganization ••••
6
6
7
8
9
11
ll
11
12
13
Sec. 6. Loans made before effective date ••••.•........••.• 14
Sec. 7• Miscellaneous provisions
(a) Imposition of additional requirements
(b)
{c)
(d)
(e)
by b a.""lks • • • • • • . • • • • • • • • • • • • • • • • • • • • • • • • • •
15
Renewals and extensions •••..............•
Interest, service charges, etc •••......••
Innocent mistakes ••.....•••••.•.•.....••.
Transactions outside United States ••....•
15
15
15
16
Sec. 8, Violations of this regulation •••••••••••••••••.••• 16
Appendix
(Provisions of Securities Excha~)..e:e Act) •••. , •• 17
Su·:m1emen ts. Haximum loal.l._Y.alues of ro2;i stored ~guity
securities for nurposes of R~~1ation U
55
(Tentative Draft of Re~alation PreEared at Direction
of Board of Governors of the Federal Reserve System
but Not Yet Acted Upon by the Board of Governors.)
REGULATION U
LO.A.~S BY BANKS
FOR THE PURPOSE OF PURCHASIXG OR CARRYING
EQUITY SEC'"URITIES REGISTERED ON A ~ATION.AL SECURITIES EXCEA.JGE
SECTIQ?.T 1.
SCOPE A'J:l
EFFECTI~TE
This regulation is issued
pursua~t
DATE OF P..EGULATIO:T
to
authorit~
contained in
the Securities Exchfu"l::.,e Act of 1934, particularly sub section (d)
of section
7 thereof, to prevent the excessive use of credit for
the purchasing or carr;ring of or trading in securities in circumvention of the other provisions of tl1at section.
It a;Jplies only
to banks; a'1d it relates only to loa"ls for the purpose of purchasinG or
car~ring
equity securities registered on a national securi-
ties exchange.
This regulation shall become effective on
, 1936.
56
- 2SECTION 2.
DEFINITIONS
For the purposes of this regule.tion, unless the context otherwise
requires, the following terms shall have the meanings respectively
assigned to them.
(a)
chasell,
The terms "person", "member", "brokeru, "dealer",
11~11
1
"~"
1
11~ 11
,
"..mg:-
"security", "equity security", "exempted secur+t:r",
and "bank'1 shall have the meanings given them in section 3(a) of the
Securities Exchange .Act of
1934
(printed i:!'l. the appendix of this regula-
tion) except that the term "~" shall not include any member of a
national securities exchange.
(b)
The t_erm "registered egui ty securitytr means an equity security
(other than an exempted security) which--
(1)
Is registered on a r~tional securities excrUlnge:
(2)
In consequence of its having unlisted trading privi-
or
leges on a national securities exchunge, must, under the
provisions of section l2(f) of the Securities :Exchange .Act
of
1934,
be considered a "security registered on a national
securities exchange".
(c)
The terms
11 rep1lated
loaQ" and "exempted loan11 shall have the
meanings given them in section 3 of this regulation; the
ter~s
llmaximu11
loan value 11 , "current market price", and "lowest market price" shall
have the meanings given thom in sectiOl1
4 of this ret:;.llation: and the
term "required collateral" shall have the :r::eardng given it in section
of this regulation.
5
57
- 3SECTION
3.
REGULATED LO.A1·1S .A:'JD EXFl'PTED LOAl\JS
(a) Ref;Ulated loans. - The ter"T.
11 re~.llc?.ter.
loan" means a discount, ad-
v:mce, overdraft or other loa..11 for any of the follo,dng 1)U!"l)Oses, except
that it shall not include any exer:J'9ted loan:
(1) The
~urpose
of purchasing a registered equity security
from or through a broker or dealer who is a member of a national
securities exchange or who tra."lsacts a business in securities
through the mediu--n of any such
~mber;
(2) The purpose of reducing or retiring any indebtedness
which was originally incurred for the purpose of so purchasing a registered equity security and which is secured by a
registered equity security so purchased;
(3) In the case of a loan to a broker or dealer, the
purpose of enabling the borrower to make or maintain loans
to his customers for any of the purposes specified above.
(b) Exe::wted loans. - The ter"n
11 exe'11ptod
loan" means any loan described
below:
( 1) .AAy loan to any t.Jerson so lonf as neither that loan
nor any of the bankl s
secured 1n a:ny
WE>.Y
outst.?:J.~ing
loans to that :?erson is
by any registered equity security;
(2) Any loan (even though secured by a registered. equity
security) which is not for a.11y of the purposes specified in subsection (a) of this section; and, a1though the exemption of a
loan under this provision does not :1ecessaril:r require the obtaining of a state"!lent from the borrower as to the purpose of
the loan, a ba.11k T!l/3Y treat a
loa~1
as not being for any of the
purposes specifietl in subsection (a) if it obtains and accepts in
58
- 4good faith either (A) •
atater~ent
signed by the borrower
to the effect that he is not a broker or dealer in securities and that the loa.n is not for the purpose of purchasing
any securities or retiring or reducing
a1~
indebtedness in-
curred for tl~ purpose of purchasing securities, or (B)
a statement signed by the borrower otherwise showing that
the loan is not for
a~v
of the purposes specified 'in sub-
section (a);
(3)
Any .loan secured exclusi vel~r by exempted securi-
ties (whether registered or unregistered) and/or nonequity
securities (whether registered or unregistered);
(4)
Any loan to a banlc;
(5)
Any
loa~·.
to a dealer, or to two or more dealers
acti:::J.g jointly, to aid in the financing of the distribution of securities to customers not tilrough the medium of
a r..atiorlal securities exchange;
(6)
.A.ny discount of, or advance against, a draft with
securities attac:1ed which is payable on presentation in the
ordir..ary course of busir.ess;
(7) A..l1.Y te:1porary advance to finance the purchase of a
security in connection with which the banlc, as agent of the
purchaser, accepts delivery of and pays for the security
under an agreement, made in good faith and not to evade or
circumvent the provisions of this reglllation, that the lending ba.nlc is to be repaid the full amount of the advance in
cash promptly upon completion of the purchase;
59
- 5(8) .A.ny loan which is maintained for only a fraction of a calendar day;
(9)
~
loan made in exceptional circumstances, in
good faith and not for the purpose of evading or circumventing the provisions of this regM!ation. to meet the
emergency needs of a broker or dealer who is a member
of a national securities
exc~1ge
or who has filed with
the lending bank his written statement that he transacts
a business in securities through the medium of any such
member: Provided, That any bank maldng any such loan
shall, within three
~s,
mal'-e a concise written report
of all material facts relative thereto to the Federal
Reserve agent of the district in which the principal office of the bank is located.
60
- 6SECT ION
(a)
4. V.AKING OF REGULATED LOANS
Conditions for making regulated loans. - Every bank shall
comply with the following requirements in making or increasing any
regulated loan:
(1)
doc~nent,
The loan shall be represented by a note,
or entry which does not represent either
in whole or in part any exempted loan; and
(2)
The bank's total outstanding regulated
loans (including the current loan or increase) to
the same person made on or after the effective date
of this regulation shall be secured by exempted
securities, nonequity securities, and/or registered
equity securities which have a maximum loan value at
least as great as the
a~ount
of the total of such
regulated loans.
(b)
Maximum loan value. - The term "maximu.tn loan value" when
used with rezpect to any item of collateral securing a regulated loan
means the maxi:nu.m regulated loan which a ban};:: may, under the provisions
of this regulation, maJ:e on such item of collateral; and, in the case of
collateral consisting of more than one item, the maximu."ll loan value is the
su.'11 of the maximum loan values of the various items of the collateral.
The follo,ving items shall have the following ma:d1'll\lre loan values:
61
- 7(l)
than
a~
The maximum loan value of everything other
exempted
secu~ity,
a nonequity security, or
a registered equity security, shall be nothing;
(2)
The maximum loa:1 value of an e:cempted
security or a nonequity secUl·ity shall be not more
tha::.
ti~e C'\~rent
(3)
market price of the security;
The maximum loan value of a registered
equity security shall be the ma:;cimux:1 loan value
which the Board of Governors of the Federal Reserve
Systc::1 shall preocribe from time to time ir. supplenents to this regulation, wl1ich will be issued in
advance of the date upon wllich such maxi'!1Um loan
value becomes effective.
(c)
S:geciJ11 ma:d::ru..T. .l2..Qd1 ~for rehy:gothecated securitieg, -
Subject to the conditions specified in this subsection, registered
equity securities which are relwpothecated by a broker or dealer shall
have such special maximum loan value or values as tl:e Board of Governors
of the Federal Reserve Syste;J: shall prescribe from tL::e to time in
supplements to t:;is regulation, which '17ill be issued in advance of
the date on w;.1ich such maximum loa::1 values bec:.J:ne effective,
In
order that registved equity securities ma;:r :b..-:we the special maximuT.
loa~
value or values prescribed purcua:::.t to
t~1ir,
s-u.bsect ion:
62
- 8 ..
(1)
The securities shall secure a regulated
loan to a broker or dealer who is a member of a
national secarities exchange or who has filed with
the lending bank his \-rritten statement that he transacts a business in securities througl1 the medium of
any such member; and
(2)
The broker or dealer must be carrying such
securities for the account of customers; and a bank
may treat such
se~~rities
as being carried for the
account of customers if it obtains and accepts in good
faith a written statement signed by the broJ.:er or dealer
to the effect that they are being so ca..rried.
(d)
Current Market Price. - For the purposes of this regulation
and any supplements thereto, the current market price of a security
may at the option of the bank be considered to be either
t~e
closing
bid price or the closing sale price of the security on any national
securities exchange on the preceding business
~~y:
Provided, That,
in the absence of such a closing sale price, the bank shall have the
further option of using tlwprice at which the last recorded sale of
the security during the currer:.t or preceding caler:.dar month was made
on a national securities exchange: Provided, further, That, if none
of the prices described above is available, the bank may use any
reasonable estimate of the market value of the security.
In ascertaining the foregoing prices, a
bar~
may rely upon any
regularly published reporting or quotation service used by the bank,
including any newspaper or financial publication carrying market reports with respect to an exchange on which the security is registered,
63
- 9In the case of a loan made at the time a security is purchased, or in connection with the purchase of a security to be substituted for collateral previously pledged, the price at which
such security is pu.rchased may be considered by the bo.nk, at its
option, to be the current market price for the purpose of such
transaction.
(e) Lowest ma.rl-:et price. - For the purpose of this regulation
and
~ supple~ents
thereto, the lowest market price of a registered
equity security during a specified period means the lowest price at
which that security has sold during that period on the national
securities exchanges on wl1ich it is or has been registered (ineluding any sales made on such exchanges during the part of the
specified period which preceded thei.r respective registrations as
national securities exchanges under the. Securities Exchange Act of
1934): Provided, That, if the security is a stock upon which there
has been any stoc]:;: dividend a:nounting to more than 10 percent in
any one calendar year, or any reduction or increase in the
~~ber
of shares by calling in the outstanding shares and issuing in substitution therefor a smaller or larger number of shares, or any other
change accomplishing substantially the same result as any such reduction or increase,
a~
prices
~stablished
before that dividend or
change in number of shares or other change shall be adjusted
therefor.
64
- 10 -
A bank using a figure published as such
lowe~t
market price
in any record published or approved by any national securities
exchange mayrely on that figure for the purposes of this regulation.
65
- 11 -
SECTIOH
(a)
5· M.A.IlJTEHA.NCE OF REGULATED LOANS
Liauidation nQi required. - In maintainil1g any regulated
loan, every ba1ik shall comply with the requirements of this section
witt. respect to the withdrawal and substitution of collateral; but
any loan made before the effective date of this regulation or made
in conformity with the requirements of this regulation may be ma.intai:J.ed regardless of changes in mark.)t prices, and nothing in this
regulation sball be construed as requirir.g any bank to reduce any
loan, obtain additional collateral for any loan, or sell any
collateral securing any loan, solely because of changes in market
prices.
(b)
Reqyired collateral. - The term "required collateral"
means an exempted security, a rlonequity secu.ri ty, or a registered
equity security, which secures a regulated loan made on or after the
effective date of this regulation because:
(1)
undel~
It was required for the making of the loan
section 4 of this regulation; or
( 2)
It was req11ired in order to make a cr..ange
in the collateral for that loan ·under the following
subsections of this section.
(c)
Changes in required collateral. - No ba.'11c shall maintain
a regulated loan and at the same time permit the withdrawal of any
required collateral,
~~less--
66
- 12 -
(1)
.After the wi thdra1,73.l the bar~k' s total out-
staLding regulated 10L1r.s to the sar.1e person made on
or after the effective date of tnis regulation are secured by exempted securities, nonequity securities,
and/ or registered equity securities, he..ving a maximum
loan value at least
of
regc~lated
(2)
.::l.S
great
.::l.S
the aznour.t of such total
loans; or
The total amount of such outstanding regulated
loans to such person is reduced, or other exempted securities, nonequity securities, or registered equity securities
are substituted to secure such loans, or both, to such
an extent tl1at
(.A)
the maximu<n loon value of the
securities substituted, plus the amount of
reduction in the regulated loans, is at least
as great as the oaximum loan value of the securities withdrawn, and
(B)
the curre1J.t l!".ar~.:et price of t:c~e securi-
ties substituted, plus the amount of reduction
in the regulated loans, is at least as great as
the cur:r-ent narket price of t1w securities withdr<:mn,
(d)
Time r..llowed
12.!: changing c:::lllaterp,J., ... In order to comply
with the requirements of subsection (c) of tl1is section with respect to·
changes in required collateral, the necessm-y substitution of securities
'"
67
- 13 and/ or reduction in the reg'J.lated loans slw.ll be made on the same
day as the withdrawal of required collateral, except that in the
case of a substitution involving either
(1)
the sale of required
collateral and the purchase a:1d deposit of other collateral to
secure the loan, or (2) the purchase and deposit of other collateral
to secure the loan and the sale of required collateral 1 the bank
may 1 i f boti1 the contract of purchase and contract of sale are made
within a period of two successive business
da~rs,
allow such time for
mal:ing deliveries and otherwise completing the substitution as may
be reasonably necessary.
(e)
Securities involved in reorganization. - Notwithstanding
the foregoing provisions of this section, a barut may permit the withdrawal of any security involved in a reorganization of the issuer of
that security when such withdrawal is reasonably necessary to facilitate
such reorganization:
Provided, That all cash, exempted securities,
nonequity securities, and registered equity securities received, under
the ter:ns of the reorgan.ization, in exchange for the security withdrawn
under this provision, shall promptly be
ap~lied
or substituted for the security withdrawn.
on the regulated loans
68
- 14SECTIOlf 6.
.,
LOANS MA.DE BEFORE EFFECT~VE DA1'E
Nothing in this regulation shall be construed as requiring a balik to obtain the repa.:.'r.1ent or reduction of, or the pledge of additional collateral
for, any loan
w~ich
was made before the effective date of this regulation or
with respect to any renewal or extension of maturity of any such loan:
~.
Pro-
That, notwithstanding any other provision of this regulation:
(1) All
exe~pted
sec-urities, nonequity securities, and
r~gis
tered equity securities securing any regulated loan or group of
regulated loans at the opening of business on the effective date of
this regulation, and all securities thereafter substituted therefor
pursuant to the requirements of this section, shall be identified
·by the ba::lc and shall be treated for the purposes of t11is regulation as if they secured only that loan or group of loans;
(2)
No such identified collateral sltall be taken into account
in deternining whether or not any regulated loan made after the effective date of this regulation is secured in
terns of
(3)
tl~is
!~o
made except
tion
5
co~pliance
with the
regulation; and
withdrat7nl of any such identified collateral shall be
u.~der
the
sa~e
terms and conditions as apply under sec-
of this regulation to a
withdra~al
of required collateral se-
C'Ill'ing a regulated loan made after the effective date of this regulation.
A ba11k may obtain and rely upon a statement signed by the borrower
respecting the purpose for whicr. a loan made before the effective date of
this regulation was obtained, in the
s&~e
manner and with the same effect
as provided by section 3(b) of this regulation for loans made on or after
such effective date.
69
- 15 -
SECTION 7.
(a)
Imposition
2£.
MISCELL;JJEOUS PROVISIONS
additional requiremt7mts
£I. banks. - Nothing
in this regulation shall be construed as restricting the right of any
bank to rec1uirc &.dditional collateral at th;.1 tiroo of, or subsequent
to, the making of any loan, or as restricting the right of any bank to
refuse to make or maintain a loun.
(b)
RenewaJ:§_ ~ extensions. - A renewed or an extension of the
maturity of a loan neod not be treated as the making of a new loan if
the amount of the loan is not
increc>.S(~d
except c;.s permi ttcd in subsection
(c) of this section; :)ut any other incre;_,se in the amount of a loan shall,
to the cxtGnt of tho ineret;.so, be treated as the: making of a loan.
(c)
Intercdt,
.0~!.£.£.
charges, etc. - Nothing in this regulation
shall be construed a.s preventing the addition to a regulated loan of
interest on the loan, sales or tr;.msfer taxes on
tran~>&ctions
ln connection
with the loan, service charges imprJsed by the bank in connection with the
loan or any incidental expenditure made by the bank for its own protection,
regardless of the amount of the loan or the collateral which secures the loan.
(d)
Innocent mistakes. - No innocent mistake made in good faith in
executing a tl:·c.nsaction, recording, detol'mining, or calculating any loan,
me.rket price, loan value, or othor administrc..tive adjustment or detail,
shall be deemed to be a violation of this regulation if the mistake be
corrected as promptly as possible upon its discovGry.
70
- 16 -
(o)
Transactions outside the United States. - The provisions of
this regulation shall not cpply to E.ny transE:ction which is effected
outside the Stctes of the United St<lte8 and the District of Columbia
and is not for the purpose of evading or circumventing the provisions
of this r;gulation.
SECTION 8.
VIOLATI01{5 OF T'.diS REGULATION
Violations of this regulation are subject to the provisions
of section 29 and 32 of the Securities Exchange Act of 1934,
which are printed on p.-:tges _ __ and ___ of the Appendix
to this rebulation.
- 17APPENDIX
There are printed below certain provisions of the Securities Exchange
Act of
1934
which are pertinent to the subject matter of this regulation:
SEC. 3.(a)
* * *
(3) The term "member" when used with respect to an
exchange mear.s a~y person who is permitted either to effect
transactions on the exch£u~e without the services of another
person acti~g as broker, or to make use of the facilities of
an exchange for transactions thereon without payment of a
commission or fee or with the payment of a commission or fee
\7hich is less than that charged the general public, and includes any firm transacting a business as broker or dealer
of \7hich a member is a partner, a:1d any partner of any such
firm.
(4) The term "broker" means acy person engaged in the
business of effecting transactions in se~~rities for the account of others, but does not include a bar..k.
(5) The term "dealer" means any perso::1 engaged in the
business of bu;;ring and selling securities for his 0'.7n account,
through a broker or other\7ise, but does not include a bank,
or any person insofar as he buys or sells securities for his
own account, either individually or in some fiduciary capacity,
but not as a part of a regular business.
(6) The term "bo.::k11 means (A) a ba::lld:~: institution
organized ~~der the laws of the United States, (E) a member
ba1ik of the Federal Reserve System, (C) any other barJdng institution, r:hether incorporated or not, d.oir.g business under
the laws of any State or of the U~1ited States, a substa:1tial
portion of the business of \7hich consists of receiving deposits
or exercising fiduciary p0\7ers similar to tl1ose per;~i tted to
national ba:1ks under sectio;·~ 11 (k) of the Federal Reserve .A.ct,
as amended, and which is supervised and exrunined by State or
Federal authority having supervision over b~:iks, and which is
not operated for the purpose of evadi:~ the provisions of this
title, and (D) a receiver, conservator, or other liquidating
agent of a~y institution or firm included in clauses (A), (E),
or (C) of this paragraph.
(9) 'rhe term "person" means an individual, a corporation, a partnership, an association, a joint~stock company,
a business trust, or an unincorporated orga~1ization.
(10) The term "security" means any note, stock,
treasury stock, bond, debenture, certificate of interest or
participation in any profit-sharing agree,nent or in any oil,
gas, or other mineral royalty or lease, any collateral-trust
certificate, preorganization certificate or subscription,
transferable share, investment contract, voting-trust certificate, certificate of deposit, for a security, or in general,
any instruznent commonly known as a "securit:ir"; or any
72
- 18 -
I
..
•.
certificate of interest or participation in, temporary or interim
certificate for, receipt for, O:;t wa!"rant or right to subscrib•
to or purchase, any of the foregoing; but shall not include currency or any note, draft, bill of exchange, or baclcer 1 s acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal
thereof the maturity of which is likewise li~ited.
(11) The term "equity security" means any stock or similar security; or ar~ security convertible, with or without consideration, into such a security, or carrying any warrant or
right to subscribe to or purchase such a security; or any such
warrant or right; or any other security which the Commission
shall deem to be of similar natu.re and consider necessary or
appropriate, by such rules and regulations as it may prescribe
in the public interest or for the protection of investors, to
treat as an equity security.
(12) The term 11 exe:npted security" or "exempted securities" shall include securities which are direct obligations of
or obligations guaranteed as to principal or interest by the
United States; such securities issued or guaranteed by corporations in ~hich the United States l1as a direct or indirect interest as shall be designated for exemption by the Secretary
of the Treasury as necessary or appropriate in the public interest or for the protection of investors; securities which
are direct obligations of or obligations guaranteed as to
principal or interest by a State or any political subdivision
thereof or any agency or instr~entality of a State or any
political subdivision thereof or any mU11icipal corporate instrumentality of one or more States; and such other securities
("7hich may include, among others, unregistered securities, the
market in \7hich is predominantly intrastate) as the Commission
may, by such rules and regulations as it deems necessary or
appropriate in the public interest or for the protection of
investors, either unconditionally or upon specified terms and
conditions or for stated periods, exempt from the operation of
any one or more provisions of this title which by their terms
do not apply to an "exempted security" or to "exempted securities."
(13) The terms 11 buy" and "purchase" each include acy
contract to buy, purchase, or otr.eruise acquire.
(14) The terms 11 sale" and "sell 11 each include any contract to sell or othen7ise dispose of.
SEC. 3. (b) The Co~~ission and the Federal Reserve Board, as
to matters r:ithin their respective jurisdictions, shall have
power by rules and regulations to define technical, trade, and
accounting terms used in this title insofar as such definitions
are not inconsistent with the provisions of this title.
- 19SEC. 7. (a) For the purpose of preventing the excessive
use of credit for the purchase or carrying of securities, the
Federal Reserve ~oard shall, prior to the effective date of
this section and f~om time to time thereafter, prescribe rules
and regulations with respect to the amount of credit that may
be initially extended and sUbsequently maintained on any seM
curity (other than an exempted security) registered on a national securities exchange, 1or the initial extension of credit,
such rules and regulations shall be based upon the following standards: An amount not greater than whichever is the higher of-(1) 55 per centum of the current marke~ price
of the security, or
.,
(2) 100 per centu~ of the lowe~t market price of
the security during the preceding thirty-six calendar
months, but not more than 75 per centum of the current
market priee,
Such rules and regulations may make appropriate provision with
respect to the carrying of undermargined accounts for limited
periods and under specified conditions; the withdrawal of funds
or securities; the substitution or additional purchases of securities; the transfer of accoun~s from one lender to another;
special or different margin requirements for delayed deliveries,
short sales, arbitrage transactions, and securities to which
paragraph (2) of this subsection does not apply; the bases and
the methods to be used in calculating loans, and mar gina and market prices; and similar administrative adjustments and details,
For the parposes of paragraPh (2) of this subsection, until July l,
1936, the lowest price at which a security has sold on or after
July 1, 1933, sl~ll be considered as the lowest price at which
such security has sold during the preceding thirty-six calendar
months.
(b) Notwithstanding the provisions of subsection (a) of this
section, the Federal Reserve Boord, may, from time to time, with
respect to all or specified securities or tra~sactions, or classes
of securities, or classes of transactions, by such rules and regulations (1) prescribe such lower margin requirementsfor the initial
extension or maintenance of credit as it deems necessary or appropriate for the accommodation of commerce a~d industry, having due
re~d to the general crGdit situation of the country, and (2) prescribe such higher margi~ requirements for the initial extension or
maintenance of credit as it may deem necessary or apPropriate to
prevent the excessive use of credit to finance transactions in
securities.
(c) It shall be u.'"lla:V~ful for any member of a national securities
exchange or any broker or dealer who transacts a business in securities through the medium of any ~ch member, directly or indirectly
to extend or maintain credit or arrange for the extension or maintenance of credit to or for any customer-(1) On any security (other than an exempted security) registered on a national securitieg exch:;;.ng@, in contravention of the
rules and regulations which the Federal Reserve ~oard shall prescribe u.!der subsections (a) and (b) of this section,
?3
74
- 20-
(2) Without collateral or on ar~ collateral other than
exempted securities and/or securities registered upon a national
securities exchange, e::cept in accorcbnce \71th such rules and
regulations as the Federal Reserve Board may prescribe (A) to
permit u•1der specified conditions and for a lit1i ted period any
such member, broker, or dealer to t1ab.tain a credit initially
extended i:. confor::Jity rli th the rules and regulations of the
Federal Raserve Board, and (B) to permit the exte~sion or maintenance of credit in cases \'there tlle extension or l!lD.intenn:·lce of
credit is not for the purpose of purchasing or carrying securities or of evading or circur::ventir'.g tile provisions of paragraph
(l) of this cuboection.
(d) It sl1all be u.'1lawful for any person not subject to subsection (c) to exte::J.d or IT'..ni:.:-~tain credit or to arrange for the
extensio:1 or rr.aintenance of credit for the purpose of purc:1asing
or carrying D.r;y security registered on a nn.tio:nal securities
exchange, i:t. contravention of nuc:1 rules and regulations as the
Federal Reserve Board s:hall prescribe to prevent the excessive
use of credit for the p1rrchasing or carrying of or trading in
securities in circumvention of the ot1-~er provisions of this section. Such rules and regule1.tions may iopose upon all loans made
for the purpose of purchasing or carrying secuiities registered
on 11.ationnl securities exchanges limitations sir::ilar to those
imposed upon members, br'Jkers, or dealel S by subsection (c) of
this s.:;ction and tl1.:: rul..:Js a:'!.d rogulations t:1orcunder. This
subsection and th0 rules and regulr,tions tl1oreu.nder s~w.ll not
apply (A) to a loan made by a person not in tho ordi:~ry course
of his business, (::S) to a loan on a:;1 exempted security, (C) to
a loan to a dealer to aid in t~1e finv.r-"ci>1g of the distribution
of securities to custor.:1ers ;.1ot through the ocdiur: of a nrttio;.1al
securities e:-:char.ge, (D) to a loo.•1 by a ba.:;.1k ::>:1 a security other
than an equity security, or (E) to such otJ:1er lonns as the Federal
Reserve Boo.rd sr.all, by such rules and regul:.:ttions as it r:ny deen
neccssarJ or apllropriate in t:-.i.e public i::.terest or for the protection of inventors, exempt, either u:1c;:;aditi·:J:1<:1.lly or upon specified
terr.:1s and co::di tions or for stated periods, fron: the operation of
this subsectio:1 and t:1e rulas and. regtJ.lations tl:ere-..:Lnder.
(e) Tl:e provisio:1s of t::is section or t~w l-,1les a::.d regu.l12tions
there;.lndor s1m.ll ::1ot apply on or bef.ore July 1, 193 7, to ru.1:; loa:1
or extensio~:. of cradit na.de prior t J t:1e e'1act::".e::t of t:11s title
or to t:1e ;nc..L:..te:.1:::.;<ce, rNJ.ewal, Qr extension of o.ny sue}-.;. loan or
credit , except t :;~ the ext e:1t t:1.:-~.t the Feder:.:.l :de serve 3oc..rd i"Jc'lY
by rules and regulations prescribe as :·wcessary to preve1~t the circu~::ve:ltion of the provisio:1s of Lis sectio:: or the rules and regulations thereu:1dcr b~r l!'.eans of ili thd.rnwals of fuD.cls or securities,
substitutions of securities, or adLUtio::-nl purchases or by any
other d.evice.
1
SEC. 8 It shall be u:1lm;fd for a~~,. ner.'lber of a !1."-.tioilB.l
securities e;:c::nnge, or ar.;J br·)ker or c.lenl0r >tho transacts a
business in sec1Jri tias thr:mg::. the mecliur:; of a::.y such ne::foer,
directly or indirectly-
75
- 21-
(a) To borrow in the ordinary course of business as a broker
or dealer on any security (other than an exempted security)
registered on a natiorMal securities exchange except (1) from or
through a member bank of the Federal Reserve System, (2) from
any nonmember baru~ which shall have filed with the Federal Reserve Board an agreement, which is still in force and which is
in the form prescribed by the Board, undertaldng to comply with
all provisions of this Act, the Federal Reserve Act, as amended,
and the Banking Act of 1933, which are applicable to member banks
and which relate to the use of credit to finance transactions in
securities, and with such rules and regulations aa may be prescribed lYUrsuant to such provisions of law or for the purpose of
preventing evasi~ns thereof, or (3) in accordance with such rules
and regulations as the Federal Reserve Board may prescribe to
permit loans between 3UCll m~mbers and/or brokers and/or dealers,
or to per;:·,it loans to meet emergency needs, Any such agreement
filed with the Federal Reserve Board shall be subject to termination at any time by order of the Board, after appropriate notice
and opportunity for hearing, because of any failure by such bank
to comply with the provisions thereof or with such provisions of
law or rules or regulations; and, for a:Jy willful violation of
such agreement, such bank s!mll be subject to the penalties provided for violations of rules and regulations prescribed under
this title, The provisions of sections 21 and 25 of this title
shall apply in the case of ~~ such proceeding or order of the
Federal Reserve Board in the same manner as such provisions apply
in the case of proceedings and orders of the Commission.
... ... ... ... ...
(c) In contravention of such rules and regulations as the Commission shall prescribe for the protection of investors to hypothecate
or arrange for the ~ypothecation of any securities carried for the
account of any custo~er under circumstances (1) that will permit
the commingling of his securities without his written consent with
the securities of any other customer, {2) that will permit such
securities to be CO'"!L':lingled with the securities of any person other
than a bona fide customer, or (3) that will pennit such securities
to be hypothecated, or subjected to any lien or claim of the pledgee,
for a sum in excess of the aggregate indebte~~ess of such customers
in respect of such securities.
(d) To lend or arra11ge for the lending of IDlY securities carried
for the account of any customer without the written consent of such
customer,
- 22SEC. 17. (b) .A.ey broker, dealer, or other perso~l extending
credit who is subject to the rules and re~Jlationo prescribed
by the Federal Reserve Board pursuant to this title sl1all make
such reports to the Board as it may require as necessary or ap.
propriate to enable it to perform the functions conferred upon
it by this title. If a~ such broker, dealer, or other person
shall fail to make any such report or fail to furnish full information therein, or, if in the judgment of the Board it is
otherwise necessary, such broker, dealer, or other person. shall
permit such inspections to be made by the Board with respect
to the business operations of such broker, dealer, or other
person as the Board may deem necessary to enable it to obtain
the required information.
SEC. 23. (a) The Co~~ission and the Federal Reserve Board
shall each have power to ma,:;;e such rulea and regulations as may
be necessary for the execution of the functions vested in them
by this title, and may for such purpose classify issuers, securities, exchanges, and other persons or matters within their
respective jurisdictions.
SEC. 29. (a) Ar~ condition, stipulation, or provision binding any person to waive compliance with any provision of this
title or of any rule or regulation thereunder, or of any rule
of an exchange required thereby shall be void.
(b) Every contract made in violation of any provision of
this title or of any rule or regulation thereunder, and every
contract (including any contract for listing a security on an
exchcnge) heretofore or hereafter made the performance of which
involves the violation ot, or the continuance of any relationship or practice in violation of, an.y provision of this title
or any rule or regu.lD,tion therounder, shall be void (1) as
regards the rights of anJ person who, in violation of a~ such
provision, rule, or regulntion, shall hD.ve ronde or engaged in
the performance of rozy such contract, ru1.d ( 2) ns regards the
rights of any person who, not being a party to such contract,
shall hnve acquired a-:1y right thereunder with actual knowledge
of the facts by reasOl'l. of which the mal::ing or performance of
such contrnct was in violc.tion of any such provisio::J., rule or
regule.t iol'l.
(c) Nothing in tl1is title shall be construed (1) to affect
the validity of an~r loan or extension of credit (or any extension or renewal thereof) made or of an;;; lien created prior or
subsequent to the enact~ent of this title, m1less at the time
of the making of such loan or e:x:toncion of credit (or extension
or renewal thereof) or the creating of such lien, the person
making such loan or e:ctension of credit (or ext ens ion or renewal
thereof) or acquiring sue~ lien shall have actual l<nowledge of
facts by reason of \7hich the mnking of such loan or extension
of credit (or extension :Jr renewal thereof) or the acquisition
of such lien is a violation of the provisions of this title or
any rule or regulation thereunder, or (2) to afford c. defense
76
- 23 ...
to the collection of any debt or obligation or the enforcement
of any lien by any pers~n t7ho shall have acquired such debt,
obligation, or lien in good faith for value and without actual
knowledge of the violation of any provision of this title or
any rule or regulation thereunder affecting the 1 egalit~r of
such debt, obligation, or lien,
SEC. 32. Any person who willfully violates any provision
of this title, or e.ny rule or regulation thereunder the violation of ·j1hich is made unlawful or the observance .)f which is
required under the terms of this title, or any person who
willfully and knowingly makes, or causes to be made, any statement in any application, report, or document required to be
filed under this title or any rule or regulation thereunder,
which statement '\7as false or misleading rlith respect to any
material fact, sl1all upon conviction be fined not more than
$10,000, or impris:med ~1ot more than tuo years, or both, except
that t7hen such person is a::-. exchange, a fine not exceeding
$500,000 may be imposed; but no person shall be subject to
imprisonnent under tl1is section for tlw vhlation of any rule
or regulatio:::J. i f he proves that he had no knoY:ledge of such
rule or regulation.
78
SUPPL:lil1!ENT TO pGULATI ON '[
ISSUED BY THE BOAR:> OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Effective
Maxir:m1;~
loan values of registered egui ty securities for
"Ourp~ of Regulation '[
Pursuant to the provisions of section
of
' 1936
7
of the Securities
Exch&~ge
Act
1934 and section 4 of its Regulation U, the Board. of Governors of the
Federal Reserve
Syste~
hereby prescribes the following
of registered equity securities for loans regulated
~axi~~
loan values
~,dcr Re,~lation
U:
{ 1) General ~ r~P,arc.ing maximuTrt loan values. - Except as -provided
in para.graph (2) of this supl?lel':lent, the "llaximu'"!l loan value of a registered equity security securing a regulated
lo~n
shall be whichever is
the higher of:
(A) 55 percent of the current market price of the
sccuri ty; ' r
(B) 100 percent of the lewest market price of the
fJecuri tt durin~ the period of 36 calendar months i.mr:-:ediatoly
prior to the first day of the current ~onth, but not more
thEm 75 parcent of tl1e current market :price: Provided, That
until July 1, 1936, for the purpose of this r~~lllation, the
lowest price at ~hich a security has sold on or after July 1,
1933, but prior to the first day of the current month, shall
be considered as the lowest market price of such security
during the preceding 36 calendar months: and Provided, That
the lowest r:~arket price which could be used under the provisions of this re,;ulation during any calendar month may be
used during the first 7 calendar d?.ys of the succeecing
calendar month.
( 2) Special maxim::1 .1.Q.crl velue for rehy-,>Othecated securities. - The
maxi~um
loan value of a re[·;istered equity security which is ref\.ypothecated
by a broker or dealer s-u.bject to the conc.itions specified in subsection
(c) of section
4 of Regulation V, shall be ___ percent of the current
market price of the security.
79
SU?PLEMEUT TO
REGULATI01~
'[
ISSU3:D 3Y 'l'HE :SOARD OF GOVERNORS OF T'HE FEDERAL RESERV8 SYST::!:M
Effective
' 1936
M.:tx.irum loan. values of registered equi t;:r securi tieo for
purposes .2.[ Reg!lb.tion 1I
Ptu·su;mt to the provisions of r.ection 7 of tl:1e Securities
Exc~:::tnge
Act
of 19:34 ancl section 4 of its Regulation U, the :Board. of Governors of the
Fec~erc:.l Re~erve
System
l1ereb~r
prescribes the follovrL1g maxinn:l!!l lo.-w.'l values
of registered equi t~r securities for loans reguln.ted under Re:;ulation U:
(1) General
~ rognrdi;lb_ r~1a.xinum ~ values. - Except as 1')rovided
in -parasTaph (2) of thil'! SU1')Dleraent, the maxir:mm loa,.'l value of
cquit:r securit;r securing n regulated loan
sh~.ll
be
est m.:trl-::et "!)rice of the securitv during the period of
.'l
registered
percent of the lowca.lendar months
i"-1me<'!.iatel;· "r)rior to the first cla;· of the current rnonth: Pro_vided, Tb..ctt the
T:lc".r~-:et
low.sst
nrice rrhich could be usocl.. under t:1is nrovinion during
calenclar rr.onth ma;:r :1lso be used during the first seven calendar
~my
da~rs
of
tile su.cceed.ing cal e~v1ar month.
( 2) Sr.:>ed~al mnxirrg£ lo:-t.'l value for reh'I'\)Othec:t.ted securities. The :':ulxili.1U:., lo'l...'l value of r:. registered equi t:r securi t:r which is
catec"..
b~i
rel:~rpothe-
a broker or de;\.ler subject to the conditions specified in sub-
sectio;~
(c) of sectio!1 4 of Ro§:Uleltion U, sh:-).11 be _percent of the
curre~1 t
1:nrket uri co of the 3ecuri ty.
80
X-9424
INTERPRETATION
BANKING ACT OF 1935
(Copies to be sent to all Federal Reserve banks)
January 10, 1936.
Mr. F. G. Awalt,
Deputy Comptroller of the Currency,
Washington, D. C.
Dear Mr. Awalt:
This refers to your letter of December 18, 1935, inclosing
a list of questions relating to the revision of Regulation Q, effecttive January l, 1936.
The Board understands that this list of ques-
tions was submitted to you by Mr. ---------------' Vice President of
the ___ National Bank, -----------------' and, in accordance with
the suggestion which you made over the telephone to a member of the
Board's staff, a copy of this letter
ha~
been sent to Mr.
You ask whether accounts in the following names may be continued as savings deposits:
"Richard Roc by John Doe"; "John Doe and
Richard Doe"; "John Doo, Trustee"; "John Doe, Attorney"; "John Doe,
Executor or Administrator of i\ichard Roe's Estate"; "John Doe, Trustee,
Equity Cause No.
"; "John Doc, Committee for _____ (Insaoo)n;
"---' Trustee"; " - - - ' Executor"; " - - - ' Receiver"; " - - - - - Guardian"; "--' Administrator"; and "----' Agent."
Assuming that such deposits comply with all of the other requirements of the definition of savings deposits contair1ed in section
l(e) of the revised Regulation Q, such deoosits would be savings deposits if the beneficial interest therein were held by one or more
81
X-9424
-2-
individuals or by a corporation, association or other organization operated primarily for religious, philanthropic, charitable, educational,
fraternal or other similar purposes and not operated for profit.
It
is the duty of a member bank to ascertain the facts with regard to the
beneficiaries of such accounts and to classify as savings deposits
only tho accounts in which tho beneficial interest is held by one or
more individuals or by an organization of tho type described above.
You present the question whether deposits of the following
organizations may be classified as savings deposits: building and
loan associations; mutual fire and life insurance companies; Federal
credit unions; and national trade associations,
sue~
as the United
States Chamber of Commerce and National Lime Association.
In the
opinion of the Board, deposits of such organizations may not be considered as savings deposits within the
tained in section l(e) of Regulation c2.
I~teaning
of the definition con-
It is tho view of the Board
that such organizations are not operated primarily for religious,
philanthropic, charitable, educational, fraternal or other similar
purposes, and, therefore, deposits maintained by them may not be
classified as savings deposits.
You also ask whethor deposits of social clubs may be classified as savings deposits.
The term "social clubs" is so general
that it is impossible to make a ruling applicable to all such clubs.
However, it is believed that small social clubs such as college
fraternities and sororities may be considered as
org~nizations
oporated
82
X-9424
-3-
primarily for fraternal purposes and not operated for profit and,
accordingly, deposits of such orgnnizatior1s may be classified as
savings deposits if they meet the other requirements of the definition.
In the opinion of the Board, an account in the name of a
parent as trustee or agent for a child may be classified as a savings
deposit if it meets the other requirements contained in section l(e)
of Regulation Q.
You also ask whether deposits of "publications of non-profit
organizations" may be classified as savings deposits.
If such non-
profit organizations are operated primarily for religious, philanthropic, charitable, educational, fraternal or other similar purposes,
and, if the publications of such organizations are issued only as an
incident to the fulfillment of thGir purposes and not for profit,
deposits af.such publications may be classified as savings deposits if
such deposits meet tho other requirements of the definition.
In the opinion of the Board, foreign government accounts and
the accounts of their ombcssies or leg<:..tions, and quasi-government accounts, such as deposits of .Philippine funds a11d Shipping Board funds,
may not be classified as savings deposits because such organizations are
not operated primarily for the purposes stated in section l(e) of Regulation Q.
The Board is unable to oxpross an opinion at this time with
regard to a deposit of the Pan-American Union since it does not have before it
necess~1ry
inf-;rmation relating to such organization.
83
-4-
X-9424
You also present several questions regarding the inte!pretation of the definition 0f interest contained in section l(f) of the
revised Regulation Q.
In view of the fact that the Board has deferred
the date upon which such definition of interest becomes effective,
pending action by the Federal Deposit Insurance Corporation on its regulations relating to the payment of interest on deposits tv insured
nonmember banks, it is not believed advisable to attempt to answer
such questions at this time.
You ask to be advised as to the penalties, if any, under Regulation Q.
Although no specific penalties are provided for violations
of such regulation, your attention is invited t0 the provisions
relat~
ing to fvrfeiture of the charters of national banks and forfeiture of.
membership in the Federal Reserve System of State member banks.
In.
addition to such provisions, section 30 of the Banking Act of 1953
pro~
vides that the Board may remove directors and officers of member banks
for continued violations of law or for continued uns1::cf'o or unsound
practices in conducting the business of suer. banks.
Very truly yours,
.:·•
d)
t.iJ.gno
Chaster Morrill
'
Chester Morrill,
Secretary.
84
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEOERAL. RESE-RVE BOARD
X-9425
January 11, 1936.
SUBJECT:
Code Word Covering New
Issue of Treasury Bills.
Dear Sir:
In connection with telegraphic transactions in Government securities between Federal
reserve banks, the following code word has been
designated to cover a new issue of Treasury Bills:
11
NOYGOT 11
-
Treasury Bills to be dated
January 15, 1936, and to mature October 14, 1956.
This word should be inserted in the Fedoral Reserve Telegraph Code book, following the
supplemental code word "NOYGLE" on page 172 •
. Very truly yours,
~
'J. c. No011,
Assistant Secretary.
TO GOVERNORS OF ALL F. R. BANKS
85
X-9426
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Statement for the Press
For release in morning newspapers
of Sunday, January 12, 1936.
January
11,1936~
In accordance with previous practice, a tentative draft of Regulation
U, relating to loans by banks for the purpose of purchasing or carrying
equity securities registered on a national securities exchange, has been
transmitted to the Federal reserve banks.
In an explanatory letter of transmittal to all Federal Reserve Agents,
the Board of Governors stated:
"This tentative draft is under consideration by the Board, but
before taking action the Board is submitting it for criticisms and
suggestions.
It will be appreciated, therefore, if you and the of-
fleers and counsel of your bank will study this draft and forward
your comments and suggestions thereon as promptly as may be possible.
In addition, please submit copies of the tentative druft and the explanatory stateJnent to such member and nonmember banks, representatives of securities exchanges, etc., as you may consider advisable,
and obtain from them suggestions and criticisms in writing, the
originals thereof to be forwarded to the Board as soon as received.
"All comments and suggestions should be forwarded to the Board
within thirty days after the date of this letter.
86
X-9426
- 2 -
"You will note that section 4 of the tentative draft provides
that the maximum loan values of registered equity securities, for
the purposes of the regulation, shall be such as the Board may prescribe from time to time in supplements to the regulation.
Two
alternative drafts of such a supplement are attached to the regulation.
One of these includes the statutory requirements that were
adopted in Regulation T for brokers and dealers.
In the other, the
method of determining margin requirements differs from that in Regulation T.
It is the present intention of the Board, in the event
that a different method is prescribed for banks when Regulation U is
issued, to modify Regulation T so as to bring the method of determining
margin requirements for brokers and dealers into conformity with that
for banks.
"Attention is called, however, to the fact that the Board has
authority to change margin requirements from time to time, and the
inclusion of the figures in the tentative supplement to Regulation U
based upon the statutory formula is not to be taken as indicating that
the Board has undertaken to decide at this time what margin requirements
will be included in the regulation when it shall bo finally approved and
promulgated."
87
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-9427
January 15, 1956.
Dear Sir:
There is attached, for your information,
a copy of a letter being forwarded today to the
Secretary of the Federal Reserve Bank of San Francisco with
reg~rd
to the establishment by the bank
of rates of discount every fourteen days pursuant
to the requirement of section 14(d) of the Federal
Reserve Act, as amondod by the Banking Act of 1955.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO CHAIRMEN OF ALL F. R. BANKS.
88
QQ.EX
X-9427-a
January 13, 1936
s. G. Sargent, Secretary,
Federal Reserve Bank of San Francisco,
San Francisco, California.
Mr.
Dear Mr. Sargent:
Under date of December 12, 1935, you advised the Board of
Governors that the Federal Reserve Bank of San Francisco had on that
date established without change the rates of discount and purchase
in your existing schedule.
In your telegram of December 26 you stated
that due to the lack of a quorum the meeting of your board of directors
had been postponed until the next day, and in your telegram of December 27 you advised that the bank had on that date established without
change the rates of discount and purchase in your existing schedule.
The rates established on December 12 und on December 27 respectively
were subsequently approved by the Board of Governors.
In this connection, the Board of Governors desires to invite
attention to the requirement of section 14(d) of the Federal Reserve
Act, as amended by the Banking Act of 1935, that each Federal Reserve
bank shall establish rates of discount every fourteen days, or oftener
if deemed necessary by the Board of Governors.
This requirement of
the law is definite and positive and a failure on the part of any
Federal Reserve bank to establish rates of discount at least once in
every fourteen day period is a failure to comply with the terms of
89
Mr. S. G. Sargent -2
X-9427-a
the statute, regardless of the reason occasioning the delay•
The
Board of Governors feels that all possible steps should be taken b,y
the Federal Reserve Bank to insure action upon discount rates within the period required by the statuto and urges tlli•t all
dir~ctors
and officers of the bank cooperate in such errangemonts as may be
necessary to accomplish this end.
It is requested that this letter be brought to the attention of the officers of your bank and be read at the next meeting
of your board of directors.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
•
90
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESEftVE BOARD
X-9428
J anua.ry 13, 19 36 •
CONFIDENTIAL
Subject:
Stolen Bonds.
Dear Sir:
Therd is attached for your confidential use a copy of a
letter dated January 7, 1956; from Mr. J. Edaar Hoover, Director,
eral Bureau of Investigation,
u. s.
Fe~
Department of Justice, to Mr. Paul-
ger, Chief of tho Board's Division of Examinations, together with a
copy of the list o£ the stolen bonds referred to in Mr. Hoover's letter.
You are
re~ested
to bring this information to the attention
of the appropriate officers and employees of your bank and branches,
if any, who may be in a position to detect the stolen notes or bonds
should they be offered to or come into the possession of the Federal
Reserve Bank.
You are also requested to notify the Director of the
Federal Bureau of Investigation,
ton, D.
c.,
u. s.
Department of Justice, Washing-
or the nearest local office of that organization at once by
telegraph or telephone should
a~
of the securities be presented for
payment or should you obtain any other information regarding them.
Very truly yours,
Chester Morrill,
Secretary.
InclQsures.
TO ALL GOVERNORS.
91
c
0 p
y
X-9428-a
John Edgar Hoover
Director
FEDERAL BUREAU OF INVESTIGATION
u. s.
Department of Justice
Washington, D.
c.
Januar"'J 7, 1956,
Mr. Leo Paulger,
Chief Examiner,
Federal Reserve Board,
Shoreham Building,
15th and H Streets, N. W.,
Washington, D. c.
Dear Mr. Paulger:
An investigation has been initiated under the National
Stolen Property Act by the Federal Bureau of Investigation as to
the theft and transportation on December 13, 1954 from the offices
of the United States Trust Company of New York, of u. S. Treasury
Notes, totaling $590,000.00 par value.
A similar investigation has been initiated as to the
theft on January 28, 1955 of u. s. Treasury Notes and Bonds,
totaling $1,45l,OOO.OO from the Bank of Manhattan Company, New
York City.
I attach hereto separate lists which fu..">"!lish you with
the proper description of the Treasury Notes and Bonds in question.
You will note that of these securities, 17 pieces are $10o,ooo.oo
u. s. Treasury Notes totaling $1,700,000.00. Of these $100,000.00
pieces, 8 are due on April 15, 1956 and will undoubtedly be passed
on or before that date.
You are urgently requested to forward EUl appropriate
notification to each of the Federal Reserve Banks and Branches
throughout the United States, with instructions that should any of
these notes be presented for payment, the Director of the Federal
Bureau of Investigation, u. S. Department of Justice, Washington,
D. c., or the nearest local office of this organization, be notified
at once by telegram or long distance telephone collect.
Sincerely yours,
(signed) J. Edgar Hoover
http://fraser.stlouisfed.org/
Incl. 867387
Federal Reserve Bank of St. Louis
John Edgar Hoover,
Director.
92
c
0
p y
X-9428-b
STOLEN FROM THE UNITED STATES TRUST COMPANY
OF NEW YORK CITY, DECEMBER 13, 1934
$590;000 par value, of United States Treasury 2 7/8% Notes, due
June 15, 1938, with December 15, 1934 and all subsequent coupons
attached, such coupons being due December 15th and June 15th,
respectively, in five pieces of $100,000 each and nine pieces of
$10,000 each were stolen on December 15, 1934 from the offices of
the United States Trust Company of New York, 45 Wall Street, New
York. The numbers of the $100,000 pieces are as follows:
No.
No.
No.
No.
No.
.•
1402
9607
9608
9609
9610
The numbers of the $10,000 p:iecas arc as follows:
No. 57004
No. 38019
No. 38020
No. 38022
No. 38044
No. 38045
No. 38055
No. 38054
No. 58055
Notify J. Edgar Hoover, Director, Federal Bureau of·
Investigation, U. s. Department of Justice, Washington, D.c.
93
c
0
p y
X-9428-c
STOLEN FROM THE BANK OF MANHATTAN COMPANY,
NEW YORK CITY ON JANUARY 28, 1935.
Eight $100,000 United States Treasury
Notes, 2 7/8%, due April 15, 1936,
Nos. 157H, 158J, 41040, 6935E,
8589K, 10012B, 10015C and 100701.
Five $10,000 United States Treasury
Notes, 2 1/8%, due June 15, 1959,
Nos. 46598, 46599, 46400, 46401,
and 46402.
Two $100,000 United States Treasur,y
Notes, 2-!%, due December 15, 1956,
Nos. 5612B and 5615C.
Nineteen $5,000, United States Treasury Notes, 2 7/8%, due April 15,
1956, Nos. 2887H, 2888J, 5227H, 5252B,
54001, 56640, 5665E, 5789K, 57901,
6575C, 6687H, 7012B, 7041A, 7042B,
70450, 7067H, 7645C, 8022B and 8161A.
Two $100,000, United States Treasury
Notes, 2 1/8% due JUne 15, 1959,
Nos. 14619 and 14620.
·
Five $10,000 United States Treasury
Notes, ~1% due December 15, 1956,
Nos. 18915C, 189140, l8915E,
18916F and l8917H.
One $1,000 Foprth United States Liberty Loan Bond, 4i% (called), No.
G02546787.
Five $10,000 United States Tre~sury
Notes, 2 7/8%, due April 15, 1956,
Nos. 195E, 21951A, 21956F, 21957H,
and 219601.
Five $1,000 National Public Service
5% Bonds, due February 1, 1978,
Nos. M2050, M8959, M8940, Ml2191,
and Ml5020.
Notify J. Edgar Hoover, Director, Federal Bureau of
Investigation, u. S, Department of Justice, Washington, D. C.
94
INTERPRETATION
BM~KING
X-9429
ACT OF 1935
(Copies to be sent to all Federal Reserve banks)
January 11, 1956
----:-::---~----= Cashier,
____ National Bank and Trust Company of _____ ,
_____ ------,
Dear Sir:
This refers to your letter dated December 26, 1935, regarding the interpretation of certain provisions of R.::gula.tion Q, as
revised effective January 1, 1956•
It is understood that several of your depositors which are
business corporations carry interest accounts and you wish to be advised whether, under the supplement to Rt:Jgula tion ;,, you will be allowed to issue a certificate of
de~'osi t
having a maturity at least
6 months after tho dato of duposit and continue to pay interest thereon
at your present rate of
2t
per cent.
A time certificate of deposit
which complies with tho definition contnined in section l(c) of Rogulation
(.,!
and which hes a maturity date 6 months or more after the date
of deposit or is payable upon written notice of 6 months or more may
bear interest at a rate not r:;xcooding 2~- per cent per annum.
You olso state that under your present arrangement no interest
is paid on
~~ny
savings account unless the same :1as b00n on deposit 6
months or loni:er and thc:.t 30 days' notice is required for withdrawr:.l.
It is understood that ;vou wish to be ::tdvisod whether you may continue
to usc pass books with r. six months 1 vli thdrmval provision to evidence
95
-.2-
..
X-9429
the accounts of business corporations.
The Board sees no objec-
tion to the use of a pass book to evidence n "time deposit, open
account" of a business corporation or other depositor and, if such
deposit complies with the definition contained in section l(d) of
Regulation Q, the bank may pHy interest thereon at a rate not excecding the applicable maximum rate proscribed for time deposits in
the supplement to Regulation Q.
Such a deposit of a business corporation could not, of
course, be classified as a savings deposit even though a pn.ss book
wore used in connection therewith, and the bank could not pay
2!
per
cent interest ther8on unless the written contract betvmen the bank
and the depositor, which might be stated in tho pass book or elsewhere,
provided that neither the whole nor
withdrawn except upon
If
y:)U
any
part ·')f' such dcposi t could bo
n0ticc of not less than 6 months.
writt~n
havo any further questions with regard to this mat-
ter or any similar matter, it will be approci:;.tcd if you will communicate with tho FGderal Reserve Bank o f - - - - - - ' which will be glad
to answer your inquiries.
Vory truly yours,
(Signed)
Chester Morrill
Chester i1Iorrill,
Sccr0tary.
'
'
.
96
X-9450
INTERPRETATION
BANKING ACT OF
193~
(Copies to be sent to all F'cderal Reserve banks)
January 11, 1936.
Mr. F. G. Awalt,
Deputy Comptroller of the Currency,
Washington, D. C.
Dear Mr. Av:a1t:
This refers to your memorandum of January 10, 1936, transmitting an.inquiry from Mr. - - - - - - - - ' attorney-at-law,
- - - - - - ' with respect to
of ___ ,
[~
___,
question raised by the Nationc.l Bc.nk
------------------' involving an interpretation of sec-
tion 22(g) of the Federal Reserve lict.
It appears that the National Bulk of ____ holds the joint
note of Mr. and Mrs. --~-----for the original amount of $7,000
but which hns been reduced to upproximC<toly $6,500.
The loan was mc::.ci.c
and the note executed during the year 1935 ctt a time when Mr.
v:as not an executive officer of the bank.
It appears that the bo.:-.rd
of directors of the bank novr have under considero.tion the matter of
appointing Mr. ___ as an executive officer of the bank and the question arises
~:.s
to v:hether the o.ppointment of Mr.
---
as an ex.;:cutivo
officer of the b:.'1nk in view of the facts above would constitute a viola ...
tion of the provisions of section 22(g) of the Feder~ll Reserve Act.
The applicable provision of section 22(g) is as follows:
"No executive officer of any member bank shall
borrow from or otherwise become indebted to any member b[tnk of which he is an executive officer, and no
'
97
.
X-9430
-2-
mombor bank shall make any loan or extend credit
in any other mc.nner to c_ny of its own executive
officers * * * . "
It is apparent. that tho provision quoted above refers to
an executive officer of a member bank who is an executive officer
thereof at the time he borrows from or otherwise becomes indebted
to tho member bank.
Therefore, when a loan is made in good faith by
a member bank to an individual who is not at that time an executive
officer thereof and the loan is net made in contemplation of his becoming an executive officer of the baruc, there is nothing in the
statute which would prohibit such person from becoming an executive
officer of such baruc.
However, there may be circumstances in a par-
ticular case which would involve an attempted evasion of the provision
of law, and the above ruling, of course, is not applicable to a case
where an attempted evasion might be involved.
While the facts con-
tained in the inquiry are not entirely clear, it does not appear that
the loan in question was made with a view of evading the provisions
of law in question.
In the circumste.nces, tho
Bor~rd
is of the opinion th.:1t in
the event Mr. _____ is elected as an executive officer of the bank,
the extension of credit in question will not constitute a violation
of the provisions of section 22(g).
Very truly yours,
(Signed)
Chester IV!orrill
Chester Morrill,
Secretary.
98
X-9451
INTERP~~TATION
BANKING ACT OF 1935
(Copies to be sent to all Federal reserve banks)
January 6, 1956.
Mr. Eugene M. Stevens,
Federal Reserve Agent,
Federal Reserve Bank of Chicago,
Chicago, Illinois.
Dear Mr. Stevens:
This refers to your letter of December 10, 1955, inclosing a
copy of a letter from t h e - - - - - National Bank of_......____ ,
It appears that one of the directors of that bank, as
provided in its by-laws, is required to serve as vice president; that
the officer in question serves entirely without compensation, and is
entirely inactlve in the management of the bank, except as a director.
You point out that this case is indicative of the various difficulties which some of the banks are going to have in complying with the
Board's Regulation 0 if inactive vice presidents are included within
the definition as contained in subsection (b) of section 1 of the
On the basis of the tentative draft of Regulation 0 which was
forwarded to the Federal Reserve banks for suggestions and criticisms,
the Board received a number of suggestions to the effect that inactive officers of member banks not be considered executive officers
thereof for the purposes of section 22(g) of the Federal Reserve Act.
At the time of its finul action in promulgating Regulation 0, the
99
X-9431
-2-
Board discussed these suggestions and gave careful consideration to
the question whether it should exempt all :i.nactive officers from its
definition of the term
11
executivu officer".
However, since Congress
made no distinction in section 22(g) b.:;tween active and inactive officers, the Board did not feel that it should exclude inactive or
honorary executive officers in defining the term "executive officer"
pursuant to the authority vested in the Board by the law.
Further-
more, a vice president of a member bank, although actua.lly inactive
in the management of the bank, nevertheless is in a position to exercise actively tho duties of his office should occasion arise.
The President of the
---------
National Bank of
---------- has
stated that, as directed by the office of the Comptroller of the Currency, the by-laws of the bank require that a vice president of the
bank shall be a member of the board of directors and that the vice
president in question consented to assume that office to meet the requirements of the by-laws.
In these circumstances, the bank may wish
to give consideration to whether it should take up with the office of
the Comptroller of the Currency the question whether there would be
any objection to eliminating from its by-laws the requirement that a
vice president of the bank shall be a member of the board of directors.
Very truly yours,
(Signed}
Chester Morrill
Chester Morrill,
Secrotary.
X-9452
100
BANKING ACT OF 1955
(Copies to be sent to all Federal reserve banks)
Januar,y 13, 1956
WOOD
ST. LOUIS
Re your letter January 2, 1936, regarding inquiry you have received from
Chief National Bank Examinor for your district relating to indebtedness
of a vice president of national bank.
Indebtedness which was incurred
prior to June 16, 1933, may be renewed or extended for periods expiring
not later than Juno 16, 1958, as provided in section 4 Board's Regulation
O.
Indebtedness which was incurred on May 25, 1935, does not fall within
scope of Board's Regulation 0 but is subject to penalties provided by
section 22(g) prior to Banking Act of 1955, and since a national bank is
involved it is suggested that jn replying to the inquiry of the Chief
National Bank Examiner for your district his attention be called particularly to this phase of the matter for such L"lction as he deems advisable.
Indebtedness which was incurred on October 12, 1955, falls within scope
of Board 1 s Regulation
active is immaterial.
o.
Fact that the vice president in question is in-
Question whether any proceedings should be insti-
tuted under section 50 of the Banking Act of 1953 on account of a violation of the provisions of section 22(g) as amended August 25, 1935, b,y
the Banking Act of 1935, involves the exercise of a reasonable discretion
in the particular case, but the Board believes that in any such case an
attempt should be made to obtain a correction of the violation as soon
as reasonably praeticable prior to the institution of any such proceedings.
(Signed)
Chester Morrill
Morrill.
X-9455
INTBRPRETATION
BJ~KING
ACT OF 1935
(Copies to be sent to all Federal reserve banks)
January 4, 1956.
Mr. ----~------~----~--' President,
_____ National Bank and Trust Company of _____
Dear Sir:
This refers to your letter of December 16, 1955, in which
you inquire whether the Secretary of the Board of Directors of
your bank is an executive officer within the meaning of that term
as defined in subsection (b) of section 1 of the Board's Regulat.ion 0.
You state that one of the directors of your bank has the
title of Secretary of the Board of Directors, that his functions
are those pertaining to the minutes of the meetings of the Board
of Directors, certification as to certain resolutions as passed
by the Board of Directors and that he acts strictly in these and
similar capacities, but is not in any sense activo in the managemont of the bank.
On the basis of these facts, the Board is of
the opinion that the director of your bank who is also Secretary
of the Board of Directors is not an executive officer within the
meaning of that term as defined in Regulation 0.
Very truly yours,
(Signed)
L. P. Bethea
L. P. Bethea,
Assistant Secretary.
101
FEDERAL
COPY
RESER~ !ANK .
102
O:F NEW YORK
January 6, 1956.
Sirs=
Your letter (X..9407) of December 27; 1935, was read to our
Board or Directors at its last meeting; and the action of the October
Governors Conference with respect to the
desirabili~
of holding the
meetingf of the boards of directors of the twelve Federal reserve
banks on the same day of the week was considered.
It was the opinion
of our directors that, if a satisfactory un$form meeting day can be
arranged, such an arrangement would promote the better operation.of
the Federal Reserve System, in view of the requirement of the Banking
Act of 1935 which involves the more frequent establishment than in the
past, at some of the Federal reserve banks, ot rates of discount and
. purchase, and in view, also, of the continuing desirability of deVising a schedule of .meetings or directors· or Federal reserve banks which
will not ordinarily conflict with meetings of the Federal Open Market
Committee and other System groups at Washington, D.
c.
The directors further expressed the view that, since a greater
number of beards et directors now meets on Thursday ·than on
rury
other
day, and since the board of directors of this bank is the only board
which meets every week,
-and
a
chang~
in its meeting day, therefore,
would involve proportionately greater changes in the personal arrangementa of the
.•
individual.direct~rs
than would a change at other Federal
reserve banks, it would be appropriate if Thursday could be selected
as the day upon which the boards of directors of the twelve Federal reserve banks should meet.
Respectfully,
(Signed} J. H. Ca..
J. H. CASE,
Chairman.
Board of Gover~ors
of the Federal Reserve System,
Washington, D. C,
c0
p
103
t
FEDERAL RESERVE BANK
X-9434-a
OF NEW YORK
December 28, 1935.
S i r s:
·In behalf of Mr. Case, I wish to acknowledge
receipt of your letter (X-9407) dated December 27, 1935,
concerning the possibility of arranging a uniform meeting date for the boards of directors of the several Federal reserve banks.
This matter will be brought to the
attention of the board of directors of this bank at its
next meeting.
Respectfully,
(Signed) ; ID·ali Sproul
.lll.aa Sproul,
Secretary.
Board of Governors ot tho
Federal Reserve System,
Washington, D, c.
·:104
COP!
•··
FEDERAL RESERVE BANK
OF PHILADELPHIA
X-9435
•
January
a,
1936.
Board of Governors of the
Federal Reserve S,stem,
Washington, D. c.
-·
Dear Sirs:
Your letter of Dicember 27th, X-9407, referring to the
action of the October Governors' Conference in voting on the desirability ot having the meetings of the boards of directors ot the
twelve Federal reserve banks held on the same day, and that the
Board of Governors of the Federal Reserve System be asked to arrange with the several Federal reserve banks for uniformity in this
regard, was referred to our board of directors.
The matter was fully discussed and our board would favor
holding the meetings on Wednesday or
board meetings'are held on
Thursd~.
Wednesd~s,
At present our
and I have never heard
a~
objection to that day. Our board in considering this letter only
considered the
~
of the week, we took it for granted that the
number of times during the month we met is a matter not under consideration.
Very truly yours,
(Signed) R. L. Austin
Chairman,
105
.,
COPY
FEDERAL RESERVE BANK
X-9436
OF RICHMOND
Jnnuary 10, 1956
Board of Governors of the
Federal Reserve System,
Washington, D. c.
Attention of Mr. Chester Morrill, Secretar,y
Gentlemen:
I wish to advise that at the regular meeting of
.our Board of Directors held yesterday there was read the
Board of Governors' "X" letter 9407, as forwarded us under
date of December 27, 1935, in connection with the adoption
of a uniform date for the holding of the meetings of the
boards ~f directors of the various Federal reserve banks.
Following a discussion of the subject the selection of a suitable date was considered, whereupon our
board voted unanimously in favor of the adoption of a uniform date, as per the enclosed copy ·Jf the moti?n as approved.
In connection with the pr~posnl of the second
Thursday in the month as the preferable date attention is
called to that portion of the motion which states the reasons which actuated our board in their selection.
Yours very truly,
(Signed)
George J. Soay
George J. Seay
Governor
Enclosure
..
I'
•
106
QQll
FEDERAL RESERVE BANK
X-9436-a
OF RICHMOND ·
Action of Directors at Meeting Held JaDU&l'f 9, 1936,
Subject "Desirability of UDi~ora Date for Meeting of
Boards of Directors of Federal Reserve Banks."
That this Board of Directors is in accord with the
suc1estion of the Governors' Conference that it is desirable that
meetings of the boards of directQrs of the twelve Federal reserr~
banks be held on the same date and that this board favors the
second Thursday of the month as the UDifo~ date. The reasons
tor this selection are summarized ae follows:
A greater number of the Federal reserve banks are
at present having the meetings of their directors on Thursday.
The second Thursday is preferable,. in that those
banks baring meetings twice a · mGnth ·could regularly meet on the
second and fo~ Thursdays, while the first Thursday would frequently be too early in the month to permit of the preparation of
the calendar monthly reports and there is not a fifth Thursday
in evory month.
·
**********
I hereb,y certify that the above is a true copy of a
motion adopted at tbe meeting of the Beard of Directors
of the Federal Reeerve Bank of Richmond held at Richmond on Thursday, January 9, 1936.
(Signed)
Geo. H. Keesee
Geo. H. Keesee
Secretary
10?
ObPt
FEDERAL
1\E$R\1E BANK
X-9437
OF ATLANTA
Januaey 11, 1936.
Mr. Chester Morrill, Secretary,
Board of Governors of the
Federal Reserve Sfstem,
Washington, D. c. ·
Dear Mr. Morrill:
At the regular Januaey meeting or the
directors ot this bank your letter ot December 27, .1935
(X-4907), was presented to the Board.
It was the consensus ot opinion that it
would be desirable that meetings of the Boards ot Directors ot the twelve Federal Reserve banks be held on
·the same day.
The.. Governor
ot this
bank was authorized
to confer with representatiTes of the other Federal Reserve banks and to formulate, it possible, a plan contemplating uniformity of meeting dates.
Very truly yours,
(Signed)
W.
H~
Kettig
W. H. Kettig,
Deputy Chairman of the Board.
108
COPY
X-9438
FEDERAL RESERVE BANK OF CHICAGO
January 10, 1956.
Board of Governors
of the Federal Reserve System
Washington, D. C.
Gentlemen:
I refer again to
qoncerning the question of
boards of directors of the
this for the consideration
your letter of December 27, 1955, X-9407,
uniformity as to the meeting day of the
several Federal Reserve banks. I presented
of our board today at its annual meeting.
As you are aware, our tull board meets once a month, on the
fourth Friday. In the interim, on each Friday our executive committee
meets.
While no formal action was taken at o'ltt" meeting today, an
expression was asked trom the individual members as to their preferences for a meeting day. It developed that all of the directors
present would prefer to continue the monthly meeting of the board
and the weekly meetings of the executive committee on Fridays. If
this were not acceptable to the rest of the Federal Reserve banks,
the next choice of the members of our board would be Thursday. ·A
number of the out-of-town members expressed themselves that earlier
in the week would be quite inconvenient for them.
If· it should be deemed advisable to have the full boards of
all the banks meet ·on the same day, I do not think it would make 1!11Ch
difference to our board members just which week of the month was chosen,
excepting in so far as it relates to the reports of operations of the
banks. The decided preference of our board members is for the meetings
to be held on Fridays.
I trust this will answer your inquiry.
Very truly yours,
(Signed) Eugene M. Stevens
Chairman of the Board
.....
....
109
X-9459
FEDERAL RESERVE BANK
OF
ST. LOUIS
January a, 1956 .
Board of Governors of the
Federal Reserve System,
Washington, D. c.
Attention Mr. Chester Morrill, Secretary.
Gentlemen:
.Your letter of December 27, 1955, X-9407, relative
to uniform dates for meetings of board o~ directors of Federal Reserve banks, wa·s considered at our directors' meeting on January 2.
If uniform dates are adopted, a majority of our
directors expressed a preference that board'meetings be held
on the first and third Fridays of each month.
Yours very truly,
(Signed)
Jno. S. Wood
Chairman of the Board.
110
'·
-COPY
X-9440
J;~ERAL ~ERVE BANK;.
OF
KANSAS CITY
January 11, 1936.
Board ot Gov~nors of the Feder&l Reserve System
Washington, D. C.
Gentlemen:
Attention of Mr. Chester Morrill
Secretaey
Board's letter:. X-940'7, dated December 2.7, 1935,
regarding the recomillendation of the Governors 1
conference that meetings of the Boards of Directors
of the twelve Federal Reserve banks be held on the
same day, was presented and discussed at the meeting of our directors held on January 9.
Thedirectors feel that there is some question
as to the practicability of arranging for meetings .
of all twelve boards on the same date, but expressed
a willingness to cooperate in this matter provided
the first meeting date in each month is not set so
close to the first of the month that the usual endof-month reports will not be available for consideration. The directors also expressed themselves as
preferring to continue their present practice of holding two meetings each month. Our by-laws at this time
provide tbat meetir.).gs shall be held on the first arid
third Tbursd'fS after the first Monday in each month.
Very truly yours,
(Signed)
A. M. McAdams
Secretary.
.111
COPY
X-9441
FEDERAL RESERVE BANK
OF DALLAS
January 10, 1936
Board of Governors of the
Federal Reserve System
Washington, D. C.
Gentlemen:
Reference is made to your letter X-9407 of December
27, 1935, in connection with the arrangement ft:tr uniformity
in the meeting days of the board or directors of the twelve
Federal reserve banks.
Your letter was carefully considered at the regular
meeting of our board of directors held Tuesday, January 7,
1936, and by reference to
~e
eighteen of the minutes cf the
meeting, a copy of which is today being sent you, the action
of our
direct~rs
will be noted.
It was the unanimous judgment of C'ur directors that
the proposed plan is advisable, and while Thursday of the week
would be preferable to our directors, we will of course fix
any day which may be agreed
up~n
by you after the other Fed'
eral reserve bariks have expressed their views.
Yours ·very truly,
(Signed) C. C. Walsh
Chairman of the Board
....
''
Jt2
,.
:X-9441-a
EXCERPT FROM MINUTES OF MEETING OF BOARD OF DIRECTORS OF FEDERAL
RESERVE BANK OF DALLAS, HELD JANUARY 7t~, 1956.
UNIFORMITY OF MEETING DAYS,
BOARDS OF DIRECTORS,
FEDERAL RESERVE BANKS:
There was presented letter X-9407 '.'f December 27, 1955, fr-,m
the Board ~f Governors 0f the Federal Reserve System on the subject nf uniformity in dates "f meetings of the boards ,f direct.,rs
of the twelve Federal Reserve Banks.
After discussicn, upon moti::-n •Jf Directt')r Harding, secc,nded
by Direct1.!r Mr:.rris, the Chairman was requested t., inf,.,rm the Bt')ard
of Governors of the Federal Reserve System that the directors of
this bank are in acc~rd with the views expressed in the letter referred t:'1 and i'av0r uniformity in the meeting days r·f the bon.rds of
directors of the Federal Reserve Banks; and that while Thursday
would be preferable to us, we woulc fix any day which might be
agreed up0n by the other Reserve banks and tho Beare of Gove~nors.
11_3
OOPt
X-9442
FEDERAL RESERVE BANK
OF BOSTON
January 11, 1936
Board of Governors of the Federal Reserve System
Washington, D. c.
Gentlemen:Reference is made to the Board's letter of December 27, 1935
(X9407) referring to the action of the Governors1 conference in October
with regard to meetings of the boards of directors of the Federal Reserve Banks being held on the same day; and inquiring as to the reaction of our directors to the sUggestion of a uniform meeting date.
This matter was discussed at our directors' meeting in June
last year, a short time after it was discussed at the Govemors' conference on May 27-28, and a short time afterwards we addressed a questionnaire to each of our directors asking for an expression of preference concerning days for directors' meetings.
The replies of individ-
ual directors at that time were unanimously in favor of having such
meetings on Wednesday and rather definitely eliminated most of the
other days of the week as convenient days.
At our directors' meeting on January 8, 1936, the Board's letter of December 27 was read and the subject was discussed aga.in.
Opin-
ions expressed favored the continuance of our practice of meeting every alternate Wednesday and it was pain ted out that our present schedule
of meetings makes it possible to
co~ply
with the provisions of Section
l4(d) of the Federal Reserve Act, as amended by the Banking Act of 1935,
requiring ea.ch Federal Reserve Bank to establish rates of discount
'J
1
•;,.·,
•
114
..
X-9442
Board of Governors of the Federal Reserve 8,ystem --2
January ll, 1958
every fourteen days or oftener if deemed necessary by the Board, inasmuch as our directors meet once every fourteen days and
our
Executive
Committee has the power, under the b,y-laws, to make changes in the
discount ru tes.
It was also pointed out at our directors' meeting that the
suggestion looking to a uniform meeting day ns originally made in
order to minimize, so far as possible, conflict with meetings of the
Federal Open Market Committee, but, that since the coramittee is to
be reconstituted effective March 1, 1958, there is no longer so much
occasion for uniformity in meeting days. Our directors recognized
the fo.ct that there may be some general advantages in having a uniform
meeting day for the. boards of directors ·.of aU· the Federal Reserve
Banks but it did not sed to them that such advantages were sufficient
at the present time to offset.the i,ncantrenience involved in changing
our long established 4ate, particularly as the power possessed by
our Executive Committee makes it possible to obtain prompt action
upon any matter for which it is not feasible to call a meeting of our
full board of directors.
Respectfully yours,
(Signed)
Chairman
'·
Frederic H. Curtiss
115
'·
..
copy·
FEDERAL RESERVE
~
OF CLEVELAND
January 14, 1936.
Board of Governors of the
Federal Reserve 8,ystem,
Washington, D. c.
Gentlemen:
Our Board of Directors, at its meeting on Jan-
uary 10, 1936, gave careful consideration to letter X-9407,
dated Dec8lllber 27, 1935, subject: Un1f0rmit;y of Federal Reserve Bank Meeting Dates.
(,
It was voted to be tho sense of our Board that
meetings of the Boards of Directors of the Federal reserve
banks should be held every 28 days beginning friday, Febru·ary 7, 1936; and tha-t meeti:a.gs of the Executive Committees
should be held every 14 ·days beginning With that date, in
order to comply with the statutoey requirement that each Federal reserve bank shall establish rates of discount ever.r
· 14 days, or oftener, if deemed necessary -by the Board of
Governors of the -Federal Reserve S)rstem. It should be noted
that the effective dq~ and date, synchronize with the Act
of August .23, l9S5, amending the Federal Reserve Act.
Yours very truly
(Signed) H. F. Strater
Secretary
•.
116
FEDERAL RESERVE BOARD
'f'
X-9444
WASHINGTON
ADDRI!SS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
Je.nuary 16, 1956
..
Dear Sir:
In connection wi.th its studies on current and recent monetary
developments the Division of Research nnd Statistics is desirous
of obtaining a classification of deposits for October 25, 1953 and
November 1, 1955.
Inclosed. is a list of the banks in your district
which have been selected for the p1rpose, together with the minimum
size deposit to be listed in each case.
It will be appreciated if
you will ask for their cooperation in supplying this information
nm
in this connection I am inclosing for your consideration a draft of
a letter to be sent to the selected banks.
Forms and·instructions
are also inclosed.
Two of the largest banks in the country have already made a
classification at our request and reported that it involved very
little labor.
In addition, representatives of eleven large banks
have expressed their willingness to cooperate.
It is not anticipated,
therefore, that you will encounter any reluctance to supply the information.
Very truly yours,
Chester Morrill,
Secretary.
Inclosures.
TO ALL CHAIRMEN
11?
X-9444-a
January 16, 1956.
Dear Mr.
The Division of Research and Statistics of the Board of
Governors of the Federal Reserve System is conducting a study of
movements of deposit accounts.
In order to throw light upon the
causes of the movements that have occurred in recent years it would
be most helpfUl to secure a classification of deposits by type of
business for 1955 and 1955.
This information would aid in inter-
preting recent monetary developments, throw light upon the extent
to which various classes of business are in a position to finance
an increased volume of business activity without recourse to borrowing from the banks or capital markets, and would contribute to
our knowledge of the volume of money available for investment.
Complete information on this matter would call for a listing
of all deposits, which would involve too much work and expense.
It has been found, however, through the cooperation of two of the
largest banks and from other informatlon, that a listing of large
deposits on two dates, classified sufficiently broadly so as to
preclude identification of individual accounts, would involve little
work and yet would cover a substantial proportion of the total.
Your cooperation in providing this information would be much
appreciated.
The specific request is a listing for October 25, 1935
j_j~
"
<
••
-
~
-
X-9444-a
and November 1, 1935 of your deposit accounts which were in excess
of $
on either of these dates, classified under the
broad headings of manufacture, trade, public utilities, railroads,
finance, foreign, personal nnd other.
No publicity will be given to
the information for individual. banks, as the information is desired
purely for statistical purposes.
Separate forms for the listing of demand and time deposits and
instructions for filling them out are inclosed.
required, I shall be very happy to supply them.
Very truly yours,
Inclosures.
If more forms are
it9
INTERPRETATION
X-9445
BANKING ACT OF 1935
(Copies to be sent to all Federal Reserve banks)
January 15, 1936.
Mr. J. N. Peyton,
Federal Reserve Agent,
Federal Reserve Bank of Minneapolis,
Minneapolis, Minnesota.
Dear Mr. Peyton:
This refers to your letter of December 11, 1955, inclosing
an opinion of counsel for your bank with regard to a situation where
a member bank holds a cash item in the form of a check which, if put
through the books of the bank, would thereby cause an overdraft in
the account of an executive officer in an amount not in excess of 30
days' advance pay, or not in excess of the s&lary which has accrued
to the executive officer,
It is noted that counsel for your bank is
of the opinion that the granting of the overdraft would constitute a
vio~ation
of section 22(g) of the Federal Reserve Act and the Board's
Regulation 0.
You inquire whether the Bonrd is in accord with your
counsel's opinion and inquire further whether tho opinion would be the
same if an actual overdraft had been created in the executive officer's
account or if the executive officer in question had substituted his personal note for the amount of the overdraft.
In section 1( c)(l) of the Board's Regulation 0, the terms
"loan", "loaning", "extension of credit", and "extend credit" are defined to include "any advance by means of an overdraft, cash item, or
otherwise;" and, under the second clause of the unnumbered paragraph
t20
-2-
X-9445
of section l(c) it is provided that such terms do not include
"the acquisition by a. bank of any check deposited
in or delivered tJ the bank in the usual course
of business unless it results in the granting of
an overdraft to or tho carrying of a cash item
for an executive officer."
On the other hand, it is provided in such subsection that advances
of unearned salary or other unearned compensation for periods not in
excess of 30 days and advances against accrued salary or other accrued
compensation are n:)t included within the definition of such terms.
In the question presented, it does not appear that the granting of the overdraft to or the carrying of the cash item for the executivo officer has been previously approved by a majority of the entire
board of directors af the bank thereby bringing the tr[tnsacti::m within
the $2500 exception ns pr.Jvided in section 3(a) (1), or that the executive officer has been advanced any salary, accrued or unaccrued, as
such.
On the basis of the above facts, the Board is of the ')pinion
that if the bank carries a cash item in the form of a check which, if
put through the books of the bank, would cause an overdraft in the account of the executive officer, the carrying of such cash item or the
granting of such overdraft, as the case may be, would be a loan or extension of credit as defined in the Board's Regulation 0.
Likewise
the substitution of the personal note of the executive officer for the
amount of the cash item or overdraft would be a loan or extension of
credit as defined in such regulation.
The fact thnt the executive
121
-3-
X-9445
officer is entitled to compensation which has been earned or accrued
or is entitled t·:J an advance of unearned salary for n period not in
excess of 30 days,
whic~
amounts would be equal to or in excess of
the cash item, overdraft, or personal note, would not be sufficient
t:) remove the transncti:m from tho classification of a loan or cxtension of credit.
In other words, the existence of an effect, under
the circumstances described above, would not render legitimate a loan
or extension of credit which is prohibited.
Very truly yours,
(Signod) Chestor Morrill
Chester Morrill,
Secretary.
122
BANKING ACT OF 1935
(Copies to be sent
t~
X-9446
all Federal Reserve banks)
January
Mr.
15,
1936.
'
Executive Vice President,
The
National Bank of _______ ,
_____, -----·
Dear Sir:
This refers to your letter of December 28, 1935, regarding
the payment of interest on savings deposits under the provisions of
the supplement to the Board's Regulation Q, effective January 1, 1956.
Under section (1) of the supplement to Regulation Q, no member bank may lawfully pay interest on any savings deposit accruing after
January 31, 1935, at a rate in excess of 2! per cent per annum, compounded quarterly, regardless of the basis upon which such interest may
b0 computed.
It is the view of the Board that if a deposit conforms to
the definition of a savings deposit contained in section l(e) of the
Board's Regulation Q, interest may lawfully be paid thereon at a rate
not in excess of the maximum rate above prescribed, notwithstanding
the fact that the funds contained in such deposit have actually been
on deposit with the bank for a period of lens than three months.
Like-
wise, a member bank is not prohibited from paying interest on a savings
account which has been closed between the bank's regular semiannual interest periods.
In either case, however, the amount of interest ac-
tually paid on any savings deposit, accruing after January 31, 1935,
may not exceed
2i
per cent per annum, wl~n compounded quarterly, for
123
X-9446
-2-
the period during which the deposit actually constituted a savings
deposit as defined in Regulation
t~.
If you have any further question regnrding tl1is matter
or any similar matter, it will be appreciated if you will communicate with the Federal Reserve Bank of - - - - - - ' which will be
glad to advise y::Ju with respect to any such matters.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
./
INTERPRETATION
X-9447
BANKING ACT OF 1955
(Copies to be sent to all Federal Reserve banks)
January 15, 1956.
Mr. John N. Peyton,
Federal Reserve Agent,
?'ederal Reserve Bank of Minneapolia,
Minneapolis, Minnesota.
Dear Mr. Peyton:
This refers to :rour letter dated January 2, 1956,
presenting the question whether a dep(ls.it of funds of an individual
which are used in his business may be classified as a savings deposit within the definition contained in section l(e) of Regulation
Q.
A copy of Mr. Ueland's opinion stating that he thought the qucs-
tion was close enough a.nd important enough to be submitted to the
Bonrd for a ruling V'.'as inclosed with your lot ter.
You state that a member bank 1-las asked whether a deposit of an .individual consisting of funds which are used in l:lis
business, as for example, the funds of John Smith doing business as
Smith and Company, may be classified as n savings deposit.
It is
the view of the Board thnt deposits of funds of an individual which
are used in his business may be classlfiod as savings deposits provided such deposits comply with the other provisions of the definition
contained in section l(e) of Regulation Q.
Prior to the issuance of Regulation Q, careful thought
was given to this question and it wu.s decided that it would be impractlcabla to attempt to distinguish between the funds of an individual
125
. ../·
X-9447
- 2 -
which are used in his business and other funds of the individual.
It was thought, however, that a distinction could properly be
made between deposits of the funds of an individual r.nd funds of
a partnership in which he is a partner.
Accordlngly, footnote 4
of Regulation Q provides that a deposit of n partnership operated
for profit me.y not be classified ns a savings deposit.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
126
INTERPRETATION
X-9448
BANKING ACT OF 1935
(Copies to be sent to all Federal Reserve banks)
JA.nunry 15, 1936.
___ ___
Mr. - - - - - - - - ' President,
The
National Bank of _ _ _ ,
,
Dear Sir:
This refers to your letter dated December 17, 1955, in
which you ask to be advised whether deposits of credit unions or
citrus growers associations may be classified as savings deposits
within the definition contained in section l(e) of Regulation Q.
You state that credit unions are formed, usually within
an industry or business, primarily for the purpose of affording their
members a place where they can borrow money in small amounts at a
reasonable rate of interest.
You also state thnt citrus growers
associations are composed of citrus growers and that such associations usually own a packing house and pick and pack the fruit from
the crops of their members for a charge fixed at the beginning of
the season.
Without regard to the question whether credit unions or
citrus growers associations are operated for profit, the Board is
of the opinion that such organizations are not operated primarily
for religious, philanthropic, charitable,
educatio~~l,
fraternal or
other similar purposes, and, therefore, deposits maintained by them
may not be classified as savings deposits within the definition
12?
- 2-
X-9448
contained in section l(e) of Regulation Q.
If you have nny further questions regarding this matter
or any similar matter, it will be appreciated if you will communicate with the Federal Reserve Bank of ---------' which will be
glad to answer your inquiries.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
1_28
Y-9449
BANKING ACT OF 1935
(Copies to be sent to all F'ederal reserve banks)
January 16, 1936.
Mr. --------------' President~
_______, --------
- - - - - - - - National Bank of - - - - '
Dear Sir:
This refers to your letter of December 7, 1935, asking certain questions with respect
to
the making-of loans by member banks
to their executive officers.
It is understood that you desire to be advised whether the
Chairman of the Board of Directors of your bank may lawfully continua
in such capacity while there remains outstanding a loan made to him
by your bank in July, 1955, in the amount of $4,000.
You state that
such Chairman of the Board of Directors of your bank is inactive and
receives no compensation as Chairman of the Board other than a regular director's fee which is received by all other directors.
As you perhaps know, subsection {g) of section 22 of the
Federal Reserve Act, prohibiting the making of loans to executive
officers of member banks, was amended by the Banking Act of 1935, approved August 25, 1955, so as to eliminate the criminal penalties previously provided for the violation of its provisions.
In lieu of such
penalties, it is now provided that an executive officer of a member
bank accepting a loan or extension of credit in violation of the provisions of this subsection is subject to removal from office in the
129
- 2 -
X-9449
manner prescribed by section 30 of the Banking Act of 1953.
However,
i t c.ppears that the criminal penal ties must be regarded as still in
force v:i th respect to acts committed prior to the amendment of section
22(g) by the Banking Act of 1935, on August 23, 1935, in view of the
provisions of Section 29 of title 1 of the United States Code, which
provides as follows:
"The repeal of nny statute shall not have
the effect to release or extinguish any
penalty, forfeiture, or liability incurred
under such statuto, unless the repealing
Act shA-ll so expressly provide, and such
statute shall be trns.ted as still remaining
in force for the purpose of sustaining any
proper action or prosecution for the enforcement of such pennJ.ty, forfei turo, or liability."
In the circumstances, therefore, it appears that the answer to your
question depends upon v:hether the lonn made by your bank in .July, 1955,
to the Chairman of your Board of Directors was in violation of the provisions of section 22(g) of the Federal Reserve Act as it was then in
force.
In construing the provisions of that section prior to its
amendment by the Bankin.g Act of 1935, it was the position of the Board
that it could not nppropriately express an opinion as to who were "executive officers" within the meaning of its provisions since penalties
of fine or imprisonment were provided for violations thereof [lnd since
the determination of the question whether a particular case should be
prosecuted for a criminal violation of the subsection
~~s
a matter
entirely within the jurisdiction of the Department of Justice.
Ac-
cordingly, the Board cannot properly advise you as to whether the loan
130
X-9449
- 3-
to which you refer constituted a violation of the law.
Under the present law, the Board of Governors of the Federal
Reserve System is authorized to issue regulations and to define the
term "executive officer" for the purposes of the subsection in question; and in accordance with this authoritj•, the Board has defined
the term "executive officer" in soction l(b) of its recently issued
Regulation 0, effective January 1, 1936, to include the Chairman of
the Board of Directors, regardless of whether he is active in the performance of the duties of his offico.
However, as indicated above,
the determination of the question who are to be considered "executive
officers" in the case of apparent violations arising prior to August
23, 1935, the date of the enactment of the Banking Act of 1935, is a
matter which appears to be properly within the jurisdiction of the
Department of Justice.
You
~lrther
request to be advised whether a member batik
may lawfully advance an executive officer his salary for the ensuing
month, i.e., whether, for
eL~mple
you might on January 1 credit an
executive officer his salary for the month of January without violating the law.
It will be noted that subsection (c) of section 1 of the
Board's Regulation 0 provides that the terms "loans", "loaning", "extension of credit", and "extend credtt" include, among other things,
"any advance of unearned salary or other unearned compensation for
periods in excess of 30 days".
Strictly interpreted, this provision
would preclude the advance of unearned salary for any full month having
131
X-9449
- 4 -
However, where an officer's salary is computed on a
51 days.
.
monthly basis, the Board will not regard the advRnce of unearned salary
for a month having more than 50 days as a loan or extension of credit
within the meaning of the Bonrd's regulation.
For your information, there is inclosed herewith a copy of
the Board's Regulation
o,
effective January 1, 1956.
Very truly yours,
(Signed) L. P. Bethea
L. P. Bethoa,
Assistant Secretary.
Inclosure.
:t32
FEDERAL RESERVE BOARD
WASHINGTON
X-9450
ADDRESS OFFICML. CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
January 17, 1936.
Dear Sir:
In planning the study of closed banks which has recently been
undertaken as a WPA project, it was proposed that the general supervision, analysis and publication of significant findings be undertaken by the Board and the placement and supervision of workers be
undertaken
~
the Federal Reserve banks.
This was done in order to
ensure efficient supervision and also to meet the requirement that
ninety percent of total expenditures would be for labor from relief
rolls.
This requirement precludes the possibilit,y of meeting the cost
of supervision from the amount allocated to the study by the President,
since the rent of space, machines and equipment for the tabulating
center will absorb the remaining ten percent of expenditures.
~~ile
the Reserve banks have been cooperating in the preparatory work incident to the initiation of the project, the allocation of the cost
of supervision has not yet been determined beyond instructions that
a separate record of expenses be maintained.
The Board now proposes that the cost of supervision, exclusive
of supervision provided qy the Board, be prorated among the Reserve
banks according to their capital and surplus.
siderations which prompt the suggestion.
There are several con-
133
X-9450
-2-
In the first place, this would be in harmony with the procedure adopted in connection with the studies on member bank reserves
and on branch, group and chain banking.
Secondly, the burden of supervision is unevenly distributed.
In selecting the closed banks for stuqy an effort was made to include
all national banks which had suspended from 1951 to 1955, inclusive,
in towns with a population of 25,000 or over and with deposits of
$1,000,000 or over.
It was felt that small banks in places with a
population of less than 25,000 would not have adequate space nor have
their records in good shape.
Moreover, it would be difficult to secure
white-collar workers in small places.
In addition to the national
banks, certain State banks were included where the cooperation of the
State Superintendent of Banking could be obtained.
As a consequence of this method of selection
~~e
number of
closed banks to be supervised is very unevenly distributed geographically, as is shown in the accompanying table.
There are no banks in
the Ninth and Tenth Districts, and only one in the Eleventh District.
On the other hand, almost half the number of banks is concentrated in
the Fourth and Seventh Districts.
Finally, the findings of the stuqy should be equally valuable
to all the Reserve banks.
The Works Relief Program offers a unique
opportunity to secure the transcription and tabulation of the itemized
assets and liabilities of a substantial number of banks for some years
preceding their suspension.
Such data would be of great help in
X-9450
-3-
studying tP.e weakness in our banking structure disclosed by the depression.
In a few years, when the receiverships are closed, records from
which such a study could be made will have been destroyed.
The value
of the study, moreover, is not purely historical in nature.
Anything
that can be done to make banks conscious of the necessity of correluting their loan and investment policies to the particular composition of their deposits would be a contribution to the improvement of
banking practice.
The magnitude of the work of transcribing and tabulating the
necessary data would have precluded the System from undertaking the
study at its own expense.
Since, however, the President has allocated
upwards of $600,000 for tho study th0 only cost to the Reserve banks
will be that of supervision.
In view of the foregoing the Board hopes that its suggestion
that any costs incident to supervision should be borne by the System
as a whole in an equitable manner, will receive your favorable consideration.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO ALL GOVERNORS
tas
X-9450-a
PRELIMINARY DISTRIBUTION OF CLOSED BANKS AND WORKERS IN THE
WPA PROJECT
District
Number of Banl{S
Number of Workers
1
13
29
2
10
26
3
14
28
4
21
68
5
11
22
6
5
13
7
46
98
8
18
59
11
1
4
12
6
16
145
343
9
10
136
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-9451
January 18, 1956.
SU&TECT:
Code Word Covering New
Issue of Treasury Bills.
Dear Sir:
In connection with telegraphic transactions in Government securities between Federal
reserve banks, the following code word has been
designated to cover a new issue of Treasury Bills:
"NOYGUY" - Treasury Bills to be dated
January 22, 1956, and to
mature October 21, 1956.
This word should be inserted in the Federal Reserve Telegraph Code book, following the
supplemental code word 11 NOYGOT 11 on page 172.
TO
GOV:b~R.NORS
OF
ALL F. R. Bk"JKS
137
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-9452
January 20, 1956.
Dear Sir:
Referring to previous correspondence with respect to whether
the Federal Reserve banks should continue to pay out new Federal Reserve notes of the 1928 series when notes of the 1954 series are
available and to the additional orders which have been placed for the
printing of notes of the 1954 series, there is inclosed one cop,y each
of a letter received from the Secretary of the Treasury dated December 15, 1935, the Boa.rd' s reply thereto, dated December 20, 1955, and
a letter from the Acting Secretary of the Treasury dated January 3,
1956, in which he states that he assumes the Board of Governors of
the Federal Reserve System and the Federal Reserve banks are issuing
the appropriate instructions with respect to the matter discussed in
the letter of December 13, 1955.
The Board wishes to cooperate with the Treasury Department in
this matter and therefore requests that you make no further issues of
new Federal Reserve notes of the 1928 series to your Federal Reserve
bank when you have on hand notes of the 1954 series available to meet
the requests for currency by the bank.
You are also requested to
submit promptly to the Board requisitions for a sufficient amount of
Federal Reserve notes of the 1954 series to build up your stock of
138
-2-
X-9452
the various denominations of such notes to a point where you will
be able to meet probable requirements of your bank for new Federal
Reserve notes.
New Federal Reserve notes of the 1928 series now
held by you should be retained for the present for possible emergency use.
For your information in this connection there is attached
hereto a statement showing the stock of Federal Reserve notes of the
1934 series of each Federal Reserve bank now on hand at the Bureau
of Engraving and Printing and a supplemental statement showing the
amount of such notes by denominati6ns which are still dtie
ftbm the
Bureau of Engraving and Printing on orders placed during 1955.
You
have been advised in a separate communication of the orders placed
during January 1936 with the Bureau for printing Federal Reserve
notes of the 1934 series for the remainder of the current fiscal
year.
Very truly yours,
Chester Morrill,
Secretary.
Inclosures.
TO ALL FEDERAL RESERVE AGENTS
£Qf1
X-9452-a
The Secretary of the Treasury
Washington
December 13, 1935.
Dear Sirs:
It is the vie¥/ of the Treasury that the issuance of new
Federal Reserve notes of the 1928 series, ?thich bear on their face the
words
11
redeemable in gold 11 should be discontinued by the Federal Reserve
banks as soon as a sufficient stock of Federal Reserve notes of the 1934
series is available to meet current requirements of the respective banks.
Accordingly, I propose to instruct the Director of the Bureau of &1graving and Printing to cease the delivery of Federal Reserve notes of the
1928 series and to cease working on any of such notes that are now in
~he
process of completion.
These instructions would be issued to the Director of the
Bureau of Engraving and Printing on the assumption that for the present
(a)
Federal Reserve agents will not issue Federal Reserve
notes of the 1928 series to the Federal Reserve banks
when notes of the 1934 series are or can be made available for such banks;
(b)
The Board of Governors of the Federal Reserve System will
not c.sk for the shipment of Federal Reserve notes of the
1928 series from the Bureau of Engraving and Printing
when notes of the 1954 series are available or can be
made available to meet current requirements, and would
instruct the Federal Reeerve agents not to issue any Federal Reserve notes of the 1928 series to the Federal Reserve banks when notes of the 1954 series are available.
In view of the foregoing assumptions, involving action on be-
half of the Federal Reserve
bank~,
and of the fact that it is the banks
who are liable for the cost of printing and shipping Federal Reserve
140
X-9452-a
- 2 -
notes, I feel that, prior to taking the contemplated action as above described, I should first receive the approval of the Federal Reserve banks.
I shall therefore very much a.ppreciate it if you will communicate with
the several banks and advise me whether it will be satisfactory for me to
instruct the Director of the Bureau of Engraving and Printing as proposed.
If the procedure herein contemplated is followed, I will submit to members of the e.ppropriate committees of Congress the question of
making, at its next session, an appropriation with which to defray
(a)
the cost of printin~: a stock of Federnl Reserve
notes of the 1934 series to re_plac0 those of the
1928 series held by or for the account of the
Federal Reserve agents and by the Bureau of Engraving and Printing;
(b)
the cost of shipping Federal Reserve notes of
the 1934 series to the Federal Reserve agents to
replace new Federal Reserve notes of t.he 1928
series held by them;
(c)
the cost of returning to Washington new Federal
Reserve notes of the 1928 series held by the
Federal Reserve agents; and
(d)
the cost of dt:stroying notes of the 1928 series
replaced by notes of th8 1954 series, if and when
such notes arc destroyed.
Very truly yours,
Signed.
H. MORGENTHAU, Jr.
Secretary of tho Treasury.
Board of Governors of the Federal Reserv8 System,
Washington, D.
c.
X-945;~-b
December 20, 1935.
Hon. H. Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Dear Mr. Morgenthau:
In compliance with the suggestion contained in your letter of
December 15 with respect to the discontinuance of the issuance
by the Fed-
eral Reserve banks of Federal Reserve notes of the 1928 series which bear
on their face the words "Redeemable in gold", as soon as a sufficient stock
of Federal Reserve notes of the 1934 series are available to meet current
requirements of the respective baaks, your letter was referred to the
Governors at their conference in Washington on Wednesday of this week.
After discussing this matter the GoYernors advised the Board that they
are in accord with the procedure set forth in your letter, with the understanding that, i f Congress does not at the forthcoming session authorize
the Treasury to reple.ce the stock of new Fedf;ral Reserve notes of the 1928
series with notec of the 1954 series, the question as to whether the Federal Reserve banks should resume paying out notes of the 1928 series, will
be given consideration promptly after the adjournment of Coneress.
It is understood, of course, that acquiescence of the Board and
the Federal Reserve banks at this
t:irnB
in the progrwn outlined in your let-
ter will not in e.ny way prejudice the right of tho Federal Reserve banks to
resume the payint; out of the existing stock of notes of tho 1928 seriGs in
case the Treasury Department is not authorized to replace this stock with
notes of the 1954 series.
Very truly yours,
(Signed)
fJI •
M.
.s.
Eccles.
s. Eccles,
Chairman.
141
142
c 0
p
y
X-9452-c
THE SECRETARY OF THE TREASURY
Washington
January 5, 1956
Dear Mr .. Eccles:
I have your letter of December 20, 1935 1 relating
to the discontinuance for the present of the issuance by the Federal Reserve banks of F'ederal Reserve notes of the 1928 Series.
The conditions referred to in your letter on which the Board and
the banks are taking such action are noted.
I have accordingly instructed the Director of the
Bureau of Engraving and Printing, for the present to cease the
delivery of Federal Reserve notes of the 1928 Series and to cea.se
working on any such notes now in the process of completion.
I assume that ·.the Federal Reserve Board and the Federal
Reserve banks are issuing the appropriate instructions with respect
to this matter.
Very truly yours,
(Signed)
T. J. COOLIDGE
Acting Secretary of the Treasury.
Hon. M. s. Eccles,
Chairman, Board of Governors,
of the Federal Reserve System.
X-9452-d
FEDERAL RESERVE NOTES OF THE 1954 SERIES ON HAND AT THE BUREAU OF ENGRAVING AND PRINTING
ON JAl'l"UARY 15, 1956
(In tnousands of dollars)
Ss
lOs
20s
50s
lOOs
SOOs
1000s
5000s
lO,OOOs
Totals
Boston
5,840
49,680
4,800
5,200
4,400
9,000
9,000
6,000
6,000
95,920
New York
9,220
95,280
14,48;)
9,400
15,200
12,900
21,600
15,000
12,000
203,080-
19,680
59,960
22,640
7,200
7,200
9,000
9,000
Cleveland
8,280
25,240
12,160
8,400
8,400
5,100
10,200
Richmond
6,660
31,560
55,600
6,000
6,000
Atlanta
14,460
17,640
9,600
6,6JO
6,000
Chicago
11,700
69,800
16,160
8,400
8,400
114,460
St. Louis
29,000
14,040
19,600
6,000
4,800
75,440
Minneapolis
16,020
17,8~0
7,840
4,200
2,400
48,540
Kansas City
7,080
16,120
10,400
6,000
6,000
45,600
Dallas
6,120
10,680
9,840
4,800
4,800
56,240
San Francisco
12,640
16,440
15,760
8,400
7,200
58,440
Total
144,700
404,120
176,880
78,600
78,800
Philadelphia
114,680
6,000
12,000
95,780
85,620
11,400
156,000
61,200
65,700
27,000
50,000
1,057 '500
~
.~
w
X-9452-e
1934 SERIES FEDERAL RESERVE NOTES BEirm PRINTED AS OF JANUARY 13, 1936, ON
ORDERS PLACED DUR!l'{l THE CALENDAR YEAR 1935
(In thousands of dollars)
5s
Boston
New York
Philadelphia
Cleveland
20s
45,080
4,800
50s
lOOs
Total
47,880
193,800
193,800
8,340
25,200
11,040
360
30,120
13,680
44,160
23,640
26,880
50,520
Richmond
Atlanta
lOs
9,720
Chicago
600
5,640
45,180
15,960
110,€40
600
111,240
16,260
12,.840
1,200
50,300
Minneapolis
2,580
1,320
1,200
5,700
Kansas City
420
15,560
St. Louis
Dallas
San Francisco
Total
37,680
600
13,980
120
960
4,680
720
464,640
58,080
1,080
600
1,200
6,600
4,800
566,400
~
<o)>i4
~
145
c0 p y
.._--FEDERAL RESERVE BANK OF SAN FRANCISCO
January 15, 1956
Dear Sirs:
This is in reference to Bourd 1 s letter of December 27,
1955, regarding the suggestion that the Board of Governors of the
Federal Reserve System be asked to arrange with the several Federal reserve banks for uniformity in dates for holding meetings of
the boards ef directors of the twelve banks.
The matter was informally discussed at a meeting of dur
Board of Directors and it was the unanimous opinion that while a
uniform date for holding such meetings might be highly desirable
for certain ~1rposes, it was not thought at all practicable. Usually directore of the Federal reserve banks are directors of other
institutions and corporations and rebular meetings of boards of
the.reserve banks are often fixed so as not to interfere with
meetings of these other boards, some of which cannot be changed.
The new law requiring the fixing of rates fortnightly has all
ready caused considerable disturbance and inconvenience in our own
board and if the proposed suggestion is adopted it is conceivable
that we would have trouble at times in securing a quorum, and even
might be deprived of the services of valuable directors.
Yours very truly,
(Signed)
s.
G. Sargent
S. G. SARGENT
Secretary of the Board
Board of Governors of the
Federal Reserve System,
Washington, D. c.
146
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE F'11DERAL RESERVE BOARD
X-9454
January 20, 1936.
SUBJECT:
Holidays during February, 1936.
Dear Sir:
On Wednesday, February 12, Lincoln's Birthday, the books
of the Board's Inter-district Settlement Fund will be closed and
there will be neither transit nor Federal reserve note clearing
through the Fund.
For your information, the Board is advised that
the following Federal reserve banks and branches will be open for
business on February 12:
Boston
Richmond
Baltimore
Charlotte
Atlanta
New Orleans
Birmingham
Jacksonville
St. Louis
Little Rock
Kansas Cicy
Oklahoma City
On Saturday, February 22, Washington's Birthday, the offices of the Board and all Federt:tl reserve banks &'ld branches will
be closed.
The
Board is further advised that holidays will be observed
by offices in the Atlanta Federal Reserve District, as follows:
Monday,
February 24,
Havana Agency,
Tuesday,
February 25
B:i.rmingham
New Orleans
Revolution of Baire
~
Mardi Gras Day
On February 25, therefore, the New Orleans Branch will not
147
-2-
X-9454
participate in either the transit or the Federal reserve note clearing through the FUnd.
Please include transit clearing credits of
Febrtiar.y 25 for New Otleans Branch with your credits for the following day.
Please notif.y branches.
truly yours,
C. Noell,
Assistant Secretary.
TO ALL GOVERNORS
148
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
X-9455
January 21, 1956.
Dear Sir:
There :Ls attached a corrected copy of X-9445,
Interpretation of the Banking Act of 1955, the last
sentence of' which, in order to correct a typographical error, has been changed to su'::Jstitute the word
"offset" for the word "effect".
The corrected coT)y should be substituted for
the copy previousl:f sent you.
The usual number of
extra copies are going forward to you in th•':! usual
course.
Very truly yours,
Morrill,
Secretary·.
Chestt:~r
TO ALL F. R. AGENTS.
Inclosure.
149
( Correct':'!d CCJi_J~')
INTER.i.")RETATION
X-9445
BANKING ACT OF 1935
'
(Copies to be sent to all Federal Reserve banks)
Jo.nuo.ry 15, 19:J6.
Mr. J. N. Peyton,
Federal Reserve Agent,
Federa.l Reserve B~;,rik of Minneapolis,
Minneapolifl; Minnesota.
Dear Mr. Peyton:
This refers to your letter of December 11, 1935, inclosing
an opinion of counsel for your b.<nk with regard to a situation where
a member bo.nk holds a cash item in the f:::>rm of a check which, if put
through the books of the bnrik, would thereby cause an overdraft in
the account of an executive officer in an umount not in excess of 30
dn.ys 1 advance pay, or not in ex0ess of the sttlary which
to the executive off5.cer.
hiLS
D.ccrued
It is notEd thn.t counsel for your b.s.nk is
of the opinion thc.c t the grc<nting of the averdra£'t would constitute a
violati:.m of section 22(g) of tho Federhl Hesorvu Act and the B:::>ard's
Regulation
o.
You inquire whctner the Bo:'.rd is in ac-::ord withy our
counsel's opinion and inquire further whe Lher the: .:rrinion would be the
sn.me if an actual overdrc:.ft had bccm created in the executive officer's
account or if the executive officer in C'W;sti(;n had substituted his personul note for the mnount of the overdrr'.ft.
In section l(c)(l) of the Board's Regulation 0, the terms
"loan" 1 "loaning", "oxtenslon of cr•2dit", and "oxtend credit" are defined t0 include "any advance by means of a.n overdraft, co.sh i tern, or
otherwise;" and, under the S8cond cla.uso of the unnumbered paragraph
150
-2-
X-9445
of section l(c) it is provided that such terms do not include
"the acquisition by G bank of any check deposited
in or delivered to the bank in the usual course
of business unless it results in the gr:mting of
an overdraft to or tho cnrry~ng of a cash item
for an executive officer."
On the other hand, it is provided in such subsecti'm that advances
of unearned salary or other uneorned compensation for periods not in
.
excess of 50 days and advances against accrued.salnry or other accrued
compensation are n:)t included within the definition of such termsIn the question presented, it does not appear that the granting of the overdraft to or the carrying of tho cash item for tho executive officer has been previously approved by a majority of the entire;
board of directors "f the bank thereby bringing the trcLnsacti::m within
the $2500 exception o.s provided in section 3(a)(l), or that the executive officer has been advanced any salary, accrued or unaccrued, as
such.
On the basis of the above ft:tcts, the Board is ()f the c)pinion
that if the bank carries a cash i tern in the form of a check ·which, if
put through the bo.)ks of the bank, would cause an overdrD.ft in the account of the executive officer, the carrying of such cash item or the
granting ·"Jf such overdraft, us the case mny be, would be a loan or extension of credit as defined in the Board's Regulation 0.
Likewise
the substitution of the pers'mal note of the oxecuti ve )fficer for the
amount of the cash i tern or overdraft would be a loan :)r extension of
credit as defined in such regulation.
The fact that the executive
1_51
X-9445
-5-
officer is entitled to compensation which
Th~S
been earned or accrued
or is entitled tJ an advance of unearned salary for a period not in
excess of 30 days, which amounts would be equal to or in excess of
the cash item, overdraft, or personal note, would
t~)
remove the transaction from tho
sian of credit.
classii'icati~'m
~ot
be sufficient
of a loan or exton-
In other words, tho existence of a.n offset, under
the circumstances described above, would not render legitimate a loan
or extension of credit which is prohibited.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
152
FEDERAL RESERVE BOARD
WASHINGTON
X-9456
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL. RESERVE ElOARD
January 21, 1936.
SUBJECT:
Instructions He1a-+:ing to Preparation of Exhibits
Aecompanying Applications for Voting Permits.
Dear Sir:
As you know, the detailed lnstructions relating to the preparation of exhibits D, G and H in connection with appllcations for voting
permits, heretofore contai!'led in section VII of Regulation P, have been
omitted from that regulation a::; revised effective Jmmary 1, 1936.
In
lieu thereof, tho r..::gu1P.tion now provides that information concerning
the preparation of such exhibits and others for which printed forms
have not been prepared muy be obtc,_ined from the Federal Hcservo agents.
For your guidance, instructions concerning the preparetion of
certain of the exhibits aru
sc~t
forth in this lGtter.
These instruc-
tions indicate the information which the Board desires to have furnishod to it gnnerally but :L t is
be impracticable and
cmncce:;s~Jary
reali~:ced
that in some cases it will
to follow such instructions implicitly.
It is contemplated thc:lt you will furnish applicants for voting permits
with such detailed
inst:~uct.ions
as may
oo
m;cessary in view of the cir-·
cumstances of tho particular c:asos in ord;:;r that thn <Jxhibi ts may
contain tho desired
ir.formc~.tion.
Wi tr~ reference to cxh:Lbi ts not hsrdnaftr'lr ccmmented upon, it
is belteved that the do:.;crL·:tions conta:Lned in Form P-1 are ;Jelfsufficient and that no instructions are necessar-y.
The instructions
153
Y-9456
- 2 -
with reference to the other eY.hibits are as follows:
Exhibit D.
The required statement of financial condition of
the applicant shall be prepared as of the date of the application or a
date not in excess of 60 days prior thereto.
It shall show separately
each control account or each principal group or class of assets, liabilities, and net worth and shall be supported by schedules and detailed
information with respect to the following:
1.
Investments of applicant in each class of cauital
stock of each subE1idiary bank and each other or-ganization with which applicant or any of its subsidiaries is affilhted, showing the number of
shares of stock of each such subsidiary or affiliated organization authorized, the par value thereof, the number of shares outstanding, the number of
such shares owned by applicant, the cost of same to
applicant, the amount at which curried in the assets
of the applicant, the number of such shares pJ.edged
by the applicant, if any, and the name of the pledgee
and the purpose of thG pledge.
2.
Other investments -
3.
(a)
Bonds - name of obligor, j_nterest :rate,
maturity, par value, carrying value,
and amounts pledged by the applicant,
if any, and the name of the pledgee and
the purpose of the pledge;
(b)
Stocks - name of issuing corporation,
number of shar,;s held, total number of
shares outstandi.ng (if known), class,
par value, carrying VHluo, and number
of shares pledged by the appplicant, if
any, and the name of the pledgee and tho
purpose of the pledge.
Notes and accounts receivablo from each subsidiary
and each other organ:lzation with which applicant or
any of its subsidiaries is affiliated, showing the
amount, date, maturity date, n.qture and purpose of
each and the description of any collateral thereto.
154
- 5 -
X-9456
4.
Notes and accounts receivable from directors, officers, and employees of the applicant and its subsidiaries and other organizations with which applicant or any of itn subsidi~ries is affiliated, showing the amount, date,maturity date, nature and purpose of each and the description of a.rry collateral
thereto.
5.
Notes and accountH receivable from others.
6.
Other assets.
7.
Notes and accounts payable and other obligations
(including bonds; debentures, loans, extensions of
credit, advances in any form, repurchase o.greerncnts,
and securities borrowed} to each subsidiary bank and
each other organization with which applicant or any
of its subsid.iaries is affiliated, showing the amount,
date, maturity date, interest rate; nature and purpose of each and the description of any collateral
thereto.
8.
Other notes and nccounts payable and all other obligations.
9.
Each class of capital stock of applicant, showing the
number of shares authorized and outstanding, the par
value thereof, and any pertinent facts relating to
preferences, redemptions, cumulative dividends, voting rights, etc., and any options or stock purchase
warrnnts outstanding.
·.
10.
Contingent liabilities of applicant, showing the
amount and nature of each.
There shall be attached to this exhibit a copy of the latest annual report of the applicant which wo.s prepared for or sent to the
shareholders thereof.
There shall also be atte.ched operating statements
(including therein detailed statement of income and expenses) and
analyses of applicant's surplus and undivided profits account covering
at least the last two fiscal years and the portion of the current fiscal
155
X-9456
-4-
year up to the date of the statement of financial condition of the applicant contained in this ex.'libit, including full information concerning dividends and fees for management nnd service charges
recei~ed
from
andcontributions made to, subsidiaries and othor affiliated organizations and an explanation concerning the manner :i.n which any paid-in,
initial, or capital surplus was
cre~ted
and any changes therein.
If applicE:nt is exercising fiduciary powers, there shall also be
attached to this exM.bit a financial statement of condition of the applicant 1 s trust department, together with a supplementary statement setting forth the amount of capital stock, bonds, debentures, or other obligations of or guaranteed
qy
the applicant or any subsidiary or other
organization with which the applicant or any of its subsidiuries is
affiliated, which are held in any of the trusts or other fiduciary accounts in tho trust department of the applicant.
This
supplemen~~ry
statement shall set forth the name of each such trust, the amount of
tho corpus thereof, tho nnme of th•3 co-fiduciary, if any, the amount
invested in such c-"tpital stock or obligations, the dates when such investments were made, and pertinent information as to the amounts of such
capital stock or obligations which were purchased, acquired in the original inventory, or otherwise acquired for each such trust, with an explanation as to the authority or instructions for the purchases.
Exhibit E.
.
'
In the event thc::t the applicant is an organization
(other than n member bank) subject to examim:tion by a State super~isory
authority, a complete copy of the latest report of examination made
qy
156
-5such authority shall be included in this exhibit.
X-9456
This shall be supple-
mented by a statement showing what action has been taken with respect
to any doubtful assets, estimated losses, and depreciation in securities
shown by such report.
Exhibit F.
This exhibit s4all contain a.detailcd statement re-
garding the management and perr,onnel of the applicant, including the
names, addresses and principal business connections (including all connections with any subsidiary of the applicant or any other organization
with which applicant or any of itE> subsidiaries is affiliated) of all
directors and officers, and a list of the principal shareholders of the
applicant showing tho number of shares owned by each.
EY..hibit G.
This exhibit shall contain the following information
concerning the relationships between the applicant and its subsidiaries
and other organizations with which the applicant or any of its subsidiaries is affiliated and the relationships between such subsidiaries
and other affiliated organizations:
l.
A description of the function of each subsidiary and
each other affiliated organization.
2.
The date on which t>::cch such relationship was established.
5.
The purpose for which each su.ch relationship was established.
4.
The number of shares of cGch class of stock of each
subsidiary r.nd each otho1~ affiliated organization:
(a) authorized, (b) outstc.nding, (c) owned by the
applicant, (d) ownod by any 5ubsidiary of the b.pplicant, (e) held by a trustee or trustees for tho benefit of tho shareholders or members of the applicant,
(f) controlled in uny other manner by the applicant
and/or any subsidir.1ry thereof {stating the manner in
which controlled).
157
-6-
X-9456
5.
Full details concerning the manner in which the applicant controls the election of a majority of the
directors of any subsidiary other than through ownership or control of stock of the subsidiary.
6.
Full details concerning the manner in which each organization (othEJr than a subsidiary) is affiliated
with the applicant or a subsidiary theroof.
7.
Th~3
8.
A list of tho names and addrossos of ~:lll directors
and officers of each subsidiary and each other affiliated orgo.nization.
9.
Full details concerning any shares of stock of any
subsidiary or other affiliated org:mization held by
directors thereof subject to agreements to convey
such shares to the applicrmt or a subsidiary thereof.
·-
number of shares of each class of stock of onch
subsidiary and e~:~ch other affiliated org[~nization
acquired by the applicant or a subsidiary thereof:
(a) for cu.sh or its equivalent, (b) in exchange for
stock of the applicant or a subsidiary thereof.
10. A list of all subsidiuries and other affiliated organizations divorced or dissolved since June 16, 1933, stating the manner in and date on which e&ch such relationship was terminated or dissolution effected.
If control of any subsidiary is held through trustees there shall
be attached to this
ey~ibit
a copy of the agreement creating the trust
and a copy of each other instrument directly affecting the trust, together with tho following information:
l.
The nCJ.mes of the trustees.
2.
The mmes of the beneficiaries for whom the trust is
maintained.
3.
The purpose of tho trust.
This exhibit shall al.so conttLin a statement of financial condition of each of the applicant' E· subsidie.ries other than banks and of
each other organizn tion with which the applicant or any of its subsidiaries
7 is affiliated.
1S8
X-9456
Each such stat.ement shall be prepared as of the date of
the applicant's statement of financial condition contained in Exhibit D
or, i f this be impracticable, then at the nearest date thereto which is
practicable and shall show separately each control ac.count or each principal group or class of assets, liabilities, and net worth.
There shall
also be attached operating statements (including therein detailed statement of income and expenses) 11nd analyses of surr1lUs and undivided profits accounts of each such organization covering at least the .hst two
fiscal years and the portion of.the current fiscal year up to the date
of the statement of .fincnc.:..al condition of such orzanization, together
with an explanation concerning the manner in v.'hich e.ny fJaic:i-in, initial,
or capital surplus was created and any ch1:mges therein.
Exhibit H.
Each of the required
st1~terncnts
tion of subsidia.ry banks s}w.ll be prepared
uS
of financial condi-
of thn dD.te of the appli-
C::tnt's statement of fina.ncio:l condition contained in Exhibit D.
such stc:.temcnt
sh~~ll
Each
show separr.ctely each ccntro1 account or each
})rin~
cipal group or cl.!.tSS of e.ssetG, liabilities, u.nd net worth and shull be
supported by schedules and detr.iled information with respect to the
following:
't
1.
Funds of each subsidiary bank invested in Ccl},i tal
stock, bonds, det~euturcs, or otl:er oblig.stions of
applicant or of an:.r subsidiary of u_pplict:..nt or of
any other orgnnizat:i.on v:i th ;vhich upplicant or cny
of its subsidiaries is affiliated.
2.
Loans, advances, or extensions of credit made against
the capi.tal. stock, bonds, deben:.ures, or other obligations of applicant or of any :::;ubsidiary of applicant or of any other organization ·.vi th which applicant or any of its subsidinries is affiliated, showing the market value of any other collateral which may
159
X-9456
- 8 -
be held in coru1ection with such loans.
5. Loans, advances, or extensions of credit 11 due to 11 and
"clue from 11 the applicant and each subsidiary of applicant and each other orpni'6ation with which applicant
or any of its subsidin.r.ies is affiliated, showing the
amount., date, maturity dnte_, ne.ture and purpose of
e:1ch and the descrlption of any collateral thereto.
4. Other accounts 11 due to" and "due from" t;he applicant
and each subsidiary of applicant and each other organizo.tion with which applicant or any of its subsidiaries
is affiliated, showing the amount, date, maturity date,
nature and purpose of each and the description of any
collateral thereto.
If a subsidiar;7 bm1k of the applicant is exercising fiduciary
powers, there shall be attached to this exhibit a statement of finan-cial condition of the trust department of such be.nk, together vd.th a
supplementary statement setting forth the amount of copital stock, bonds,
debentures, or other obligations of or gu:iranteed by the applicant, or
any subsidiary, or other
organiz~<tion
with which the t:.tpplicant or l'my of
its subsidiaries is affiliated, which are held in uny of the trusts or
:r"
other
fid,~cinry
accolmts in thG trust department. of such bank.
This sup-
plenentary statoment shnll sot forth the name of each such trust, the
amount of the co:r-pus thereof, the name of the co-fiduci.ary, if any, the
amount invested in such capital stock or obligations, the dates when
such investments were mc.de, and pertinont information as to the amounts
of such capital stock or obliga tlons which w·ere purchased, acquired in
the original inventory, or othervvise acquired for each such trust, with
an explanation as to the:: authority or instructions for such purchases.
Exhibit K.
This exhibit shall contain a detailed stutement of
any plan of reorgonization, consolidation, merger, liquidation or
•
160
X-9456
-9-
adjustment of capital structure involving any of applicant's subsidiary banks or other subsidiaries or other organizations with which
applicant or any of its subsidiaries is affiliated, which is proposed
or pending or which has been effected since the latest examination of
any such organization.
In r}ach case involving the reorganization or
adjustment of the capital structure of any subsidiary or affiliated
bank full information shall be submitted relative to tho amounts of
doubtful assets, estimated losses, and depreciation in securities
which have been eliminatud since thld latest exRmination of such bank
and the manner in which the elimino.tions were made or which are to be
eliminated upon proposed or pending plans.
Ver.y truly yours,
Chester Morrill,
Secretary.
TO ALL FEDERAL RESERVE AGENTS
161
..
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDDIC&: TO
THE FEDERAL. RESERVE BOARD
X-9457
January 21, 1936.
Dear Sir:
For your information, you are advised
that in response to a request from one of the
Federal reserve banks the Board
s~~ted
that
it had no objection to the sending of copies
of the Board's letter to Mr. Awalt of January
10, 1956, X-9424, to all member banks in the
district, but requested that the X number be
omitted from such copies.
Very truly yours,
Chester Morrill,
Secretary.
TO THE GOVERUORS OF ALL FEDERAL
RESERVE BANKS EXCEPT SAN FRANCISCO
162
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-9458
Jo.nuc.ry 21, 1936.
SUBJECT:
Change in inter-district time
schedule.
Dear Sir:
Upon tho request of tLe Federal Reserve Bank
of Chicago, with tho concurrence of the other Federal
Heserve banks affected, the Board of Governors of the
Federal Rosorve bystem has.approvod tho following
changes in tho inter-district time schedule for cash
itGms:
To
fr-2!!!
Chicago
Chicago
Chicago
Chicago
Chicago
Chicago
to
to
to
to
to
to
Houston
Jo.cksonville
l'hshville
OmaruJ.
Pi tt;;;burgh
San Antonio
3 d&ys
3 days
2 days
'J
2 a.ay.,
2 d,s_ys
5 dGyS
Very truly yours,
Chester Morrill,
Secretary.
TO ALL GOVERNORS
~
2 days
2 d[',ys
1 day
1 day
l day
2 days
163
FEDERAL RESERVE BOARD
WASHINGTON
X-9459
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
January 22, 1956.
Reports of Violations of the Criminal
Provisions of the Banking Laws of the
United Stotes.
Dear Sir:
The Boa!·d has recently been advised by the Department of
Justice of its desire that apparent violations of the criminal provisions of the banking laws of the United States be reported promptly,
so that there would be no danger of a prosecution failing because of
the running of the statute of Umitations or because the cause of action became too stale before proceedings were begun, and suggests
that each State member bank be sufficiently impressed with the importance of an immediate report of criminal irregularities to the
Federal reserv0 agent for the proper district.
In the circumstances, it is suggested that you advise each
State mer1ber btmk in your distrj ct of the views of the Depc.rtment of
Justice and request each such bank to make an immediate report to
your office of c.;.ny appart::nt violation of the
the banking laws of the United r.tates.
It is
crimir~al
provisions of
contemplate~
that in
connection with reports by State member banks of violations of the
Act of May 18, 19?\4 (the Barile Robbery Statute), to local authorities
and to the local field office of the FedoraJ. Bureau of Investigation
X-9459
-2-
in accordance with the procedure established under the Board's letter
of March 15, 1955 (X-9147), State member banks should also immediately
make reports of the appf,rent violations of such statute to your office,
including advice as to whether reports have been made to the local
authorities and to the local field office of the Feder:1l Bureau of
Investigation.
Upon the receipt of a report of an apparent violation of the
criminal provisions of the banking laws of the United States, or in
the case of any appnrcmt violation of such laws which otherwise comes
to your attention in th8 performance of your dutios, including any
violation of the Act of May 18, 1954, above referred to, involving
State member banks, you are requested to make an immediate report
thereof to the local United States Attorney and to the Board for submission to the Department of Justice in accordance with the usual
procedure.
Apparent violations of such laws which involve national
banks should, of course, be handled in the rnanner set forth in the
Board's letters of February 8, 1928 (X-5072), and September 24, 1954
(X-8017).
The Board has had some correspondence with the Department of
Justice regarding this mattur, o.nd for your information in connection
therewith there is inclosod a copy of a letter from Assistant Attorney
General Keenan, dat8d December 10, 1935.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO ALL F.EDERAL
RESERVE AGENTS
164
165
X-9459-a
COPY
DEPARTMENT OF JUSTICE
WASHINGTON, D. C.
WHR: an
JBK WHR
185913
29-100-42-
December 10, 1935
The Board of Governors of the
Federal R.esorvG System,
Washington, D. C.
Re: Method of reporting v:!..olotions of bank robb0ry
_ __..;f':;:;:~n""d~other criminal banking statutes.
Sirs:
The Department htlS received your letter of October 28, 1935, referring
to the matter of reporting bank robbc~ries and your letter of November 15,
rJlating to reports of other violations of tho Federal criminal banking laws.
Offenses other than Robqeries.
As indicated in the Department's letter of Aw.;ust lG, lc.s t, its chief
purpose wes to jnsure promptness :l.n reporting violations, so that there
would be no danger of a prosecution .::ailing bucause of the runnin€; of the
statute of limitations or bdcause it became too stale before procuedings
were bE.: gun. At the same time tho D·::;pr: rtr.wn t do si::>cs thr:. t the end be attained with the least possible incraase of work oE the part of your office
and the exam1ners and ag8nts.
The Department apprehends that thosu ends may be achiovt.::d best by the
method which w1.ll involve the fewust exceptions to your ustablished customs. Probably it will be adequate for present purposes if the mind of
each state member hank is sufficiently impre:ssud -.·Ji th the importance of
nn immcdia to rl)port of c:!:'iminal irror,ulari tics to thw Fudoral Reserve
Agent for the propor dis·t,rict, who will then mak.::J prompt report to you and
to the local UniteJ Stetus Attorney, with sufficient copies to you for
transmission to this Department a.:.: heretofore.
In Cases of Bank Robh0rios ._
In such cas:Js, as pointod out in Departrrwnt letter of S(;ptembor 21,
1935, it is of chid' importance tha.t tho bank should imr1ediately, after
notifying local uuthori tics, notify also th.: local field office of the
Federal Bureau of Investig:1tion. The Department conceives th:'-t less confusion is likely to result if thereafter the bank makes immediate written
report to tho Federal Reserve Ago~1t, with subsequent stops as indicated
e.bove in the case of other off-:ms ..:s. The ~.1ddi tional service required by
such method would bo the report by the bank to tho Buruau office. If
there sh::mld bu s duplica ti.on of rc9orts in a gi von caso by this method,
that would not be a serious matter. I ar!l sunding a copy of this Jetter
166
X-9459-a
-2-
to thu Comptroller of the Currency. It is understood that a similar method
of dealing with such matters in the case of National Banks will be satisf::tctory to the Cornptroll(~r.
Respectfully,
For the Attorney General,
(SignGd)
JOSEPH B. KEENAN
JOSEPH B. K.SEN.AN,
Assistant Attorney General.
167
X-9460
INTERPRE'J.'.ATION
BANKING ACT OF 1935
(Copit~S
to be sent to 2.11 Federe..l R.eSEJrve banks)
January 20, 1936.
--------------------'
Gr:,nt.lemen:
This refers to your letter dated December 26, 1935, in which
you a;.;k to be advised whether a deposit of funds of u corporation in
liquidation may be classifiod as
c~
Sl:.i.Vings deposit ;Ji thin the meaning of
section l(e) of Regulation Q •
You state that, under the la·ss of - - · - - ' directors of a
corporation organized under the laws of such State become trustees for
the stockholders of such corporation upon filing the consent for dissolution.
You further state that you '"J.re attorneys for a - - - - - - - -
corporation in liquidation which has a savings deposit in the name of
such corporation and thr1.t the
sigm~tur8s
required for withdrawal from
such deposit are those of the liquidating trustees and not of any particular officer.
It is understood that the liquidating trustees have de-
posited in such account their cash
outstanding assets'
holders.
r~ll
:l~;setb
;1ending col.lectiorj of certain
of whict wi..i..l inure to the bc:mefi t of the stock-
The question presented is whether such a deposit may be classi-
fied as a so.vings de;Josi t o.s defined in Regulation Q •
Section l(e) of Regulation Q provides, in part, as follows:
"The: term
evidenced by
1
D
S'lVings deposi tr mc<:ln.s a deposit
pass book, consisting of funds (i)
168
X-9460
2 -
deposited to the credit of one or more individuals,
or of a corporation, association or other organization operated primarily for religious, philanthropic, charitable, educational, fraternal or
other similar purposes and not operated for profit,
or (ii) in which the entire beneficial interest is
held by one or more individuals or by such n corporation, association or other orgc:.nization ~~ ~~ 1~ • "
It is tho view of the Board that deposits of funds of the
liquidating trustees of a business
corlJor.<~tion
may not be considered
as deposits of funds of one br more individuals or of
!in
orgnniza-
tion operated primarily for religious, philanthropie, charitable,
educational, fraternal or othnr similar purroses.
Accordingly, such
deposits in a member bank of the F'ederal He serve System may not be
classified as savings deposits within the definition contained in
Regulation Q •
However, as you are no doubt aware, there is nothing in
Regulation Q which :vould prevent such
fund~
from being deposited in an
interest-bearing time deposit, as defined in such regulation.
If you have any further quE:.stions regarding thi:: matter or
any similar mattE)r, it will be appr.;;ciated if you ·;;ill communicate
with the Federal Reser7e Bank of
____ , which will be glad to
answer your inquiries.
Very tru.i.y yours,
(Signed)
Chestor Morrill
Chester Morrill,
Secretary.
...
169
-
INTERPRETa.JION
-~-·
X-9461
BANKING ACT OF.1955
(Copies to be sent to all Federal Reserve banks)
January 20, 1956.
Mr. -----------------' Receiver,
,
-----------------------------'
Dear Sir:
This refers to your letter dated December 27, 1955 1 and
inclosures, in which you present the question v:hether a deposit
made by you as Federal receiver in equity may be classified as a
savings deposit within the meanihg of section l(e) of Regulation Q
You state that you are
F'~deral
receiver in equity of the
---------' a corporation organized under
the laws of
as a holding company for building and loan
associations.
You state that the funds deposited by you in special
savings accounts t:.tre the accumulution of collections made by you as
receiver.
You also state that your official duty as receiver is to
act as conservator of assets and. that your operations as receiver
have not been for profit.
Section l(e) of Regulation Q provides, in part, as follows:
. "The term 'savings deposit' means a deposit, evidenced by a pass book, consisting of funds (i) deposited to the crtJdit of one or more individuals, or
of a corporation, association or other organization
operated primarily for religious, philanthropic,
charitablr;;;, educational, fraternal or other similar
purposes and not operated for profit, or (ii) in
which the entire beneficial interest is held by one
or more individuals or by such a corporation, association or other organization ~~ * ~~- . 11
170
2 -
X-9461
It is the view of the Board that a deposit by you as
Federal receiver in equity of the - - - - - ·
may not properly be considered as a deposit of funds of one or
more individuals or of an or·ganlzation op8rated primarily for re-·
ligious, philanthropic,
similar purposes.
chC~.ri table,
edllcational, fraternal or other
Accordingly, without regard tc the question whether
your operations as receiver hr:.ve or have not been for profit, it is
the view of the Board that deposits by you as
rc~ce:iver
of the business
corporatioh under consideration may not be classified as savings deposits within the; definition contained in Regulation Q •
However, as you are no doubt aware,
Regulation Q which would prevent such
fund~
there~
is nothing in
from being deposited
in an interest-bearing time deposit, as defined in such regu.w.tion.
If you have any further
question~::
regarding this matter
or any similar matter, it will be appreciated if you will communicate with the Federal Resorve Bank of - - - - - · - - - - ' which will
be glad to answer your inquiries.
Very tru.Ly yours,
(Signed)
Chester Morrill
Chester Morrill,
Secretary.
:171
BOARD OF" GOVERNORS
OF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
X-9462
January 23, 1956.
SUBJECT:
ExpE:nse, Main .Gines, Leased
r:ire s.;,-stem, December, 1955.
Dear Sir:
Inclos~;d herewith you vlill find two mineographed sktmnents, X-9462-a and X-9462-b, covering in detail operations of the .nain lines of the
Leased V~ire System, durin_~; the month of Deccmbc:r,
1935.
Please credit the amount payable by your
bank for your share of the, expense of the Leased
Wire System to the Federal Heservr:-~ Bank of Hichmond
in your daily statement of credits through the Gold
Scttleuc-mt Fund for the Hccount of the Board of
Governors of thb Federal Heserve System, and .:;.dvise
th.; F2aerc 1 hosurvc B<mk of Hichmonci by vdre the
umount und purpose of the credit.
Vur:r tru.'-:r yours,
- r__..,
0 t.l&AAf.£,
0. E. Fot:1k,
Fiscal Agent.
Inclosures.
TO GOVb..fi.NORS OF ALL F. R. BANKS.
X-9462-a
P..EPORT SHOWING CLASSIFICATION M:ID NUiv;BER OF i-iORDS TRI lJSt.UTTED OVER JV:.AIN LINES
OF THE FEDERAL .IlliSERVE LEASED 'iiiRE SYSTEM FOR THE MONTH OF DEC:&vlBER, 19:35
Business
reported
by banks
From
Bo.:;ton
New York
Philcde1phia
Clvvelo.nd
Richmond
Atl:J.ntn
Chicago
St. Louis
54,889
fJords sent by
New York chargeable to other
F. R. &nks (1)
1,644
36,553
Kuns<J.J 0i ty
D[lllas
Scm Fr~mcisco
Total
Total
~;ords
1~918
58 s 112
7 .'16
2 102
19,769
89 028
11.88
1, 754
51,425
1,621
2,108
1,685
1,574
78,155
55,150
55,919
61,175
56,194
1,680
86 926
729,484
1,953
316,521
7.62
5.02
3.40
1,065,574
548,142
...
(-;~)
These percentages used in calculating the pro rata share of 1en.sod wire expense as shovm
on the e,ccomp:::nying statement (X-~H62-b).
(1)
Number of words sent by t.!ew York to other F. R. Banks for their sole benefit chn.rgcd to
bcnks indicated in accordance with E"ction taken at Govornors 1 Conference
i~ovomber 2-4, 1925.
10.71
100.00
& Outgoing
transmit ted over rnuin lines
4.88
20.25
4.02
5.88
6.50
7.08
1,750
28,559
42,404
47,162
Bo·J rd business • • • • • • • . •
Reimbursn.ble business Incoming
Per cent of total
bunk business (*)
151,746
30,095
44,089
48,756
53,046
80,263
57,083
37,599
62,925
151,746
Minne.~cpol1s
Net Federal
reserve
bank
business
• 1,613,716
\
X-9462-b
REPORT OF EXPENSE lV!AIH LINES
FEDERAL RESERVE LEASED WIRE SYSTEM, December, 1955.
NOJ'lo of' bnn..l..c
Ens ton
Ncr:J Vcrk
Phi1nd:;)lphie,
Cleveland
Hichmond
Atl.:u.tn
Cl-}icago
f'"'-l,;.
,._,.,
Lou::_s
1VIinneapolis
Kans~s C!.ty
Opera tors 1
Salaries
$ -260.00
Retiremont
Contributions
Operators'
OV0rtimo
;
$5.50
Do.:.l··_:s
~~51.00
San Frnncisco
Board
580.00
$ 24.65
115.50
20.25
27.60
17.55
21.52
299.86
17.45
10.76
25.85
12.55
52.05
~?7 ,882.95
$624.95
~·otal
1,275.44
225.00
306.66
190.00
2G2.!JO
4,050.28(#)
195-00
200.07
287.00
ilP
1.00
1.00
1.50
Wire
rental
qp
'"
~.
'II'
l, 591. 7/l:
2<15.25
354.26
437.55
230.00(&)
284.02
4,551.14
212.43
210.85
312.85
264.85
412.05
14 928.88
14 928.88
$15,158.88
~;23' 670.26
Nlain line rent&l, Richmond-Washington
Includes sale.ries of Washington opere.tors
Credit
Amount reimbursable to Chicago
Includes $567.61, which represents the cost of handling
contingGnt expense telegrams for the Treasury
Department for the month of December.
Totc.1
expenses
$ 284.65
Less Reimbursable Charges
(&)
(#)
( ll-)
(a)
(b)
Pro rate.
share of
total
expenses
81040.24
$15,630.02(b)
762.74
3,165.08
628.53
919.04
1,015.95
1,106.61
1,675.97
1,191.01
'784.63
1,512.92
1,212.89
1,856.85
$J.5,650.02
Credi"ts
Payc.ble to
Bonrd
284.65
1,391.74
215.25
334.26
437.35
28•1.02
4,351.1•1
212.45
210.83
312.85
264.85
412.03
$: 478.09
$8' 741.38
$9,565.81
11
.JP
1,773.34
383.08
534.. 78
578.60
822.59
2,677.17(*)
978.58
573.80
1,000.09
948.04
l '·:1:44. 82
2 1 677.17{a)
::6,838.64
174
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
X-9464
January 25, 19:56.
SUBJECT:
Discounts for bdividuals, Partnerchi.ys
nnd Corporations.
Dear Sir:
The authority granted by the Federal Reserve Board
to all Federal Reserve banks in its circular of .July 26, 1932
(X-7215-a), as amended by its letter of July 8, 1935 (X-9257),
to discount eligible notes, drafts and bills of exch<=mgc for individuals, partner::;hips and co:tporations, subject to the provisions
of the ls.w, the Board's regulations, and thr..t circular, will expire
at tho close of business on January 31, 1956.
The Board has de-
cided to extend such authorization for an n.ddit.iomtl six months.
The Boo.rd has revised it.s circular of July 26, 1952
(X-7215-a), effc~ctive February 1, 193G, in order to conform to
a chan;;e in the law on this
~mbj ect
made by seetion 522 of the
Banking Act of 1935, and a copy of the circular as revised is inclosed herewith.
You will ouserve that section 2 of thc;; revised
circular contains an authorization 'by thH Board to all Federal
Reserve b'lr:ks, for ::-, period ending at
th(~
close of business on
July 51, 1956, to discuu.'1t eligibl8 notes, drafts and bills of
175
..
X-9464
- 2 -
exchange for individuals, partnerships and corporations, subject
to the provisions of the law, the Board's regulations and the
circular. "
You may if you wish have the revised circular printed
or mimeographed and give copies thereof to persons making inquiries
regarding this subject, together with copies of the Board's Regula)
!\
'~
tion A and of any supplemental circular and any forms which your
-
bank may adopt with the approval of your counsel.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO CHAIRMEN AND GOVER.l"'JORS OF ALL FEDER)L, RESERVE BANKS
1?6
.X:-9464-a
February 1, 1956.
StJB,JECT:
DISCOUFTS_ FOR
TO ALL FEDERAL RESERVI<.;
INDIVIDj.JA1_~PARTN~RSHIPS
AND COHPOHATIONS.
BA~:KS:
The third pm.•a.g:caph of Section J.3 of the
Io~ederal
Reserve
Act, as amended by the Acts of .July 21, 1932, and August 25, 1955,
providec as follows:
In unusual ar-.d exigent circumstances, the Board of
Governorn of the Federal R.eserve System, by the affirmative vat(! of not loss th~1.n fi VH '!lombers, may authorize
any fr.':derDl rer.erve bank, during such periods as the said
bocrd may cktormtne, at ratr;;s c~stctbltshod i.n 'lCCordrmco
with the provis1ons of scctbn 14, ::n~bdivision (d), of
this Act, to discount. for any i.ndJ.viclual, partnership, or
corporation, notc~s, drafts, nnd bills of exchunge of' tho
kinds ~md rnnturi ties made eligible for discount for member bt.'.nko under other provisions of this Act when such
notes, drafts, and billi:l of exchung0 arH indorsed or
othorwi S•.:: secu:rud t.o tho Stl t isfac tion of the Fed·Jrc.l reS<Jrva br:.nk: I-'rovidcd, That before discount,ing any such
note, drr~ft, or bill of exchange for an indi-vidual or a
partnerflhip or corpor~tion the Federal reserve bank shall
obta:i.n evidence tlwt such individual, partnership, or
corport: t:Lon ln unable to secure ac~equate c"~ed:t t ~tccom
mod~ +,ions from ether banking ir..sti tutions.
All GUCh
discount~ for lnd1vidu:l1S, partnorships, or cor:1orations
shr~ll be subject to such limitat:~ons, restrictions, c.nd
regulB tions as the Bonrd of Governors of the Jl'ederal
Rcnurve System may r>rc<>cribo. n
11
.
In vievJ of thr: frJCt thr: t toe power conferreu by this provisian can
oe
exercised
onl~r
in
11 unu~ma1
and exigent circumstances",
the Bonrd of Governors of the Federnl Reserve
Syst•~m
has not pre-
scri.bed any formal r•Ji?,U1ations governing tho 8Xercise of this power;
but the requirements of tho law and tho procudtU'e which the Board
will expect to be followed are outlined below for the .information of
177
X-9464-a
-2-
the Federal reserve banks und any individuals, partnerships or corporations that may contemplate applying to them for discounts.
1.
LEGAL REQUIREMENTS.
It will be observed that, by the express terms of the law:
(a) The power conferred upon the
BoL~rd
Federal Reserve System to authorize Federal
..
of Governors of the
r<~serve
banks to dis-
count eligible paper for individuals, partnerships or corporations
may be exercised only:
.
(1) In unusual and exigent circumstances,
(2) By the affirmative vote of not less than five
members of the Board of Governors, and
(5) For such periods as the BoQrd of Governors may
determine.
(b) When so authorized, a Federnl reserve bank may discount
for individuals, partnerships or corporations only notes, drafts and
bills of exchange of the kinds and maturities made eligible for discount for member banks, under othur provisions (Sections Hi, 15a, and
24) of the Federal Reserve Act.
(Such paper must, therefore, comply
with the applicable requirements of the Regulations of the Board of
...
Governors of the Federal Reserve System.)
{c) Paper discounted for individmlls, partnerships or corporations must be either (1) indorsed or (2)
o~~erwise
secured to the
satisfaction of the Federal reserve bank.
(d) Before discom1ting paper for any individual, partnership
178
X-9464-a
-5-
or corporation, a Federal reserve bank must. obtain evidence that such
individual, partnership or corporation is unable to secure adequate
•
credit accommodations from other banking institutions •
(e) Such discounts may be made only at rates established by
the Federal reserve banks, subject to review and determination by the
Board of Governors of the Fedural Rose::.·vo System.
(f) All discounts for lndividl.:;.als, 9artnerships or corporations are subject to such limitations, restrictions, and regulations
as the Board of Gove:cnors of the Federal Reserve System may prescribe.
2.
AUTHOHIZI\.TION BY THE BOARD OF GOVERNORS.
The Bo!1rd of Governors of the Federal Reserve System, pur-
•
suant to the power conferred upon it by the amendment hereinbefore
quoted, hereby authorizes all Federal reserve banks, for a period
ending e.t the close of business on July 51, 1936, to discount eligible notes, drafts and. bills of exchange for indi ':iduo.ls, partnerships
and corporations, subject to the provisions of the law, the Board's
regulations, and this circuJ.ar.
5.
FOR vmDivL PAPER MAY BE DISCOUNTED.
A Federal :ceserve bank may di[>Count for individuals, partnersh1.ps or corporations notes, drafts or bills of exchange, which
are the obligations of such individuals, partnerships, or corporations
or which are the obligations of other parties actually owned by such
indi vidu.·,,_ls, partnerships or corpora tior•s.
Within the meaning of this
does not includt;; b11nks.
circu1£~r,
the term "corporations"
179
-44.
X-9464-c.
APPLICATIONS FOR DISCOUNT.
Each application of '1n inO.ividual, partnership or corporation for the discount of eligible paper by the Federal reserve bank
must be addressed to the Federal reserve bank of the District in
which the principal place of business of the applicant. is located,
must be made in writing on a form furnished for that purpose by the
Federal reserve bank and must contain, or be accompanied by, the
following:
(a) A statement of the circumstRnces giving rise to the
application and of the purposes for which the proceeds of the discount are to be used;
(b) Evidence sufficient to satisfy the J?ederal reserve bank
•
as to (l) the legal eligibility of the paper offered for discount
under the provisions of the Federal Rosorvc Act and tho Hegulations
of the Board of Governors of the Ji'edere.l Reserve Sy·stem and (2) its
acceptability from a credit standpoint;
(c) A statement of the efforts mad.e by the applicant to
obtain adequate credit acco!111nodatj_ons from other banking institutions,
including the names and addresses of all other banking institutions
..
to which applicD.tions for such credit accommodations were rnado, the
dates upon which such e.pplicat.ions were made, whether such c.pplications were; definitely refused and tho reasons, if any, given for
such refusal;
(d) A list showing each bank with which the applicant has
180
-5-
X-9464-a
had banking relations, either as a depositor or as a borrower, during
the preceding year, with the approximate date upon which such banking
relations commenced and, H' such banking relations have been terminated, the approximate date of their termination;
(e) Complete credit data regarding the financial condition
of the principal obligors and indorsers, if any, on the paper offered
for discount;
(f) A list and description of any collateral or other security offered by the applicant;
(g) A waiver by the applicant of demand, notice and protest
as to applicant's obligation
on all paper discounted by the Federal
reserve bank or held by the Federal reserve bank as security; and
(h) An agreement by the appliccmt, in form satisfactory to
the Federal reserve bank, (1) to furnish e.dditional credit information to the Federal reserve bank, when requested, (2) to submit to
audits, credit investigations or examinations by representatives of
the Federal reserve bank at the expense of the applicant, whenever
requested by the Federal reserve bnnk, and (5) to furnish additional
..
security whenever requested to do so by the Federal reserve bank •
5.
GR.~NT
OR REFUSAL 01<~ APPLICATION.
Before discountlng notes, ·drc..fts, or bills of exchange for
any individual, partnership or corporation, the Federal reserve bank
shall ascertain to its satisfaction by such means as it may deem
appropriate:
1_81
,..
X-9464-a
-\)-
(c.) That the finandal condition and credit ""standing of
the
applicrtr~t
justify· the
grc:.r~ti1:g
of ;:mch c:cedi t eccommodo.tions;
(b) That the paper offo:-ed for d:isccunt ir-: acceptable from
leg[~l
a credit str.:mdpoint and eUgible from a
st&ndpoint;
(c) That the indorsement or the socur:i..ty offered is adt::quate to protect the
Fodc~al
(d) Tho. t therE.l is a
mod::t tions;
resorvo
~ank
ro.~tsonable
c.gai.nst loss;
n(jed fo:c such crodi t accom-
~;~nd
(e) 'i'h:~t tho applicant is 1.L'1able to obtain adequate credit
accommodntions from
otl~.:::r
bo.nkint; institutions.
A specic.l effort should be made to determine whether the
"
banking inntitution with which the applicant ordinarily transacts
his banking bm>iness or any other bu.nklng institution to which the
applic~mt
ordi.narily would have uccess is willing to grant such
credit accommodations.
A Federcl rosc>rve bnnk should not discount such paper U..'1less it appeo.rs th.<:. t the ;;roceeds of such discounts will be used to
finance cu:;:rcnt business opcrrtt:i.ons and not for specul[;ttive purposes,
for permo.nent or fixod :Lnvcstmon ts, or
..
Except with the
permis~>ion
o·:.' the
Bo~~rd
fo:::.~
any other capi to.l purposes.
ol Goverr..ors of the Federal
Reserve System, no such paper should be discounted if it aprears tho.t
the proceeds wiLL be used for the purpose of pa;,•ing off existing indebtedness to other banking insti tuti.ons.
In discounting paper for individuals, partnerships or
182
.
-7-
X-9464-a.
corporations, a Federal reserve bank should not make any commitment
to renew or extend such paper or to grant further or additional discounts.
6.
LIMITATIONS.
Except with the permission of the Board of Governors of the
Federal
Re~erve
System, no Federal reserve bank shall discount for
any one individual, partnership or corporation paper amounting in the
aggregate to more than one per cent of the paid-in capital stock and
surplus of such Federal reserve bank.
7.
ADDITIONAL REQUIHEMENTS.
Any Federal reserve bank may prescribe such additional requirements and procedure respecting discounts hereunder as it may
.
deem necessary or advisable; provided that such requirements and
procedure are consistent with the provisions of the law, the Board's
regulations and the terms of this circular.
..
Chester Morrill,
Secretary.
1_83
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
X-9465
January 25, 1936.
SUBJECT:
Code Word Covering New
Issue of Tre~su1~ Bills.
Dear Sir:
In connection with telegraphic transactions in Government securities betweon Federal
reserve banks, the following code word has been
designat~d
to cover a new issue of 'rreasury .3ills:
"NOYHAS" - Treasury Bills to be dated
January 29, 1936, vnd to
mature October 28, 1956.
This word should be inserted in the Federal
Rcs~rve
Telegraph Code book, follmd.ng the
supplemental code word "NOYGUY" on page 172.
Very truly yours,
"
!l-t'1''--l~:::.J.~>C:~
_,"
~
J. C. ·Noell,
Assistant Socrotnry.
TO GOVERNORS OF ALL F. R. BANKS
"
.
184
..
X-9466
BOARD OJ!' GOVERNORS
OF THE ,
FEDERAL HESERVJ!; SYSTEM
St~tcment
for the Press
For release in morning newspapers
of Saturday, January 25, 1936
January 24, 1956
The Board of Governors of the Federal Reserve System
today approved an amendment to Regulation T and issued a supplemcnt thereto, both effective February 1, 1956.
The amendment provides that tho margin requirements applicable to members of national security exchanges
and brokers or dm:.lors who transact a business in securities through tho medium of such racmbers shall be as prescribed
from time to time b:yr the Board of Governors of the Federal
Rt:Jsorve System in supplt!monts to the regulation.
The supplement approved
tod~y
provides that the
maximum loan value of registered securities (other than exemptod securities) shall
b.:.~
45% (inster:.d of 55%) of the cur-
rent market vr.luc of the socuri ty in those cases in which
this amount is greater than the lowest market price of the
security during the preDcr.ibec:
b~;.se
period.
Attached ure copies of the amendment and the
supplement •
•
:1_85
X-9466
SUPPLEMENT TO REGULATION
!
ISSUED BY ·rHE BOARD OF GOVEF\..'1\JOR.S OF THE FEDEHAL RESERVE SYSTEM
Effective February 1, 1956.
Maximum loan values of registered securities (other than
exempted securities) for purposes of negulation T.
Pursuant to the provlslons of section 7 of the Securities Exch;:mge Act
of 1934 and section 3 of i.t::: Eegulation T, as amended, the Board of Governors
of the Federal Reserve Systen: herob:;'· prescribes the following maximum loan
values of registnred securi tie:s (other the.n exempted securities) for the purposes of Regulation T:
(1) Gen~ rule.- Except as provided in paragraphs (2) and
(3) of this f'Upplement, the maximum loan valuo of a registered security
(other than an exempted security) shell be whichever is the higher of:
(A) 45 porccmt of the current market value of tho
security; or
(B) 100 percent of the lowest m8.rket value of the
security computed at the lowest market price therefor during the period of 56 calenda.r months immediately prior to the
first day of tho current month, but not more than 75 percent of
the current markGt value: Provided, Thnt until July 1, 1956,
for the purpose of this regulation, the lowest price at which
a security has sold on or a.ftt:r July 1, 1933, but prior to the
first dc:.y of the current month, sho.11 be considered as the lowest market price of such security during the preceding 36 calendar months; c.nd Provided, Thvt the lowest market price which
could be used under th'J provisions of this regulation during
r:_:.ny calondr,r month may be usod during the first 7 calendar days
of the succeeding cr:.lendr:r month.
(2) Extension of cr,;di t to other members, brokers and dealers. The maximum lo.~',n value of r. rcgisten::d :.oecurity (other than an exempted
security) in a spoci.::,l e,:.ccount with another mGmber, broker or dealer,
which spocic~l. ecccoun t complies with subscctbn (b) of section 3 of Regulation T, r,s amended, slwll b0 80 percent of the current market v&lue
of the security.
(3) Extension of credit to distributors, syndicates, etc. - The
maximum loan value of a registered security (other than an exempted
security) in a special account v;ith a distributor, syndicate, etc.,
which speci,,l <::.ccou..nt complies with subsection (c) of section 3 of
Regulation T, as o.moncied, shall be 80 p8rcent of the current market
value of the security.
X-9466
Amendment No, 7
of Regulation T
Effective February 1,
19~6.
Subsections (a), (b) and (c) o£ section 3 of Regulation Tare hereby amended to read as follows:
"(a) General Rule.- No creditor shall make any initial extension of credit to any customer on any registered security (other than
an exempted security) for the purpose of purchasing or carrying any
security, in an amount which causes the total credit extended on such
registered security to exceed the maximum loan value of such registered
security. Except as specifically provided elsewhere in this regulation, the maximum loan value of a registered security (other than an
exempted security) shall be the maximum loan vclue which the Board of
Governors of the Federal Reserve System shall prescribe as of general
application under this regulation from time to time in supplements to
this regulation, which will be issued in advance of the date upon which
such maximum loan value becomes effective,
"{b)
Extension of credit to other members, brokers and dealers. -
In a special account recorded separately, any creditor may extend credit
on any registered securit;y- to any other_member, broker or dealer in an
amount not greater than the maximum loan value of such security, which
(except in the case of an exempted security) shall be such special
maximum loan value as the Board of Governors of the Federal Reserve System shall prescribe for the purposes of this subsection (b) from time
to time in supplements to this reguh.tion, ·which will be issued in advance of tho date on which such maximum loan value becomes effective:
Provided, That (l) such other member, broker, or dealer is subject to
the provisions of this regulation or has places of business only in
foreign countries, (2) such credit is extended or maintained solely for
the purpose of enabling such member, broker, or dealer to carry accounts for his customers other than his partners, and (3) any credit extended or maintained by such creditor to or for such other member,
broker, or dealer for the purpose of purchasing or carrying securities
for his own account or for tho account of his firm or any of his partners shall not be included in such special account und shall be subject
to the other provisions of this section.
(c) Extension of credit to distributors, syndicates, etc, In a special account recorded separately, any creditor may extend
credit on any registered security to tho persons and for the purposes
specified below in an amount not greater than the maximum loan value
of such security, which (except in the case of an exempted security)
shall be such special maximum loan value as tho Board of Governors of
the Federal Reserve System shall prescribe for the purposes of this subsection (c) from time to time in supplements to this regulation, which
will be issued in advance of the date upon which such maximum loan
value becomes effective: Provided, That such credit is extended:
(l) To any dealer, for the purpose of financing tho distribution
of an issue of securities at wholesale or retail; or
(2) To any group, joint account or syndicate, for the purpose of
underwriting or distributing an issue of securities."
11
·'
t86
1_87
•
X-9467
INTERPRETATION
Banking Act of 1955
(Copies to be sont to all Fedt:.ral reserve banks)
December 18, 1935.
WALSH
DALLAS
Retel December 16, 1955, reference liquidation of ____
State Bank,
.•
----'
------' -----
------ ,
and
-------- State
Bank of
--------
Pursuant to section 9 of the Federal Reserve
Act the holding company affHiates of such banks agreed to be subj ect to the same c0ndi \:.i0ns and lirni tati0ns a:.; nre r:.pplicable under
section 5144 of the Revised Statutes in the case of holding cr.mpany
affiliates of national banks.
The Board is of the 0pinion that sec-
tion 511 of the Banking Act of 1955,.. amending section 5144 of the
Revised Statutes to make it unnecessary for holding
comp~ny
affil-
iates to :-btain voting permits to vote in favor :-f placing subsidiary national b[,nkS in voluntary liquidation or· taking any other
action pertaining to tho voluntary liquidation ')f such banks, likewise madE-) it unnecessary for hC'lding company affiliates to obtain
voting permits for such purposes in connection with subsidiary State
member banks.
Assuming that the
st~)ckholders 1
action' was taken sub-
sequent to August 25, 1955, it was not necessary for the holding corn-
.
\
pany affiliates of the above-named banks to 0btain vct::.ng permits to
vote in fav,)r c.,f placing such banks in volunte.ry liquidation nnd t0
·'
elect the liquidating officers.
(Signed) Chester Morrill
188
X-9469
SOARD OF GOVERNORS OF THE
FtDERft~
RESERVE SYSTEM
STATEMENT FOR THE PRESS
For immediate release
January 28, 1936
INTERPRETATION OF PROVISION IN
SECTION 6 OF REGULATION T
REGARDING THE SEVEN DAY PERIOD.
Ruling No. 48 interpreting Regulation T.
In reply to
an inquiry regarding the provisions of section 6 of Regulation
T, as amended May 10, 1935, the Board of Governors of the Federal Reserve System rules that the seven day period referred
to in that section, which deals with 11 cash transactions", ends
at midnight of the seventh day following the date on which the
period c0mmences to run.
1_89
t. ..
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
X~9470
Jnnu.c..ry 29, 1956.
Dear Sir:
In the Board's letter of Octobur 51, 1922 (Y.-3548), the Fedor:tl r•JServe banks were r·3quested to forwnrd to the Board biographical
skatchos of Fcdnral rosorvc bank and branch directors, goV()rnors,
deputy governors,
assist~1nt
Federal reserve l:i.gents and branch managers.
On March 8, 1929, the Board in its letter X-·6259 requested the Federal
rcsorve
bank~
to advise tt from time to time of any changes in the
business affili:J.tions of the bank D.nd branch directors in order that
th•) biographical sketches might be kept up to dato.
The biographical inf'ormation'which the Board has received from
the reserve banks in accordance with the above requests has been submi tted in widely differing form, and in order thrd; the information contained in tho Board's files may be complete and of a lmiform nature,
you are requested to forw<"-rd to the Boa:ed on forms 242 nnd 245, which
should be filled out by typewriter, 8uch information as is called for
thereon covering each director and each officer of your bank and
bra.nches, if any.
Both forms should be filled out for the ch<drman
and Federal reserve af,ent and for managing directors of branches.
It
is also requested that the Boa:;:d be furnished with similar information
for each person who becomes a director or officer of tho bank in the
190
X-9470
-2-
future and thnt it be kept currently informed of nny changes in the
dQta submitted.
The officiul signature of the officer concerned should be
affixed nt the bottom of his biographical sketch on form 243, but
this requirement does not apply to biogr£tphical sketchos of directors
and it is assumed that in most cases form 242 can be prepared at your
bank from information already contc:.ined in its files.
of forms 242 and 243 are attached and a supply
o~
Printed copies
ench is being for-
warded to you_ 1mder separo.te cover. .Additional copies of this form
may be obtained upon request.
Very truly your3,
Chester Morrill,
8ecretnry.
r
Inclosures.
TO ALL CHAIR1'\1EN
1Bl
' ..
FEDERAL RESERVE BANK
OF ATLANTA
,..
January 24, 1956.
Mr. Chester Morrill, Secretary,
Board of Governors of the
Federal Reserve System,
Washington, D. C.
Dear Mr. Morrill:
Reference is made to Mr. Kettig 1 s letter of January 11,
1936, written in reply to your letter of December 27, 1955 (X-9407),
concerning the desirability that meetings of the boards of directors
of the twelve Federal reserve banks be held on the same day.
Set out next below is an excerpt of the action taken
by our Board of Directors at the January meeting:
"After tho above communication was read the
Governor of tho bank was, on motion, duly seconded and
unanimously carried, authorized to confer with representatives of the other Federal reserve banks and to
agree with them upon a day upon which tho meetings of
the directors of all of the banks would be hold.
"It was the scmso of the meeting that if any
such agreement were reached prior to the time fixed
by the by-laws for tho February, 1936, meeting, the
February meeting should be held on the day so agreed
upon.
"Director Clay thereupon made a motion, which
was seconded by Director McCrary, that the ~J-lnws of
the bank be amended, effective as of the time when such
agreemont as to meeting day might be reached, by fixing
the monthly meetings of the Board in accordance with
that agreement.
"Each dir(3Ctor of the bank was present in the
meeting and each director expressly waived notice of an
intended change in th0 by-laws, whereupon the motion,
us made, was put to a vote and was unnnimously carriod,
and the Secretary was authorized without further instructions to make the appropriate amendment to tho by-laws."
.,
During the discussion a poll was tuken nnd the directors
expressed a preference for the regular monthly meeting to bo held on
...
I
192
,,
X-9471
- 2 -
the second Friday of each month (as at pt•esent) and registered n.s
second choice, the second Thursday of each month, and, in the event
either date falls on a holido.y, the meeting to be held on the next
succeeding full businGSS day.
Very truly yours,
(Sign;:~d) L. M.
Clark
L. M. Clark,
SecrcJtary of tho Board.
:193
FEDERAL RESERVE BOARD
WASHINGTON
X-9472
ADDRE:SS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL. RE:SERVE BOARD
January 29, 1956
..
SUBJECT: Enforcement of Clayton Act •
/
Dear Sir:
Section 4 of Regulation L, as recently revised, provides in substance that each Federal Reserve Agent shall
cause available information to be analyzed in the light
of the provisions of section 8 of the Clayton Act, take
steps whenever necessary to obtain compliance with the law,
and communicate with'the Board in any case in which the
interlocking relationships involved are not brought into
conformity with the law within a reasonable time.
These provisions of the regulation, of course, supersede the requests and suggGstions contained in the Board's
letter of May 1, 1933 (X-7426) and its telegram of March 5,
1
1935 (Trans. 2225) regarding the submission of reports and
reviews to the Board.
Very truly yours,
~-//:> t-1~
f)/
1. P. Bethea,
Assistant Secretary.
TO ALL F. R. AGENTS
.
j_94
BOARD OF GOVERNORS
CJF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS Of'f'ICIAL. CORRESPONDENCE
TO THE BOARD
X-3473
January 30, J 966.
Dear Sir:
For :.rour information, and assistance in
the event similar questions arise in ycur district, there are inclosed herewith copies of
several letters and tdegrams conta:i.ning interpreta.tions of various provisionc: of the agreement
which accompanied the Board's letter of j)ecember
3, 1935, (X-9385), relating to the issuance of
general voting permits.
Very truly yours,
Chester Morrill,
Secretary.
Inclosures.
TO ALL FEDERAL RE;S.SRVE AGENTS
195
DGCWJber 17, 1955.
-----------'
-------------·---Gentlemen:
This refers to the letter of
~~ovember
to the Board on your behalf by !VIr.
25, 1935, 'Nritten
, counsel
for your corporation, with reference to the seven tentative standaro conditions set out in the Board's letter of November 9, 1955,
(X-9560), relatin6 to the issuance of general votinb permits.
Certain corrunents containeci in that letter will be O.iscussed herein
in order that there may be no misunderstandin<"; concerning the
meaning of the conditions as finally approved.
Referrini~
to the opening clause of tentative conditions
numbered 2, 5, 4, 5, and 6, to the effect "that the undersigned
will take such action within its power as may be necessary to cause
each of its subsidiary" corporations to perform certain actions,
Mr.
states:
"These worc:s therefore can mean nothing else
legally except that under these tcnt.o.ti-re conditions
~-- would agree to take such
corporate action v.Ji thin its corco:rate :Jower as may
be necessary, etc. There ls no other legal action
which
- - - - - - - - - can tah., it being a
booy corporate. In other words under this phraseology it Cl::.n take only such action as may be authorized by its own charter and by the charter, laws and
regulations g,overnint; the corporate entity of :i.ts
subsiaiarie s, for re[;.sons well kno·.-m to the Bot:.rd.
coulJ not tske any corpor~te action to intervene into the opera~ionb of a
•.
196
.X-9473-a
- 2 -
national bank to ci.irect its executive officers or
its Board to take corporate action as a national
bank . ·)~ ~<- -~~ i~
~E- ~r ~~ .
*
"With this clarification of the applicability
of this clause t,o us we see no objection to the
language in c1uestion dnce we would take it to be a
legal obligation in sv f£,r as legally aprlicable
o.nd legally possible. Our management ·.~ould voluntarily assume a moral obligation to make the concii-tions effective cs far as may be ~Jracticable."
It is noted that, in referring to ----------------~--------'
Mr.
states:
"Its management is naturally in contact ·with
the management of its subsidiaries and the manaGement is thus in e position to use mo.ce~l suasion end
to have informal cor~ference;;; anc·. conv-:::rs[ctions vvi th
respect to the formulation anci cxecutic•n of policies.
In this manner the policies of -----··--· --··-----cmd those of its subsidisri€ s hrcve been maCe
harmonious. 11
As suggested elsewhere in Mr. _____ 1 lf:tter, thore is
an important element of good faith involved in com!Jliance v.Jl th the
agreement conts.ining the ::::tc.nda.rd concitions, unci the concitions in
question
contemplate th<lt the holding campany
d'fili[~te
will use,
in good faith, every power, corporate or othen:ise, at its O.isposal
to cause its subsidiaries to comply with such conditions.
'I'h~:;
Board
feels that in this comwct.ion the holding compe:my s.ffiliate cannot
be properly distinguished from its man&f'f'llJi.mt 'no thEtt tlw officer E.
and directors of the holding company i.i.ffi.iiatG v:ould be required to
use their powers of mora.l suasion and to make use of informal conferenccs to influence the action of the subsidiaries.
In connection with tentative condition numbered 3, il'lr.
197
•
X-94:73-a
3 -
statfoS that it is assumed i,hat the Board intends that
your corporation shoulc. use its judgment as to ;;hat constitutes
adequacy of capital.
In conGection with tentative cono.ition nurn-
bered 7 he infers that y•:-;ur
corporC~.tion
should be the juCige as to
uhether a given policy is sounJ and ¥\hPther its nei capital and
surplus is adequate.
Such an interpretation wouL;, of course,
Yirtually nullify the comii tions ami the Board feels that it is
The Board must make the:: final
obvic.usly contrary to their intent.
determination concernin 1; tb::;se matters and conc:erning all other
questions relating to th.:; compliance or nonccmpli&nce with the
agreement containing tho conC:itions.
Any
holdin::~
comp.s.ny af-
filiate will, of course, be givE.m r::.very opp(1rtunity to present
its views in any instance in which
tho law, any
holdinc~
!~
questi';n a:cis;_:s
under
compr:.ny affiliate is cntitl8d to c hearing
before its permit .is revoked.
Very truly yours,
Chest0r t1orrill
Che io tor ;,Jo:crill,
Sec:·E:tcry.
~nd,
1_98
X-94.75-b
December
24~
1955.
CASE
NEVI YORK
Reference your letter of December ll relating to voting
permit application of------------
·--··----' -------------'
----
Havin;; autho.d.zed the issuance of the 5eneral vot:Lns penii t
to the applicant subject to .standarci conditions, Board uoes not feel
that it should. grant lirni ted permit enthJ.int,; applicant to vote to
elect c.irectors and to act upon routine r!latt8rs ut 1956 annual meetinGS
of stockholders of its subsidiary ir.ember banks.
The tentative condi--
tions then unc.er consideration by the Board in connection with the
grantinc of general voting _t)ermits were submitted to) and received
careful consic':.eration by, the applicant som0 weeks e,.;o anci the Board
feels that the applicant will have &rhple time to complete its consideration of the prc:ecribed agrer:>ment conta.1.ning the ::-ta!!.dara conditions.
It is unJerstood. that tho a;Jplicant hu.s ex:)ressed certain objections
to paragr[:.ph lettered (D) of the prescribed agrE;ement.
was added pursuc.nt to the
su~;gestions
Such pc..ragraph
of certain upplicants in order
to make it entirely clear thv.t in the cv,;nt of disa:;rt:'ements between
a holding company affilig_te and any
c'ie~~.lgnutcO.
Board pertainin 1; to certain mattr:;rs, the
holuin~:: com~xilly
should have n right to appect::.. to the Boar·d.
essential, it wr,s incorporated for the
reprosuntativo of tl:H3
While; it
~lrotection
~·it<.S
effLLiate
not con:::iciored
of the hc,_u)ing company
affilia t~.:; s cmd was not in tended to limit their rir;hts or to gi vc the
Board any rightc: which it woulcc not otherwise he.v0.
Th~:;
hoE:.rG has no
objection to the omission of such paragraph from the agrtGment
anc~,
1_99
•
X-94'73-b
- 2 -
accordingly, the conai tlon
~ta ted
follo·,.·ing the letter "C '' in t}te
Board's telegram of December 9, 1935, authorizin;.; the issuance of a
general voting permit to _ _ _ _ _ _ _ __
, is hereby modi-
fied by adding theret.o the words "except that paragraph lett8red
(D) of such agreement may bE. omitted upon th::J reCJ_uest of the appliccmt".
PlE.ase advise the applicant a.ccordingly.
(Signed)
Chester Morrill
MOHRILL
"
.
200
X-94'73-c
January 2, 1956.
SARGENT
SAN FRANCISCO
Retel December 28 requesting expression of Board's views regarding following inquiry from - - - - - - - - - - - - with reference
to agreement to be executed in connection with issuance of genernl
vot~ng permit:
"Is it the intention of the li'ederal Reserve Board
that such agreement applies to the present investment in stock of
affiliates and also to any future investments in stock of affiliates?"
Gener'llly speaking, it is Board's view that such agreement
applies to subsidiary and affiliated organizations, stock of which
is acquired after date of execution of such agreement, as well llS
to subsidiary and affiliated orgD.nizations, stock of which is ovmed
.<J.t thE: date of execution of such agree':lont.
If applicant desires
expression of Board 1 0 views as to applicllbility of particular provision to particular set of facts it should submit inquiry as to
such provision toeether with full statement of facts.
(Signed)
ChGstor Morrill
MORRILL
..
.
201
•
X-9473.-d
January 10, 1936.
-----·--------'
Dear Sir:
This refers to your letter dated Dee;ember 30, 1935, containing comments on the Board's letter of December 17, 1:335, relating to
the ac;reement to be executed as
:3.
concli tion to the issuance of a
general voting permit to
You state th•1t. thG manag2ment of - - - - - - - - - - Fmd its
suhsidiary banl-::s :Ls not id-:.::ntical and the.t no
agrc.;~:niJn t
executed by
such corpora tiun v;oulc: relieve the dj_rectors of the su;Jsidiary banks
of any of the ros1Jonsi bili ties plucod upon thorn by law.
The Board
ls aware of th•) fn.ct th:t t differoncos of' opini.on upon matters of
policy may arise botween a holding company affiliate und the directors of a
subsldi::~ry
bank and tho.t th•::: holding company affiliDtc:: may
not bv able immedi::ttdy to bring th8 policies of thu subsidiary bank
into conformity with its own nolicios.
of tho Board that the: u:L tima tc:
NeYcrtholuss, it is the vivw
r.:~ponsibili ty
for the; ?Olicius of a
subsidirJ.:cy bank rusts upon the stockholders thoroof and thet thoy nre
able to ciischargo this rusoonsibility through thoir power to oloct
directors who will Cctr:r;,r out policir3s which r:wet with the approval of
..
the stoekholders •
Yo'J. call attention to the fact th•::t parn.gro.ph 4 of the
202
X-9475-d
-2-
prescribed agreement provides that the holding company nf'filiate
will take such nction within its power n.s may be necessary to cause
each of its
subsidia~~
national banks to comply vnth the recommenda-
tions or suggestions of the Comptroller of the Currency bnsed upon
a.ny report of examination of such bank made to him pursuant to authoritJi :.:unf0rrud by lc.w.
not limit the
You poi:.tt out
recommendation~
th~t
such paragraph does
or suggestions of the Comptroller to
those made p1rrsuant to authority conferred by law and you stute that
this would appe&r to confer on the Comptroller extra-legal powers.
It is the. view of the Board th:tt parngrHph 4 of the agreement
. requi:r'es a holding company affiliate to comply with recommendations
or suggestions of·the Comptroller which are within the scope of his
general supervisory jurisdiction even though such recommendations or
suggestions nre not based upon any specific statutory provision.
Such paragrs.ph does not, of course, require a holding company affiliate to comply with recommendations or suggestions which are outside
the supervisory jurisdiction of the Comptroller.
This provision of the agreement was patterned after the
second paragraph of section 21 of' the Federal Reserve Act which provides that the Comptrollt.lr is o.uthorized "to publish the report of
his examinntion of nny nctionnl banking association or :-:£filiate
which shall not within one hundred and twenty days after notification of the recommt.lndations or suggestions of the Comptroller, based
...
on said examination, hnve complied with the same to his satisfaction."
203
X-947Z-d
-3-
Neither the provisions of the second pnragrc.ph of section 21 nor the
provisions of paragrnph 4 of the voting permit agreement are limited
to recommendations or suggestions of the Comptroller based upon
specific statutory provisions.
You indictcte in your letter that you have confidence in the
Board and have every reason to assume that it will give a reasonable
interpretation to the agreement.
If this is your belief, it would
appear that the pnragraph in question should cause you no apprehension,
since control over the enforcement of the provisions of such paragraph
would be vested exclusively in the Board.
The penalty for violation
of the agreement is revocation of the voting permit, but before invoking such penalty the Board would be required by the 1::-.w to afford
the holding company affilb.te an opportunity for a hearing.
You st[cte that your letter is <Jrompted by the desire that
the regulation of holding company
~1ffiliates
may be conducted on a
sound and equitable basis ru1d by the desire to c..void all oossibili ty
of future controversy and misunderstanding.
The Board appreciates
the spirit in which your letter is written and trusts that the questions raised therein have been satisfactorily answered.
Very truly yours,
(Signed)
Chester Morrill
Chester Morrill,
Secretary.
204
X-9475-e
January 10, 1956.
FLETCHER
CLEVELAND
This refers to the voting permit applications of - - - - · - - - - -
__, -----'
f
___ , ------' - -
_ _ _ , and
- - - - - ' anc ·co your letter of December
::so,
1955, relating to the
interpretation of paragraph numbered l of the form of afS!'eement t0
be executed us a condition to the issuance of g€neral voting permits
to such applicants and incloc.inr; copy of letter of December 28, 1935,
from
r.tent.
_ submi"vting an alternative form of agreeTho Board interprets paragraph
agreement to require the holdinG
numb~red
ccmpr~ny
l of the prescribed
affiliate to make tho
specified eliminations on the b&sis of the latest reports of examination availDble .:m tht.;; date the hcl6in:; conipany
elt::cts to
affilL~to
comply v:i th the provisions cf such paragre.ph and. acivises the
Reserve
ag~nt
cf such compliance.
graph req_uir0s the
hol<.~ing
Ff~deral
It is to be noted that such para-
compr,ny affi.li.:::d;,f.:. to make
~uch
elirr1ina.tions
as soon as pnr.ctlcable &nd not merely to de so c::t any time within two
years.
.,
Paragraph numbered 2 shuulL< be interpretua in u.ccordance r-:i th
the S!'.rne princi_:;les as
p~r&f:,Taph
numbered l.
Pr~I'[t~;rcph
numbcr0d 4
requires the holding ccmvmy a1'fi.i..iatlo to cu1sc its subsidiary national bE,nks awl their affiliates t.o comply with th0
recommend:~ticns
c..nd suggestiuns of the C1..)mptroll.f>r of thd Currency bast-d upun any
205
X-9475-e
- 2 -
report of exa.minb.tiun v;hich may be
ma~e
ut any tLie dur lni:~ the life
of the voting pormit anC. not merely to cor:1ply ·uith those based on
the latest report of examtnation avai·1.• u.l:·le on the date the u;;reement
is
si,~8d.
Pnrn~;raph
numbered 5 shoul.( :Jc interpreted in accordance
'Ni th the same p:l:'inciplt.:;s as pe.ro.z;rl).pn n.Uiallercd 4..
F'nrag:::·aph l<Jttcred
pursu~.:.nt to suggcs t:.ions hl~<de
(D) was incorpo.cr. ted in the c.grecment
by certain holoing compan.t :::;,ffiJ.i<Jt,es (no was dt"lsi;:;rwd for their
l)I'O-
If, howe:W;r, such parar;raph is ubj c·ctlonr.:.blo to any hoJ.ciing
tection.
compe.ny affiliate the Boaro has no objection to it being elirnirwted
from tho
agr(~cJT,ent
executed by ;1uch holcilng compa11y affiliate.
Board docs n·Jt feE;l thEt it cnn
E~p~rovc
the prescribed a7eoment sug·:sested by
The
any cf th._ moCiificatiuns of
-----
- - - - · except
that, of coursE.:, it h-:-s no obje\!ticn to the words "t o
.ve~<rs"
in
'.r
Please oclvisG tht:. Lnterc&tO(.l orc:.mizntiuns
II~
,_.).,.,._,
(-'Q"
•
'')
\ ,.....
~.).Ll
-.J
Ch,;sta· Morrill
lAOHRILL
'•l
·'·.•
•
206
}'
Z-94.75--f
J<.'.nuary 11, 1956.
CASE
NEW YORK
Representatives of -------------------- -------------' met with
representatives of the Board on January 3, 1956, and suggested certain
changes in the standard agreement prescribed by Board in connection
with granting general voting permits.
Such standard agreement having
alreEldy been executed by many holding companies, Bo[crd dc>OS not feel
the,t it should modify
--------~--------._
be helpful to
th~
agreement as suggested by representatives of
but the discussion contained in this telegrD.m may
Therefore, please promptly deliver a
copy of this telegram to that corporation for its information.
Board does not fBel th:.tt 9aragraphs numbered 1 and 2 in standard
agreement should be omitted in case of------------------- since Board
is not in a position to determine defir:i toly at this time that requirements of
~uch
pe.ragraphs have been complied with.
parn.grnphs have actually been complied vd th by
However, when such
those
paragraphs, of course, will nc longer be effective.
In connection with applicr.:.nt' s suggestion relating to parc.grctph
numbered 5 of stl.mdard agreement, attention is called to fact thnt
such paragraph requires holding company to take such action within its
power as may be necessary to cause "each" of its subsidiary banks to
maintnin a sound financial condition, and the Board contemplates that
consideration will be given to the needs of all of the subsidiary banks.
207
X-9475-f
Pnragrnph numbered 4 of st[:,r.dard .9.greernent requires compliance
with recomr.lendations or sugg0stions of Comptroller which are within
scope of his general supervisory jurisdiction even though such recommcndations or suegostions are not based upon <my specific statutory
provision.
This portion of the agreement would not require compliance
with recommendaUons or suggestions l:>eyond supervisory jurisdiction of
Comptroller.
The language here used is based upon the second paragraph
oi' suction 21 of Federal Reserve Act which provides for compli.ance with
the "recommendations or suggestions of th.::: Comptroller, based on said
examination".
Neither provisions of section 21 just quoted nor provi ...
sions of paragraph 4 of standard agreement are limited to recommendations or suggestions of Comptroller based upon specific statutory provisions.
Attention is called to fact that enforcement of provisions
of paragraph 4 is vested exclusively in Board •. Penalty for violation
of agreement is revocation of
votin~
permit and, before invoking such
penalty, Board would be rnquired by law to afford holding company affiliate an opportu..TJ.i ty for a hoaring.
Thorefore, it would t1ppoar that
holding company affilinte is adequately protectc:d G.gainst any u.TJ.reasonable requirements •. Detailod cormnonts relnting to peragraph 5 of
standard agreement do not C:.ppour neces;Jary.
In connection with argument of applicant that the prescribed
a~,Teement
may result in discrimination between banks which are subsid-
iaries of holding company affiliates and other banks, attention is
directed to the fact that the execution of such agreement and the
208
X-94-75-f
-5-
terms thereof have been prescribed by the Board in the discharge of
responsibilities placed upon it by law and that any differences between the situation of banks which are subsidiaries of holding companies and other banks necessarily arise from the enactment of the
legislation by Congress relating specifically to holding company
affiliates and their banking subsidiaries.
In connection with suggestion of-------------------- that words
"take such action within its power as may be necessary to" be inserted
in two clauses of paragraph numbered 7 of standard agreement, attontioh is called to the fact that throughout standard agreement that
phrase has been used only in those provisions which affect other corporations and which require holding company affiliate to cause certain
action by such other corporations to be taken.
Clauses of paragraph
numbered 7 which are in question relate solely to holding compnny af. filiate itself and suggested amendment of paragraph numbered 7 therefore does not seem necessary or appropriate.
The standard agreement contemplates the.t a holding company affiliate will use in good faith everJ power, corporate or otherwise, at its
disposal to cause its subsidiaries to take the prescribed action.
The
Board feels that in this corillection a holding company affiliate cannot
be properly distinguished from its management and that officers and
director::> of
a holding company affiliate would be expected to use
their powers of moral suasion and to make use of informal conferences
where necessary to influence tho action of subsidiaries.
This is merely
209
•
X-9574-f
-4-
making use of the means c.nd methods 0ommonly employed by any holding
company in furthering the execution of policies adopted by it.
Consideration has been given to suggestion that execution of
agreement might possibly suLjoc+ - - - - · - - - - - - - - to certain
State taxation.
However, Board feels thnt in determining the condi-
tions upon which it will grDn t general voting permits in the disd;arge
of the responsibilities placed upon it by law, it cannot undertake to
consider or determine the eff,3ct of local tax laws in po.rticular situations.
Hovinp: adopted standard agreement for execution by holdj_ng companies in connection with the granting of
g~neral
voting permits, and
h'lving authorized issuance of gonr3ral voting p·Jrmi t to - · - - - - - - - '
Boerd does not fool that it should comply with request of that corporation for a permit which m.Leht bo surrendered at any time :-.ftor the
ond of ::_ period of two years nt tho election of that corporation.
If the
executes the agreement, a letter con-
firming the above statements will be
addre~~sed
directly to that corpor-
ation for its records.
The Board extends to Jnnuary 51, 1956, the time within which you
may issue to ------------------ the general voting permit authorized in
the Board's telegram to you of December 9, 1955.
(Signed)
Chester Morrill
MORRILL
210
X-9473-g
January 11, 1836.
SARGL~TT
SAN FHANCISCO
This refer;:; to your letter of Lecembe:- :28, 1955, recorrunenC:.ing
that the BoDrd authorize the issuance of a limited permit to
'
____ , ----·---' entitling it to vote
to elect directors and act on routine mc:..ttGrs at the 1936 annual
meetings of it::: su:tsidiary member b::nks.
In connection ·::i th re-
qnestr.. madG by other holding company affiliates, the Boal'ci has
taker" the position thu t it shm;. ... cl not authorbe the is::;uauce of
such limiteC: vcting permit:J after it hs.s
~mthorize:l.
the ls:cuance
of general voting P·3rmi ts subj E:Ct to the standard c;onui tim1s &nd
.it does not feel th:.ct it crm
de~1art
from that pooi tion in connecIn his letter of Lecember 26, 1955,
tiun with
a copy of 7Jhich accompn.nieci your letter, Mr. ______ , President of
the <:tpplicn.nt, raised certr"in '-;uestions concerning pn.ragre.phs numbered 1, 3
r:~nd
7 of the agreement to be executed
l:iS
n. ccncl.i tion ·to
the issuance of a general votln::;; pernit to the applicant.
The use
of valuation reserves in th6 m£umer outlined by i'vlr.
is an
acceptable manr1er in which to make the eliminations required by
paragraph numberea l.
However~
on the basis of the latest informa-
tion suomitted to the Board, it o1-'pears that compliance 'IIlith the
provh:.ions of thn.t parn.g·raph o.t this time woulC. require elLainations
amounting to sucstantially nore than - - - - - ' the amount mentioned
211
I
- 2 -
by Mr.
In connPc t.icn vv :i th '·,L:.
---- ';:;
latin;; to paragraph numbered 7, it si.1ou1r·
(w
suggestions re-
,wted that the clause
of tht!.t ;;aragraph which uc::tl::: w:i.th net Ctcpital and surplus funds
rs:a:Jus solely to the holC<in'-; com!.Jan:r affiliate and not to its
:::ubsidi:cry br·.nk.s.
hi th reference to his su,n;gestions rel.l".ting to
paragraph numbered 3 1 the Board feLls thc.ct, in view of the responsibilities pluce!i upon it in
com~idcr
,,~!'anting ;,~eneral
votin6 permits, l t must
queftions as to COHipliei.nce ·,vith the terms of this paragraph
by applying pri.nciples of sound banking yrc:,ctice to tho concrete facts
E:nd circumstances of the particul-,r cases and, accorcling, it can
not approve the
su.:~gested
modification of this par3.graph.
It
should. also be noted that this paragrr.ph r-elates to all subsidiary
bt=1nks and not merely to suosidiar;r national b<:<.nks.
Plea so advise
the t))plicant in accordanco with this telegram.
(Si 6'11ed)
Chester Morrill
IviOR.R.ILL
2:t2
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDe:NCE TO
THE FEDERAL RESERVE BOARD
X-9474
January 31, 1936.
Dear Sir:
For your information and guidance, there is
inclosed a copy of a letter sent to the Federal Reserve
Agent at St. Louis, with respect to reports of
for reserve purposes rendered by- member
ban~cs
~eposits
pursuant
to the requirements cf the Board's letter X-9397 of
December 19, 1935.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO ALL FEDERfu.. RESERVE AGEriTS EXCEPT ST. LOUIS.
213
X-9474-a
January 51, 1956.
Mr. John S. Wood,
Federal Reserve Agent,
Federal Reserve Bank of St. Louis,
St. Louis, Missouri.
Dear Mr. Wood:
Receipt is acknowledged of your letter of January 17, from
which it is noted that, in submitting semi-monthly reports of deposits
for reserve purposes in accordance with the revised reserve formula
outlined in the Board's letter X-9597 of December 19, 1955, a number
of member banks showed allowable deductions but calculated their reserve requirements against gross deman0. de:)osits, while others merely
reported gross deposits ;md a.Lso calculated. their required reserves on
the basis of gross de}!osits.
It is noted further that in most cases no
comment was made by the reporting member banks, but that one explained
its action as follows:
11
0n account of our reserv0 balance being so much
in excess of Federal Reserve requirements, and in order
to save time in calculations, deductions are waived on
this report."
The form prescribed by the Board in its letter X-9597 of
·,
December 19, 1905, for use b>; member banks in submitting current re)orts
of deposits to F'e<ieral Reserv.: banks for reserve computation purposes
contemplates that every member bank shall report the amount of its (l)
gross demand deposits, (2) balances subject to imme<iiate withdrawal
due
X-9474-a
2 -
214
from other banks, (5) cash items in process of collection, and (4) time
deposits.
Please, therefore, advise any member bank concerned that, re-
gardless of whether or not it desires to have allowable deductions taken
into consideration ln the determination of its reserve requirements, the
amount of.each of the four items must be shmm in the required report of
deposits submitted pursuant to the BoarCi's letter above referred to.
It mi&ht be well to call the attention of such banks to the
fact that, in rE:ports of deposits submittod for reserve computation purposes, cash items forwarded to a correspondent bank for collection and
credit and charged to "due from banks" may be included in "bal:.mccs subject to immediate withorawa.L due from other banks", instead of in "cash
items in process of collection".
member banks
ap~Jarently
This su[;gestion is made because some
are under the impression that they must keep a
separate record of all cash items ln process of collection, if they wish
to deduct· such items from gross demand deposits.
This confusion has re-
sulted partly from the requirE:ments of thE; Ft::derul fcposi t Insurance Corporation that such a record must be kept if the bank ·;.;ishes to deduct "float''
in determining tho amount of deposits ;mbject to
u~;sessmcnt
purposes.
Very truly yours,
( Sigrwd)
Chester Morrill
Chester Morrill,
Secretary.
for insurance
215
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
AOORESS DF"F"ICIAL CDRRESPDNOENCE
TD THE SOARD
X-9475
Janua~J
SUBJECT:
31, 1936.
Reduction of Preferred Stock or Capital
Notes cr DebE'ln·:~ures by State Member Banks.
Dear Sir:
The Board's attention has been called to a case where a State
member bank having a capital of less than $50,000, and situated in a
place the population of which does not exceed 3,000 tnhabitants, desires to reduce its capital to an amount not less than $25,000,
through the retirement of capital debentures issued to the Reconstruc ....
tion Finance Corporation.
As you know, a national bank may not be
organized with a capital of less than $5;J,OOO, whereas a State bank
located in a town the population of which does not exceed 3,000 inhabitants may be admitted to membership in the Federal Reserve System,
under cert'1in conditions, with a capital of not less than $25,000.
The Board has held, under applicable provisions of the Federal Reserve Act, that where
a.
State member bank reduces its capital
to an amount below that required for the organization of a national
bank in the place where the State momber bank is located it is a
violation of the technical requirements of the Federal Reset've Act
for which the bank 1 s membership might be forfeited.
However, whether
such act.1.on shoulct be ·caken in any case is a matter involving the
216
X-9475
-2-:-
exercise of a discretion by the Board.
On the
b~sis
of the facts in-
volved in the case described above, the Board felt that the proposed
action by tho State membor bank roforred to did not constitute a violation of the purposos of the requirement:;; of the Federal Reserve ilct,
and that the Board would be justifiod in raising no objection to the
proposed retirement of capital debentures.
In reaching this conclu-
sion, the Board was influenced by tho fact that the State member bnnk
could withdraw from the System, effect tho rrtirement of the capital
debentures, and, in view of its location in a place with a population
of loss than 3,000 inhabitants, still h<:.wo sufficient capital to moot
tho requirements of tho Federal Reserve JlCt for readmission t:.)
m-.::~mbor
ship in the System.
It is understood that
.:.1
number of State member banks located
in places with a population of les8 than 3,000 inhabitants have issued
preferred stock or capital notes "r debentures at c: time when they were
in neod of nddi ti-:m<:.:.l c~tpi t 1 on acc•Junt of tho c::mdi tion of their
sets t,) enable thorn
purposes.
v,
GS-
moot tne: demc:md.s of thoir depDSi tors or for other
Some of thJso b£'.nks may non bo in a posi tir:m to retire pro-
ferrod stock or capi tu.l
note~>
.,r
debenture~~
wi Lh.Jut ,;.ffocting the sound-
ness of their cc.pikl structuros :md without jo::prcrdizing the interests
of depositors or other crodi turs.
ized to state that the BJ.::trd will
In the
circumst~mcc~,
intcrp~JSO
you are author-
no objection to roductions
of capi tt1l n0tos or debentures S<..:ld to tho ·:1.:..:c "nstructLm Fimmce Corpora tim or preferred sbck by State member bt.nks loco.tcd in places
217
X-9475
- 3 -
havin::; a population which does not exceed 3,000
inhabit.E~nts,
where,
in your opinion 9 all of the circumstances involved warrant euch a
reduction and. where, nfter such reduction i.s accomplished, the mernber bank will have a capital. of at least :-.25,000.
In consiaering
a reduction in any such case, you sh0uld be guided by the principles
and instruction::; contained in the Board's letter of December 15,
1934 (X-9048)
or capital
relatin.;~
noteL~
to approval of reductions of
preferrc~d
or debentures generelly.
Very truly yours,
Chester Morrill,
[Jecret~.~ry.
TO ALL FE[:EhfuJ !t.CSEiWL AGE:JTS.
stock
2t8
BOARD OF GOVERNORS
OF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
AOORESS OFFICIAL CORRESPONDENCE
TO THE BOARD
X-9476
Febr~ary
SUBJECT:
1, 1936.
Code Word Covering New
Issue of Treasury Bills.
Dear Sir:
In connection with telegraphic transactions in Government securities between Federal
reserve banks, the following code word has been
designated to cover a new issue of Treasury Bills:
11
NOYHID 11
-
Treasury Bills to be dated
February 5, 1936, and to
mature November 4, 1936.
This word should be inserted in the Federal Reserve Telegraph Code book, following the
supplemental code word "NOYHAS" on page 172.
Very truly yours,
~
Assistant Secretary.
TO GOVEfillORS OF ALL F. R.
Bili~KS
-
2t9
'
INTERPRETATION
BN~KING
ACT OF 1955
X-9477
(Copies to be sent to all Federal Reserve banks)
January 51, 1956.
Mr. John S. Wood,
Federal Reserve Agent,
Federal Reserve Bank of St. Louis,
St. Louis, Missouri.
Dear Mr. Wood:
This refers to your letter of December 13, 1955, with inclosure, from which it apppears that Mr.
____,
-----------------' who is
chairman of the board of directors of ----------- Bank,
--------' a State member bank, is also a partner with his brother in
the firm of
terest in such
, each having an equal one-half infirm~
You inquire whether, in view of the provisions
of section 2 of the Board's Regulation 0, a member bank is permitted
to extend credit to a partnership in which an executive officer of
such bank has a 50 per cent interest therein.
Under the provisions of subsection (g) of section 22 of
the Federal Reserve Act, as amended by the Banking Act of 1955, "barrowing by, or loaning to, a partnership in which one or more executive
officers of a member bank are partners having either individually or
together a majority interest in said partnership shall be considered
within the prohibition of this subsection".
In the case of an execu-
tive officer of a member bank who has exactly a 50 per cent interest
in a partnership, such an interest would not amount to a "majority"
interest within the moaning of that term as it is generally understood
220
Mr. John
s.
X-9477
Wood -- 2
and it is, therefore, tho view of the Board that the prohibitions
contained in section 2 of tho Board's Regulation 0 are not applicable to such a partnership.
Moreover, it is a well settled rule of law that partners
are presumed to have equal interests in the firm in the absence
of competent evidence of an agreement to the contrary.
In view of
this legal presumption o.nd the statement that Mr.
does not have a majority interest in the partnership, you are authorized to advise the ------------ Bank that the provisions of section
22(g) of the Federal Reserve Act and the Board's Regulation 0 o.re
not applicable to the partnership in question.
Very truly yours,
(Signed)
Chester Morrill
Chester Morrill,
Secretary.
221
INTERPRETATION
X-9478
BANKING ACT OF 1935
(Copies to be sent to all Federal Reserve banks)
January 31, 1936.
M r . - - - - - - - - · ' President,
The
National Bank,
Dear Sir:
This refers to your letter of December 28, 1935, in which
you state that the chairman of the board of directors of your bank
merely presides over meetings of the board and that during the six
months of each year spent in (name of city in which bank is located)
his activities in connection with the bank are only those of a director.
You suggest that the board of directors of your bank pass a reso-
lution expressly providing that the duties of the chairman are not of
an executive nature, or amending the by-laws to this effect, and upon
this basis you inquire whether it would be possible for the Board of
Governors of the Federal Reserve System to except the chairman of the
board of directors of your bank from the classification of an executive officer.
The chairman of the board of directors of a bank in man;r
instances exercises executive functions in· addition to merely presiding at meetings of the board of directors, and it is generally understood by the public that the chairman of the board of directors of a
bank performs such functions.
At the time of its consideration of
Regulation O, the Board was aware of the fact that some banks had
222
X-9478
-2-
honorary or inactive officers who did not actively participate in
the management of the bank, but it was the view of the Board that
bank officials whose titles may cause the public to consider them
executive officers should comply with the rules governing executive
officers.
Also, Congress did not
m~ko
a distinction in section 22(g)
of the Federal Reserve •• ct between activo and inactive officers, and
the Board, in prescribing a general rule applicable to all member
banks alike, did not foel that it should make such a distinction
when defining the term "executive officer" pursuant to the authority
vested in the Board by the law.
Accordingly, the chairman of the
board of directors has been included within the definition as contained in subsection (b) of section 1 of the Board's Regulation
o,
whether or not he is active.
The Board also considered the suggestion that a provision
be included in the regulation to the effect that a person, even though
he holds one or more positions specified in the Board's Regulation
o,
such as president or chairman of the board of directors, would not
be considered an executive officer of the bank if his duties were restricted by a resolution of the board of directors or by a provision
in the by-laws of the bank.
The Board, however, for the reasons in-
dicated abovu, did not feel that it should make such .:.m exception in
the regulation and, accordingly, it would not be fair to the other
banks to which the rcguJ.aUon is applicable to except the chairman
of the board of your bank from the provisions of the regulation on
such a basis.
Very truly yours,
(Signed)
L. P. Bethea
L. P • Bethea, .
Assistant Secretary.
INTERPRETATION
BANKING ACT
X-9479
O.F' 19 35
(Copies to be sent to all Federal Reserve banks)
January 30, 1936.
-----------------------------'
--------------------------------------'
----------------------------------------'
Dear Sir:
Reference is made to your letter dated January 8, 193G,
addressed to Senator _____ , regarding the question whether a business corporation may maintain a savings deposit in a member bank of
the Federal Reserve System.
tor
Your letter has been referred by Sena-
to the Board of Governors of tho Federal Reserve System
for reply,.
The Banking Act of 1935 conferred upon the Board authority
to define the term nso.vings deposits" and to prescribe such rules
and regulations as it may deem necessary to effectuate the purposes
of the law and prevent evasions thereof.
This authority was granted
in order to enable the Board to correct certain well-recognized
abuses which had grown up in connection with savings deposits •
.As you may know, member b!lnks are forbidden by law to pay
interest on demand deposits or to pay time deposits before maturity,
except in certain exceptional circumstances.
However, member banks
are permitted to pay savings deposits on demand, provided they retain
the right to require thirty days' notice of withdrawal, and are also
permitted to pay interest on such deposits.
In addition, member banks
224
-2-
X-9479
are permitted to carry with the Federal Reserve banks a reserve of
only 3 per cent against savings deposits, although they are required
to carry reserves of 7, 10, or 15 per cent, depending upon the location of the bank, against all other deposits which are payable on
demand.
It will be seen from the above that savings deposits are an
exceptionally favored class of deposits having special privileges not
granted to any other class of
deposits~
These privileges are granted
to such deposits because of the desire to encourage thrift.
However,
the granting of this £avored status to savings deposits has led to
certain abuses by member banks, chief of which were the classification
of ordinary demand
d~posits
as savings deposits in order to pay inter-
est on such funds and to carry the lower reserves against them, and
the classification of idle funds of business corporations as savings
deposits even though such funds were not accumulated for the purposes
sought to be encouraged by the favored status given to savings deposits.
It is believed that "savings deposits" in the true meaning
of the term are deposits which consist of the accumulation of savings
of individuals, usually of limited financial means, in order to provide for sickness, accident, old age or other exigencies, to meet
anticipated expenses, or for other similar purposes, and, although
there are certain non-profit organizations which may properly be included in the class of those who are afforded the privilege of maintaining savings deposits, it is not believed that funds of corporations
opera ted for profit fall within this category"
iiCcordingly, in sec-
tion l(e) of Regulation Q the Board has provided that a savings deposit
X-9479
must consist of the funds of one or more individuals or of an organization operated primarily for religious, philanthropic; charitable, educational, fraternal or other similar purposes and not operated for profit.
It is hoped that the above explanation of this matter will answer the
ques~ion
which you have in mind as to the basis for the dis-
tinction in the definition of savings deposits loetweon deposits of individuals and those of organizations operated for profit.
With reference to your statement that the member bank had
informed you that the deposit of your corporation must be placed in a
checking account, it should be noted that although Regulation Q does
not permit deposits of a business corporation to be classified as savings deposits, there is nothing in such regulation to prevent a business
corporation from placing its funds in an interest-bearing time deposit.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
BOARD OF GOVERNORS
OF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
X-9480
February 6, 1956.
SUBJECT:
Rclduction of Cc.pitnl of St:::.te Member Banks.
Dear Sir:
Standard condition of membership numbered 2 c:.s printed in the
Board's Regult<-tion H, effective January 1, 1936, provides in part that
the capitvl of a bank subject to such condition "shall not be reduced oxcept with the pormis.sion of the Boc:::rci of Governors of tho Federal Reserve
System. 11
Footnote 9 in tho Rvgulc:.tion, however, provides:
"A reduction in capital, bowover, shall not be doomed to be contrary to this provision if, at the same time, uho capital is correspondingly incrouscd or a specific reserve in an amount not loss
than the amount of the c~<.pi tal reduction is sot aside to provide
for an increase in capi b:cl und can bo used for no other purpose;
provided, of course, the transaction docs not violate any provision ·Jf [~pplica.ble laws. 11
0
The interpretation incorporo.ted in the above footnote is hereby
made applicu,ble in all cnses wherl'J
:"<
ba.nk has boon admitted to membership
in the past subj oct to u condi Uon of membership thLl t the bank 1 s capital
shall not be reduced except with the permission of the Board.
guided accordingly.
TO ALL FEDERAL
Very truly ycurs,
Chestor Morrill,
Secretary.
RESERVE AGENTS.
Please be
22?
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
:X-9481
February 6, 1936.
SUBJECT:
Chango in inter-district time
schedule
Dear Sir:
Upon the request of the Federal Reserve Bunk of
Dallas and with the concurrence of tho other Federal Reserve banks affected, the Board of Governors of the Federal Reserve System approves the following changes in the
inter-district time schedule for cash items:
From
Dallas to Helena
Houston to Boston
San Antonio to Boston
Sc.n Antonio to Seattle
4 days
4 days
4 days
5 days
Very truly yours,
Chester Morrill,
Secretary.
TO ALL GOVERNORS
To
3 days
3 days
3 days
4 days
228
BOARD OF GOVERNORS
OF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS DF'F'ICIAL CORRESPONDENCE
TO THE SOARO
X-9482
February 6, 1936.
SUBJECT:
Code Word Covering New
Issue of Treasury Bills.
Dear Sir:
In connection with telegraphic transactions in Government securities between Federal
reserve banks, the following code word has been
designated to cover a nc1N issue of Treasury Bills:
"NOYHOK 11
-
Treasury Bi:tls to be dated
Fel::ru.ory 11) 1936, and to
matu:...·c; November 10, 1936.
This word shoclid be inserted in the Federal Reserve Telegraph Code book, following the
supplemental code word "NOYHID" on page 172.
Very truly yours,
V
0,
'kf,....,
:.·.?/tl..-f!2~
J. ·,-:;. Noell~~--
Assistant Secretary.
TO GOVERNORS OF ALL F. R. BANKS
/
2.29
X-9483
INTERPRE'fATI ON
BANKING ACT OF 1955
(Copies to be sent to all Federal reserve banks)
TELEGRAM
February 6, 1956.
WOOD
ST. LOUIS
Retel February 3, 1956.
Reports of indebtedness required by sec-
tion 22(g) prior to amendment thereto contained in Banking Act of
1955 were to be made to the chairman of the board of directors,
while under provisions of that section as amended such reports are
to be made to the board of directors.
sions of section 5 of Regulation
o,
Accordingly, under provi-
an executive officer of a
member bank indebted to other banks on January 1, 1956, effective
date of Regulation
o,
is required to report such indebtedness to
board of directors of member bank of which he is an executive officer regardless of whether such indebtedness has been reported
to chairman of board of directors.
Footnote 2 section 5 of Regu-
lation 0 merely relates to renewals or extensions of an indebtedness which has been reported to the board of directors.
(Signed)
Chester Morrill
MORRILL
X-9484
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
For information,
not quotation.
February
For release morning newspapers
of Sunday, February 9, 1936.
a,
1936.
At the request of the Board of Governors of the Federal Reserve System,
Dr. Adolph C. Miller has consented to continue, in an advisory capacity, the
supervision he has exercised over the plans for and construction of the
Board's new building since its inception.
Mr. Charles S. Hamlin, who was the first governor of the Board and
whose service, like Dr. Miller's, has extended over the entire period of
the Board's existence since the creation of the Fcderal"Reserve System in
1914, has also consented to remain as a special counsel to the Board,
acting in an advisory capacity so that the new Board will have the benefit
of his long experience.
Mr. J. J. Thomas has been appointed a Class C director of the Federal
Reserve Bank of Kansas City and designated as Chairman and Federal Reserve
Agent to fill the vacancy existing since the death of Mr. M. L. McClure.
Judge Thomas' appointment as a Class C director is for tho unexpired term
ending December 51, 1958, and his designation as Chairman and Federal Reserve Agent is for the remainder of the current year.
Mr. George R. James, who had requested to be relieved as a member of
the Board when his term expired in 1931 and who accepted reappointment at
that time in order to carry on through the emergency period, has announced
that he will resume his business connections in Memphis.
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BCARD
},-9485
February 8, 1936.
Dear Sir:
Referring to the Board's letter of July
26, 1935 (X-9271), in regard to the quarterly
audit of the books and records of the Board's
Fiscal Agent by the Auditor of the Federal. Reserve Bank of Cleveland, there is transmitted
herewith, for your information, a copy of the
auditor's certificate in connection with his
audit of the Board's accounts for the period
October 20 to December 31, 1935, inclusive.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO ALL CHAIRMEN.
X-9485-a
QOPY
I, F.
v.
Grayson, hereby certify:
(a)
That a complete audit has been made of all entries in the
accounts, "Board of Governors of the Federal Reserve SystemSpecial Fund", 11 Board of Governors of the Federal Reserve SystemBuilding Account", "Board of Governors of the Federal Reserve
System-Fiscal Agent" and "Board of Governors of the Federal Reserve System-Fiscal Agent·Building Account", for the period
October 20 to December 31, 1955, inclusive.
(b)
That all cash receipts received b,y the Board as shovm by
the "Collection Schedules" furnished the Fiscal Agent by the
Secretar,y's office have been deposited b,y the Fiscal Agent and
properly credited by the Federal Reserve Bank of Richmond in
the account, "Board of Governors of the Federal Reserve SystemSpecial Fund" except schedule No. 795 for $2.60 which was
credited by the Richmond bank on January 15, 1956.
(c)
That all remittances made direct to the Richmond bank for
the account of the Board of Governors of the Federal Reserve
System by the Federal reserve banks and oth(~rs in compliance
with the Board's instructions have been properly credited to
the accounts, 11 Board of' Governors of t.he Federal Reserve SystomSpeeial Ft:nci 11 and ;'Board of Governors of the Federal Reserve
System-Building Account."
(d)
That each expenrHture made by the Fiscal Agent was properly authorized by ru~ administrative officer of the Board.
(e)
That the items of receipts und expenditures shown by the
books of the :B'iscal Agent have been reconciled with the items
shown in the statements of the Board of' Governors of' the Federal Reserve System'a c.ccounts prepared by the Federal Reserve
Bank of Richm:md.
(f)
That the balances in each account as shown by the books
of the Fiscal Agent have been reconciled with the balances
standing to the credit of tho Board of Governors of the Federal Reserve System on the books of the Federal Resorve Bank
of Richmond as certified by the auditor of that bunk.
(g)
That all "Transfers of funds" hnvc bocn properly authorized
by a member of the Board's Executive Committee.
Respectfully submitted,
(Signed)
Auditor
January 31, 1956
F'. V. Grayson
232
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
X-9486
February 11; 19:36
SUBJECT:
Code words in connection with applications
for membership or for voluntary withdrawal
under provisions of Regulation H.
Dear Sir:
In order to conform to the revision of the Board 1 s Regulation H, which became effective January 1, 1956, the following changes
in code words are effective immediately:
The code words
11
ANCHORIVETED 11 and "ANCHOROME", referred to
in the Board's letter of June 30, 1933 (X-7469), are discontinued.
Hereafter, in giving you telegraphic advice of the Board's
approval of an application for membership in the Federal Reserve
System, the code word
11
ANCHOROOT 11 will follow the name and location
of the applying bank and will mean:
"Application of such bank for membership has
been approved by Board subject to conditions of membership numbered 1, 2 and 3 set forth in Board's
Regulation H, effective January l, 1936, and special
conditions specifically stated hereafter. Please
advise such bank of Board's approval and conditions
of membership prescribed, together with necessary
instructions ns to the procedure for accomplishing
membership. Letter containing detailed advice regarding such approval will be forwarded bank through
you as soon as possible. VJhen you have received
- 2 -
X-9486
certified copy of resolution of board of directors
of such bank accepting conditions of membership
prescribed by Board and advice of compliance with
any special conditions required to be complied with
prior to admission to membership, together with the
advice of your coUJ.1sel that such conditions have
been properly accepted, the Federal Reserve bank is
authorized to take such action as may be necessary
to complete admission of applying bank to membership. Please wire Board through use of code word
"NARRATELL" the same day membership of bank becomes effective and forward copy of resolution accepting conditions of membership, together with
copy of advice of compliance with any conditions
to be complied with prior to admission and copy of
your counsel's opinion that all conditions pre··
scribed have been properly a~cepted by bank."
If the Board's approval is made subject also to the three
conditions of membership set forth in Regulation H relating to the
exercise of trust powers, such conditions will be referred to as
conditions
11
n~~bered
4, 5 and 6 immediately following the code word
ANCHOROOT 11 in the Board's telegram.
The code word 11 NARRATELLn, referred to in the Board's let-
ter of October 50, 1951 (X-7009), has been used by you in giving the
Board telegraphic advice of the completion of arrangements for membership by an applying bank.
In such cases in the future, this code
word. should follow the name and location of the bank involved and
will have the following meaning:
r
"Such bank has completed arrangements for membership. Certificate of stock of Federr.l Reserve
bank, or, if applying bank is a mutual savings bank
not authorized to subscribe for Federal Reserve bank
stock, certificate representing acceptance of deposit
- 3 -
X-9486
with Federal Reserve bank in place of payment on
account of subscription to stock, has been issued."
In your telegram to the Board, the date as of which the
certificate referred to therein is issued and the number of shares
or the amount of the deposit, as the case may be, represented by
the certificate should follow the code word "NARRATELL".
The code word "ANGLO", as defined in the Board 1 s TRANS.
1744 of April 1, 1933 (X-7424), has been used by the Board in furnishing you telegraphic advice of its approval of applications for
permission to withdraw immediately from membership in the Federal
Reserve System under the provisions of section 9 of the Federal Reserve Act.
In the future, this code word will follow the name and
location of the applying bank and will mean:
Ref'erring application of such bank for permission to withdraw immediately from membership,
Board waives usual requirement of six months'
notice. Accordingly, upon surrender of the Federal
Reserve bank stock issued to such bank, the Federal
Reserve bank is authorized to cancel such stock and
make appropriate refund thereon. Before such stock
is canceled, you are requested to obtain advice of
your counsel that the documents filed with you pursuant to section 10 of Board's revised Regulation H
comply substantially with the requirements of that
section.. Please advise Board when cancelation is
effected and refund is made, and forward to the Board
the documents required by section 10 of Regulation H.
Certificate of membership issued to bank should also
be obtained, if possible, and forwarded to Board.
State banking authorities should be ad•nsed promptly
when bank's withdraw~l from membership has beon effected and informed tnat you will be glad, if desired,
11
236
x. . . 9486
- 4 -
to furnish information as to reasons advanced by
in support of its request for waiver of usual
requirements of six months' notice of intention to
withdraw. Confirmation follmvs."
be~k
Very truly yours,
Chester Morrill,
Secretary.
TO ALL FEDEAAL RESERVE AGEN·rs.
i'·
_ ..
23?
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
X-9487
February 11, 1956.
SUBJECT:
Expenses of the Federal Advisory Council.
Dear Sir:
An examination of the Board's records indicates that some of
the Federal Reserve banks have not been submitting to the Board annually for approval the amount of compensation and allowances to be
paid to the member of the Federal Advisory Council and that it has
not been the practice of the banks to submit for Board approval the
annual payment made to cover expenses of the office of the Council's
Secretary.
In this connection attention is directed to the fact that paragraph 1 of Section 12 of the Federal Reserve Act, relating to the
Federal Advisory Council, contains the following provision:
"Each Federal Reserve bank by its bou.rd of directors shall annually select from its own Federal Reserve district one member of said council, who shall receive such
compensation and allowances as may be fixed by his board of
directors subject to the approval of the Board of Governors
of the Federal Reserve System,"
In accordance with the above provision of the law each Federal
Reserve bank should submit to the Board annually for approval the
amounts proposed to be paid to the member of the Federal Advisory
X-9487
- 2 -
Council as compensation and allowances,
It should also obtain the
approval of the Board for any payments it proposes to mako to cover
the expenses of tho Secretary's office of the Federal Advisory Council.
If you have not already done so, please submit to tho Board
for its consideration tho compensation and allowances fixed by your
board of directors for the F'odcral Advisory Council member for your
district in 1936.,
Please <:tlso submit for the consideration of the
Board any payment your bank proposes to make t,J coYer 1956 expenses
of the Secretary's office of the FederD.l Adv:i.sory Council.
Very truly yours,
Chester Morrill,
Secretary.
TO ALL GOVERNORS
BOARD OF GOVERNORS
239
OF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
X-9488
February 11, 1956.
SUBJECT:
Extended Leave of Absence With Pay.
Dear Sir:
At their conference in Washington on October 25, 1935, the
Governors of the Federal Reserve banks, after considering the topic
"Granting of sick leave to employees in excess of 50 days", adopted
the following resolution:
"Voted thut a definite procedure for the payment of salaries to employees absent on account of
sickness be adopted by the Board of Directors at
each Federal Reserve bank and that such procedure
be submitted to ~he Board of Governor&.
"It was further voted that Governors Hamilton
and Martin are appointed a Committee to discuss
this matter with the Board of Governors."
In its letter of December 5, 1952, X-7505, the Board stated
that its Division of Examinations had been req11ested, as part of the
examination of each Federal Reserve bank, to review all cases where
it appeared that leaves of absence with pay in excess of thirty days
had been granted to employees on account of sickness, for the purpose of ascertaining whether in each case the approval of the Board
of Directors of the bank had been obtained.
The members of the
above mentioned committee of the Governors' Conference have suggested,
240
-2...
however,
th~t
X-9488
such cases might properly be passed upon by the Execu-
tive Committee and subsequently reported to the Board of Directors.
While it is believed desirable that the Board of Directors
be fully advised of the facts in each instance of extended leave
with pay granted on account of sickness, it will be satisfactory to
the Board if such leave is approved by the Executive Committee of
the bank and reported to the Board of Directors at its next meeting.
Very truly yours,
Chester Morrill,
Secretary.
TO ALL GOVERNORS
241
X-9489
_BANKING A_GT OF 1°35
(Copies to be sent to a"!..l P'ederaL reserve banks)
'
Dear Sir:
Tl-J..Ls refers to your letter dated January 25, 1956, regarding the
question whether a person having a .s.,_.vint:;S de!)osi 1:. in n.
m~mh0r
bank may
leave his pass book wit,h the bank and draw checks against the deposit
oR.yabld
i,(i
th.:i..rd parti;:::s.
This practice is not i}errnitted by the definition of the term
"savings deoosit" in section l(e) of tht1 Bourd 1 s Regulation Q, which
contains the following
pro~ision:
"Withdrawals are pormitted·in only two·ways, 8ither (i) U}on
presentation of tht; pass book, through payment to the person
presenting the pass book, or (ii) without presentation of the
pass book, through payment to the depositor himself but not to
any othoT' J?erson whether or not acting for the dHpositor."
Under the above provision' the depositor himself may make withdFawals, without preseatation of the pass book, either in person or
through the mails, or .he may draw a check payable to a third party, but
in the latter case the pass boo:;; must be presented with the check in
order to effect a withdrawal.
This provision wns adopt..::d in o:rder to elimino.te certain abuses
which had grown up in connection vvi th
s~,vings
deposits.
As you may
know, membr3r blmks are forbidden by law to pc.y interest on demand depos"lts or to pay time deposits before maturity, c.;XcDpt in certain unusue.l
242
X-94.8'1
-2circwnst<'lnces.
Hmvev8.c. mer:.br-:r
its on dcmnnd, provided they
.-~·e
h~cD!:s
me J.-O"''d tted to pn.y S[ vings depos-.
v;in tho right to require ttirty dc.ys 1
notice of 1.-vi thdrmvnl, and ctre Gl.Jo c1ermi tted to pay interest on such de;JOSits.
In addition, memb.:.c
eral Reserve banks n.
re~~erve
b~'.D.ks
are permitted to cnrry rdth the Fed-
of only 3 per cent e.guinst savings deposits,
although they nro rGquired to cc.rry r<Jsorv.Js of 7, 10, or 13 por cent,
depending upon th8 location of thr;: bunk, n.gninst all other deposits which
./
nro puyn.ble on demand.
It will be seen from the above that S<'lVings deposits are an exceptionally f!.wored clnss of deposits having special privileges not
t
grunted to u.ny other cbss.
The}:iP. pri vi.leges are
its becn.use of the dosire to fmcourage thrift.
gr<~nted
to such depos-
Hovvever, the granting of
thj_s favored stc.tus to sc.ving;:; doposi ts l.od to certain abuses by member
banks, one of which was tho c:L:1ssific[:tion of
E~s
ordim~.ry
checking accounts
savings deposits in order to pc.y interest on such accounts and to ·
carry tho lower rosorves against thGm.
The u.bove-quoted provision regarding withdrawals is designed to
eliminate the use of sD.vingG deposits rw ordina":ry checking accounts.
The
requirement th:J.t the savings pass book must :1ccompany u check payable to
a third party is designed to prevent the dr:J.wing of more thR.n one check
at o. time ag[linst a srLvings deposit since, as a prnctical matter, the
depositor must wnit until his pa.ss book is returned before he can drc.w
another check.
It is hoped that the above expl.anat:ion of the provision regr:crding withdrawals from savings deposits will rcnswer tho question which you
243
'Z
-iJ-
hr,ve in mind.
The stcunped self-uodresoed envelope incJ osed with your
letter is returned herewith.
Very truly yours,
(Signed)
L. P. Bethea
L. P. Bethea,
Assistant Secrekry.
Inclosure
J
:.--9489
244
X-9490
BOAP..D OF GOV'"tRNORS
OF THE
FEDEF~L RESERVE SYSTEM
STATZMENT FOR THE
PRF~SS
February 11, 1936.
For immediate release.
The first meeting of the Federal Advisory Council for 1936 was
held on Tuesday, February 11.
Mr. Walter W. Smith was re-elected
President and Mr. Howard A. Loeb was re-elected Vice President.
These officers as ex-officio members and Iv'lessrs. Steele, Perkins,
Young and Kemper will comprise the EXecutive Committee.· Mr. Walter
Lichtenstein was reappointed Secretary.
The Council is composed of the following
Federal Reserve
District No. 1.
Thomas M. Stoolo, of
m,~mbors:
N~w
Haven, Conn.
No. 2.
Je.mos H. Perkins, of New York, N. Y.
No. 3.
Howard A. Loeb, of PhiladelPhia, Pa.
No. 4.
Arthur E.
No. 5.
Charles M. Gohon, of Huntington, West Virginia
"
No. o.
H. Lane Young, of Atlanta, Ga.
No. 7.
Edward E. Brown, of
No. 8.
Walter W. Smith, of St. Louis, Mo.
No. 9.
Theodore Wold, of Minneapolis, Minn.
No. 10.
W. T. Kemper, of Kansas City, Mo.
No. 11.
Joseph H. Frost, of San Antonio, Texas.
No. 12.
M. A, Arnold, of Seattle, Wash,
Br~mn,
of Pittsburgh, Pa.
Chic~go,
Ill.
X-9491
245
1956
Executive Committee:
Officers:
Walter w. Smith, President
Howard A. Loeb, Vice President
Walter Lichtenstein, Secretary
Walter W. Smith
Howard A. Loeb
Thomas M. Steele
James H. Perkins
H. Lane Young
W. T. Kemper
MEMBERS
District
No.
1
Thomas M. Steele
Pres., First National Bank & Trust Co. of
New Haven, Connecticut.
No.
2
James H. Perkins
Chrm., The National City Bank of New York,
Naw York, New York.
No.
5
Howard A. Loeb
Chrm., Tradesmens National Bank & Trust
Co., Philadelphia, ?ennsylvania.
No.
4
Arthur
No.
5
Charles M. Go hen
Pres., First Huntington National Bank,
Huntington, West Virginia.
No.
6
H. Lane Young
Vice Pres. and Executive Manager, The
Citizens and Southern National
Ban~, Atlanta, Georgia.
No.
7
Edward E. Brown
Pres., The First National Bank of Chicago,
Chicago, Illinois.
No.
8
Walter W. Smith
Pres._, First Notional Bank in St. Louis,
St. Louis, rUssouri.
No.
9
Theodore i'Jold
Pres., Northwestern National Bank and Trust
Company, Minnea-aolis, Minnesota.
No. 10
w.
Chrm., Commerce Trust Company, Kansas City,
Missouri.
No. 11
J. H. Frost
Pres., Frost National Banl<, San Antonio,
Texas.
No. 12
M. A. Arnold
Pres., First National Bank of Seattle,
Seattle, Washington.
--,
lJ.
Braun
T. Kemper
Pres., Farmers Deposit National Bank,
Pittsburgh, Pennsylvania.
Address of Mr. Lichtenstein, 58 South Dearborn Street, Chicago, Illinois.
February 12, 1956.
246
X-9492
OF THE FEDEP~L RESERVE BANKS
UPON THE FEDERAL OPh'N MARKET COMMITTEE
REPRESh~TATIVES
The Board of Governors of the Federal Reserve System has
been asked by certain officers and directors of Federal Reserve banks
for an informal exuression of its views as to whether under section
12A of the Federal·· Reserve Act (providing that the Federal Open Market
Committee "shall consist of the memb~rs of the Board of Governors of
the Ft'3deral Reserve System and five representatives of the Federal Reserve banks, to be selected as hereinafter providedn) representatives
of the Federal Reserve banks may be selected outside of the executive
personnel of the Federal Rdsorve banks to serve on the Open Market
Committee.
A comprehensive review of the historical development of the
Committee and of all available sources reflecting the legislative
intent when the section was enacted and the purposes sought to be
achieved clearly demonstrates that selection of representatives by
the Fed~r~l Reserve bankd from the ranks of banking, industry or commerce would constitute a flagrant violation of what Congress intended.
•
Realization of thG importance and effect of open-market
operations upon the national credit structure resulted in a gradual
development of methods of control or coordination of activities culminating in the "Open Market Committee" created by section 12A of tho
Federal Reserve Act as revised effective March 1, 1956. This development is best reflected by a chronological listing of the various committees and bodies created for such purpose as follows:
1. "Committee of Governors on Centralized Execution of Purchases and Sales of Government Securities" This committee was composed of five governors of Federal
Reserve banks and functioned from May 1922 to April 7,
1925.
2. "Open Markot Investment Committee" - This
committee 'ms creuted on April 7, 1923 ns n result of
resolution passed by the Federal Res,;rvc~ Board on
Mnrch 22, 1923 from which time open-market operations
were not engaged in by the Fedoral Reserve bunks except with the approval of the Federal Reserve Board.
It was composed of five governors of Federal Reserve
banks and functioned until March 51, 1950.
3. "Open Market Policy Conference" - This col4mittee was created as the result of conferences by
247
-2-
representotivos of
with thu Board for
policies and p:tans
It was composod of
eral ReserV(; b:mks
of the Banking Act
X-9492
the 12 Federal Reserve banl<:s
th0 pur!)ose of recommending
rogo.rding open-market operations.
tho twelve governors of the Fedo.nd functioned until tlw passage
of 1953.
4. "Federal OpL:n Mo.rket Commi tte0 11 - This
committee w2s cTented on Jmw 16, 1955, by the
Banking Act of 1955 ~md was composed of the twelve
governors of the FedGral Rosorve banks.
5. "Federal 0Den Market Committee" -As
provided in section 12A of the Federal Reserve Act
as now in force, creating a committ~)e consisting of
"The Board of Gov2rnors of the F•.'lderal Reserve
System and five representatives of the Federal Resorvo banks".
At no time throughout the history of the Federal Reserve
System have open-mn.rket operations been conducted by other than
executive officials of the i:'odernl Reserve banks, their actions being
subject to approval of the l"edoral Reserve Board, all such executives
as well as Boord members being full-time officials who were required
by 8Stablishcd practice or by lu.w to discontinue all activo participation in outside bu:Jiness.
The issue as to whether representotives of prlvate enterprise should serve upon a public body created for the purpose of discharging such responsibilities in tho public interest seems to have
been met and SJttled in tha orit:;inal enact':.)nt of the Fedurn.l R)scrvo
Act when banker representation was forcefully argued and as forcefully denied both by ConGress and by the President.
Senator Glass, in his authoriktive book on the Federal Reserve System, entitled 11 An Adventure in Constructive Finance 11 , described how a committee of bankers visited President Wilson and
sought to persuade hii'I to e1gree to bankGr representation on the Fedoral Reserve Board. Senator Glass wroto:
1J'ihon th:_:y had ..mdGd thC:ir argumcn ts Mr. Wilson,
turning more particularly to Forgan and Wu.dc, said quietly:
'Will one of you gcntlomon tdl mo in what civilized countrtJ
of tho 0arth thoro are important govcrnm~nt boards of control
11
248
+5-
'"on which private in tere~ ts are represented? ' There was
painful silence for the longest sL•gl~;; moment I ever spent;
and before it was broker. Mr. Wilson further inq1.~"\.red:
'Which of you gentlemen thinks the railroads sh.:mld select members of the Interstate Commerce Commission?'
There could be no convincing reply to ei 1.~her qucotion, so
the discussion turned to other points of tho currency
bill; and, notwithstanding a desperate effort was made
in the Senate to e;ivo the banks minority representation
on the reserve board, the proposition did not prevail."
At the time of revision of Suction 12A by the Banking Act
of 1955, the issue was whether the primary initiative and responsibility for op~n-markat operations should be fixed exclusively in the
Board of Governors of the Federal Reserve System as then baing set up,
or left in a committee consisting exclusively of the then Governors
of the Federal Reserve Banks, or committed to a combination of both,
and at no stage in the development of the legislation was it contemplated by any of those actively i~terested therein, irrespective of
differing viewpoints, that the responsibility should be shifted to
or shared with those outside of the official executives of tho banks
and members of the Board.
The bill, as introduced and passed in the House (H.R. 7617),
definitely fixed such res:,Jonsibility tn the Federal Reserve Board.
In Congressman Steagall's report upon the bill tho following was
stated:
"Under the present law, open-market policies
are forrnul::1ted by the Federal Open Market Committee, whicb
consists of the governors of the 12 Federal Reserve
banks."
After explaining that the proposed bill would place the
primary responsibility in the Board, his report cor~tinued:
"The pnrti..-•ipc~tion of Federal REJserve banks
governors in the delib.,;::rations leading to the adoption of
open-market policies will be preserved. Open market
oper~tions may be. initiated either by the committee of
the governors or by the Board, but the ultimate responsibility i'or making a finn.l decision and the power for
~dopting and carrying out national policies will be concentrr~ted in a national body, as they properly should be
in the public intere::;t."
249
-4-
X-9492
The bill was anended in the Sennte to provide for the
creation of a "Federal Open M.::,rket Commi ttec" consisting of the members of the Board of Governors of the Feder:.:,l Reserve System and five
representativus of the Federal Ecscrvo banks to bo selected annually,
but throughout the discussion it is evident that although the word
"representatives" was used in place of "Presidents", to which the
ti tlos of 11 t~nvArnors r: wero chango a by the Senate Committee, there was
no intention of altering the original meaning and purpose to confine
representation to members of the Board and executives of the banks.
During the consideration of the Banking Act of 1935 by the
Banking and Currency Committees in both the House and the Senate,
many distinguished b.;mkers r:.ppeared before one or both of the Comrni ttees nnd expressed a unanimity of opinion that Governors of the Fedoral Reserve banks should be members of the Open Market Committee.
The very fact t.hat they so testifiud is indicativtl of the fact tho.t
the issue at stn.kc in tho pending legislation rn1s whether or not responsibility for this important function should be vested in the Governors of the Federal Reserve bnnks or in the Fodcr:::.l Reserve Boo.rd.
It appears that theze witnesses never had in mind a selection of
representatives of Fedcrr'l Reserve banks from other than Governors
or other executive officers of tho Federal Reserve banks.
The recommendation of the special committee of the American
Bankers Association was "tr..at the Open Mo.rket Committee shall consist
of the entirE;: Federal Reserve Board, (reduced to five members), o.nd
four Governors of the Federal Reserve banks, solected by the Governors
of the twelve Federal Reserve bcnks annuully."
The rEJcommcndation of the Federal Advisory Council was that
"The F0dcral Open M< .rkot Commi ttoo shall consist of the five members
of tho Fcder~1l Reserve Board (reduced in membership) c.nd four Gover~ of the Federal Resurve b::.:.nks."
1
Tho Commission on Banking Law and Practice of tho Association of Reserve City Bankers in its "Summary of .Ll.rgumonts on Title
II of the Br.~.nking Act of 1935 11 clcr,rly recognized that the only point
of difference wns in whether tho power to determine the open market
policy of the Federal Reserve Systwm ,·,ns to be in the F0deral Reserve
Board or in a corr.unittcc, .::cs then constituted, of Governors of tho
Federal Reserve banks.
The Commi ttce on B1:mking Legislation of the Chamber of Commerce of the United Sta tGs, in an o.nalysis nnd report filed with the
sub-committee ::>f tho SenB.to Committee on Br.J.nking and Currency, rcaommended "that open market policies should continue, as at prcsont,
to be fornul::,ted by a cowmi tteo representing the t·welve Federal
250
X-9492
-5-
Reserve banks." The Committee as then constituted
the twelve Governors of the Federal Reserve banks.
W<J.S
composed of
The legislative policy with rospect to outsiJG domination
or influence in the administration of tho Foderal Reserve Act is illustrated by section 10 of the Act, wherein it is provided that tllc
members of the Board shall devote their entire time to its business
and that "No member of the Board of Governors of the Federal Rcs1;,rve
System shall be an officer or director of any bank, banking institution, trust comprmy, or E'ederal Reserve bank or hold stock in any
bank, banking institution, or trust company." It is hc.1.rdly conceivable tho.t Congress, in setting up o.n administratiire body to control
<::nd supervise credit, should zealously strive to insure th:.;.t body's
immunity from outside banking influence <.,nd then assign an importc.nt
power over credit to a committee, five of whose 12 members could retain their private connections with outside buniness or banking.
It is self-evident that in order to render efficient service on the Open Mo.rket Committee a member must be in constant touch
with the operations of the Reserve banks and have a continuing knowledee of the condition of tho member banks, of tho trends in loans
and deposits, of the fluctuations in interest rL~tes and of the money
market o.nd credit situation gcmornlly. Regardless of his ability, an
outsider, engrossod as he would be most of the time in his own affairs,
could not establish and maintain that interest and knowledge necessary
to discharge properly his duties as a member of the Committee. In~;:vitably his attitude would not in tho very nature of the ce<.se be truly
represcmtGtive of the Federal Reserve banks. It is only human nature
that a person engaged in nn enterprise for profit would be primarily
concerned with the administrr:. ti:m of that enterprise. Frequently, it
might become tho duty of such member to move in tho direction opposite
from that which would be advunto.geous to his private interests. Whether or not members finding themselves in that poGition could subordinc,tc their private interests to the general public interest which tho
Open Market Committee is int0ndcd to subsor\te, it would be unfair to
place any member 0f thr;t Commi ttce in the onb<:crrassing position of
being required to make such choices. Such a relation t0 the System
would tend seriously to impair the ofncicncy and prestige of the directors and officers of the Reserve banks and produce o.t times confusion
and ombt~rrr.:.ssment.
\
Members of the Com1:1i ttco arc in a sense the trustees of the
credit policy of tho nation and, like trustees, they should n:>t be in
the attitude of purche.sing frc)m 0r selling. to themselves. Such trustees must be scrupulous to place themsc;lvcs bey'md reprouch &.nd above
susp~c~,1n.
The prestige, and indeed the preservation of the Foderr~l
Reserve System, depend upon it.
251
BOARD OF GOVERNORS
DF THE
FEDERAL RESERVE SYSTEM
\
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
X-9495
February 14, 1936.
SUBJECT:
B,y-laws of the Federal Reserve Banks.
Dear Sir:
Due to amendments to the Federal Reserve Act contained in
the Banking Act of 1935, certain modifications in the by-laws of the
Federal Reserve banks appear to be necessary and some of the banks
have already made changes in certain provisions of their by-laws to
conform to amendatory provisions of the Banking Act of 1935.
It is
believed that the necessity for modifying the by-laws to conform to
changes in the law affords a suitable opportunity for certain other
changes in the by·-laws of the Federal R.eserve banks which appear to
be desirable.
While it is not believed that tho
by~laws
of tho
several Federal R.eserve banks should necoss:J.rily be uniform in all
particulars, the Board of Governors wishes to mD.ke certain suggest:i.ons for the consideration of the board of directors of each of the
banks with respect to provisions whlch may be incorporated in its
by-laws.
In order to conform to the law as amended by the Banking Act
of 1955, lt appeo.rs that there should be included :in the by-laws P,rovisions
relc~ting
to the clppointmont, functions, and terms of office
of the president and first vice president.
If &mendments for this
252
X-9495
-2-
purpose have not alread.y been incorporated in your by-laws, it seems
desirable, in view of the fact
th~t
the law providing for the ap-
pointment of a president and a first vice president takes effect
March 1, 1936, that action upon the necessary changes should be taken
before that date, if possible, to become effective on that date.
Tho Board of Governors nlso feels that it is desirable that
the executive committee of a Federal Reserve bank should be composed
exclusively of persons who are directors of the bank, including the
chairman of the board, and wishes to suggest for the consideration
of your board that the b,y-laws be amended accordingly.
The executive
committee performs a number of duties between meetings of the board
of directors and exercises important functions in the supervision of
the conduct of the affairs of the
ba~~.
The operations of the bank
are carried out by its officers and their actions during the intervals between meetings of the board of directors are subject only to
the direction of the executive committee.
Inasmuch as the executive
committee is charged with the duty of reviewing and approving the actions of the executive officers of the bank, it would not seem proper
for such officers to be members of that committee and, therefore, in
the position of reviewing and approving their own actions.
Moreover,
it is generally true that executive committees of banks as well as
commercial institutions are composed entirely of directors of such
institutions, and this is natural in view of the fact that such a
committee acts for tho board of directors and performs many of its
functions.
253
X-9495
-5-
The by-laws of some of the Federal Reserve banks provide for
a separate committee to pass upon discounts and advances and, if
your bank is one of those whose by-laws do not now provide for such
a committee, it is possible that you may wish to give consideration
to the incorporation in the by-laws of provisions establishing such
a committee, to be known as a discom1t committee or given some other
suitable title.
If such committee should be established, it is sug-
gested that the by-laws require that it make a report of all discounts and advances to the executive committee for review at the
next meeting of the latter.
The Board of Governors suggests that the board of directors
of your bank give consideration to the suggestions which have been
outlined above at the earliest practicable date and that you advise
the Board of its action thereon as soon as possible.
Very truly yours,
Chester Morrill,
Secretary.
TO CHAIRMEN OF ALL FEDERAL RESERVE BANKS.
254
BOARD OF GOVERNORS
OF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF'FICIAL. CORRESPONDENCE
TO THE BOARD
X-9494
February 15, 1956.
SUBJECT:
Code Word Covering New
Issue of Treasury Bills.
Dear Sir:
In connection with telegraphic transactions in Government securities between Federal
reserve banks, the following code word has been
designated to cover a new issue of Treasury Bills:
11
NOYHUB 11
-
Treasury Bills to be dated
February 19, 1956, and to
mature November 18, 1936.
This word should be inserted in the Federal Reserve Telegraph Code book, following the
supplemental code word
11
NOYHOK 11 on page 172.
Very trQly yours,
' -
-~~
----~~
~-~-~
J'. c. Noell,
Assistant Secretary.
TO GOVERNORS OF ALL F. R. BANKS
255
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
X-9495
February 19, 1956.
Dear Sir:
There are enclosed herewith copies of
statement rendered by the Bureau of Engraving
and Printing, covoring the cost of preparing
Federal reserve notes for tho month of January,
1956.
Very truly yours,
o.
E. Foulk,
FiscaJ. A.:;onL
Enclosure.
TO ALL F. R.. AGENTS.
256
X-9495-a
Statement of Bureau of Engraving and Printing
for furnishing Federal Reserve Notes,
January 2 to 51, 1956.
SERIES 1934
$5
~10
$20
Total Sheets
A:tnount
40,000
:~5,440.00
147,000
147,000
12,642.00
65,000
5,590.00
54,000
190,000
16,540.00
9,000
15,000
1,118.00
105,000
158,000
11,868~00
Chicago, •••••••
77,000
77,000
6,622.00
St. Louis, ......
18,000
25,000
2,150.00
21,000
1,806.00
Boston, ••••••••
40,000
New York, ••••••
Philadelphia,.,
50,000
55,000
Cleveland, •••••
6,000
150,000
Richmond, ••••••
4,000
Atlanta, •••••••
55,000
7,000
Minneapolis, •••
10,000
11,000
Kansas City, •••
7,000
19,000
6,000
52,000
2,762.00
1,000
2,000
3,000
258.00
5,000
5,000
258.00
1011000
754.000
i641844.00
Dallas,, •••••••
San Francisco,,
Total •••••
90 1 ooo
565.000
754,000 sheets,@ $86.00 per M, •.•••••• $64,844.00
25?
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE
TO THE BOARD
X-9496
February 19, 1956.
SUBJECT:
Holidays during March, 1956.
Dear Sir:
The Board of Governors of the Federal Reserve System is advised
that the following holidays will be observed by Federal Reserve banks
and branches during March, 1956:
Monday
Wednesday
March 2
Dallas
Texas Independence Day
El Paso
Houston
San Antonio
March 25
Baltimore
Ivia:r'yland Day
On the dates'given the offices mentioned will not participate in
either the transit or the; Federal Reserve note clearing through the
Inter-district Settlement Fund.
Please include transit clearing cred-
its for the offices affected on each of the holidays with your credits
for the following business day.
No debits covering Federal Reserve
note shipments for account of the Federal Reserve Bank of Dallas should
be included in your note clearing of
I~rch
2.
Please notify branches.
TO ALL GOVERNORS.
truly yours,
/~
· J:c .. N~cll,.
Assistant Secretary.
/
-
X-9497
INTERPRETATION
BANKING ACT OF 1835
(Copies to be sent to all Federal reserve banks)
February 19, 1936.
Mr. John s. Wood,
Federal Reserve Agent,
Federal Reserve Bank of St. Louis,
St. Louis, Missouri.
Dear Mr. Wood:
This refers to your letter of January 23, 1936, with inclosures, presenting an inquiry from the Bank of - - - - - - - - -------------------' a member bank, as to whether it would be contrary to the provisions of subsections (d) or (g) of section 22 of
the Federal Reserve Act for such bank to make a loan to the
-------Company, a
-----
,.,..._--- corporation, whose president, general
manager, and largest stockholder is also chairman of the board of directors of the bank.
Subsection (d) of section 22 has to do with the purchase
of securities or other property from a director of a member bank or a
firm of which any such director is a member.
It does not appear,
therefore, that a loan to a corpor3.tion in which a director of a member bank is interested as a stockholder or officer wo1.l.ld come within
the provisions of such subsection, but it would be desirable, as indicated by your counsel, for the member bank to bear in mind the provisions of subsection (d) in connection with the proposed transaction
in order to avoid any possible violation of that subsection.
While subsection (g) of section 22 prohibits loans to a
258
259
X-9497
partnership in which one or more executive officers of a member bank
are partners having either individually or together a majority interest in the partnership, that subsection does not by its terms prohibit a loan by a member bank to a corporation even though an executive officer of the member bank is substantially interested in the
corporation.
A corporation is an entity separate and distinct from
the stockholders, whereas in the case of a partnership the partners
are individually liable for the debts of the partnership.
It is
apparently on the basis of this distinction that Congress has included
partnerships of the kind described within the prohibitions of subsection (g) of section 22 but has made no reference therein to corporations.
Of course, there may be circumstances in a particular
case where a loan by a member bank to a corporation in which an
executive officer of the member bank is substantially interested
would be an attempt0d evasion of the provisions of the law and,
therefore, in contravention of such provisions.
However, while it
is not definitely stated, it is assumed that the loan will be made
to the - - - - - - - - - Company in good fni th and that the procecds thereof will be used by the corporation for its corporate
purposes.
On such a basis, it is the Board's view that the loan
in question would not be in contravention of section 22{g) of the
Federal Raserve Act.
Very truly yours,
{Signed)
L. P. Bethea
L. P. Bethea,
Assistant Secretary.
260
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE SOARD
X-9498
Febl'uary 21, 1956.
Dear Sir:
In the belief that you will be interested in the official corn.'llents of all of the
Federal ReserV"e banks concerning the tentative draft of Regulation U, we are sending
you herewith a full set of all the documents
containing these comments.
Very truly yours,
Chester Morrill,
Secretary.
Inclosures.
TO ALL FEDERAL RESERV.l£ AGENTS
BOARD OF GOVERNORS
261
CFTHE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"P'ICIAL CORRESPONDENCE
TO THE BOARD
X-9499
February 21, l9j6.
SUBJECT:
Code Word in Connection with Establishment Without Change of F.ates of Discount
and Purchase in t~isting Schedule.
Dear Sir:
In order to expedite and simplify advice of the Boardts approval of the establishment vri thout change in the existing schedules
of rates of discount and 11urchase at the Federal
r(~serve
banks, the
following code word has been designated for use, beginning March 2,
1956, and will ho.ve the meantne; indicated
11
belm~:
MARSOPE" - Board of Governors of the Federn.l Reserve
System approves esta1"llisllment by your bank,
without change, of t-h~ rates o!.' discount
and purchase in bank's exis+tng schedule,
advice of which wa3 C'.>•:tat:n(:ld in your
telegram or lett,:;r dat:>ci - - - - - - - - ·
The date of the telegram or lc:;tter from y-ur bank will be .indicated
immediately following the foregoing code word in the Board's advice,
The new code word should be }r.serted in tho Federal Reserve
Telegraph Code book, £'allowing the eodo word "MARSOON" on page 149.
Vory trU:.Ly yours,
L. P. Bethea,
Ass_;_staut Secretary.
TO ALL CHAIRMEN.
BOARD OF GOVERNORS
262
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
X-9500
F2bruary 21, 1936.
SUBJECT:
Code Word Cov8ring New
Issut: of ·rroasury Bills.
Dear Sir:
In connection with telegraphic transactions in Government securities between Federal
reserve banks, the following code word has been
designated to cover
11
NOYJMJJ 11
-
a.
new iGsuo of Treasury Bills:
T:reasury Bills to be d3.ted
February 26, 1936, and to
mature November 25, 1936.
This word should be inserted in the Federal Reserve Telegraph Code book, following the
supplemental code vvord "NOYHUB" on page 172.
Very truly yours,
~-;?~f:_£:
J. C. Noell,
Assistant Secretary.
TO GOV.bRNORS OF ALL F. R. BANKS
--/
,/
263
BOARD OF" GOVERNORS
OF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
X-9501
February 24, 1936.
Dear Sir:
There is inclosed herewith for your
information a copy of a telegram which the
Board has sent to one of the Federal Reserve
banks relating to meetings of its board of
directors and the establishment of discount
rates.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure
TO THE CHAIIU'I!EN OF ALL FEDERAL RESERVE BANKS
264
X-9501-a
Copy
TELEGRA•.M
Februury 24, 1956.
WALSH
DALLAS
Your wire February 17.
No action bas as yet been taken qy Board
regarding uniform meeting date for boards of directors of Reserve
banks and you will.be ndvised promptly of any action which may be
taken,
Board will offer no objection for the present to continu-
an~e
of practice of your bank of holding meetings of board of diroc-
tors
~nee
a month or to inclusion of provisions in by-laws author-
izing establishment of discount rates, subject to review and determination of Board of Governors, b.Y
execut~ve
committee composed as
suggested in Board's letter of February 14 (X-9495).
(Signed)
Chester Morrill
MORRILL
BOARD OF GOVERNORS
265
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
AOORESS OFFICIAb. CORRESPONOENCE
TO THE BOARO
X-9503
February 25, 1936.
5ubject:
Comptroller's Regulation
ro Investment Securities.
Dear Sir:
There has been sent to you under separate cover a
supply of copies of the "Regulations Governing The Purchase
Of Investment Securities, And Further Defining The Term
'Investment Securities' As Used In Section 5136 Of The Re-.
vised Statutes As Amended By The 'Banking Act Of 1935'",
issued b,y the Comptroller of tho Currency.
It is tmderstood that the Comptroller has already
forwarded copies of this regulation to all national banks,
and it will be appreciated if you will forward copies of
the regulation to all State member banks in your district.
Very truly yours,
~£~---fV~/-U-A-L. P. Bethea,
Assistant Secrctar,y •
••
TO ALL FEDERAL RESERVE AGENTS.
266
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS CF'F'ICIAL CCRREBPCNOENCE
TC THE BCARO
X-9504
February 26, 1936.
Dear Sir:
Referring to the Board's letter of January 13, 1936
(X-9427) transmitting a copy of a letter addressed by the
Board to the Federal Reserve Bank of San Francisco with regard to the establishment of disc01mt rates every fourteen
days, there is inclosed for your information in
th~s
connec-
tion a copy of a letter addressed by the Board to the Federal
Reserve Bank of San Francisco under date of February 24,
1936.
The telegram referred to in the lust para.gra.ph of the
inclosed letter is thn.t addressed to the Chairman of the
Federal Reserve Bank of Dallas under date of FebruarJ 24,
1936, a copy of which was sent to you with the Board's letter
of that date (X-9501).
Ver,y- truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO CHAIRMEN OF ALL FEDERAL RESERVE BANKS.
:
.
267
X-9504-a
FebruarJ 24, 1936.
Mr. S. G. Sargent, Secretary,
Federal Reserve Btink of Gan Francisco,
San Francisco, California.
Dear Mr. Sargent:
This refers to your letter of January 18, 1936,
in reply to the Board's letter of January 13, 1956, with regard
to the requirement of the statute that rates of discount be established every fourteen days or oftener i f deemed necessary by
the Board of Governors.
You state that, in order to comply with
the requirements of section l4(d) of the Fuderal Reserve Act as
amended, your board of diroctors changed tho datus for its regular
meetings from the first und third Thursdays of each month to alternate Thursdays.
You point out, however, that, if the date for
a mooting of the board falls on a holiday, the meeting must be
held either the day before or tho day afteF such holiday and that,
if held the day boforo, fifteen days will elapse until the next
meeting is held, whereas, if held the day after, fifteen du.ys will
have elapsed since the previous meeting.
As pointed out in its letter of January 13, tho Board
of Governors feels that all possible stops should be tELken by the
Federal Reserve banks to insure action upon discount ro.tos within
the period required by the statute.
Howcvor, it is tho view of
268
. ..
-2-
X-9504-a
the Board that there will be a subst<.ntial compliance with the
provisions of the statute if rates of discount are established
b,y a Federal Reserve bank on alternate Thursdays or, when such
an alternate Thursday falls on a holiday, then on the next preceding or the next succeeding business day.
On the other hand, when failure to establish discount rates results from the absence of a quorum at a meeting of
the directors, a different question is presented.
It can only
result from a failure of a majority of the directors to attend
the meeting, and it would seem obvious that all possible steps
should be taken to avoid such an occurrence.
For your information in this connection, there is
inclosed horewith a copy of a telegram which is being sent b,y the
Board today to one of the other Federal Reserve banks relating to
the establishment of discount rates.
Very truly yours,
(Signed)
Chester Morrill,
Chester Morrill,
Secretary.
Inclosure.
BOARD OF GOVERNORS
269
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
..\-9505
February 27, 1956.
SUBJECT:
Expense, 11Jlain Lines, Leased
Wire System, January, 1956.
Dear Sir:
Inclosed herewith you will find two
mimeographed statements, X-9505-a and X-9505-b,
covering in detail operations of the main 1.ines
of the Leased Wire System, during the month of
January, 1936.
Please credit the amount payable by
your bank for your share of the expense of the
Leased Wire System to the Federal Reserve Bank
of Richmond in your daily statement of credits
through the Gold Settlement Fund for the account of the Board of Governors of the Federal
Reserve System, and advise the Federal Reserve
Bank of Richmond by wire tho amount and purpose
of the credit.
Ver:1 truly yours,
0. E. E'oulk,
Fiscal Agent.
Inclosures~
L
TO GOVEFlWRS OF ALL F. R. BANKS.
X-9505-a
REPORT
SHOWL~G
CLliSSIFICATIOH Arm J:WMBER OF \,QH.DS TR.ANS!iliTTED OVER lviAIN LINES
OF THE FEDEHAL RESERVE LEASED HIRE SYSTEM FOR THE MONTH OF JANU.r'ffiY, 1936.
Business
reported
by banks
From
Boston
New York
Philade l.phia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
D&ll..:..-rs
San Francisco
Total
32,795
156,431
27,520
42,719
47,513
48,806
76 J 722
57,608
33,933
66,285
56,287
88 561
714,838
Board business • • • • • • • • •
....
Words sent by
i~ew York chargeable to other
F. R. Banks ( 1)
Net Federal
reserve
bank
business
1,199
33,994
136,491
28,482
45' 9lll:
48,599
49,997
78,469
59,253
35,150
67,615
57,815
90 168
729,947
1,162
1,195
1,286
1,191
1, 747
1,645
1,217
1,332
1,528
l 607
15,109
4.66
18.70
3.90
6.02
6.66
6.85
10.75
8.12
4.81
9.26
7.92
12.35
100.00
309,030
Reimbursable business Incoming & Outgoing
Total vrords transmitted over main lines
( '*)
These percentages used in calculu ting the pro r~:L ta share of leased wire expense as shown
on the accompanying statement (X-9505-b).
(1)
Number of words sent by 1,ew York to other F. R. Banks for their sole benefit chnrged to
bun...l{s indic2.tod in accordance nith action taken at Governors' Conference
November 2-4, 1925.
Per cent of total
bank business (-~~~)
557,584
1,596,561
X-9505-b
REPORT OF EXPE.NSE MAIL LilJES
FEDERLL RESERVE LEASED WIRE SYSTEM, JANUARY, 1936.
Operators'
Salaries
Name of bank
Boston
New York
Philadelphia
$
C-l.~veland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Ke.nsas City
Dallas
San·Francisco
Board
Total
Less
Reimburs::~
260.00
1,283.30
225.00
306.66
190.00
262.50
4,077.74(#)
176.00
154.16
287.00
251.00
380.00
$7,853.36
Retirement
Contributions
~ 12.45
Opera tors'
overtime
64.80
11.39
15.03
9.79
13.26
185.76
8.91
8.29
16.16
12.35
19.11
1.00
$375.30
$1.00
rent~:..l
~·
272.45
1,348.10
256.39
321.69
230.00(&)
429.79
275.76
4,262.50
184.91
162.45
303.16
263.35
399.11
lt1 942.·11
14 942.41
*'23 ' Li...:: 02 ......:-q
~?15,172.41
ble Charges
(&) Main line rental, Richmond-Washington
(#) Includes salaries of Washington operators
( >L)
Credit
"
(a) Amount reimbursable to Chicago
(b) Includes $349.69, which represents cost of
handling contingent expensB telegrams for the
Treasury Department for the month of Jan~ry, 1936.
Total
expenses
V!ire
!ll·
'll'
~
Pro recti:
share of
toto.l
cxoenses
',\·
~f
'
8!172.95
$15,229.12{b)
7C):3. 68
2,E347 .34
593.94
915.79
1,014.26
l,Ot±3.19
1,637.13
1,236.60
732.52
Pa;ruble to
Board
CredHs
)'
~;
272.45
1,348.10
235 . 39
32l.S9
42'3. 79
'-'4t1
437.23
1,499.74
357.55
595.10
584.47
7C7 .43
1,206.15
1,880.80
275.76
4,262.50
184.91
162.45
303.16
263.35
399.11
1,051.69
570.07
l:,l07.CS
942.80
1,48L69
~~15, 229 .12
:~:8, <159. 66
09' 39c1.83
1,410.22
"~"5 • 37('~'
r-::,b;:::
",
22625.37(J.)
~p6,769.46
BOARD OF GOVERNORS
27.2
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
X-9506
:t<> bruary 28, 1933.
SliDJECT:
Procedure under ConcH tion;:; of McmbE:rship
.Regarding 'f:o.in tenanee of i>dequate Capital
Structure.
Dear Sir:
In accordance viTi th Regulation H as revised effective January 1, 1936, the standard condition of membership regarding maintenance of an adequate capital structure
'-1S
now proscribed reads as
follows:
11
2.
The net capital and surplus funds of such bank shall
be adequate in relation to the character and condition
of its assets and to its deposit liabilities and other
corporate responsibilities, and its capital shall not
be reduced except vvi th the permission of the Board of
Governors of the Federal Reserve b'ystem."
Footnote 8 of the
"8.
Rr~gulrttion
fur·ther provides:
If at any ttmc, in the light of <.1.11 the circumstances,
the aggregate am01mt of tho bank 1 s net capi t.al and
surplus funds appoars to lx::! in:.:tdequate, the bank,
within such period as shull be deemed by th~_; Board to
be reasonable for this purpose, shall incrl.~ase the
amount thereof to an amount which in the judgment of
the BoE~rd shLcll be adequate in relation to the bank's
aggregate~ dcposi t li.'J.biJ.i tios and other coroor~1tc
rcsponsibili tios. 11
Prior to the adoption of the new standtcrd condition of mom-
bership quoted above, the following
stand.::~rd
condition of membership
273
-2-
Z-9506
rel:c:tive to capital structure h&d been prescribed:
'
"15.
Such bank shall maintain an :.un.Olmt of paid-up and unimpaired capit.al and ill1impaired surplus which, in the
,judgment of the Federal ltoserve Bo!;rd, will be adequate
in rel[t tion to its total deposit lie bili ties, h<wing
due regard to the genc3I'Dl princi:plu th<ct c. bc:.nk 1 s
caol tal and surplus ordinarily should r1ot be l·JSS than
one-tenth of the r:ver::ge nmo1mt of its :1.ggree.;::te deposit liabili tic~s, and, in some ci!·cumst1.nces, should
be more thr.n one--tenth of such (tmount."
In the Board's letter dated June 50, H333 (X-7469), it wan
stated that the letter addressed to banks advising of the Board's
approval of their applications for membership vmuld Gontain the following comments regarding condition of membership numbered 15:
"In connection with con(li tion numbered fifteen
above and in tho absence of n.ny special action by the
Board, if in any period of tvmlve months ending on
the thirtieth day of Novemb::.r the a\-'t~rage amount of
deposit liabilities of the bank during such period
as determined on tho bo.sis of reports made by the
bank to thee: Fedural Reserve b<:mk for the purpose of
computing its required reserve, exceeds ten tLnes the
aggregate amount of the bank's paid-up and unimpaired
capital stock and unimpaired sur:)lus, the Board will
expoct that the bank, as soon as possible and within
the next succeeding six months, will increase the
aggregate amount of its paid-up and U.'1impaired capital
and tmimpaired surplus to an amount at least equal to
ten per cent of the average amount of its deposit
lia bili ties during such tvml ve rnon ths. 11
In lett:3r X-7469 it was also stated thc.t while each bank subject to conditirln of membership numbered 15 was expected to comply
with its provisions without any special action on tho part of the
Board, the Board would, in special circumstances and upon the specific
recommendation of the Fedc;ral R.oservG Ag•mt, consider whether, in
view of all of the facts involved in the particular case, it would
-3-
274
X-9506
be justified in not requiring the bank to increase its capital and
surplus to an amount at least equal to one-tenth of its deposit liabilities, or whether, on the other hand, a larger proportion of
capital and surplus should be required in order to afford adequate
protection because of special conditions existing in the c.·1se of
the particular bank under consideration.
The revision of former standard condition of membership
numbered 15 does not reflect in any degree whatsoever a modification
of the Board's position that it is essential that member banks maintain a sound and adequate capital structure.
It is anticipated,
however, that the condition, as revised in the Board's existing
Regulation H,, while maintaining the fundamental principle, will provide the flexibility necessary to facilitate administro.tion.
The
Board feels, therefore, that a compliance by each State member bank
subject to former condition numbered 15 with the portion of the new
standard condition of membership numbered 2 relating to the adequacy
of its capital structure and with footnote 8, set forth in Regulation H, should be considered a compliance with the former condition
numbered 15.
In any case in which a member bank subject to condition
numbered 15 complies with such portion of the new condition numbered
2 and with footnote 8 of Regulation H the detailed requirements contained in condition numbered 15 and in the Board's letter X-7469
regarding such condition may be disregarded.
In tho circumstances,
it will be appreciated if you will ad1ise each such State member
bank in your district accordingly.
.
.
;
X-9506
-4-
It is requested thrt, annur:llly as of the close of the year,
the Federal Reserve Agents review the condition of
e~'
ch member State
bank subject to the new standard condition of membership nuGbered 2 or
former standard condition of mer!lbership numbered 15 and advise the
BoQrd of any situation in lNhich it appears th&t tho net cap:ttal and
surplus funds of any such bank are inadequate under the provisions of
the condition of membership, supplementing such advice with a brief
statement as to the facts of each crtse and a recommendation as to the
action which should be taken.
Of course, if, during the year, any situ-
a tion should develop which would r:::quire more immedia to action under the
conditions of membership in question, the Fedornl Reserve Agents are
requested to advise the Board fully as to tho situation and submit a
recommendation as to tho action which should be ta.kcn in tho matter.
It is expected that the Federal Reserve Agents will continue
to keep themselves currently Qdvised as to the condition of all State
member banks in their districts, whether or not subject to the new
standard condition numbered 2 or former standard condition numbered
15, and in the case of any State member bank which appears to be in
need of additional capital will take such action as may be appropriate
in the circumstances, advising the Boo..rd fully in th(:: premises.
Very truly yours,
~~
L. P. Bethea,
Assistant Secretary.
TO ALL FED.C:HAL RESEHVB AGiNTS
276
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
X-9507
February 28, 1936.
SUBJECT:
Code Word Covering New
Issue of Treasury Bills.
Dear Sir:
In connection with telegraphic transactions
in Government securities between Federal reserve
banks, the following code word has been designated
to cover a new issue of Treasury Bills:
11
NOYJET" - Treasury Bills to be dated
March 4, 1956, and to mature
December 2, 1956.
This word should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental code word "NOYJAM" on pago 172.
·'
•
J.
Aesistant Secretary.
TO GOVERNORS OF ALL F. R. BANKS
2?7
X-9508
INTERPRETATION
BANKING ACT OF' 1955
(Copies to be sent to all Federal reserve ba.nks)
February 27, 1936.
Mr. J. H. Case,
Federal Reserve Agent,
Federal Reserve Bank of New York,
New York, New York.
Dear Mr. Case:
This refers to your letter of February 15, 1936, presenting certain questions arising under the provisions of Regulation Q.
You ask to be advised of the Board's views upon the
question whether deposits of municipalities and subdivisions or
departments thereof, such as sinking fund commissions, boards of
education, and police and fire departments, and deposits of funds
of a municipality set aside for playground and other similar purposes, may be classified as savings deposits under the definition
contained in section
1(~}
of Regulation Q.
In the opinion of the
Board, deposits of the type described above may not be classified
as savings deposits within the meaning of section l(e) of Regulation Q because municipal corporations may not be considered as
organizations operated primarily for religious, philanthropic,
charitable, educational, fraternal or other similar purposes, nor
may it be considered that the beneficial interest in deposits of
such corporations is in one or more individuals.
278
X-9508
-2-
The Board is also of thG opinion that a deposit in the
name of a municipality consisting of funds given to the municipality for a charitable purpos8, such
a;~ th~:
erection of a memorial
gate, may not be classified as a savings ci.oposit.
The Board belioves
that a construction of the regulation which would permit funds of a
municipal corporation held for a charitable pu:rpose to be considered
as funds held for one or mo:;.·e individuals on the theory that the
public consists of a grour~ of individuals would open the door to
evasions of the regulation.
As indicated j_n your letter, such a
construction would seem. to involve an extension of the lcmguage of
the regulation, which bases the privilege o:": maintaining a savings
deposit upon the
DEl ture
of the cie:)osi tor or the person holding the
beneficial interest in the deposit rather than upon the purpose for
which the funds are to be used.
With regard to deposits of close corporations operated
for profit, where all of the stock of the corporation is owned by
one individual or by members of a family, the Board agrGes with your
o:oinion that such depositG may not be classified as savings depos:i.ts
under the definition contain:.;d :Ln ~1oction l(c;) of R-:;gulation Q.
You also present the following question arising under
,,
section 4( d) of Reb1Jl:.:ttion Q:
If a time deposit which has been such
for two and one-half months is then paid before maturity, and in·terest has actually been paid by check at the end of each thirty day
interest period or has been credited to tl1e depositor on tho books of
X-9508
-5-
the bank at the end of each thiN:.y day interest period, should the
member bank, on paying the deposit before maturity, deduct from
the principal of the deposit the amount of the interest so paid or
credited?
In the opinion of the Board the above question should
be answered in the negative.
Section 4(d) of Regulation Q provides
for the forfeiture of "accrued and unpaid" interest, but it is the
view of the Board that interest which has been paid by check or
credited to a depositor's account at the end of a regular interest
period should not be considered as
11
accrued and unpaid" interest
and, therefore, such interest is not subject to the forfeiture.
Very truly yours;
{Signed)
L. P. Bethea
L. P. Bethea,
Assistant Sec.;:·etary.
280
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRE5S CFFICIAL CCRRE5PCNDENCE
TC THE SCARD
X-9509
March 3, 1936.
SUBJECT:
Code Words Covering New Issues of
Treasury Notes and Treasury Bonds.
Dear Sir:
In connection with telegraphic transactions
between Federal reserve banks covering Government securities, the following code words have been designated to
cover new issues of Treasury Notes and Treasury Bonds:
"NOWKUY"
- 1 1/2% Treasury Notes, Series
A-1941, ta be dated and to bear
interest from March 16, 1936,
and to mature March 15, 1941.
"NOWCOPA" - 2 3/4% Treasury Bonds of
1948-51, to be dated and to bear
interest from March 16, 1956,
and to mature March 15, 1951.
These code words shotud be inserted in the Federal Reserve Telegraph Code book, on page 172.
truly yours,
TO
PBJ~GID:i::l'JTS
OF ALL F. R. BANKS.
281
BOARD OF GOVERNORS
CJF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF'FICIAL. CORRESPONDENCE
TO THE BOARD
X-9510
March 4, 1956.
Dear Sir:
For your information and guidance, there
is inclosed a copy of a letter sent to the Cashier
of the Federal Reserve Bank of San Francisco, with
respect to the deduction of "branch clearing" accounts from gross demand deposits in the determination of required reserve balances of member banks.
Very truly yours,
~
----
~~..AA~
L. P. Bethea,
Assistant Secretary.
Inclosure.
TO ALL FEDERAL RESERVE AGENTS
X-9510-a
March 4, 1956.
Mr. w. M. Hale, Cashier,
Federal Reserve Bank of Srm
San F~ancisco, California.
Fr~tncisco,
Dee. r l'Jlr. Hale:
In tho fifth paragraph of your letter of January 10,
1956, giving the results of a comparison mad.o of deposits as
shown in the November 1, 1955 call reports and as shown in the
reports of deposits submitted for reserve purposos, you state
that the only differences that were difficult to reconcile or
to dLJcuss with tho member banks were in connection with "branch
cle£,ring" balances carried on tho books of branch banking insti tutions, <md you make inquiry as to tho prop13r clascification of
such bLlances in preparing call reports and in computing the daily
deposit liability for re:3erve re p:Jrts.
As you knovr, this matter has boon considered informally
on a number of occe. sirms in the past, from the stc. ndpoint of vvhothor such "branch clearing!! <Weounts could be
tuting
b~tlcnces
considcrr.~d
r.w consti-
"due from banks" within the meaning of the former
provisions of section 19 uf tho Federal Reserve Act.
It appears
from a letter which IVIr. ,..Jc.rgent addrossod tJ tho Board under date
of March 5, 1954, that most cf tho items in the "branch clearing"
account represent (1) checks drawn on a member bank (or offices
283
-2-
X-9510-a
or branches thereof) for which deposit credit or its equivalent
has been given at offices or branches of such membor bank other
t~~n
those at which the depositors' accounts are carried, and
that sufficient time has not elapsed for the items to have reached
the latter offices or brunches and be charged to the depositors'
accounts, and (2) checks drawn on another bank which have been
deposited in a member bank (or offices or branches of such member
bank) and have been forwarded for collection to other offices or
branches of the member bank located in the same city or vicinity
as the drawee bank.
It is the view of tho Board that items of the type
described above constitute "cash items in process of collection"
within the meaning of paragraph (g) of section l of Regulation D
and, accordingly, to the extent that the "branch cleo.ring 11 account
consists of such itoms, the balance in tho account may be deducted
from gross demand deposits in determining required reserve balances
and should be included in item 2 of Schodule I in call reports.
Very truly yours,
(Signed)
L. P. Bethea
L. P. Bethea,
Assistant Secretary.
284
X-9511
BOARD OE' GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
For the Press
For release in morning newspapers
.Thursday, March 5, 1936.
March 4, 1936.
Upon the expiration of their terms on December 31, 1935, the
Chairmen and Federal Reserve Agents at those banks in which no vacancy
exi:sted in this office were reappo:inted until March 1, 1956, in order that
the Board of Governors which took office as of February 1, 1936, might designate appointees of its own selection and adopt such policies as it considered
advisable in connection with tho Chairmanships.
'the present Board of Governors, in discharging under the law its
responsibility for cf'ficient t.nd economical operation of the System, has
initiated a procedure looking toward the placing of the Chairmanships upon
a largely honorary b&sis.
Under this procedure verious non-statutory duties
now performed in the office of the Chairman and Federal Reserve Agent would
be placed under the President of the
~ink,
who under the Banking Act of 1955,
is selected for a term of five years by the Board of Directors of the bank,
subject to the approval of tho Board of Governors, and is recognized by law
as the chief executive of the bank.
The technical duties of the office of
the Federal Reserve Agent may thun be performed by an Assistant Federal Reserve Agent, making it possible for the Cha.irman to discharge the important
responsibilities of his office without being required to devote more than a
limited portion of his time to the bank.
The Board believes that a more
X-9511
-2-
efficient organization, avoiding a dual executive responsibility at the
Federal Reserve Banks, and substuntial economies in the operation of the
System may thus be accomplished, while at the same time it will be possible to obtain the services of men, who are .not only well qualified, but
public spirited to serve us Chairmen.
In accordance with these objectives, the Board ha.sdesignated
as Chairmen and Federul Reserve Agents for terms from March 1 to Dece1nber
31, 1956;
E. S. Burke, Jr., Cleveland; and H. W. Martin, Atlanta.
In furtherance of this procedure, the Board has decided to
terminate the services of the following Chairmen and Federal Reserve
Agents as of April 30, 1936, and they have accordingly been redesignated
only for the period from March 1 to April 30, 1936:
F. H. Curtiss, Boston;
J. H. Case, New York; R.· L. Austin, Philadelphia; E. M. Stevens, Chicc:~go;
J, S. Wood, St. Louis; C.
c.
Walsh, Dallas.
The Board has also designated as Chairman and Agent from March
1 to December 51, 1936, W, B. Geery, Minneapolis; and the Board had pre-
viously designated J. J.
Thom~.s,
Kansas City, to serve until December 51,
1956.
Vacancies remain in the Chairmanships at Richmond and San Francisco.
285
286
INTERPF.ETATION _
X-9515
BANKING ACT OF 1935
(Copies to be sent to all Federal Reserve banks)
March 3, 1936 ..
Honorable J. F. T. O'Connor,
Comptroller of the Currency,
Washington, D. C.
Dear Mr. O'Connor:
This refers to former Deputy Comptroller Awalt's lotte!'
C>f January 17, 1936, in which ho inquires whether the indorsement
of a not<3 or other evidence of indebtedness by an r.:xecutive officer
of a member bank, which is purely for the nccommodation of a third
party and from which the executive officer derives neither directly
nor indirectly aey financial benefit, is included within the definition contained in section l(c) of the Board's Regulation 0.
Section l(c) of tho Board's Regulation 0 provides, in: part,
that the terms "loan", "loaning 11 ,
11
oxtonsion of crodit" and "extend
credit" include:
"(2) The acquisition by discount, purchnse, exchange, or otherwise of any note, draft, bill of exchange or other evidence of indebtedness upon which
an executive officer may be liable as maker, drawer,
indorser, guarantor, or surety; 11 and
"(5) Any other transaction as a result of which
executive officer becomes obligated to u bank,
directly or indiroctly by any means whatsoever, by
reason of an indorsement on an obligrttion or otherwise, to pay money or its equivalent. 11
[·m
An accommodation indorsement by an executive officer of a meillber bank
287
X-9515
-2-
upon a note or other evidence of indebtedness is included within
the definition quoted above, if tho executive officer may be liable
ns indorser or becomes obligated to r, bank by rGason of such an
indorsement.
In this
connl~ction,
undm· the usut....l rules of ln.w en
accommocation indorser is ono who has signed r.m instrument as an
indorser, without receiving vuluc therefor and for the purpose of
lending hifl nnme to some other person, and such an indorser is liable
on the instrument to a holder for value.
Moreover, c. lean or extension of credit to a third pers:m
b~'csed
in part upon the credit of an executive officer, as represented
by his accommodeti'Jrl indorsement, is
d.
t:ransacthm which it is believed
should be subject to the same ro:.;:trictions as a lxm or ext:msion of
credit to tho executive officer himself.
The abuses which led to the
enactment of section 22(g), including the undue influence exercised
!
by executive :::Jfficers in obtaining credit fr,:Jm the banks they serve,
mey also bo present to a certain extant in the C<tse where a loan t.o
a third person is support<1d by the accoJlliuodatLm indorsement of an
executive officer.
ficer receives n8
Acc·.;rdingly, the mere fact that an executive offin;:~ncial h~rwfi t
as the result Jf his accommoda-
tion indorsement would not be justificn.tL'n for excluding the liability
:~rising
as tho result :lf un .!lcconilllodation indorsement by an execu-
tive officer from the provisi ms of Regulation 0.
In the circumstances, it is the Board's view that the
liability of an executive c,fficer ·::>f a member bank by reason of an
288
-5-
X-9515
accolllf.lodation indorsonent on a note or other cvidonce of indebtedness held by a bank :is inclndGd within the defini ti )n c.:mtaincd in
section 1( c) 0f the B~;ar<l' s Re~ulati:m 0.
V01--y truly Y'Jurs,
(Signed)
L. P. Bethea
L. P, Bethea,
A.ssif.:tcmt Socrotary.
289
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
X-9514
March 7, 1936.
Dear Sir:
In considering several applications for membership in the
Federal Heserve System which have been made by State banks on the
Board's revised Form 83, it has been noted that the Federal reserve
agent at the Federal reserve bank involved has not submitted a statement from the counsel for that bank showing in detail what powers,
if any,
othc~r
than usual commercial banking powers, the applying
institution is authorized to exercise under its charter or State
law.
As you know, it has been the practic0 of the Federal reserve
agents, in accordance with the Board's TRANS. telegram 1695 of March
17, 1933, to submit such a statement in the case of each State bank
applying for membership.
While the Board's revised Form 83 now re-
quests each ap-plying bank to furnish a statement of the powers or
functions that have been or are now being exercised or performed by
it other than those usual to commercial banking, it is not intended
that information heretofore furnished by counsel relating to unusual
powers of applying institutims shall no longer be furnished.
In
290
X- 9514
-2-
the circumstances, it will be apprecj_a ted if in the; future you will
submit with each application for membership the statement from your
counsel requested in the Board's
V0r-y
TRN~S.
telegram 1695.
truly yours,
\.
~
~/?-~.
L. P. Bethea,
Assistant Secretary.
TO ALL FEDBRAL RESERVE AGENTS
291
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS DF"F'ICIAL CORRESPONDENCE
TO THE BOARD
X-9515
March 7, 1936.
SUBJECT:
Code Word Covering New
l~u•
of Tre&$Ul'Zf
l~.).. ls.
Dear Sir:
In connection with telegraphic transactions in Government securities between Federal
reserve banks, the following code word has been
designated to cover a new issue of
Trea~ry
Bills:
"NOYJIX" - Treasury Bills to be dated
March 11, 1936, and to
mature December 9, 1936.
This word should be inserted in the Federal Reserve Telc:;graph Code book, following the
supplemental code wo::::-d "lWYJET" on page 172.
Vory
truly yours,
J\ss:i.stont Socrutary.
TO PRESIDENTS OF ALL F. R. BANKS
.
-
X-9516
INTERPl,UtTAT!QN
BANKING ACT OF 1955
(Copies to be sent to all Federal Reserve banks)
March 5, 1936.
Mr.
The
, Vice President,
National Bank of - - - - - -
Dear Sir:
This refers to your letter to Mr. Ransom of February 6,
1956, with regard to reports of executive officers of member banks
of their indebtedness to other banks under the provisions of sec,_
tion 22(g) of the Federal Reserve Act and section 5 of the Board's
Regulation 0.
You indicated that you had construed the Board's
regulation as not contemplating that such reports would be made
available to the board of directors of the member bank involved.
Under the provisions of section 22(g), an executive officer of a member bank who becomes indebted to another bank is
specifically required to make a written report to the board of
directors of the member bank of which he is an executive officer.
It is clear from the
legi~:;lative
history of section 22(g) that, in
making such specific requirement, Congress contemplated that the
board of directors of a member bank should have available the information contained in any such report, since qy the Banking Act
of 1935 it amended section 22(g) so as to make the specific requirement that any such report of an
oxocuti~e
officer of a member bank
be made to the board of directors rather than to the chairman of
292
X-9516
-2-
the boc..rd of directors as h.::td previously been provided in section
22(g).
The Board ha;:; noted your comments regarding t11o abuses
which section 22(g) w::.s designed to correct u.nd is in agreement
vli th you that tho board of directors of a member bank should be
fully n.dviscd of the indebtedness of its executive officors to
other b<:mks.
Accordingly, in promulgating its Regulation 0, the
Board, in section 5 of such regulo.tion, has
ag~in
stated tho re-
quirement of tho law that each report of the kind refcrrod to above
sh~~ll
be made to tho board of directors of the member bank involved.
As a mnttor of maintaining appropriatu rucords, the Board did not
wish to impose what might o.ppoar to be an unnecessary hardship upon
a mcmbur bank
U.f
roquiring it to transcribe the full details of a
report of indebtedness of an executive officer in tho minute book
of the bank, but has merely required that tho receipt of the report
be recorded in the minutes and that each such report be retained by
the member bank und be made available upon request for inspection by
duly authorized examiners,
It is contemplated, however, by tho law
u.nd also by the Board 1 s regulation thr., t the full report of an executive officer will be received by the board of diractors of the member
bank of which he is an executive officer.
Accordingly, the purposes
of the law and the requirements of the regulation will not be met if
the secretary e>f the boord of direct·Jrs of a member bank, or any Jther
person wh·J may receive such a report, oorely records the receipt
294
-5-
X-9516
thereof in the minute book of the bank and does not take appropriate
steps to seA that the board of' direct:Jrs h&s an opportunity to be
fully informed as t0 the contents of such report.
Very truly yours,
{Signed)
L. P. Bethea
L. P. Bethea,
Assistant Secretary.
"
'
,.
295
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
X-9517
March 9, 1936.
Dear Sir:
There are enclosed herewith copies of
statement rendered by the Bureau of Engraving
and Printing, covering the cost of preparing
Federal reserve notes for the month of February,
1956.
Very truly yours,
o. E. Foulk,
Fiscal Agent.
Enclosure.
TO ALL F. R. AGENTS.
/
X-9517-a
Statement of Bureau of Engraving and Printing
for furnishing Federal Reserve Notes
February 1 to 29, 1956.
Series 1954
~5
Boston, ••••••••
~:
:;i-20
jpSO
$100
70,000
56,000
5,000
5,000
New York, ..•••• 160,000
50,000
24,000
14,000
5,000
Philadelphia, .•
$500
$1000
$5000
$10000
1,550
50
Total
Sheets
Amount
112,000 $
9,652.00
249,400
21,448.40
4,000
7,000
602.00
11,000
5,000
80,000
6,880.00
5,000
5,0)0
1,500
75•)
100
50
50,400
4,554.40
Cleveland, •••••
50,000
Richmond, .•..••
38,0:JJ
Atlanta, •••••••
52,000
18,000
4,000
5,000
1,500
750
100
50
61,400
5,280.40
Chicago, •.•••.• 124,000
34,000
21,000
15y0,)0
2,500
1,250
200
100
196,050
16,860.50
5,000
6,000
1,500
750
100
50
15,400
1,152.40
69,100
5,942.60
56,000
St. Louis, •••..
Minneapolis, •••
28,000
56,000
1,000
5,000
700
L!OO
Kansas City, •••
50,000
15,000
5,000
s,ooo
1,500
750
100
50
77,400
6,6!6.40
Dallas, •••••.••
70,000
58,000
7,000
6,000
1,500
750
100
50
125,400
10,612.40
San Francisco,.
Total ••.•••.•
ao.ooo
682~;000
56.000
2)39,000
6 1 ooo
95.000
7 1 000
74 2 000
22000
14!050
11000
6 2 400
150
850
50
450
152.200
11.569.20
1 2 171,750 $100 2 770.50
1,171, 750 sheets,@ $86.00 per M, ••••••••• $100,770.50
l\J
co
~
29?
BOARD OF GOVERNORS
CF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
X-9518
March 10, 1936.
Dear Sir:
The pamphlet which has been distributed
by the Board sinc·e 1929 under the title "Verification of Financial Statements" was recently revised
by the American Institute of Accountants under the
title "Examination of Financial Statements by Independent Public Accountants" and is sold by the
Institute at 15¢ a
COP,Y.
Accordingly, the Board
will make no further distribution of the pamphlet
"Verification of Financial Statements 11 except to
persons desiring a copy of the old edition.
Very truly yours, -·· . . .
/"
/
TO ALL F. R. AGENTS
./·
298
BOARD OF GOVERNORS
I
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL. CORRESPONDENCE
TO THE BOARD
X-9519
March 12, 1936.
Dear Sir:
For your information there is inclosed a
copy of a letter sent to the Federal Reserve Agent
at New York with respect to the acceptance by the
Board of a single publication of condition reports
rendered by State bank members in New Jersey pursuant
to the requirements of State and Federal law in cases
where the report is modified so as to show "Bonds and
Mortgages on Real Estate" separately immediately following Item 1, Loans and Discounts.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO ALL FEDERAL RESERVE AGENTS EXCEPT NEW YORK.
299
X-9511:1-a.
March 12, 1936.
Mr. J. H. Case,
Federal Reserve Agent,
Federal Reserve Bank of New York,
New York, New York.
Dear Mr. Case:
Receipt is acknowledged of your letter of March 2 stating
that the
Commission~r
of Banking and Insurance of New Jersey has ex-
pressed a desire to work out some arrangement whereby the requirements
of both State and Federal law, for publication of condition reports by
State bank members in New Jersey, could be satisfied by the publication
by such banks of only one form of report at each call, and that in order
to bring this about the Commissioner is willing to adopt the Board's
Form l05e, as recently revised, with one change consisting of the addition of an item directly following Item 1, Loans and Discounts, to
read as follows:
"l(a)
Bonds and Mortgages on Real EF>tate".
You recommend that, in order to avoid the expense and necessity of duplicate publication when calls are made as of the same date
by the State banking department and the Board of Governors of the Federal Reserve System, the Board permit the amended form of publication
for State bank members in New Jersey.
As you know, the Board has here-
tofore decided (in telegram TRANS 2559 of January 11, 1936) that, when
additional information is required to be published by State law or the
State banking department, such additional information should be shown
300
'.
~
X-9519-a
- 2 -
followlng all information called for by the Board's Form 105e and under
an appropriate heading.
The Board also recently advised one Federal
Reserve bank that it would have no objection to a member bank's adding
the words "Includes Federal Reserve bank cashier's checks for$
"
after the caption "Other assets", in order to reflect the amount of
such checks pledged against deposits.
In the case of State bank members in New Jersey, the Board
would have no objection to their showing in parentheses following the
item "Loans and discounts" the following:
and mortgages on real estate".
"Includes
$.~----
bonds
This method of presentation would leave
the captions in the Board's Forms 105 and lOSe unchanged but would enable the banks in New Jersey to comply with the desire of the Commissioner of Banking and Insurance of New Jersey that bonds and mortgages
on real estate be shown separately.
If such a procedure is agreeable
to the Commissioner, it is suggested that, in sending out blank forms
for the next call to State bank members in New Jersey, you advise them
of the requirement of the State banking department and request that, in
call reports Form 105 and published statements Form l05e, they show
the amount of bonds and mortgages on real estate held by them against
the caption "(Includes $._......_ of bonds and mortgages on real estate)"
following the caption.of Item 1, Loans and discounts.
Very truly yours,
(Signed)
Chester Morrill
Chester Morrill,
Secretary.
301
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
X-9520
March 14, 1956.
SUBJECT:
Code Word Covering New
Issue of Treasury Bills.
Dear Sir:
In connection with telegraphic transactions in Government securities between Federal
reserve banks, the following code word has been
designated to cover a new issue of Treasury Bills:
"NOYJOG" - Treasury Bills to be dated
March 18, 1956, and to
mature December 16, 1956.
This word should be inserted in the Federal Reserve Telegraph Code book, following the
supplemental code word
11
NOYJIX 11 on page 172.
Very truly yours,
TO PRESIDENTS OF ALL F. R. BANKS.
302
X-9521
Reimbursement for expenses of persons traveling on official
businese of the Board shall be as hereinafter set forth.
l.
Members of the Board shall be allowed either (a) actual
necessary transportation
eXtJPn~
and a per diem in lieu of subsis-
tence not to exceed $12.00 or· (b) t-heir octual necessary .k_avel:
penses, as shown on travel vouchers submitted by them.
scored are defined. beJ.ow.
~
The terms under-
Memi)era of the Board shtill also be allowed
reasonable expenses for telephone, telegraph, cable and radio service,
and for miscellaneous expenses, including stenographic and other clerical service, when such expenditures are necessary for the transaction
of official business while in a travel status.
2.
Heads or assistant heads of divisions of the Board's Wash-
ington staff (who shall include Assistants to the Chairman or the Board),
the Federal reserve bank auditors who audit the accounts of the Board's
Fiscal Agent, and any other persons traveling on official business of
the Board upon specific authorization of the Chairman, the Vice-Chairman or Chairman oro tem, shall be allowed either (a) actual necessary
transportatio~ exoeny~
exceed
t.a .00
und a per diem in lieu of subsistence not to
or (b) upon specific authorization of the Chairman, Vice-
Chairman or Chairman pro tern, their actual necessary travel expenses
when the travel voucher is
s~pported
by-satisfactory receipts as required
by the standardized Government travel regulations as ·amended.
3.
All other persons traveling on official business of the
Board pursuant to proper authorizations shall be allowed actual necessarv
303
- 2 -
transoortatlun
4.
ex~Jenses
{-9521
"'nd a per g.i§g in lieu of subsistence of $5.00,
For the purposes of paragraphs 1, 2 anc 3 above, the term
actual neceSS[il'V ·Lransoo:rta+,ion expense::: lm:lucies the cost of all necessarJ- official travel by railroud, airline, steamboat, bus, streetcar,
taxicab,
au~omobile
and other means of conveyance, together with minimum
priced single first-clas::; accommodations in staterooms on vessels or one
standard lower berth or single seat in a sleeping or chair car, except
that per::ons referred to in paragraphs 1 and 2 above may bu allowed any
Pullman accommodations obtainable in connection with c single f'are.
This
item also includes re&sonable expenditures for the ordinary incidentals
to transportation which are not covered by the definition of der diom in
lieu of subsistence, such as cost of baggage transfer; official telegraph, telephone, radio and cable messages relating to transportation;
steamer chairs and steamer rugs; fees or tips to baggagemen, to hotel,
station, sleeping or chair car, and cabin porters, or cabin boys, for
service rendered in connection with sleeping or Pullman accommodations
en route or with baggage, and to room and library stewards on vessels;
and the usual taxicab, streetcar or bus fares from station or wharf or
othur terminal to place of abode or place of busin&ss and from place of
abode or place of business to station or wharf or other term:Lnal, while
in a travel status.
When using his ovm ,'J.utomobile in official travel,
the traveler may be allowed mileage at a rate not to exceed 5¢ per mile
in lieu of actual operating expenses, except that persons referred to
in paragraph 5 above may be allowed reimbursement on such basis only to
the extont tho.t ::>uch allowance does not exceed the cost of transportation
304
X-0521
by common cc::-rier over the shorto;::t usual;.y travel ;o. rou>:.e betNeen the
points of travel.
·;,·hen saviav,;:: cE,.n be cffoctcd by the purch::...se of round trip or
special rate tickets; they
sh~ll
be obtained.
Extra expense incur:::ed by
person::~
referred to in p;::ragra9hs 2
and 5 above by reeson of travel on airlines, (.;xtra fare trail•s, or unusw.1J.
mecns of conveyance, ·:vi:l be s.llowed only 'rhen th(: t.rav€'1 vouch<?.r is accomp•1nied by a satisfactory shewing of f,he necessity therefor,
Ol'
that the
cost thereof, less the; amount of subsistence ullowance saved by more axpedi tiour! travel and the amount of ;:;alary of the traveler for the time
thus saved, doos not exceed ti:w cost of rail or ste:::.mer transportation and
Pullman or stateroom fare betwEen the points vf travel.
5.
For th0 purposes of paragra;:Jhs 1, 2 and :5 above, the term
oer diem in lieu of subsistence inc.iudes al.L mee:.J.s; lodgings; personal ust:
of room during daytime; baths; fees or tips to wu.ittrs, bellboys, and
other hotel servants, and dining room stew£:.rds
-~:md
others on vesDe:L, ln
connection with subsistence; tElegrams nnd telephone call3 reserving
hotel accommodations; laundry and valet service; and tr<msport:;, tion bt'tween place:;; of lodging or where me:o.ls are taken ::md places of duty.
When meals are inclucied in the cost of passage ticket on vessels,
per diem in lieu of subsistence will not be allowed while traveler is on
shipboard, but for such period. he will be reimbursed on tho basis of actual
necessary travel expenses.
When a member of the Board's staff finds it necessary to take
305
- 4 leave of ab;·;ence on :'tCC'"lunt o: :illness v>hi.le in
X-951.::1
'~
t.rr:ve: stat;ns, he n,ay
be allowed (with the F.J.pproval of the Chairrn<-cn, Vice-Chairrnc...n or Chairmun
pro tern in the case of a heud of
the head of the division in the
diem ln lieu of subsirtence
- -
-
- - -
-
<.c
ca~e
(~urin;::
- - - - - - - -
division, cmd with the approval of
of other employees of the Boord per
such cbsence for '-'- n0riud not to ex-
•• J
ceed one week and, in the event the illness extenas
may be alloned
p~
....
boyona one week, hE:
diem in l:i.eu of subsistence for such additional period
as may be fiyed by the Board.
6.
For the purposes of paragraphs l and 2 nbove, thE"
t.:~rm
covered by the defi.nitions of (a) actuaL neces.::ar; tnm:oportation expenses
and (b) per die::1 in lieu of subdstence.
7.
Except tc the extent specificc:.lly allowed otherv1ise by this
regulation, tho provisions of the st;::.nciar·dized Government travel regula-
tions as amended shall continue to cpply to all persons uthcr thc...n mombers of the Board traveling on official l;:Jusincss of the Board.
306
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
X-9522
March 19, 1956.
SUBJECT:
Holidays duri.ng April, 1956.
Dear Sir:
The Board of Governors of the Federal Reserve System is advised that the following holidays will be observed by Federal reserve
banks and branches during April, 1956:
Friday, April 10
Monday, April 13
Philadelphia
Pittsburgh
Baltimore
Jacksonville
Nashville
New Orleans
Havana Agency
Memphis
Minneapolis
Good Friday
Chnrlotte
In observance of
Halifax Day which
frrlls on Sunday
Birmingham
.A..'1ni versary of
birth of Thomas
Jefferson
Monday, April 20
Boston
In observance of
Patriot's Day which
falls on Sunday
Tuesday, April 21
Dallas
El Paso
Houston
San Antonio
San Jacinto Day
.. .
307
X-9522
-2-
Wednesday, April 22
Monday, April 27
Omaha
Atlanta
Birmingham
Jacksonville
Arbor Day in Nebraska
In observance of
Southern Memorial Day
which falls on Sunday
On the dates given the offices listed will not participate in
either the transit or the Federal reserve note clearing through the
Inter-district Settlement Fund.
Please include transit clearing cred-
its for the direct settling offices affected on each of the holidays
with your credits for the following business day.
No debits covering
shipments of Federal reserve notes for the head offices named should be
included in
yot~
Federal reserve note clearing telegrams of April 10,
20, 21 and 27.
Please notify branches.
Very truly yours,
J.
•c. Noell,
Assistant Secretary.
TO ALL PRESIDENTS
BOARD OF GOVERNORS
308
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
X-9524
March 21, 1936.
SUB.JECT:
Code Word Cove:ring New
Issue of Treasury Bills.
Dear Sir:
In connection with telegraphic transactions in Government securities betweDn Federal
reserve banks, the following code word has been
designated to cover a new issue of Treasury Bills:
"NOYKIK" - Treasury Bills to be dated
March 25, 1936, and to
mature December 23, 1936.
This worci should be inserted in the Federal Reserve Telegraph Code book, follovdng the
supplemental code word "NOYJOG 11 on page 172.
Very truly yours,
j . C. Noell,
Assistant Secreta~J.
TO PRESIDENTS OF ALL F. R. BANKS.
309
X-9525
INTERPRETATION
BANKING ACT OF 1955
(Copies to be sent to all Federal Reserve banks)
March 20, 1956
Honorable J. F. T. O'Connor,
Comptroller of the Currency,
Washington, D. C.
Dear Mr. Comptroller:
This refers to Mr. Lyons' letter of January 16, 1936, presenting a case involving the question whether liability of an executive officer of a member bank on a mortgage loan insured under the
provisions of Title II of the National Housing Act and held b.Y a
bank is excepted from the provisions of section 22(g) of the Federal
Reserve Act.
Under the provisions of Title II of the National Housing
Act, a bank as well as other financial institutions may be approved
by the Federal Housing Administrator as a "mortgagee", and such term
is defined to include the original lender under a mortgage.
Any per-
son desiring to obtain a loan secured by a mortgage which may be insured under such Act deals directly with an approved mortgagee.
The
liability on mortgage loans insured under the provisions of the.
National Housing Act is not excepted from the provisions of section
22(g) of the Federal Reserve Act and liability of an executive officer of a member bank on such loans held by a bank is therefore subject
to the provisions of that section.
Inasmuch as a bank may deal directly
with the person desiring to obtain such a loan, the opportunity for
3t0
X-9525
-2 ...
an executive officer of a member bank to use his influence in the
obtaining of such a loan is present to the same extent as in other
types of loans and it appears, therefore, that such a transaction
would fall within the purposes of the law as well as its terms.
In the
particul~r
case presented by Mr. Lyons, which arose
out of an inquiry he received from a national bank, it appears that
the insured mortgage loan is on the property of the wife of an executive officer of a member bank and that the payment of such loan is
predicated upon
r~r
husband's income.
It is not clear whether the
husband is liable to a bank for the payment of the loan, or whether
the loan was made under such circumstances as to indicate an attempt
to evade the provisions of section 22(g).
In the circumstances, the
Board cannot undertake to advise you definitely whether the particular
case comes within the provisions of section 22(g).
However, the fact
that the payment of the loan to the wife of the executive officer is
predicated upon Pis income at least indicates that he may be liable
on the obligation and would warrant a further inquiry by your office
as to all of the circumstances involved in order to determine whether
the executive officer of the national bank is violating the provisions
of section 22(g).
Very truly yours,
(Signed)
Chester Morrill
Chester Morrill,
Secretary.
3t1
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OI'I'ICIAL CORRESPONDENCE
TO THE BOARD
X-9526
March 24, 1936.
SUBJECT:
Revised Persormel Classification Plans.
Dear Sir:
Replies received from the Federal Reserve banks to the
Board's letter, X-9352, of October 30, 1935, on the proposed revised personnel classification plan prepared by the Sub-committee
of the personnel classification plan conference, which met at
Chicago on April 17, 1955, were referred to the Chairman of the Subcommittee for consideration and recommendation.
After reviewing the
comments of the Federal Reserve banks on the proposed plan, the Subcommittee has recommended that the plan be approved as submitted.
In the opinion of the Board the proposed plan is a distinct
improvement over the plan now in use and, accordingly, it has approved the plan as submittecl by the Sub-committee.
It will be appre-
ciated, therefore, if you will have the personnel clas.sification plan
for your bank revised in accordance with the plan submitted by the
Sub-committee and submit the revised plan to the Board for its consideration at your early convenience.
312
- 2 -
X-9526
Forms for use in submittine; the new personnel clDssification plans will be printed by the Board and a supply forwarded to
the banks at an early date.
In accordo.ncc with the recommendation
of the Sub-committee, the titles and duties of employees occupying
general junior positions will be printed on the first five pages of
the forms.
Very truly yours,
Chester iV!orrill,
Secretary.
TO ALL PRESIDENTS.
313
X-9527
March 20,
1~36.
INTERPRETATION
Banking Act of 1935.
(Copies to be sent to all Federal reserve banks)
Honorable J. F. T. O'Cormor,
Comptroller of the Currency,
Washington, D. C.
Dear Mr. Comptroller:
This refers to Mr. Awalt's letter of January 22, 1936,
requesting an expression of the Board's views with respect to the
question whether, under section 22(g) of the Federal Reserve. Act,
a loan which was made by a member bank in June 1935, to an individual who was not at that time an executive officer of the bank
may now be renewed or extended at
~~turity
where such individual
is now an executive officer of the bank within the meaning of that
term as defined in the Board's Regulation 0.
As you know, section 22(g) of the Federal Reserve Act,
as amended by the Banking Act of 1935, provides that loans made to
executive officers of member banks prior to June 16, 1935, may be
renewed or extended, under certain conditions, for periods expiring not more than five years from that date.
Since, under the
facts here stated, the loan in question was not made to an executive
officer of a member bank prior to June 16, 1953, a renewal of such
loan would not fall within the scope of this provision of section
22(g) of the Federal Reserve Act and the making of such a renewal
31_4
X--9527
- 2 -
would not therefore be subject to the conditions prescribed in the
statute or in section 4 of the Board's Regulation 0.
A renewal of a loan in the circumstances described would
be
prohibited by the statute only if such renewal may be regarded
as a loan or extension of credit within the meaning of its provisions.
As you know, the Board has expressed the view, in letters
addressed to you under dates of July 17, 1954 and March 28, 1955,
that the renewal of an existing loan does not constitute an extension of credit within the meaning of section 25A of the Federal Reserve Act which relates to loans and extensions of credit to affiliates of member banks.
It will be recalled that, while the question
was not then directly involved, the Board expressed the view in its
letter of March 28, 1955, that the pr·oviso in section 22{g) of the
Federal Reserve Act, permitting the renewal of loans made to executive officers prior to June 16, 1955, may properly be interpreted as
imposing a limitation upon the period during which such loans may be
renewed or extended, rather than as conferring a right of renewal or
extension which did not otherwise exist.
Moreover, as indicated in
that letter, it is believed that under the more usual interpretation
of the words "extension of credit", such words mean a grant or an
allowance of credit rather than an extension of the time of payment
of a debt.already in existence.
It is the opinion of the Board, therefore, that the renewal
or extension of the loan made subsequent to June 16, 1955, referred
315
X-9527
- :3 -
to in Mr. Awalt's letter, is not to be regarded as a loan or extension of credit within the meaning of the prohibitions of section 22(g)
of the Federal Reserve Act.
Very truly yours,
(Signed)
Chester Morrill
Chester Morrill,
Secretary.
316
X-9528
INTERPR~TATION
BANKING ACT OF 1935
(Copies to be sent to all Federal reserve banks)
March 20, 1936.
Mr. Richard L. Austin,
Federal Reserve Agent,
Federal Reserve Bank of Philadelphia,
Philadelphia, pennsylvania.
Dear Mr. Austin:
This refers to Mr. Hill's letter of January 7, 1936, inquiring (l)
whether the restrictions contained in section 22(g) of the Federal Reserve Act and the Board's Regulation 0 include loans to executive officers of member
b~nks
from trust funds administered by such banks and
(2) whether executive officers of member banks are required to report to
the board of directors of such banks loans made to them from trust funds
held by other banking institutions.
The Board has noted Mr. Hill's
statement that the answer to the first inquiry will only be of interest
to member trust companies which are not subject to the condition of membarship to the effect that a member bank shall not invest trust funds
held by it as a fiduciary in obligations of the bank's directors, officers, or employees.
The primary purpose underlying the enactment of section 22(g) was
to prevent executive officers of membElr banks from using their influence
to obtain credit from the banks they serve.
Congress also apparently
felt that the board of directors of a member bank should be advised as
to the indebtedness of the executive officers of such bank to other banks.
3t7
X-9528
-2--
In the amendment to section 22(g) made by the Banking Act of 1955, Congress expressly conferred upon the Board the authority to prescribe such
rules and regulations as it may deem necessary to effectuate the provisions of such subsection in accordance with its purposes and to prevent
evasions thereof.
The Board feels that an indebtedness of an executive
officer of a member bank arising as the result of the lending of trust
funds administered by a bank falls within the purposes of the law, since
his opportunity to use his influence to obtain a loan of such funds is
present, and it would seem that the board of directors of a member bank
should be infor.med of an indebtedness of its
ext~cutive
officers arising
out of the lending of funds of trusts administered by other banks.
More-
over, there is no justification, under well recognized rules of statutory
construction, to place a restricted meaning upon the provisions of such
section so as to exclude an indebtedness
~rising
out of the lending of
trust funds by a bank.
Since section 22(g) includes an indebtedness arising out of the
lending of trust funds, the question might be raised as to what effect
the $2500 exception contained in such subsection might have on the provision in section ll(k) of the Federal Reserve Act which prohibits anational bank exercising trust powers from lending funds held in trust to
any of its officers, directors, or employees.
The provision in section
22{g) can be applied to loans of the bank's own funds and thus be given
full effect even though it is not considered as repealing the provision
in section ll(k) just above referred to.
Under the usual rules of statu-
tory construction, the repeal of statutes by implication is not favored
\
'
31_8
X-9528
.
where the provisions of both statutes involved can be given full effect
and, in the circumstances, it is the opinion of the Board that section
22(g) does not in any manner affect the provision in section ll(k) referred to herein.
As you know, it is contrary to the established principles regarding
the handling of trust funds for a trustee to have any interest in the
funds of a trust which he is administering and likewise such principles
are applicable to executive officers of a corporate trustee.
These prin-
ciples are so well established that some States have enacted laws forbidding corporate fiduciaries from lending
t~ust
funds to their own of-
ficers, directors, or employees; as noted above Congress has prohibited
national banks from lending trust funds to thoir
o~~
officers, directors,
or employees; and the Board has prescribed a similar prohibition in the
form of a condition of membership applicable to State member banks.
While
there may be some State member banks which are not subject to the condition and the laws of the State under which they operate may not prohibit
such loans, the Board feels that such banks should not lend trust funds
to thGir own executive officers.
In view of all the circumstances, the Board is of the opinion that
the restrictions contained in section 22(g) of the Federal Reserve Act
and the Board's Regulation 0 include loans to executive officers of member
banks from trust funds administered by such banks and likewise an indebtedness of an executive officer of a member bank to another bank arising
out of the lending of trust funds should be reported to the board of directors as provided in section 5 of the Board's Regulation 0.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretar.r.
31_9
X-9529
CREDIT CONTROL BY THE FEDERAL RESERVE SYSTEM
ADDRESS BY
M. S. SZ"YMCZAK, MEMBER,
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
DELIVERED BEFORE
T'rlE RICHMOND CHAPTF..R OF
THE AMERICAN INSTITUTE OF BANKING
March 25, 1956,
8:00 P• m.
..
X-9529
There are five principal means·by which credit control may be exercised in the Federal Reserve System.
These are:
Discount Rates
Open Market Operations
Direct Action
Reserve Requirements
Margin Requiremcmts
Discount Rates
Under the original terms of the Federal Reserve Act two principal
instruments of credit control were used.
One of these was the discount
rate; the other was the rate on bills, or as they are called in the Act,
"Acceptances".
The Act specifically provided that each Federal Roserve
bank "establish from time to time, subject to review and determination
of the Board of Governors of the Federal Reserve System, rates of discount to be charged by the Federa.l Reserve bank for each class of paper,
which shall be fixed with a view of accommodating commerce and business".
To this the Banking Act of 1955 added the provision that such rates shall
be established "every fourteen days, or oftener if deemed necessary by
the Board 11 •
This does not mean that the rates have to be changed every
time, but that they must be regularly and frequently reviewed.
The Re-
serve banks usually take the initiative in any action on rates.
The discount rates of the Federal Reserve banks are usually somewhere between bill rates, which are usually lower, and other short-term
rates in the open market, which are usually higher.
They are also lower
than rates which banks charge their customers for loans.
They differ,
321
X-9529
-2-
therefore, from the discount rate of foreign central banks, such as the
Bank of England, for example, whose discount rate is higher than the
market rate.
Since the Federal Reserve bank discount rate is lower than
the rates charged by member banks it has usually been possible for member
banks to borrow from the Reserve bank and relend at a profit.
It has
not been tho practice for them to do so, however, probably because they
are averse to having borrowings show up in their published statements.
Consequently, member banks as a usual thing borrow of the Reserve bank
only when they have to in order to
~eplenish
their reserves and avoid the
penalty for deficiencies in their reserve accounts.
Although each Federal Reserve bank's rate is determined largely with
reference to local conditions, it is importru1t, of course, not to fix
rates at any one Reserve bank without reference to the conditions to
which other Reserve banks are subject.
The member banks in one district
cannot go to the Federal Reserve bank of anoth.Jr district, but nevertheless if rediscount rates in one district were noticeably lower than in
another it would be possible for funds to find their way through indirect
channels (such as correspondent banks, for example) from the district
where rates were low to the district where rates were high.
Consequently,
general conditions as well as local have to be taken into account in determining what the rediscount rate will be and what changes should be
made.
The Federal Reserve Act formerly limited the classes of paper whj_ch
Federal Reserve banks could discount for member banks, on the principle
"
X-9529
-5-
that a definite preference should be maintained for short-term credit
based on self-liquidating commercial transactions.
The Reserve banks
we1·e, therefore, given the power to discount only short-term selfliquidating commercial paper, that is notes, drafts, bills of exchange
and bankers• acceptancGs arising out of commercial, industrial and agricultural transactions, and to make advt..nces to member banks on their
promissory notes backed
~~
paper eligible for discount or purchase or
backed by United States Government obligations.
fined classification.
It was a narrowly de-
Advances on a wlde range of other assets which
made up an important part of the total earning assets of banks were not
authorized.
These included advances on securities other than those of
the United States Government, on real estate loans, and on other loans
of considerable importance in the portfolios of banks.
As a result of many developments in our financial organization,
paper which qualified for borrovdng from the Reserve banks has constituted a constantly decreasing proportion of the total assets of member
banks ever since the System was established.
In 1929 it was only about
twelve percent of total loans and investments of such banks, and in
1954 it was but eight percent.
Consequently, in 1931 and 1952 when the
great liquidation occurred, many banks with assets which were good but
technically ineligible for borrowing at Reserve banks, were obliged to
dump them on a falling market, suffering severe loss thereby and contributing to the deflation in values, or to close their doors.
The new banking act increases the powers of the Federal Reserve
banks so that they may meet this situation.
It authorizes tho Reserve
..
323
X-9529
-4-
banks to make advances to member banks for periods not exceeding four
months on any security satisfactory to the Reserve bank, at a rate of
interest at least one-half of one percBnt above the highest discount
rate in effect at the particular Reserve bank.
This amendment modifies
and ma'kes permanent tho emergency legislation which was passed in 1952.
In addition to the foregoing general powers of dl.scount and purchase the Federal Roserve banks have special powers with respect to
loans to commerce and industry for working capital purposes.
powers are granted by Section 15b of the Act.
These
Under this section the
Reserve banks are authorized to discount loans made by member banks and
other financing institutions to establ1shed industrial and commercial
businesses for the purpose of supplying working capital.
These changes made by recent legislation enlarge very greatly the
kind of credit which the Federal Reserve banks may deal in directly,
and give the Reserve banks greater freedom of action in meeting requirements of the money me.rket.
Open Market Operations
In addition to the discount rate and the bill rate, two other important means of credit control have been developed from Reserve System
experience, although they were not specifically contemplated in the
original Federal Reserve Act.
direct action.
These are open market operations and
Open market operations consist of the purchase and sale
by Reserve banks of certain classes of securities, chiefly Government
obligations.
They have the effect of increasing or decreasing the
324
-~
X-9529
supply of credit available in the money market as a whole.
.
They do not
leave control of the money market dependent upon the voluntary action
of member banks in seeking funds for the
repl~nishment
of their reserves,
but give to the Federal Reserve banks the initiative in influencing the
market.
By selling securities the Reserve banks withdraw funds from thu
market and less credit becomes available.
By purchasing securities they
put funds into the market and tend to ease credit conditions.
If sccuri-
ties are sold they must be paid for, and in the process of paying for
them the reserves of member banks arc diminished, for
eve~J
payment
means a debit sooner or later to some member bunk's reserve account.
If the program is carried far enough the member
ba~~s
will be forced to
restrict their extensions of credit or dispose of some of their assets
to the Federal Reserve banks either b,y sale or rediscount in order to
replenish their reserves.
When this happens, the member banks have been
forced by the initiative of the Reserve banks to take action which they
would otherwise not have had to take.
If, on the contrary, market condi-
tions are such that member banks have gone into debt to the Federal Reserve banks in order to replenish depleted reserves, the Federal Reserve
banks may relieve the situation and the tightness which exists in the
money market generally by buying securities on a large scale.
The funds
which they release in payment for the securities which they buy flow one
way or another into the reserve accounts of the member banks and enable
the latter to pay off their obligations.
If the purchases continue
beyond this point, they create excess reserves which it is likely the
325
X-9529
-6member banks will try to put to some use.
By selling securities, therefore, the Federal Reserve banks may enable themselves to give an effectiveness to a discount rate which it
would not have otherwise until such time as market conditions had stiffened and individual banks were forced by those conditions to go to the
Reserve banks for funds.
Open market operations, therefore, enable the
Reserve banks to accelerate corrective action.
They are especially
useful in view of the tradition which makes banks refrain as much as
possible from borrowing from the Federal Reserve banks.
If member banks
felt no inhibitions about being in de.bt, and built up their reserves by
borrowings so th13 t they might make more loans, they would more generally
be amenable to control through the discount rate.
As it is, however,
the discount rate must depend for much of its effectiveness upon open
m<:trket opera tlons.
The powers of the Reserve banks to buy and sell·securities in the
open market were granted in general terms in the original Federal Reserve
Act, but at the time were not generally considered to be of very great
importance.
It was not until 1922 that open market operations were con-
ducted on a large enough scale to affect tha money market.
The first
operations were carried on by tl1e Federal Reserve banks independently of
one another, but it was soon found that action had to be coordinated,
for otherwise the banks would be buying or selling in competition with
one another and following different, and perhaps conflicting, policies.
Consequently, a committee representing several of the reserve banks was
326
X-9529
-7>-
formed for the purpose of coordinating their operations.
same time the purpose of the operations was clarified.
About the
For some time
there had been a tendency to allow purchases and sales to be influenced
by the objectiv·e of profit, but it was eventually realized that such an
objective was in conflict with that of moderating a given condition of
the money market, and must, therofore, be subordinated or even abandoned.
This is in line with the general policy of central banks in conducting
open market operations; they do so quite definitely with the idea of
correcting credit conditions and not for the purpose of making earnings.
The Banking Act of 1935 gave specific recognition to open market
operations and established a Federal Open Market Committee of twelve
members, one representing each Federal Reserve bank, .to take the place
of the former non-statutory committee.
At the same time the law adopted
substantially the statement of purpose which had already governed open
market operations.
The statute provides that open market operations
"shall be governed with a view to accommodating commerce and business
and with regard to their bearing upon the general credit situation of
the country."
The Banking Act of 1955 made further change by providing that the
Federal Open Market Committee should comprise the members of the Board
of Governors of the Federal Reserve System and five representatives
chosen by the twelve Federal Reserve banks.
The law also makes the deci-
sions of this committee obligatory upon the Federal Reserve banks and
provides that the record of the committee's actions shall be included
in the annual report of the Board submitted to Congress.
Thus an
3.27
X-9529
activity which was barely
reco~1ized
in the original Federal Reserve
Act, and which was gradually developed in the process of administration
of the System, has come to be emphasized in the law as one of the System's most important activities.
Direct Action
I also mentioned direct action as a means of credit control.
Di-
rect action means individual effort by the Federal Reserve banks to
discourage credit policies of given member banks in given circumstancGs.
For the correction of specific conditions, it is to be regularly resorted
to by the H.eserve banks in their relations with member banks.
Opportun-
ity for it occurs on various occasions, but particularly when the member
bank is being examined, and when it is seeking to rediscount some of its
paper.
In this sense, direct action is largely an individual matter and
the form taken by it in any case may have little or no reference to general credit conditions.
It may also have reference either to regional
or country wide conditions, however, and may then be resorted to for
the purpose of enforcing general credit policy.
The power to exercise
direct action against member banks lies partly v!i th the Federal Reserve
banks and partly with the Board of Governors,
The effectiveness of direct action was specifically strengthened
by the Banking Act of 1955 in several particulars.
that undue use of
bar~
When it appears
credit is being made for the purpose of specula-
tion in securities, real estate, or conm10di ties, or for any other purpose inconsistent with sound credit conditions, the facts should be
328
X-9529
-9-
reported by the Federal Reserve banks to the Board of Governors of the
Federal Reserve System.
The Board may in its discretion suspend any
member bank making such use of credit from recourse to credit facilities
of the System.
Furthermore, authority has been given to the Board to
remove from office any officer or director of a member bank who has violated the law governing the bank's operation or who has persisted in
unsafe and unsound practices in conducting the bank's business.
The
Board also has power to limit for each Federal Reserve district the individual bank capital and surplus which may be represented by loans
secured by stock or bond collateral.
It is to be presumed that these special powers will not often have
to be used, in view of other broad powers designed for control of credit
conditions, but in principle they are nevertheless significant, for
they indicate that the law definitely contemplates the exercise of considerable responsibility by the Federal Reserve banks and the Board.
Power to Change Reserve Requirements
Recent legislation has also established two other new forms of
general credit control which previously did not exist.
The first of
these is the power given the Board to change the reserve requirements
imposed upon member banks by the statute.
For most banks the require-
ment is and has been for years that they have reserves on deposit with
the Federal Reserve bank equal to at least 7 percent of their demand
deposits, and 5 percent of their time deposits.
The power to alter
these reserve requirements was first given the Board by an amendment
329
-10....
to the Federal Reserve Act May 12, 1955, but under limitations which
were later removed by the Banking Act of 1955.
ized to change the reserve requirements
11
The Board is now author-
in order to prevent injurious
credit expansion or contraction", but it is not permitted to lower them
below the present requirements nor increase them to more than twice the
present requirements.
The effect of raising them, which is the only
action that could now be taken, because the reserves are now at the
point of legal requirement, would be to decrease the lending power of
member banks and consequently the available credit.
The effect of sub-
sequently lowering them would be, of course, to enlarge the lending
power nnd the amount of available credit.
This means of credit control
is one of the most powerful and direct that the law has bestowed.
Margin Requirements
The second new form of general credit control recently authorized
pertains to margin accounts and loans made for the purpose of purchasing
or carrying listed securities.
Authority for the Board to issue regula-
tions in this field was granted by the Securities Exchange Act of 1954.
This grant of authority was in line with various provisions of the Federal Reserve Act, such as I have already referred to, aimed at restricting the use of credit for speculative purposes.
In the language of the
Securities EXchange Act, the authority it bestows is to be ex·ercised
with the object of preventing "the excessive use of credit for the purchase or carrying of securities".
The standard established in the Act
and adopted by the Board as an initial regulation limits the loans which
a broker or dealer may make on a security to whichever is higher of the
-'11 ...
X-9529
two following ratios:
Fifty-five
{.1.)
percent of the current market price of the
security, or
(b)
One hundred percent of the lowest market price of the secur-
ity since July 1, 1955, but not more than seventy-five percent of the
current market price.
This standard permitted the extension of eredit up to seventy-five
per cent of' current market value on securities that he..d made little or
no advance from the lows of recent years, and up to fifty-five percent
on securities that had made considerable advance.
The Board, howevor,
was given authority to alter this initial standard, making it either
higher or lower as conditions might warrant, and it has recently changed
the fifty-five per cent
limit~tion
to forty-five per cent.
The reason
for this action was realization of the possibility that recent increases
of stock market values might lead to such excesses as the law sought to
prevent.
The determination of margin requirements is designed to exert a
restraining influence on speculative trading.
By imposing higher margin
requirements on securities that have had a rapid rise, credit is made
less freely available for trading in speculative stocks.
A limitation
is also imposed on the extent to which speculative profits on securities
can be used as margins for further speculation, a practice that is known
as pyramiding.
The power of the Board to raise margin requirements provides an
331
•
X-9529
--12-
instrument for controlling the demand for cre:dit from speculators in
the stock market without restricting the suppljr available for other borrowers.
It differs from oth.:::r r:J.eans of c:redi t control in that it af-
fects diri.:;Ctly the demand for credit rather than the available supply
or cost.
Through the use of this instrument it may be possible for the
Board to exert a restraining influGnce on the use of credit for speculation in the stock market before it has reached
.:t
stage at which the
general business and credit situation is unfavorably affected.
The use
of the instrument exercises a restraint on speculation without limiting
the supply or raising the cost of credit to agriculture, trade, and
industry.
The Securities Exchange Act specifically exempts from its provisions all obligations of the United States Government, of any state,
municipal, or other political subdivision, and of agencies or instrumentalities of a State or local government.
Additional exemptions of
a similar nature are provided for.
Brokers and securities dealers subject to the Act are not permitted
by the Act to borrow from banks which are not members of the Federal Reserv3 System, unless such banks agree to comply with the same conditions
relating to the usa of credit to finance transactions in securities as
are imposed on member banks.
The foregoing provisions .governing the credit actlvities of brokers
and dealers are covered in Regulation T of the Board of Governors.
Insofar as banks are concerned, the Board's authority relates to
X-9529
-13-
loans made for the purpose of purchasing or carrying securities registered on national securities exchanges.
It does not apply, therefore,
to loans made solely for industrial, agricultural, or commercial purposes, regardless of the question whether these loans are secured or
unsecured, and, if secured, regardless of the character of the collateral.
Th0 determining factor is the purpose of the loan and not the nature of
the security offered.
If a loan is made for the purpose of purchasing
or carrying securities registered on a national securities exchange, it
comes under this section of the act; if it is made for any other purpose -- industrial, agricultural, or commercial -- then it is exempt.
It is also exempt if it is secured by certain types of collateral other
than stocks, such as bonds and government obligations.
In general, the
law, insofar as it applies to control over banks, is intended to prevent
the banks from being used for the purpose of circumventing the margin
rGquirements prescribed for loans extended by brokers to their customers, and to prevent undue expansion of bank credit in the securities
markets.
The law imposes upon the Board no duties in connection with supervision of stock exchanges or prevention of undesirable practices among
members of such exchanges.
Responsibility for these matters rests upon
the Securities and Exchange Commission.
Conclusion - Limitation on Means of Credit Control
Although the five means I have discussed by which credit control
may be exercised - discount rates, open market operations, direct action,
X-9529
-14-
reserve requirements, and margin requirements - appear to be very comprehensive and powerful, it would be a mistake to convey the impression
that a perfect control of credit will be effected through them.
In the
first place, their application cannot be mechanical nor governed by
simple unvarying rules.
Credit and economic relationships are extremely
intricate, and the circmnstances under which the need for action arises
are always to some extent different and special.
Let me mention a few
things that complicate the task of credit control.
In the first place, if there were a clear connection between given
extensions of credit and the uses· to which the credit is ultimately put,
the control of credit would be simplified.
This connection was formerly
assumed to exist and to afford an important means of control.
The
thought was that the Reserve bank could shut off speculation by refusing to discount the notes of speculators.
the facts.
That, of course, is far from
A bank may borrow from the reserve bank on biJ.ls of lading
covering the sale of merchandise and at the same moment it may buy the
mortgage of a man who is speculating in industrial stocks.
The exten-
sion of credl t on bills of lading was specifically fr..vored by the original Federal Reserve Act, yet in such an instance as I mention, it might
make possible a speculative activity directly opposed to the purposes
of the Act.
Another important faet is that more than half the banks of the
United States are not members of the Federal Reserve System.
The sys-
tem has consequently only a purtio.l and ind1rect influence on their
credit activities.
334
-15-
X-9529
For another thing, there is always the importar1t consideration
that United States Treasury activities must be taken into account.
These have to do in part with the operations of the Exchange Stabilization Fund and the issue of circulating media, e.g., coins, silver certificates, and United States notes; and in part with the public debt,
and the government's receipts and expenditures.
These operations in-
volve such large sums and so intimately affect the banking and credit
situation that Federal Reserve poliQY and Treasury policy must always
be coordinated with one another.
Finally there are conditions that arise not only outside the System, but outside the country, and yet affect the domestic banking situation powerfully.
There is, for example, the recent great movement of
gold to the United States from abroad- a movement that in the last two
years has added over three billion dollars to the reserves of member
banks.
These factors, among others, necessarily limit and modify the exercise of credit control.
BOARD OF GOVERNORS
335
CF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS DF"F"ICIAL CORRESPONDENCE
TD THE BDARD
X-9551.
March 25, 1956.
SUBJECT:
Expense, Main Lines, Leased
Wire System, February, 1956.
Dear Sir:
Inclosed herewith you will find two
mimeographed statements, X-9551-a and X-9551-b,
covering in detail operations of the main lines
of the Leased Wire System, during the month of
February, 1956.
Please credit the amount payable by
your bank for your share of the expense of the
Leased Wire System to the Federal Reserve Bank
of Richmond in your daily statement of credits
through the Inter-district Settlement Fund for
the account of the Board of Governors of the Federal Reserve System, and advise the Federal Reserve Bank of Richmond by wire the amount and purpose of the credit.
Very truly yours,
0. E. Foulk,
Fiscal Agent.
Inclosures.
TO PRESIDENTS OF ALL F. R. BANKS.
X-9551-a
REPORT SHOWING CLASSIFICATION AND Nln{BER OF WORDS TRANSMITTED OVER MAIN LINES
OF THE FEDERAL RESERVE LEASED WIRE SYSTEM FOR THE i\il.ONTH OF FEBRUARY, 1956.
Business
reported
by banks
From
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
•
St.,. Louis
Minn-eapolis
Kansas -Gi ty
Dallas
San Francisco
Total
52,225
122,281
24,515
'37,102
42,67'3
40,549
70,270
51,880
29,876
57,128
59,715
75,671 .
625,681
Words sent by
New York chargeable to other
F. R. Banks ( 1)
1,.219
1,222
1,229
1,281
1,175
1,585
1,413
1,168
1,'305
1,'316
1,554
14,465
Board business • • • • • • • • • • • • • •
Net Federal
reserve
bank
business
55,442
122,281
25,555
'38,551
43,954
41,722
71,855
55,295
51,044
58,455
41,051
77,225
658,146
302,865
Reimbursable business Incoming & Outgoing
Total words transmitted over main lines
(*) These percentages used in calculating the pro rata share of leased wire expense as shown
on the accompanying statemant (X-9551-b).
(1)
Number of words sent by New York to other F. R. Banks for their sole benefit charged to
banks indicated in accordance with action taken at Governors' Conference
November 2-4,1925.
Per cent of total
bank business ( -:t-)
5.24
19.16
4.00
6.01
6.89
6.54
11.26
8.35
4.86
9.16
6.45
12.10
100.00
941,011
628,855
• 1,569,866
X-9531-b
REPORT OF EXPENSE MAIN LINES
FEDERAL RESERVE LEASED WIRE SYSTEM, FEBRUARY, 1936.
Operators'
Salaries
Name of bank
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
MinneapOlis
Kansas 'City
Dallas
San Francisco
Board
Total
$ 260.00
1,283.30
225.00
506.66
190.00
262.50
5,965.60(#)
176.00
154.16
287.00
251.00
580.00
$7 '741.22
Retirement
Contributions
$ 12.45
Opera tors'
overtime
$ -
64.80
11.39
15.05
9.78
13.26
184.14
8.91
8.29
16.16
12 .. 35
19.11
4.00
$375.67
f~4.00
Wire
rental
$ 730.66
$ 272.45
1,348.10
236.59
521.69
230.00(&)
429.78
275.76
4,153.74
184.91
162.45
305.16
263.35
599.11
14 911.28
14 911.28
$15,141.28
$25,262.17
2,671 .. 64
557.75
838.02
960.73
911.95
1,570.08
1,164.31
677.67
1,277.26
896.59
1,687.20
1,348.10
256.59
521.69
429.78
275.76
4,153.74
184.91
162.45
303.16
265.35
599.11
$15,945.84
$8,550.89
(&) Main line rental, Richmond-Washington
(#) Includes salaries of Washington operators
(*) Credit
Amount reimbursable to Chicago
Includes $316.42, which represents cost of
handling contingent expense telegrams for the
Treasury Department for the month of February, 1956.
91518.55
$15,945.84(b)
Payable to
Board
Credits
$ 272.45
$
Less Reimbursable Charges
(a)
(b)
Total
expenses
Pro rata
share of
total
expenses
458.21
'* 1,525.54
'li'
321.36
516.33
530.95
656.17
2,585.66(*)
979.40
515.22
974.10
655.24
1,288.09
$8.176.61
2 2 585.66(a2
$5,592.95
338
BOARD OF GOVER,NORS
OF THE
..
"~,
F'EOERAL RESERVE SYSTEM
WASHINGTON
OFFICE OF THE CHAIRMAN
X-9552
March 25, 1956.
Dear Sir:
In considering salaries of officers at the Federal Reserve banks
for the year 1956 recommended by the Boards of Directors of the respective Federal Reserve banks, the Board of Governors of the Federal Reserve System, as constituted prior to February 1,. 1936, decided to ap...
prove salaries of Governors, Deputy Governors, and Assistant Deputy
r~vernors
for the period January 1 to February
2~,
1936, and of other
officers of the bank for the year 1936 at the rutos the officbrs were
receiving at the end of 1955, and in so doing expressed the view that
there should be no increases in salaries of officers, except in exceptional circumstances, until a thorough and careful analysis had been
made of the organizations of the Federal Reserve banks.
Since entering upon its· duties the ncv; Board of C'fOvcrnors has had
before it many important questions 'liith respect to the personnel and
salary payments of the Federal Reserve bunks and the distribution of
duties between the Federal Reserve banks and the Ferieral Reserve agents.
After studying these metters the Board decided to approve all rccommen¢ations submitted by the respective Boardsof Diructors with respect to salaries of Presidents, First Vice Presidents, Vice Presidents, and Assist[illt
- 2 -
X-9532
Vice Presidents for the perio;:i ivlarch l to fecerr:b. r :'il, 1366, inclusive,
at the .cat':'!S which ·1vere being paid roo such oi'ficers prlor to that O.ate,
and that no recommendation involving ar: increase in salary shoula be a:>proved in the <..bsence of unusual circumstance e. or· a change in position.
Before t.1ki.ng this action the Board decided to ask the Presidents
of the Federal Reserve banks to institute 11romptly a thorough survey of
the organisations and salary payments of their respective Federal Reserve
banks a-::10, ix1 order t!wt the Board might fully acquaint the Presidents .
with the ;ulicies it had adopted with respect to these and other matters,
it asked them to come to
~~~ashingcon
Governors :m Monday, March 16.
for a conference with the Board of
At the conference the Board tole the
Presidents that it had already instituted a thorough survey of its own
organization here in Washington.
In connection with the distribution of duties bet':veen the Federal
Reserve banks and the Federal Reserve agents, the Board had in
m:i~d
a
procedure lookin6 toward the placing of the Chairmanships largely upon
an honorarJ basis, with the thought thut the rout-ine dutier with respect
· to the issuance of Federal Reserve notes and the holding of collateral
security therefor would actually be performed by assis:tant Federal Reserve agents who would be experienced in such work and who vwuld receive
salaries commensurate with the duties and responsibilities to be
~ssumed.
This would make it possible for the Board to obtD.in outstc::.nding men of
recognized prestige and influence in their communities to act in the
capacity of Chairmen and Feaeral he serve agents with ·the understanding
340
.. 3t~Ja t
it would not be necE: s sary for them to devote their full time to
the position.
The procedure contemplated would result. in the transfer
of the bank examination work ;...nd
th~
reseo.rt;h work hcn:tofc.re handled
O.ep~:;.l·:J;ncnts
bJ' the Fedoral Reserve agents to the br.ut.K tng
derstcno.in:~,
however 1 that such funct.ilJnS would
C::.ucted unJ.3r tlte general supo31·vLdon of the
tofor(;'
t~s
::J.S
i.~oard
.·i th the un-
heretofore be conof Governors.
Hore-
ycu know; all appointments of Federal l'eserve Examiners hav,
been mbj ect to the n.pproval of the Board of Governors anci. the Board
would expect such a:)pointments, including particularly that of the
person in charge of th·.: exc.mination function, to continue to b<'' subject to its approval.
The Board of Governors at the Cont'et'ence
hc:...a
in Washington on
March 16 and 17 asked the Presidents to :reviev their entire orgtJlizctions "Nith a vim1 to effectint; economies
~vherever
;JOssible to do so
1vithout impairing the effichmt open:tion of th.:, bank;:;.
The Pr8siden·i,s
were c.lso asked to furnish the Board with reports r:1s to how they would
propose to effect the transfer of certain
dut~es
nov: handled by the Fed-
eral Reserve a.gents to the banking departments; of the personnel they
would expect to place in charge of thG ceveral operations; and of the
economies which would be effected by making such transfers, in addition
to the economies which v10uld be effect:a by placing the Chairmanships of
the Federal Reserve banks lar6t:ly uc>on an honorary basis.
The Board would likE to havo the report to be submitted by each
President include en organization chart which v:ill bring. out clearly the
341
X-9552
- 4 -
pr::.ncipal f'. .mc-Gions or units into which the bar,k is to be divideJ. after
the transfer of certain duties from the Agent's clepar·tment to the bank.
Such charts should show the name of the officer in charge of each unit
and be accompanied by a brief description of the duties of each officer
of the bank.
Separate charts should be pr:;pared for the head office
and each branch.
In making these studies it.
l~
.:.mportant t.hat careful
thought be given to the operations now handled by branches of Federal
Reserve banks with particular reference to the necessity for the branches.
If th8 branches are considered necessary a review of their operations
should be made to det8rmine whether any of the operations now being
handled by ·them could be transferred to the head office at a substantial
saving in operating cost and without impairing the services which the
System is now rendering to member banks and through them to commerce,
industry, and agriculture.
Pursuant to a recommendation made by a sub-committee of a confe:nmcc
of representatives of all ·Federal Reserve banks the Board has approved
a revisea personnel
clas~ification
plan which will necessitDte the Fed-
eral Reserve banks' classi.f'.-jing all non-official positions in accordanco
with the revised plan.
Under this plan the duties of each non-official
position of the bank will be described briefly and this, together with
the organization charts, should give the Board of Gover·nors a complete
picture of the organization adopted by the F'ederal Reserve banks following the completion of the survey which the Board has requested the Presidents to undertake.
342
X-9532
-· 5·-
ln mak.;.ng the survt:y the Board will expect the management of
each Federal Reserve bank to give careft:<l
e;on~idt.raLiou
qualifications and salary of each
anJ employee of th? bank
and to the need for
~heir
offi~er
services.
As you have been
tu the
previou~ly
advised, the Board expects that salaries )aid to employees of the
Ft~deral
Reserve banks will not be out of line with sttlaries :f.letid
for corresponding work by local member banks•
With respect to sal··
aries of officers, the Board realizes that the duties required of
officers of Federal Reserve banks are substantially differ8nt from
those required of officers in the la.rger mE-)mber banks unci for that
reason the salaties paid
~~
local member banks, particularly to the
senior officers of such banks, cannot, of course, be considered as
a guide in fixing salaries of the senior officers of the Federal
Reserve banks.
The Board hopes that the survey which the Presidents of the
banks have been asked to make will be undertaken and carried forward as promptly as 9racticable and that the r&sults of the survey
will be communicated to the Board at an early date.
Tho Board of Governors hopes that each member of your board
will take an active interest in the survey of the personnel and operations of the bank, and that they will lend every possible assist . .nee in effectin;; such reorganization.:; ano economies as may be consistent with the proper 1'unctioni:1g uf thu bank.
343
X-9552
- 6 -
It is requested that a cor;;y of this letter be furnished to each
I
member of your board and to the chief executive officer of your bank.
Very truly. yo. u.·r.s,
~.
~
. . .
!!U'fl: {tLL
M.
TO ALL CHAIRMEN
s. Eccles,
Chairman.
X-9533
,.
I;
BOARD ot GbVERN0RS
OF THE
FEDERAL RESERVE SYSTEM
For the Press
For release in morning newspapers
of Thursday, March 26, 1936.
March 25, 1936.
REGULATION U
LOANS BY BANKS
FOR THE PURPOSE OF PURCHASING OR CARRYING
STOCKS REGISTERED ON A NATIONAL SECURITIES EXCHANGE
Pursuant to the provisions of section 7 of the Securities Exchange Act
of 1934, the Board of Governors of the Federal Reserve System today issued
Regulation U relating to loans made by banks on or after May 1, 1936, for
the purpose of purchasing or carrying stocks registered on a national securities exchange.
The regulation is not retroactive.
It does not restrict the right of
a bank to extend credit, whether on securities or otherwise, for any commercial, agricultural, or industrial purpose, or for any other purpose except the purchasing or carrying of stocks registered on a national securities exchange.
The regulation does not prevent a bank from taking for any loan collateral in addition to that required by the regulation, nor does it require
a bank to reduce any loan, to obtain additional collateral for any outstanding loan, or to call any outstanding loan because of insufficient collateral.
At the same time, Regulation T, which applies to loans by brokers;
dealers and members of national securities exchanges, has been modified
34-4
34'5
X-9533
- 2-
so a.s to make applicable to brokers a.nd dealers the same margin requirements that have been determined for loans by banks on equity securities.
The maximum loan value applying to registered stocks has been fixed
at 45% of current market value· which is the percentage now applicable,
under Regulation T, to three-fourths of the trading on the exchanges at
the present time.
Attached is a copy of Regulation U and the supplement thereto, both
effective May 1, 1936, and also a copy of the revised supplement to Regulation T effective April 1, 1936.
346
BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
SUPPLEMENT TO REGULATION T
Effective April l, 1936
Maximum loan values of re istered securities (other than exempted
securities for purposes of Regulation T.
Pursuant to the provisions of section 7 of the
s~curities
Exchange
Act of 1934 and section 3 of its Regulation T, as amended, the Board
of Governors of the Federal Reserve System hereby prescribes the following maximum loan values of registered securities (other than ex•
empted securities) for the purposes of Regulation T:
(l)
General rule. - Except as provided in paragraphs (2) and (3)
of this supplement; the maximum loan value of a registered security
(other than an exempted security) shall be 45 per cent of the current
market value of the security.
(2)
Extension of credit to other members, brokers and dealers. -
The maximum loan value of a registered security (other than an
exempted security) in a special account with another member, broker
or dealer, which special account complies with subsection (b) of section 3 of Regulation T, as amended, shall be 60 per cent of the current
market value of the security.
(3)
Extension of credit to distributors, syndicates, etc - The
maximum loan value of u registered security (other than an
~xempted
security) in a special account with a distributor, syadicate, etc,
wnich special account complies with subsection (c) of section 3 of
Regulation T,as amended, shall be 80 per cent of the current market
value ef the security.
347
BOARD OF' GOVERNORS
Or THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS DF"I'"ICIAL CDRRESPCNDENCE
TD THE BDARD
X-9534
March 26, 193G.
SUBJK~T:
Expenses of Leased Vlire System.
Dear Sir:
The Board of Governors of the Federal Reserve System has
given consideration to the report of the leased wire committee, dated
October 21, 1955, which was submitted to, and a.')proved by, the Governors' Conference on October 23, 1935, and trhnsmitted to the Board
by Deputy Governor Strater, Secretary of the Conference, with the
official minutes of the Conference, under date of November 25, 1935.
The Committee has recommended that messenger service, printing and stationery, and expenses in connection w:i.th branch lines be
not charged to the leased wire system.
The Board is in agreement
with these recommendations.
The Committee has also recommended that the Board of Governors
assume as a dirE!Ct expense the cost of messages sent by it over the
main line leased wires; that the cost of clerical work on main line
business such as the counting of the number of words in messages, and
supper money paid employees working overtime be charged to the leased
wire system; that the salaries of thc-J Wa.shingtor! operators be paid b"<J
348
X-9534
-2-
the Board; and thnt each Federal Reserve bank bill the various Government department:.> and agencit:Js direct for the cost of messages sent by
such bank over the main line leas•.)d wires for tholr account.
Board approves those
recommend~tions
The
effective as of April 1, 1936.
The adoption of these recommendations will require certain
changes in procedure and it is requested that, in lieu of the figures
which are now being reported monthly to the Board, the items shown below covering April telegraph
not later than May 6.
oper~tions
be reported to reach the Board
Similnr informr.tion should be raported for sub-
sequent months to reach the Board not later than the 6th day of each
following month.
(l)
Total amount expended for personal services. This should
include salaries of main line operators and of'clerical
help engaged in work on main line business, such as
counting the number of words in messages; also overtime
and supper money and Retirement System contributions at
the current service rate.
(2)
Total words sent by bank over main lines (which should include, without segregation, words sent on reimbursable
business). New York will report separately, as at present, the number of words sent by that bank chargeable to
other Federal Reserve banks. In arriving at the word
count in messages, the address and signature should be
counted, but punctuation mar·ks should not be counted.
Each digit, decimal and comma in a number or amount
should be counted as one word. Signs such as $ and %
should ouch be coun t.rld: as one word.
After all information necessary to compile the monthly main
line leased wire expense statement has been received by the Board, the
per word cost of main line messages sent during the month will be computed and telegraphed to the Federal Reserve banks.
For this purpose
349
X-9534
-3the code word OPENMIND will be used which will
h~Lve
the following mean-
ing:
Per word cost of messages sent over the main lines of
the leased wire system for the month shown is given
her8wi th (month covered followed by per· word cost).
Imii!cdiately thereafter the monthly statement will be sent to all of tho
Federal Reserve banks, follovling receipt of which each bank will, as at
present, credit tho amount payablo by the bank to the Federal Reserve
Bank of Richmond in the daily statement of credits through tho Interdistrict Settlement Fund for the account of the Board of Governors.
A
specimen copy of' the statement, revised in accordance with the changed
procedure, is attached for your information.
The per word cost of main line messages as thus furnished
should be used as the basis for determining the amounts payable by the
various Government departments and agencies for the cost of messages
sent by your bank over the main line leased wires for their account during April and subsequent months.
The Board will follow a similar pro-
cedure in billing the various Gov2rnment departments and agencies for
the cost of sending telGgrarns from Washington for their account during
April and subsequent months.
The arnotmts payable by the various Govern-
ment departments and agencies for messages sent by your bank for their
account should be included in the usual monthly vouchers requesting
reimbursement for Fiscal Agency, Custodianship, and Depositary expenses
and copies of all telegrams should be attached in accordance with the
requirements of the General Accounting Office.
Since the Reserve banks
350
-4-
X-9534
cannot be advised by the Board as to the per-word cost of telegrams
sent in April until nftor the first of May, the charges for telegrams
sent :i.n April for the account of the various Government departments and
agencies should be included in the regular monthly vouchers requesting
reimbursement of oxpenses incurred in May and thereafter each monthly
voucher should include the cost of telegrams dispatched in the prior
month.
It appears that the Federal Reserve banks are now submitting
claims for reimbursement of expenses to all interested Government agencies but apparently have: not had occasion to request reimbursement for
cortain expenses which are chargeable against specific appropriations
of the-; Treasury beparttnont.
For your informatj on, a list of such Troa-
sury appropriations, together with a brief description of tho type of
tolegrams chargeable to each, is given below:
APPROPRIATION:
Exnenses of Loans, Act of Septembar 24, 1917, as Amended and Extended
Includes the cost of telegrams chargeable to the "Current Issues"
unit on the bank's functional expen~e report, Form E. Cost of
such telegrams should be included in thco bill for othor "Current
Issues" expenses on Form PD 849 and submitted to "Commissioner of
the Public Debt, Section of Administrative Accounts".
Contingent Expenses, Public Moneys
Includes the cost of telegrams sent by Federal Reserve banks to
the Treasurer of the United States for the purpose of determining
whether balances of disbursing officers are sufficient to permit
the Reserve banks to cash disbursing officers' checks (Code,
"FINCH").
Includes the cost of telegrams sent to the Treasurer of the
United States acknowledging receipt of, and advising of credit
-5-
X-9534 ·
APPROPRIATION (continued)
for, United States currency shipped by the Treasurer of the
United States (Code, "TRENCYMENT").
Includes the cost of telegrams relath!g to shipments oi' coin
from Federal Reserve banks for acco1m t of the Treasurer of
the United States (Code, 11 SHIPCON").
Cost of above mentioned telegra~1s, without segregation, should
be billed separately on Form No. 1054 and submitted to "Division of Bookkeeping and Warrants".
F~penses,
Emergency Banking, Gold Reserve and
S~lver
Purchase Act
Includes the cost of telegrams relating to the receipt and
custody of gold and gold certificates for account of the Treasurer of the U~ited states; the licensing of member banks;
and the purchasing of silver. Cost of such telegrams, without segregntion, should be billed separately on Form No. 1034
and submitted to 11 Chief Clerk, Treasury Department".
Emergency Relief Act of 1935, Treasury Administrative Expenses
Includes the cost of telegrams relating to Work Relief checks.
Cost of such telegrams should be included in the bill for
other "Work Relief Checks" expenses on Form 6591 and submitted
to "Treasurer of the United States, Accounting Division".
Comptroller of the Currency - Division of Insolvent National Banks
Includes the cost of tr~legrams relating to collateral held
to secure deposits of insolvent National banks. Cost of such
telegrams should be billed separately on Form No. 1054 and
submitted to "Comptroller of the Currency, Division of Insolvent National Banks".
Miscellaneous and Contingent Expenses - Treasury Department
Includes cost of sending telegrams relating to the Treasurer's
balances in depositaries; the redemption of silver certificates,
National bank notes and other forms of Treasury currency; and
miscellaneous matters.
In connection with this appropriation, reference is made to the
letter of the Board's Fiscal Agent, dated November 29, 19p5
(X-9378) in which you were informed that t~e Board had advised
the Treasury Department that the leased wire system would continue to handle telegrams chargeable to the Treasury appropriation for miscellaneous and contingent expenses for the remainder
351
352
-6;..
X-9534
APPROPRIATION (continued)
of the fiscal year 1936, with the understanding that if an
appropriation be not m:;.de to enable the Department to make
reimbursement for the telegrams beginning with the fiscal
year 1937, the Department vrould make some arrangement under
which the leased wire system would be relieved of this expense.
In a few cases in the past the Board has found that messages
have been sent for an agency that was not in a position to ;nake reimbursement.
Under the arrangement outlined above, where an expense
voucher forwarded to a ·Government agency cannot be paid because the
o.gency has no available appropriation or for some other reason, the
cost of such telegrams will have to be borne by the sending bank and
the question determined whether the bank will discontinue handling such
telegrams or elect to absorb the expense.
Under the revised method, the following expenses should be ineluded in item No. 22 "Telegraph" on the bank's current expense report,
form 96, and it is requested that the necessary adjustments be made in
the expense reports for the month of April to make this change effective as of January 1, 1936.
(a)
Salaries of telegraph operators and clerical help assisting
in the operation of main and branch line leased wires.
(b) Retirement System contributions at the current service rate
based on salaries of employees included in (a) above.
(c). Amount payable to the Board of Governors as shown in the
monthly main line leased wire expense re~ort.
Amounts payable by Government departments and agencies cover-
ing the cost of leased wire service on and after April l, 1936, should
be credited to "Telegraph" and included in reimbursable expenses.
cost of messages sent for the account of the loan agency of the
The
353
X-9554
-7-
Reconstruction Finance Corporation should, of course, bE: billed to the
loan agency and charged to "Sundry items receivablen pending payment.
With resp.::ct to the Committee's recommendation tbat each Federal Hosorve bank request reimbursement from the various Govelrnment
departments and agencies for the cost of messages sent over
b~·':luc·h
wires for their account if the volume, in the opinion of the bank, warrants reimbursement, the Board is of the opinion that reimbursement
should be requested for sending messages over branch wires for the account of the various Gov(:;rnment departments and agencies and believes
that, for the sake of uniformity, charg'JS should be made for branch
line nessages at the per word cor.>t of main line messages a:::; advised by
the Board.
It is requested, therefore, that each Federal Reserve bahk
bill the various Government departments and agencies direct for the
cost of messages sent over the branch wires for their account during
April and subsequent months.
It is noted from the report ui' the leased wire committee that
the committee is giving further study to the question of the style of
teletype machines it would recommend for use in the event of the installation of teletype equipment in the telegraph offices at the banks
now using the Morse system.
In this connection it is assumed that each
Federal Reserve bank has given or is giving consideration to the recommendation of the leased wire committee with regard to the personnel
problem connected with such a change in telegraph facilities.
It is
354
X-9534
-8-
also noted that the committee is giving further stuqy to the question
of the possible rerouting of certain of the main line wiros.
Very truly yours,.
Chester Morrill,
Secretary.
Inclosure.
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
X-9534-a
REPORT OF' EXPEl~Sl!:S OF !V\Ali'l LLH!:S OF F'l:~m~:a;,L RESERVE
LEl:..SED \i11:;E S18T:Gl>l FOH THE i>iliJ1~TH OF - - - - - ' 193
l.'lumber of
words sent
Fsderal Reserve
Boston
New York
Philadel?hia
Cleveland
Words sent
Total
Ly ~iew York
wcrcls
chargeable
ehargeab1e
to other
F. R. B!!rlks
.Per;:~ Ol1C.l
services(l)
r!it·e
rental
Total
expenses
P::r:o rata
shc.re of
tot&l
exuenses(2)
Payable
to
Credits
Boo.r<i of
Governors
Ba~k:
Richmond
AtliJ.nta
Chi\!ago
St. Louis
Mi.nnea fJoJ.is
Kansa5 City
Dallas
Se.n Francisco
Boaru of Governors
Total
42,8J4
150,397
4:.:,405
57,0~0
966
l,J22
1,034
43,77J
l5D,387
41,425
58,1~4
$264.65
~,234.C5
l, 3d8. ;:;2
245.25
. 334.26
.L,39cL 22
58,531
85,934
105,151
36,593
l,JGB
381
o6,97ti
1,45J
1,420
FJ6,2Jl
27 ,81:'5
J.,sJs.ae
38,271
76,l8J
68,839
992
39 ,:?63
77,178
7},5'37
lL}, 714
631,364
217.07
312.35
273.54
412.03
~,550.90
1,564,31()
~~8, 551.54
109,~41
'398
1,698
1,373
651,864
1,551,508
15,002
245.25
334.~6
l!.'l?. 35
2;34 .:.:2
5\1,649
t668.55
2,297.20
652.74
887.80
9ll.")9
~,284.65
475.74
1,044.46
( 5)-190. 74
1,128.85
382.64
866.00
804.06
1,279.04
$8,011.96
1,818.99
f:l2.43
217 .·J7
512.05
275.34
599.71
1,1'16.135
1,077.40
l,69L'J7
15,112.30
412,85
17,663.20
9,651.24
217.'J7
512.85
275.54
412.03
17,663.20
~15, M2. 30
(;25,893.64
$25,895.64
$25,893.64
~~1:2 .43
;)53.54
437.Z5
284.02
1,818.99
212.43
1,321).48
1,G28.25
1, 341.28
~d4.J2
$S83.90
898.98
387.49
1:,383.22
245.25
:534.26
(l) Includes salaries of main .LJ.ne operators and 'of clerical help engaged in work on main line business such as counting the number
of words in messages; also, overtime e.nd supper money and Retirement System contributions at the c~rrent ~;ervice rate.
(2) Based on cost per woro. ($.015274236) for business hc.:ndled during the month.
(5) Credit. Amount reimbursc.ble to Chicago.
l~OTE;
Retirement System contributions ere included in this specimen form at the rate £;.Ctually charged in
!ull rate. Beginning Janucry 1, 1956, the rate used will be the current service rate.
i~ovember
1955, i.e., at the
356
BOARD OF GOVERNORS
OF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
X-9555
March 28, 1956.
SUBJECT;
Code Word Covering New
Issue of Treasury Bills.
Dear Sir:
In connection with telegraphic transactions in Government securities betv,reen Federal
reserve banks, the following code word has been
designated to cover a new issue of Treasury Bills:
"NOYKOL" - Treasury Bills to be dated
April 1, 1936, and to
mature December 50, 1956.
This word should be inserted in the Federal Reserve Telegraph Code book, following the
supplemental code word
~··
.
11
NOYKIK' 1 on page 172.
{-ft2e_.f_~/
--
J. C. Noell,
Assistant Secretary.
TO PRESIDENTS OF ALL F. R. BANKS.
,
357
X-9556
INTERPRETATION
Banking Act of 1955
(Copies to be sent to all Federal reserve banks)
March 24, 1.956.
Mr. R. L. Austin, Chairman,
Federal Reserv~ Bru1k of Philadelphia,
Philadelphia, Pennsylvania.
Dear Mr. Austin:
This refers to your letter dated Murch 12, 1956, presenting the question whether deposits of a volunteer fire company and of a ladies auxiliary affiliated with the fire company
may be classified as savings deposits, under the definition
contained in section l(e) of Regulation Q.
The Board understands from your letter that the fire
company is chartered by the State as a non-profit organization;
that its membership includes the citizens of the community who
pay annual dues of a nominal amount; that most of the income of
the company is derived from dues, festivals, carnivals, and rental of the fire hall for meetings; that the Borough in which the
fire company is located contributes a flat sum of $150 per month
which is used largely to pay the driver; and that the Borough
sometimes gives assistance in the purchase of new equipment.
It is also understood that the ladies auxiliary is comprised of members of the firemen's families and friends and that
its activities are partly social, although it often assists in the
raising of money for the benefit of the fire company by serving
358
X-9556
- 2 -
dinners to various organizations.
It is the vleVI of the Board that organizations of the
type described above are not in the same catesory as fire departments of municipalities and that the question here i_)resented
is not governed by the ruling contained in the Board's letter
of February 27, 1936 (X-9508), regardin.:; deposits of municipalities and departments thereof.
The Board is of the opinion that volunteer fire
companies and ladies auxiliaries of such companies, of the type
described above, may properly be considered as organizations
"operated primarily for religious, philanthropic, charitable,
educational, fraternal or other similar purposes" and, since
it is understood that the organizations are not operated for
profit, deposits of thei:r funds in a member bank u.ay be classified as savings deposits, proviried they conform to the other
requirements of section l(e) of Regulation Q.
Very truly yours,
(Signed)
Chester Morrill
Chester Morrill,
Secretary.
•
.'
X-9557
THE FEDERAL Rc:;SERVE SYSTEM AND THE BANKING ACT OF 1955
ADDRESS BY
M. S. SZYMCZAK, MEMB1R,
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
DELIVERED BEFORE
PACIFIC NORTHWEST CONFERl:~CE ON Bi'.NKING
UNDER THB AUSPICES OF THE
STATE COLLEGE OF WASHINGTON
AT
PULLM.AJ.'J, WASHINGTON
Thursday, April 9, 1956
2:50P.M.
110 Mechanic Arts Building
Released for Publication
April 10, 1956
Morning Papers.
3t30
.
X-9557
THE
FED~RAL
RESERVE
SYSTID~
AND THE
BM~KING
ACT OF 1955.
The four states which are represented in this meeting - Washington, Oregon, Idaho and Montana - are remarkable for their highly diversified resources.
Among a host of other things, they produce beef, butter,
copper, fish, fruit, gold, grain, lumber, mutton, petroleum, and wool.
These products moreover are all important - they are not merely incidental.
The geography of your region is full of variety.
You span the
great Divide, and of your two great river systems, one carries you to
the Pacific and one toward the Atlantic.
You have in Puget Sound and
in the mouth of the Columbia two of the greatest of American harbors.
You have some of the most strikingly beautiful mountains in the world,
and some of the loveliest lakes.
Furthermore, the fixed plant that has
been built up in your four states in the course of two generations is
remarkable.
You have great irrigation systems, hydro-electric systems,
mines, docks, railways, and steamship 11nes.
You have in abundance the
things that should maintain your people in comfort and make their lives
interesting.
I am not telling you these things to flatter you.
I am speaking
of them because they are the background to the banking of the region.
Banking takes its character from the economic life in which it is carried on.
It adapts itself to what the people do, and their interests
become the banker's interests.
•
In one sense, banks are engaged in individual extensions of credit.
It is a question of one risk after another - who can be safely financed
and to what extent and on what security, and who can not.
But that is
36:t
X-9557
-2not a11.
In another and larger sense banks are constantly engaged in
moving the products of their regions out to the markets and consumers of
the world and in moving in to their own population the things it buys in
exchange.
Here in the Palouse countrJ where we are meeting, the bankers
every year move the great wheat crop out to the ports and the mills.
Over in wenatchee they move the great crops of apples.
Down in the Snake
River valley in Idaho they move the crops of potatoes.
Back in Billings
they move the wool-clip.
The value of the products shipped from your
four states to the markets of the United States and of the world is great,
and it is through the bankers that these products are exchanged for what
the people of your region buy from the outside.
During a long season of
the year you are financing your farmers, your stock men, your orchardists.
They are drawing on your reserves to meet the cost of equipment, of feed,
of labor, and of supplies.
Then as their crops are marketed and funds
are placed to your credit in Chicago, in New York, in San Francisco, and
other cities, your reserves again accumulate, and your customers are
ready for the new season.
It is unfortnnate that people generally fail to realize this fundamental function of the baru,s.
They think of the banks as merely local
affairs, which they have a hard time borrowing from at one season of the
year and a hard time repaying at another.
They do not see that because
of the banks, credit is enabled to flow into the region to pay them for
their products, and is enabled to flow out again in payment for the
products they buy elsewhere.
They see very plainly that steamers and
362)
,f!·_.-<
X-9557
-5-
railways carry away their wheat, their fruit, and theirwool, and in
exchange bring in to them from other regions the clothing and the
machinery they need, but it is not so eas,y to see that without the
system of credit the system of transportation would be of little use.
The importance of bank credit in the form of de:,>osits is indicated
by the fact that people almost invariably profor 1 t for payments in
large amounts.
A farmer who :i.s selling his year's croJ) US'Wllly
e~pects
a check and would be surprised and inconvenienced if he were paid in
c~ency
or coin.
The check represents bank credit.; and ·When the
fU:Jnller tb;kes or sends it to the ban.l(, the credit' goes on the bank's
booke un® his name. · The arrangement is safe and conv$nient.
But there is far more to be said for bar1k credit in the ;f'orm of
deposits than that its use is convenient and safe.
In our economy it
has become indispensable. · W1 thout it how would it be possible for the
people all over the United States and all over the world who use the
products of your region, to pay for tho timber, the metals, the woolclip,
and
the salmon-pack, which you furnish them? Should currency be
shipped in to pay for it all; and then shipped out again to pay for
the carpets, the tractors, and tho securities that your people buy?
The system of bank credit ties together things that are far apart
in space and time.
It enables the cattle and sheep raiser to build up
his herds and flocks over a period of years to the point
g~:"eatest
value.
their
It. enables the farmer to be paid for his wheat e'll'en
when it is oaten on the other side of the earth.
or
It enables funds
·
363
-4...
X-9557
which are idle in New York to be put to use in Spokane within a few
moments.
'j
It enables the people of your region to enjoy the various
products of' regions different from theirs.
These things are possible because the system of bank credit covers
the whole com1try like a net-work of power lines, and supplies means
of payment wherever needed.
Wherever and whenever local bank reserves
run low, as must regularly be the case in a region which is predominantly agricultural, the temporar,-y deficiency can be made up.
Whenever
things produced j_n one place are paid for and consumed by people in
another place the system of bank credit makes it possible to effect the
payment readily.
''Iii
There is, however, one essential - the credit must be
everywhere liquid and based on sound values; otherwise the system becomes clogged and stops working.
The loss in that event is more than a
loss to local stockholders and depositors.
The loss is to the commun-
ity whose processes of production and consumption have been to some
extent disrupted.
Before 1914 this country had quite inadequate means of mobilizing
its bank credit.
Ever,y bank in the country constituted a separate pool
of credit - a pool that was not always adequate for local purposes, and
yet that had no close connection by which it could always be replenished
swiftly and easily.
't
The banking system bore the same relation to what
we have now, as a scattered number of independent power plants with
potential connections would bear to an articulated power net-work.
The
banks in regions such as yours were comparatively well off under such
X-9557
an arrangement because, as I said in the first place, your economic
activities are highly diversified.
I
But in the south and back in the
middle west, where whole regions are dominated by a few great cash
crops, and where everyone is being paid at one period of the year and
is paying out the rest of the tlroe, the difficulties of mobilizing bank
credit were extreme.
It was such difficulties as these that led to the establishment
of the Federal Reserve System.
They were difficulties that arose from
the fact that the nation-wide exchange of commodities and servicesespecially thb inter-regional exchange - had to be accomplished with
banks whose interests and facilities were primarily local.
that
ba~ks
In order
might meet the requirements of their communities more ade-
quately, they needed closer inturconnoctions with other communities,
and a system through which means of payment for their regional products
might be always and unfailingly available.
were established to meet that need.
The Federal Reserve banks
They bind the 6,400 member banks
of the co1mtr.y into a system which can make credit available for production and trade wherever and whenever it is required and in any
amount.
..
Practically all the functions whlch the Federal R.eserve banks
perform were previously performed in one way or another by different
agencies, but it is believed thQt they are now performed more systematically and smoothly than before.
II.
In the course of twenty-two years much experience and knowledge
•
have been derived from tho operations of the Federal Reserve System •
364
365
X-9537
-6-
Some problems which the System was devised to remedy have now been
settled and others have taken their place.
tion of central banking
net result is
th~t
function~
At the same time the concep-
hcs changed in many respects.
The
the System presents in certain ways a different as-
poet from what it did formerly.
Twont,y-two years ago the ideas prevailed that tho
import~nt
func-
tions of the Federal Reserve banks were to furnish an clastic currency,
to lend to member banks which were short of money some of the reserve
funds accumulated by other member banks, and to curb the speculative
use of credit by rediscounting only paper representing self-liquidating
commercial transactions.
at least inadequate.
tr~n
These ideas now appear quite inaccurate, or
Furnishing currency is se.en to be less important
it was thought to be, because currency cuts a very small figure
in the total of payments that are made by people in their dealings with
one another.
What they use for the most part, as I have already indi-
cated, is bank credit in the form of deposits.
The control of bank
credit as a whole is, therefore, of greater importance than the control
merely of the currency supply; it is also incomparably more difficult.
In the .second place, the reserve banks do not depend on the deposits which member banks maintain with them for the ability to make
loans and buy securities.
They have the same kind of power you·bank-
ers have, to acquire additional assets by entering deposit credits on
your books in favor of the person who discounts a note with you or
..
sells you a bond or mortgage.
1.
Consequently, if a member bank's reserves
366
X-9557
are deficient, it can turn over some of its assets to the reserve bank
and receive a credit to its reserve acco1mt.
The reserve bank in such
a transaction is not lending to one bank what it owes to another; it
is exercising the familiar banking power of paying for assets by the
entry of deposit credit.
In the third place, it is recognized that there is no necessary
connection between the form in which credit is procured from a bank
and the form in which it is used.
Money may be borrowed on acceptances
and yet be used in the stock market.
It may be borrowed on a real es-
tate mortgage and yet be used to buy merchandise.
It may be borrowed
on the security of spBculative stocks and yet be used to finance the
...
production and shipment of commodities.
Consequent~,
any discrimina-
tion for or against a certain type of paper offered for discount does
not mean that speculation is being controlled or that credit is being
supplied for the needs of commerce.
The task of controlling the use
of credit is far more difficult than such a supposition would imply.
The instrumentality that is now considered the most important for
the control of credit is one that in the original reserve act was given
..
..
only rudimentary attention.
I refer to open market operations.
These
operations are important because they make it possible for the central
banking organization - in this case the Federal Reserve banks directed
by the Federal Open Market Committee - to exercise control over the
volume of bank deposits and reserves.
ThiS means control over the
volume of "money", or means of payment, l"equired by the people in their
•
economic life •
~a-
X-9557
The principle of open market operations is of course simple.
If
securities are sold in the market by the Federal Reserve banks, they
•
must of necessity be paid for with bank funds, for they will be bought
either b,y the banks themselves or by bank customers.
Consequently, in
the process of paying for them tl1ere will necessarily be debits to be
entered
by the
ag~inst
momb~r
the reserve accounts maintained with the reserve bank
banks.
Upon completion of these entries, the reserve
bank will have disposed of certain assets and simultaneously will have
decreased the total amount outstanding to the credit of member banks
in their reserve accounts.
The Reserve bank does not know in advance
of its transactions what particular member bank accounts will be affected nor b,y how n1uch, but it knows that if it sells a million dollars
worth of securities, approximately a million dollars worth of available
bank credit will be extinguished.
If, as a consequence, reserves are reduced to a minimum, the
member banks are immediately impelled to restrict their extensions of
credit, for they cannot continue making loans and increasing the deposit credit outstanding on their books without incurring n deficiency
in their reserves.
The result of the Resorve bank's action in selling
securities, therefore, is to curtail tho lending power of member banks
and
t~
tighten the money market.
On the other hand, if securities are bought by the Reserve bank,
the result will be that in the process of paying for them the Reserve
bank will have to credit the reserve accounts of member banks,
•
Again
368
X-9537
it doe.s not know to what oxtont particular member banks will be affected,
B,y the
but it does know that reserves in general will be increased.
same token the lending powe;;; 6f the member banks will be increased and
· general credit condi tiona will be eased.
In the first. stages of a bU¥-
ing program, the effect will be to enable banks to pay off any obligations they may owe, but if a buying program is continued long enough
may result in an
acc\UilUlat~on
or
it
excess reserves.
In addi tio.n to the effect upon the reserves of member banks, there
is .also· an effect upon bank deposit& in genel'al - even non-member
ba~
depositsr because, if an investor or an institution··bu;Ys some of. these,curi ties
~old
by: the Reserve bank, payment will ordinarily be made out
of a checking account and deposits wi;I.l be decreased by so much.
.~-.----~,
the other
-....,..,.._......
.
~and, 'the
If, on
Reserve bank is buying securities, and institutions
\.~.
::lld individuals are selling to it,
~e
payments made by the Reserve bank
will iii'~rease. the .deposit credit outstanding on the books of banks.
Ac-
cordingly, banks which are not members ,pf the Federal Reserve System and
banks which i;.heoselves have not purchased or sold ·securities as a result
of the Reserve bank's action, Will nevertheless be affected by it,
either in their reserves or in their deposits, or in both.
.~
\
1
I'
j
The mone.y
market as a whole. will .be influenced •
The effect of open market operations may be expressed in various
ways, according to what one considers the most important aspect.
be said when purchases are being made, that funds are
there~
It may
being
placed at the disposal of member banks which can be used to pay off
369
X-9557
. -10-
indebtedness at the Reserve banks or as a basis of additional credit
expansion. ·Contrariwise, it may· be said, when sales are being made,
that funds are being withdrawn from the member banks and that the latter are being compelled either to increase their indebtedness at the
Reserve banks or to contract their loans and investments.
It may be
said, therefore, that open-market purchases tend to encourage an expansion of credit and open-market sales tend to encourage a contraction
of it •.
Turning to the other side of the balance sheet, it may be said
that open-market operations have the effect of expanding or contracting
bank deposits and thereby of increasing or decreasing the volume of
money, or means of payment, required by the people for the transaction·
of their business.
It may be said, without confining the statement to
member banks, that open-ma:toket operations inc:toease or decrease the
SUP""
ply of funds in the money market, and if they are timely., that they
moderate .any tendencies either to tightness or excessive ease.
All of
these descriptions are fair; all merely emphasize variotJS.·S.Spects of
what open-market operations tend to accomplish.
So much for principle.
In practice, o£ course, all kinds of fac-
tors may conflict with a given program; just as all kinds of things may
conflict with a man's attempt to drive his car straight through town
without stopping.
The proper exercise of open market powers is an art..
It requires constant study of means and ends, and·a.ppraisal of the con-
.
di tiona under which a given program of action can be expected to ·accomplish its purpose.
3?0
X-9537
-11-
The Federal Reserve banks at first attempted to carry on thelr
open market operations independently- of one another, but it soon became
•
clear that their actions must be coordinated.
Otherwise they might find
themselves competing vd th one another, and in conflict as between their
ovvn transactions and those transactions which as fiscal agents of the
Government they were conducting for the United States Treasury.
Accord-
ingly, in 1922 a committee of Reserve bank officers was appointed for
the purpose of coordinating the operations.
purpose of the operations was clarified.
About the same time the
The principle laid down was:
"That the time, manner, character, and volume of open-markf.;t investments
purchased by Federal R8servc banks be governed with primary regard to
the accommodation of commerce ::nd business and to the effect of such
purchases or sales on the general credit situation."
For some time prior to this there had been a tendency to allow purchases and sales of securities to be influenced by profit as an objective.
The statement of principle which I have just quoted meant a
definite abandonment of that objective.
eral policy of central
baP~s
This was in line with the gen-
in conducting open market operations; they
do so definitely with the idea of correcting market tendencies and not
for the purpose of making earnings.
The Bankin'g Act of 1935 gave open market operations more specific
recognition than they had had in the original Act.
It gave statutory
standing to the Federal Open Market Committee, which by then comprised
one representative from each Federal Reserve bank.
No Reserve bank
371
X'-9537
-12-
could engage in open market operations ej:Ce[.Jt in accordance with regulations of the Board.
At the same time the Act adopted substantially
the same statement of purpose which had already governed
o~)en
market
opera tioi1s.
The Banking Aet of 1935 gave still further attention to the machinery of open market op-arations and to recognition of their importance.
The Federal Open Market Committee was reconstructed to comprise the members of the Board of Governors of the Federal Reserve System and five
representatives chosen regionally by tho twolve Federal Reserve banks.
This made the members of the Board constitute a majority of the Committee, and marked considerable development away from the original informal·
arrangements by which the Federal Reserve b;;mks first conducted open
market operations on their own initiative and then under the direction
of a Committee on which the Board was not specifically represe11ted.
Furthermore, under the terms of the Banking Act of 1955, the Federal
Reserve banks may
neith~r
engage nor decline to engage in such opera-
tions except in accordance with the direct:tons ·and regulations of the
Committee.
Another requirement of the Act is that a complete record be kept
of the action taken on all questions of policy relating to open market
operations, including a record of votes taken in connection with the
determination of open market policies and a statement of the reasons
underlying the action
Board's annual report.
tru~en,
and that this record be included in the
The publication of this record will give the
public an opportunity to study the decisions as to open market policy
372
X-9557
-13-
and credit policy in general, and should help clarify public discussions of national credit policy.
It will also accentuate the individual
sense of responsibility, for members of the Committee will be called on
not only to decide on credit poliey, but to give publ1cly the reasons
for their decisions.
It is clear, I think, that as a result of experience and statutory
amendments, open market operations have taken a far more important place
in general credit policy than they formerly had.
It is also cleart I
think, that open market operations have become a more important or at
least a more positive device of credit control than discount rates.
When the F'edoral Reserve Act was adopted the prevailing idea probably
was that discount rates were not only th0 most definite moans of credit
control, but the most important.
Tho thought was that as banks felt
more and more demand from borrowers and v:ent to the Reserve banks to
procure the funds to meet it, they would encounter a rising discount
rate, which would have the effect of tempering the demand and preventing an excessive use of credit.
Conversely, as conditions improved,
business activity would be encouraged by the fact that banks could procure funds to lend at a progressively lower rate.
'l'he most obvious
difficulty with this theory, however, is that banks have not shown a
disposition to borrow from the Reserve banks in order to relend.
Banks
don 1 t like to borrow, and as a general thing they won 1 t borrovJ unless
they have to, no matter how low the discount rate is.
Consequently,
the effectiveness of the Federal Reserve discount rate is, by itself,
373
-14rather liniited.
but
it
X-9537
It is significant as an index of the cost of credit,
does not come into action otherwise until a member bank finds it
necessary to replenish its reserves.
As I have already indicated, how-
ever, a member bank may be forced into such a position as the result of
sales of securities by the Reserve bank, and the discount rate then becomes effective.
Iri other words, an important difference between discount rates and
open market operations in practical effect is that open market operations give the central banking organization the initiative in the control of credit, whereas the discount rate by itself offers the controlling authority no handles to seize; it must bide its time passively
until the situation is so bad that demand for funds is voluntarily made.
This delay may seriously impair the power of the Federal Reserve bank
to help the situation.
The Banking Act of 1955 made only one change in respect to discount rates.
This was to require that they be established every four-
teen days or oftener.
It is not necessary that the rates be changed
every time, but they must at least be reviewed and reestablished.
..
With respect to the reserves which momber banks are required to
maintain, the Banking Act of 1955 makes a very important change, by
simplifying the conditions under which the Board of Governors of the
Federal Reserve System may alter the amount of reserves which is prescribed in the law.
Prior to 1955, there was no authority to change
reserve requirements administratively, but an act of May 12 of that
374
X-9557
-15-
year·empowered the Board, with the approval of the President, to declare that an emergency existed and during the emergency to increase or
decrease the reserve balances to be required.
allows reserve requirements to be changed
qy
1he Banking Act of 1955
the Board without declara-
tion that an emergency exists and without approval of the President.
It does not permit, however, requirements to be reduced below the percentages stated in the statute nor to be more than doubled.
The pur-
pose of any change made in the requirements must be, in the words of
the law,
11
to prevent injurious credit expansion or contraction."
With this power to alter reserve requirements and with the change
by which the members of the Board constitute a majorit.Y of the
Fede~al
Open Market Committee, the Banking Act of 1955 definitely strengthened
and centralized the control of credit.
Another movement in the same
direction was taken b,y the Securities Exchange Act of 1954, which authorized the Board to regulate the amount of security to be required on
margin accounts by stock brokers and dealers and to regulate the making
of loans by banks and others for the purpose of purchasing and carrying
listed securities.
These changes give the Governors of the Federal Re-
serve System more effective powers for the control of credit than ever
before.
On the other hand, the regional autonomy of the Federal Reserve
banks in their relations with member banks is preserved.
Generally
speaking, the Reserve banks are responsible for member bank relations
..
and act as the agencies of s.ystem activities, while the Board in
3?5
I
-~
-16-
X-9537
Washington, with the help of representativos of the Reserve banks, is
responsible for
centr~l
credit and
monct~~·
policy.
The Banking Act of 1935 also made important changes in the constitution of the governing body of the Fedural Rcsorve System, which is
no longer knovm as the Foderal Reserve Board, but as the Board of Governors of the Federal Reserve System.
The Secretary o.f the Treasury
and the Comptroller of the Currency ceaaed to be ex officio members of
the Board February 1, and provision was made for the Board to consist
thereafter of seven members appointed by the President.
The members
now in office have terms ranging from 2 to 14 years and upon the expiration of the present terms all succeeding
mer.~bers
will be appointed for
terms of 14 years instead of 12 years as under the previous law.
As
formerly, not more than.one member may be appointed from any one Federal
Reserve district, and the President, in selecting the members, is to
"have due regard to a fair representation of the financial, agricultural,
industrial and commercial interests and geographical divisions of the
country".
Since March 1, under the provisions
officer of each Federal Heserve
of
11
bf.~.nk
of
the Act, the chief executive
has the title "president", instead
governor 11 , and the title "-vice-president" replaces that of "deputy
governor".
Both the president and the first vice-president are appointed
by the Board of Directors for a five-year term with the approval of the
Board in Washington.
Formerly, as you know, the offices of governor and
deputy governor were not specifically recognized b,y statute.
376
X-9537
-17-
The responsibilities of the Federal Reserve banks as fiscal
a~ents
of the United States were not changed by the Banking Act of 1955, except
for a provision which permits the Reserve banks to buy government obligations only in the open market; direct purchases from the Treasury are
not authorized.
III. ·
I think I have covered sufficiently the more prominent changes
which the Banking Act of 1935 made with respect to Federal Reserve functions, and I wish to speak now of those features of the Act which mQre
directly affect the operations of member banks.
The first of these has to do with lending powers.
Indirectly, the Act tends to broaden member bank lending powers by
giving the Reserve banks authority to make advances to member banks on
any satisfactory security.
paper that is
~anovm
The former provisions still stand as to
under the original terms of the Federal Reserve Act
as "eligible" for discount - paper, that is, which originates in connection with industrial, commercial or agricultural tro.nsactions - and
they also still stand as to advances to member banks on notes secured
by eligible paper or by Government obligations.
added to these old ones without altering them.
Tho new provisions are
Advances authorized by
the new provisions are simply required to be secured to the satisfaction
of the Reserve bank, to bear a rate of interest at least one-half percent above the Reserve bank's discount rate, and to have maturities of
-18not more than four months.
X-9557
At present, when the banks have large excess
reserves, this new provision in the la.w may not seem very important.
times may change.
But
If and when they do, the new provisions mean that,
assu.ming a bank's assets are good, the :Federal Reserve bank will be able
to advance money on them, no matter what tho type of paper, or the nature
of the transactions in which they originated.
In other words, borrowing
from the Federal Reserve bank has now been ;nade possible on other than
technical conditions of eligibility alone.
This is ver,y
i~porta~t.
Many ba.nks in roc en t years would have had much less trouble if they could
have taken to the Reserve bank some of their assats which were good, but
not legally eligible under tho old terms of the law, instec..d of having
to sacrifice them on a demoralized market.
Provision for such advances
was first adopted as a tomporary, emergency measure in 1932, but the
Banking Act of 1955 made it pcrmu.nont.
The original provisions of the law with respect to eligible paper
were based on the principle that since the liabilities of banks were
payable on demand they should be offset by short-term self-liquidating
paper based on specific transactions involving the exchange of goods.
The amendments added by the Banking Act of 1935 are based on the principle that in fact American banks do not specialize in one type of
credit as against another.
They deal in credit of all sorts.
combine long term and short term credit functions.
They
There is not enough
short-term commercial paper to fill more than a small part of their
portfolios.
They accept the savings and time deposits of their
378
X-9537
-19communities and they also hold long term obligations of their
ties.
communi~
The new provisions for eligibility make the Federal B.eserve Act
cognizant of these realities and adapt the powers of the Reserve banks
to them.
In a more direct way, the Banking Act of 1935 broadened lending
powers by liberalizing the conditions under which National banks may
make real estate loans.
The old stipulation that the real estate upon
which such loans are made must be situated in the bank's Federal Reserve
district or within a hundred miles of the bank, has been removed; and
loans which are amortized are now permitted in amounts up to 60 percent
of the appraised value of the property and with maturities of as much
as ten years, provided installment payments are sufficient to repay at
least 40 percent of the principal in tho.t time.
The permissible aggregate of real estate loans which a national
bank may hold has been changed by the Act from 25 percent of its capital and surplus or 50 percent of its savings deposits, whichever is
greater, to 100 percent of its capital and surplus or §0 percent of its
time and savings deposits, whichever is greater.
In connection with this subject of enlarged lending powers I want.
also to mention the :,orovision of the Federal Reserve Act authorizing
lo~ms
for working capital purposes.
The provision
i~;>
a year older than
the Banking Act of 1935, but it belongs logically with those more recent
ones I have just been discussing.
Under this provision loans with maturities not exceeding five years
379
--20 ...
X-9537
which have been made by member banks or other financing institutions
'·
to established industrial and
co~nercial
businesses in need of working
capital may be discounted by the Federal Reserve bank.
all.
Nor is tha.t
If' the member bank wishes to hold the loan, but wishes also to
be assured that it can be disposed of at any time if need be, a commitment may be procured binding the Federal Reserve bank to take over the
loan when and if requested to do so.
It may also te arranged that the
loan be taken over without recourse for as much as 80 percent.
such
circumstances~
Under
the member bank has a loan which is insured 100
percent as to liquidity and 80 percent as to loss.
This arrangement,
however, is not restricted to member banks; it is opon to non-members
as well.
These loans have been made to all kinds of enterpris;;;s, industrial
and commercial.
In many cases the,y have been loans which bankers have
not been accustomed to
Th~king,
and which would not have been made were
it not for the fact that the Reserve bank stands behind them.
I think I have now covered the changes of most general interest
that were brought about by the Banking Act of 1955, but there are numerous other provisions that it may be worth while to mentlon without attempting to discuss them.
First there is the matter of deposit insur<:mce, which has been
made permanent on a basis similar to thf;l.t originally adopted as temporar,y.
As you. la1ow, insured banks are now subject to an annual assess-
ment at a fixed ro.te - one-twelfth of 1 percent of deposits - instead
380
X-9537
-21-
of being under unlimited liability as would have been the case under
'·
the old permanent plan.
Insurru1ce covers deposits up to $5,000 for any
one depositor, instead of $10,000 or more as the first pc;rmanent pJ.an
contemplated,
After July 1, 1942, no state bank with average deposits of
$1,000,000 or more may be an insured bank without becoming a
the Federal Reserve System.
memb~r
of
This provision had the effect of postpon-
ing required membership for se•;eral years.
At the same time, the Board
was given the power to waive in whole or in part the statutory requirements with respect to admission of State banks to membership.
The former prohibition against a member bamc 1 s purchasing and
holding more than 10 percent of a particular issue of investment securities has bcen eliminated, but the total of the obligations of one
obligor which may be purchased und held by a member bank is reduced
from 15 percent of the bank's capital and 25 percent of its surplus to
10 percent of its capital and surplus.
Bn.nks arc not required to dis-
pose of securities lawfully hold at thu time th.:; law was enacted.
It
has also been made clear, in conformity with previous rulings of the
Board and of the Comptroller of the Currency, thr:.t momber banks may purchase and sell stocks for the account of their customers.
They may not
purchase and sell stocks for thoir ovm e.ccounts, hovvevor.
Several important changes were made by the Banking Act of 1955 with
respect to affiliates and holding company affiliates of member banks.
These changes modify considerably the original requirements.
When the
-22first
legisl~Ltion
X--9537
defining affiliates D.nd requiring reports of thorn
wr:.s adopted in the Banking Aet of 1935, it was undoubtedly dlreeted
primarily at securi ti rJs affilia 'cos nnd affilia tcs formed for the purpose of enr,agi.ng in activities ir1 whlch membor banks were either not
authorized to engage or in which it was not felt expedient for them to
engage.
The definitions, however, v'ere made ex+,renely c0rnprehensi ve,
and as a. result a very la:rge number. of organizations wer0 caught in a
not that was ncvor intendod for tharn.
werc'l surprised to discover
th1~t
It frequently happened that banks
1mdor the law they had "affiliates",
when as a matter of fact no such idoa vms in thoir minds.
find tha.t it had as an affiliate a
corpor~ction
A bank might
which belonged to an
est:·.te of which it was trustee; or :U might find t:nt it had as an affiliote a cory.Joration whose stock 1.appened to be owned by persons who
owned the bank's stock.
There might be no financial connection between
the two and yet at every
c:~lll
date :·,
from tho affiliate and published.
r8po:.~t
would have to be procured
The originr:.l pur;Jose of the law had
been accomplished so ftJ.:r as affilia tus dealing :i.n Srjcuri ties were concerned, for thr..;y all disappeared, but the number of other o.ffiliDtes
reported to the Board rms increasing - rot because ban}{S V<8rc' forming
new affEia tions, but b-ocauso unknovm .J.nd unintonded affiliations, quite
accidental in fact, 'iiere cons cantly coming to light.
Under amendments made by the Banking Act of 1935 the Bo<-..rd and the
Comptroller of the Currency are now autmrized to waive reports which
r
are not necessary to disclose fully the rclat:i.ons between a member bank
382
l
X--9557
n.nd its affiliat0 and the effect thereof upon the affairs of the bank.
The result of the new provisions will be to relieve a large number of
banks from the requirement originally im};osGd without exception.
Roughly speaking, under the conditions of waiver that have been announced, organizations which are affiliates undt-r the terms of the law
need not submit reports unless they are indebted to the affiliated member bank or unless shares of their stock or other obligations are owned
by the member bank in excess of certain minimwn amounts.
Reports of
affiliations which are based solely on ovmership or control of an organization's stock by a member bank in
waived.
a fiduciary capacity are also
This, it is believed, has been welcome news to many banks.
In addition, organizations which own or control the stock of a
bank, but are found by the Bo(;.rd of Governors of the Federal Reserve
System not to be engaged as a business in holding bank stocks, have been
exempted by the law from the requirements imposed on holding co::-.p.:m,y affiliates, except in the matter of indebtedne::;s to their affiliated member banks.
This provision has r:J.ade possible a distinction between hold-
ing companies organized for tho purpose of holding bank stock, and companies which incidenta.lly own control of a P..::mk, while their principal
business lies in a
difi\~ront
field.
Double liability on National bank stock issued after June 16, 1935,
was ended Qy the Banking Act of 1953, and under tho Banking Act of 1955
National banks may terminate on July 1, 1957, or thereafter, the double
liability on stock issued prior t.o June 16, 1955.
It is possible,
.... 24-
X-9537
therefore, that all shareholders of active National banks will soon be
relieved of personal liability on their shares.
At the same time Na-
tional br:mks are required to accumulate a surplus equal to the amount
of their common capital.
This change should be better both for bank
shareholders and for the public.
PersonaJ. liability for bank shares has
never been a satisfactory protection to depositors, and it has placed a
burden on shareholders of banks not borne by shareholders of other corporations.
There are several provisions which are of importance in connection
with deposits and the interest payable thereon.
In the first place,
the rate of interest paid at offices of the Postal Savings system is
not to exceed the maximum that Federal Reserve regulations allow to be
paid on savings deposits by member banks in the same place; and postal
savings depositories may deposit funds on time with member banks subject
to the provisions of the Federal Reserve Act and to regulations of the
Board of Governors of the Foderal Reser·ve System regarding payment of
interest on time deposits.
In addition, the Federal Deposit Insurance
Corporation was required to forbid the payment of interest on demand
deposits by insured non-member banks, D.nd to regulate the rate of interest paid by them on time and savings deposits.
This provision ex-
plicitly gave the Federal Deposit Insurance Corporation authority with
respect to non-member insured banks similar t.o that which the Board of
Governors of the Federal Reserve System he.s with respect to member banks.
The Act also repealed the former statutory definitions of demand and
384
-25-
X-953'1
time deposits; the Board of Governors is authorized to formulate new
definitions in their place, and to deter;nine what is to be deemed a payment of interest.
For the purpose of computing the reserves which member banks are
required to carry, amounts due from other banks (except Federal Reserve
banks and foreign banks) and certaj_n cash i terns in process of collection
may now, as you know, be deducted from gross demand deposits.
As a re-
sult of this change country banks, which hold no balances due to other
banks, may now make their deductions on the same basis as city banks,
which hold balances duu to other banks in large volume.
I think it is not necessary to go further into details of the 1955
Act.
They are numerous, but most of them that I have not mentioned are
technical and minute.
I have discussed the essential points of Title
II of the Act, and a few of the more important points of Title
r,
which
deals with deposit insurance, and Title III, which mainly clarifies or
modifies technical provisions already in .force.
You will realize that the changes effected by the law have necessitated a greo.t deal' of work upon the ret;ul'1tions which the Board has
to issue.
Regulations on new subjects have had to be prepared 1:md old
regulations hecve had to be al t~:red.
IV.
The general results of the changes I have spoken of, which have
been largely but not wholly effected by the Banking Act of 1955, may
be summarized as follows:
ass
X-9557
-26-
In the first ')lace, the 6;400 member banks have broacier lending
powers, and the facilities of the Federal Reserve banks have been made
available to them on less technical and restrictive terms.
Second, the Federal Res:::.rve banks remain essentially unchanged in
organization and function, though the importance of' their central banking activities has been more clearly recognized.
Third, the Federal Open Market Commi :.tee he.s been given a more
effective position in the System and more definite authority.
Fourth, the Board of Governors has been given larger powers and
more diroc·t rcsponsibili tiE::s, artd the principles upon which the System
is to be administered have boon more clearly developed.
I do not mean to imply that with these changes brought about by
recent legislation the task of credit control has been m'lde easy.
from it..
Far
It is hard to imagine that the control of credit ever will
be a sim;Jle matter.
There are too many conditions
~ff'ecting
it.
To
mention only one thing that has an important bearing on credit control,
there he.s never been a time when the membership of tho Federal Reserve
System included &s many as half the banks in the country.
It does not
now.
The majority of banks in tho United States are outside the Sys-
tem.
Although it is true that the b'ystem includes most of the large
banks and that it, therefore, includes the bulk of the banking business
of the country, still from tl1e point of view of the communities they
serve and of relations with other banks, the importance of the thousands
of small banks which are outside the System is not negligible.
But I
386
X-9557
-27-
feel that in spite of diff.iculties- indeed because of them, perhapsthere is a growing sense of the importance of the System as an instrumentality of public service.
The function of central banking, which
looks definitely to the public good a.s a whole, is one that legislation
is more and more emphasizing.
What we are now seeking to do in the field of bank credit may well
be compared with what past generations attempted to do in establishing
coinages of uniform and honest value, in simplifying currency, and in
preventing wholesale issues of counterfeit and spurious notes.
In the
past, repeated efforts had to be made almost universally in order to
standardize and protect the legal-tender - efforts that were the more
important because people more generally depended on paper currency and
coin for means of payment then than they do now.
Today, with the in-
creasing use of deposit credit in our interdependent economic system,
the nature of the monetary problem has chDnged again.
Bank credit must
be kept always available in adequate amounts for the monetary needs of
the country.
Whether our problem is harder than those that previous
generations had, I will not pretend to suy.
In some respects it is the
same, but in the swift pressure of our economic life it is always presenting new aspects even while wo study it, and requiring the adaptation
of the old instrumentalities to newly developed needs.
387
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
AOORE!IS OFFICIAL CORRESPONDENCE
TO THE BOARD
X-9558
April 4, 1956.
SUBJECT:
Code Word Covering New
Issue of Treasury Bills.
Dear Sir:
In connection with telegraphic transactions in Government securities betv.reen Foderal
reserve banks, the following code word has been
designated to cover a new issue of Treasury Bills:
"NOYKUJ)" - Treasury Bills to be dated
April 8, 1936, and to
mature January 6, 1957.
This word should be inserted in the Federal Reserve Telegraph Code book, following the
supplemental code word "NOYKOL" on page 172.
Very truly yours,
)
//1£?.~-voe-e.e.
c. Noell,
7
{_
·
J.
Assistant Secretary. -
TO PRESIDENTS OF ALL F. R. BANKS.
388
BOARD OF GOVERNORS
OF THE
X•9539
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFII;:IAL CORRESPONDENCE
TO THE BOARD
April 4, 1956.
SUBJECT:
Interpretation of Comptroller's
Regulation re Investment Securities.
Dear Sir:
There are inclosed herewith a cop,y of a letter dated Februar,y 28, 1956, from the President of the Federal Reserve Bank of New
York, a copy of a letter dated March 2, 1956, from the Assistant
Federal Reserve Agent at Cleveland, and a
COP.Y
of a telegram dated
March 6, 1956, from the Assistant Federal Reserve Agent at San Francisco, each of which presents certain questions arising under the
provisions of the regulation of the Comptroller of the Currency governing the purchase of investment securities.
Copies of these inquiries were referred to the Comptroller
for a statement of his views concerning the questions presented
therein.
There are inclosed herewith copies of the Comptroller's
replies and of the Board's letters to the President of the Federal
Reserve Bank of New York, to the Federal Reserve Agent at Cleveland,
and to the Assistant Federal Reserve Agent at San Francisco, inclosing copies of such replies.
Very truly yours,
Chester Morrill,
Secretar,y.
Inclosures.
http://fraser.stlouisfed.org/
TO ALL FEDERAL
Federal Reserve Bank of St. Louis
RES.:!>RVE AGENTS.
389
COPY
FEDERAL RESERVE BANK
OF NEW YORK
X-9559-a
February 28, 1956.
Dear Governor Broderick:
Referring to my conversation over the telephone yesterday,
there appears to be some confusion among member banks as to the interpretation and effect of the "Regulations Governing the Purchase of
Investment Securities, and Further Defining the Term 'Investment Securities' as Used in Section 5156 of the Re:vised Statutes as Amended
by the 'Banking Act of 1955 1 ", promulgated by the Comptroller of the
Currency on February 15, 1956. We received copies of these regulations from the Board on F'ebruary 26, 1956, and in accordance with the
Board's request on that day we mailed copies to all State member
banks in this district, copies having previously been sent to all
national banks by the Comptroller of the Currency.
Judging from the inquiries which we have received, the confusion in regard to these regulations relates principally to the
following points:
1. ~fuether the regulations prohibit the purchase by
member banks of certain municipal obligations which are not
readily "market.:'lble" as that term is defined in the regulations.
2. ~fuether member banks may continue to hold securities which were purchased prior to thc:3 issuance of the
present regulations and which do not meet the test of "investment socurities 11 as laid down in such regulations, but
which the banks were permitted to acquire under the terms
of the regulations in effect at the time of purchase.
5. v1:hether or not the ratings of securitios by recognized rating manuals conclusively· establish the sto.tus of
securities as bGing, or not being, securities "in which the
investment cha.racteristics are distinctly or predominantly
speculative" within tho meaning of subdivision (:3) of Section
II of the regulations; and, if so, at what point in such
scale of ratings are securities to be conclusively deemed to
be "distinctly or predominantly speculative"-, or, ln other
words, how many of the highest grades of securities as so
rated may be considE~red not to be "distinctly or predominantly
·speculative", The section in question, and the footnote
thereto, read as follows:
3BO
-2-
X-9539-a
"(3) The purchase of 1 investmEmt securities' in
which the investment chal:'actoristics are distinctly
or predominantly speculative, or 'investment securities'
of a lower designated standctrd than those which are
distinctly or predominantly speculative, is prohibi ted.-l~
The purchase of securities which are in default, either
as to principal or intorest, is also prohibited.
~'t
The terms employed herein· may be found in
recognized rating manuals, and where there
is doUbt as to the eligibility of a security for pttrchase, such eligibility must be
supported by not less than two rating
manuals."
4. Whether all so-called "convertible" bonds are ineligible for purchasE;. by member banks by reason of subdivision (5) of Soction II which reads: "Purchase of securities
convertible into stock at tho option of the issuer is
prohibited."
It would be helpful if these points could be clarified and
I am therefore calling the ~atter to your attention in the hope that
it may be possible to discuss these questions with tho Comptroller's
office with a view to such clarification.
With respect to the first point, it is our understanding
that as a matter of law neither Section 5156 of the Revised Statutes,
nor ru1y regulation of the Comptroller issued thereunder, can apply
to "general obligations of any state or of ar..y political subdivision
thereof", which would include most municipal securities.
With res·pect to the second point, it is our understanding
that while the present regulations are silent on the question, they
do not in fact prohibit a member bank from holding securities which
the bank purchased prior to the issuance of such regulations and
which the bank was permitted to acquire under the terms of the
regulations in effect ct tho time of purchase.
With respect to the third point, we question the advisability of making the manual ratings the conclusive test of whether
or not securities are "distinctly or predominantly" speculative.
'l'his is particularly true in the case of new issues which have not
yet received ratings and which arc often offered to banks on the
original issue at a few points below the retail price. Many of
these new issues mo.y be entirely sound, and we believe the bank
officers should be permitted to exercise their discretion in the
391
X-9539-a
-5-
purchase of them when they are honestly believed to be sound investments and otherwise comply with the legal requirements. If, however,
it is the Comptroller's purpose to make manual ratings the conclusive
test, it would seem to us that the regulations should be more definite as to which grades include, or may include, eligible securities
and which are necessarily considered ineligible as speculative. We
construe the regulations as now drawn as permitting the purchase of
securities in any of the four highest grades, since the definitions
in the manuals of the fourth highest grade, that is, the highest of
the three grades in the B group, indicate that in general the· securities included therein are in the investment class, although in some
instances having speculative elements. It appears that there has
been considerable confusion on this point, however, as we understand
that conflicting views have been expressed as to whether the securities eligible for purchase under the terms of the regulations as now
drawn are limited to the three or fol~ highest grades.
With respect to the fourth point, subdivision (5) of Section II in terms prohibits the purchase only of securities convertible
into stock "at the option of the issuer" and would not appear to apply to securities convertible only at the option of the holder. Most,
if not all, of what are commonly referred to as "convertible" bonds,
are comrerti ble only at the option of the holder. These undoubtedly
include some entirely sound issues which can be purchased on an investment yield basis without paying any substantial premium for the
conversion pri~iloge.
Very truly yours,
(Signed)
George L. Harrison
George L. Harrison,
Governor.
Hon. Joseph A. Broderick,
Board of Governors of the
Federal Reserve System,
Washington, D. C.
FEDERAL RESERVE BANK
X-9559-b
OF CLEVELAND
March 2, 1936.
Board of Governors of the
Federal Reserve System,
Washington, D. c.
Gentlemen:
In order that we may make prompt and accurate replies to
concerning the interpretation of the Comptroller's regulation dated February 15, 1956, governing the purchase of investment
securities and further defining the term "investment securities" as
used in section 5136 of the Revised Statutes, as amended, we should
appreciate it if our understanding of the following items is confirmed.
inqu~nes
(l)
That investment securities lawfully acquired prior to February 15, 1936, need not be disposed of if such obligations do not
conform to terms of the regulation made effective as of that date.
(2)
That under the Moody classification bonds rated Baa, defined as those "in which speculative elements begin distinctly to
appear," may lawfully be purchased since they may scarcely be classed
as investments whose characteristics are "distinctly or predominantly
speculative".
(3)
Under the Standard Statistics classification, bonds rated
B, which are classed as "semi-speculative" are in the twilight zone,
their eligibility for purchase being dependent upon the degree to which
speculative elements appear.
(4)
In Fitch's ratings it is our impression that bonds rated
to and including BB may be regarded as proper investments under tho
terms of the regulation.
(5)
Under the Poor classification it is our impression that all
bonds rated to and including B* meet the requirements of the regulation.
It is assumed in all cases that bonds are otherwise legally
purchasable.
Very truly yours,
(Signed)
J. B, Anderson
Assistant Federal Reserve Agent.
393
X-9539-c
FEDERAL RESERVE SYSTEM
TELEGRAM
265gc
San Francisco Mar 6 338p
Board
Washn
Reference is made to the Comptrollers regulations Governing the purchase of investment securities referred to in the Board's telegram
No. 2379.
Some State bank members have informed us that prior to
receiving the subject regulations they had invested in some instances
in non excepted bonds in amounts permitted under State law but in axcess of limit prescribed under Section 5136, and wish to be advised
whether, in the circumstances, immediate reduction to conform to the
provisions of said Section and regulations will be required.
It would
seem equitable that if reductions are to be req11irod, an orderly liquidation to avoid loss to the bank should be permitted.
The Board's
advice as to requirements and policy to be followed in the circumstances
will be appreciated
Sargent
649p
394
X-9539-d
TREASURY DEPAR'rMEHT
Comptroller of the Currency
Wra.sh.l.ngton
March 18, 1936.
Board of Governors,
Federal Reserve System,
V/ashington, D. C.
Dear Sir:
Reference is had to yours of March 5, enclosing a
copy of a letter received by you from the Governor of the
Federal Reserve Bank of New York, dated February 28, 1936,
presenting various questions rising under the regulations
issued b:.r this office February 15, 1956, ,;overninb the purchase of investment securities.
With respect to the questions raised, our position
is as follows:
(1) The regulations do not prohibit the purchase
by Member Banks of municipal oblig&tions which are not readily
"marketable" as defined by the regulations, i.f such municipal
obligations are in fact "ge:n£:ral oblig~.tions" as uistine:,>Uishcd from limited or special obligations, and further provided
that such ob.Ligations are in fact obligations of L'- "political
subdivision" of the State. This question sometimes becomes
important, as, for example, bond issues for the improvement
of a municipal electric light plant, whelre the issue is not
by its terms an obligation of the municipal1ty but some unit,
board or entity within the municipality.
It '\ilrill be understood that even thou.::h a "municipal"
obligation is not a "general obligation" an<i HVen though the
entity issuing it is not a political subaivision of the State,
such obligation may still be e1igiblu for investment provided
it meets with all the requiroments of th6 regulations.
(2) The regulations do not rc-:quiro th0 banks to
dispose of securities which are nevi inoligiblG uncer the present
regt.llations but which 'Nere purchased 1;rior to the issuanc0 of
the regulations, if th0y were otherwise lawfully acquire<i at
the time of thoir purchase.
395
X-9559-d
- 2 -
(5) On the question as to -;>hether or not eligibility
from a non-speculative standpoint under the re~ulations is to
be conclusively determined by the ratings of rating manuals,
we have dealt with this question at length in a separate communication of this date addressed to you, in reply to an inquiry submitted by the Assistant Federal Reserve Agent at Cleveland. Governor Harrison does reise one point not discussed in
the above referred to separate comrrmnication, namely: the fact
that now issues which have not yet received rc.tings are often
offered to the banks, which issues are entirely sound; the
query being whether or not absence of a rating in such·cases
would operate to prevent the acquisition of such securities.
The absence of a rating in no inst~nce is conclusive
and if any issue of securities otherwise meets the requirements
of the regulations, and if its investment characteristics are
not distinctly or predominately speculative, as judged by
whatever means are available for determining such question,
then the purchase of such a security would be permissible.
(4) With regard to the provision "Purchase of
securities convertible into stock at the option of the issuer
is prohibited", it was not intended that such provision should
operate to prohibit th<:J purchase of securities convertible only
at the option of the holder.
Very truly yours,
(Signed)
J. F. T. O'Connor
J. F. T. O'CONNOR,
Comptroller.
•
396
X-9559-e!
ThEASURY LEPMiTMENT
Comptroller of the Currency
Washington
March 18, 1936.
Board of Governors,
Federal Reserve System,
Washington, D. c.
Dear Sirs:
This acknowledges yours of Harch 10, enclosing a copy of
a letter dated March 2, 1936, received by you from the Assistant
Federal Reserve Agent at Cleveland, ru1d a copy of a telegram dated
March 6, 1956, from the Assistant Federal Reserve Agent at San
Francisco, both of which raise certain questions of interpretation
under the regulations recently issued by this office relative to
investment securities.
As respects the letter from the Assistant F'edoral Reserve
Agent at Cleveland, the questions ra:i.sed therein are as follows:
(l) Vihether or not ~i.nvestment securities lawfully acquired prior to February 15, 1936, need to b~ disposnG. of if such
obligations do not conform to the ter;as of the re£;ulations.
If the investment :::;ccuri tit~s \Wre lawfull.z acquired prior
to the issuance of the rcgulatiom~, there is no obll~;ation under the
regulations to dispose of sc:cmc.
Unaor questions (2), (5), (4) and (5) the inquiry is made
as to 'Nhether bonds classified unci.er Certain rating symbols by the
various rating services are to be considered as within tho eligible
classification defined in Section II (5) of the rt:gul&tions.
This office has had nu:nc;rous inquiries of a similar nature
from banks and from the public, ann ;·ie have consi6tently rcfraim~d
from specifically advising "ihether or not a security under n specific
rating classification of a specific rating service is oli~Sible. This
position has boon taken for the reason that such information may
operate to C[tusc thosu responsible for ·the investmt:;nts of the bank to
assume that their responsibility hGs been borne <vhen they determine
that n particular security fall~; v;ithin L sp.:.::cific rating cla;3Bificntion, with the result th[it the jud;;:,mcnt of the r;:~ting service eupplants
397
X-9559-e
- 2 -
the responsibHities of those primarily charged with properly investing the bank funds. Furthermore, .it is not possible to araw a definite line that would operate satisfactorily in t..he case of all rated
securities. In individual cases a security of a :eating one class belmv what would be gen:.;ralLy considered satisfactor;;; might for particular reasons still. bE: eligible, uno vice versa.
It was intended that reference t.o the~ ratin; manuals ;as
not to be the excludvl; guide; on tlw quec;ti~m of o1i.:;ibi1it:r but that
the usc of such manuals was to be porinissible a:::: r.:..n aid in determining
eligibility, particularly in the case of banks ~hich do not have the
facilities for making an indepen<.ient investigation of the: history and
prospects of an issuer.
You will appreciate from the foregoinc considerations that
we cannot s.t~ate that. a security havin.; a :::\pecific rating is necessarily viithin the eligible class.
The question raised by telegram from ;{our Assistant Federal Reserve Agent at San Francisco involves a situation v~here the
State banks, prior to receiv..;.ng the regu.l.ations, ha<i invested in nonexcepted bonds in amounts permit te<i under StL te 1r~.\. but in excess of
the limit prescribed undor .Section 51:-56, ana thE C.(Uestion i~3 ruisod
as 7,o ·.:hether l.n the circumstances immediate; re<iuction to conform to
the limitations will. be required, i.t being sug,;ested that if reductions are to be required, an orderly liquidation :o avoici loss to the
bank shoul<i be permitted.
Inasmuch as the limitations as to ~Jmount pr<;;scribed ln
Section 5156 of the Revised Statutes nere macie effective as to State
f;lemLer Banks by the Banking Act of 1933, as of June l6, 19;)5, the
limitations }lrescribed by Section 5136 as amended from time to time
naturally operated from that date. Cons<;quently, securities purchased in excess of the J.imi tations subst:)c:uerrt to June 16, 1933, by
the State !Vldnber Banks were helC:. in violation of l&w independent of
our regulations, and it would S<.'em to follow that such hol~C.~in;ss should
be reduced in conformity to the li:~;itations. 1\s to ·,hether or not
such reduction must be immc:diato Ol· .,.;radual in orc.~cr to avoi.d loss,
that is a matter of policy, und as resp;:cts Nationc.l Lanks >hich may
have excess holdings of securities, tl [;radual .liqui<. <ation in most
cases would be ~::;ermissiblc if immediate liquidation ·Nou1<i involve loss
to the bank.
Very tru.Ly yours,
~.
.)
( ::,~gm;ct
J. F. T. O'Connor
J. F. T.
O'CON~OR,
Comptroller,
COPY
X-9539-f
April 4, 1936.
Mr. George L, Harrison, President,
Federal Reserve Bank of New York,
New York, New York.
Dear Mr. Harrison:
This refers to your letter to Mr. Broderick
dated February 28, 1956, regarding the interpretation of the
regulation issued under the provisions of section 5136 of the
Revised Statutes by the Comptroller of the Currency, governing the purchase of investment securities.
Your letter was referred to the Comptroller
for an expression of his views upon the questions presented
therein. There is inclosed herewith a copy of a reply from
the Comptroller, which was received by the Board on March 25,
1936, setting forth his views concerning the questions presented in your letter.
A copy of the letter referred to in paragraph
numbered (5) of the Comptroller's letter is also inclosed
herewith.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
Inclosures
3S9
COPY
X-9539-g
April 4, 1936
Mr. E. S. Burke, Jr.,
Federal Reserve Agent,
Federal Reserve Bank of Cleveland,
Cleveland, Ohio.
Dear Mr. Burke:
This refers to Mr. Anderson's letter of March 2,
1936, presenting certain questions concerning the interpretation of the Comptroller1s regulation governing the purchase
of investment securities which was promulgated under the authority of section 5136 of the Revised Statutes.
A copy of Mr. Anderson's letter together with a copy
of a telegram from the Assistant Federal Reserve Agent at
San Francisco was submitted to the Comptroller of the Currency with a request for an expression of his views thereon.
A copy of the Comptroller's reply, which was received
by the Board on March 25, 1936, is inclosed herewith.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
Inclosuru.
COPY
X-9539-h
April 4, 1936.
Mr. S. G. Sargent,
Assistant Federal Reserve Agent,
Federal Reserve Bank of San Francisco,
San Francisco, California.
Dear Mr. Sargent;
This refers to your telegram dated March 6, 1956, presenting
a question regarding the interpretation of the Comptroller's regulation
governing the purchase of investment securities which was promulgated
under the authority of section 5136 of the Revised Statutes.
A copy of your telegram, together with a copy of a letter from
the Assistant Federal Reserve Agent at Cleveland, was submitted to the
Comptroller of the Currency with a request for an expression of his views
thereon. There is inclosed herewith a copy of the Comptroller's reply,
which was received by the Board on March 25, 1936.
It will be observed that the Comptroller has stated that, in
the case of national banks which hold securities in excess of the limitations prescribed by section 5136, a gradual liquidation in most cases
would be permissible if immediate liquidation would involve loss to the
bank.
Likewise, it is the viev; of the Board that, in cases of the
kind described in your telegram where a State member bank holds investment securities in excess of the limitations prescribed by section 5136,
a gradual liquidation is permissible if immediate liquidation would
involve loss to the bank.
Inclosure.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
400
401
BOARD OF GOVERNORS
• F THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ft
»
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
X-9540
April 4, 1936.
Dear Sir:
In its letter of December ?, 1955, (X-9385), relating to the
issuance of general voting permits, the Board advised you that, as a
condition to the issuance of such permits, each holding company affiliate would be required to execute an agreement in the form accompanying such letter, subject to any changes and with any additional provisions prescribed by the Board in the particular case.
Paragraph numbered 7 of the form of agreement contains the
following provision:
"and that, except with the permission of the Board of
Governors of the Federal Reserve System, it shall not
cause or permit any change to be made in the general
character of its business or investments."
In view of the restrictions and limitations imposed upon national banks by law, the Board has recently decided that such a provision is not essential where the holding company affiliate is a
national bank.
Therefore, in authorizing the issuance of general
voting permits to national banks in the future, the Board will modify
the above-mentioned paragraph of the required agreement to read as
follows:
X-9540
"That the management of the undersigned will be, and
the undersigned will take such action within its
power as may be necessary to cause the management of
each of its subsidiaries to be, conducted under sound
policies governing its financial and other operations,
including statements issued relating thereto; that
the undersigned will maintain a sound financial condition; and that its net capital and surplus funds
shall be adequate in relation to the character and
condition of its assets and to its liabilities and
other corporate responsibilities."
Appropriate action will be taken to modify in a similar manner the
agreements heretofore executed by national banks.
It may also be noted that, in authorising the issuance of
general voting permits to national banks, the Board has uniformly
modified the standard form of agreement by providing that paragraphs
numbered 1 and lettered (C) should be omitted and that paragraph numbered 4 should be changed to read as follows:
"That the undersigned will comply, and will take
such action within its power as may be necessary
to cause each subsidiary national bank or affiliate
of such subsidiary national bank or of the undersigned to comply, with the recommendations or suggestions of the Comptroller of the Currency based
upon any report of examination made to him pursuant
to authority conferred by law and with the regulations or requirements of the Board of Governors of
the Federal Reserve System made pursuant to
authority vested in it by law;".
Very truly yours,
Chester Morrill,
Secretary.
TO ALL FEDERAL RESERVE AGENTS
403
BOARD OF GOVERNORS
OF THE
*******
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO T H E B O A R D
X-9541
April 6, 1936.
Dear Sirs
One of the Federal Reserve banks has requested the Board
of Governors of the Federal Reserve System to modify the instructions contained in its letter, X-9405, of December 27, 1935 so as
to permit a Federal Reserve bank, in its discretion, to pay to an
employee under age 55 with 10 years or more of service who is involuntarily separated from the service of the Federal Reserve bank
a dismissal wage equal to 6 months' salary in lieu of the payments
authorized in the Board's letter above referred to.
The Board has given careful consideration to this request
and, inasmuch as employees who lack many years of having attained
age 55 may find it more advantageous to them to receive a dismissal
wage equal to 6 months' salary rather than the payments authorized
in the Board's letter X-9405, the Board authorizes your bank, in
its discretion, to pay not to exceed 6 months' salary in a lump
sum, or in not to exceed 6 monthly installments, to employees under
age 55 with 10 years or more of service who are involuntarily
X-9541
separated from the service of your bank, in lieu of the benefits
authorized in paragraph (a) of its letter, X-9405, of December 27,
1935.
Very truly yours,
Yy)wuM
Chester Morrill,
Secretary.
TO ALL PRESIDENTS
405
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO T H E B O A R D
X-9542
April 7, 1956.
Dear Sir:
I am writing this letter for the further information of
your bank in connection with the construction of the new building
for the Board of Governors at Washington, D. C.
The occupancy of the existing temporary building on the
Board's site by another Government agency caused some delay in
starting the work of demolition but on December 30, 1935, a contract was entered into with Hechinger Engineering Corporation of
Washington, D. C., which was the highest bidder, for the sum of
$18,358, which was paid in cash to the Board of Governors, and
work was started on January 2, 1936. This work has been completed.
The studies prepared by Mr. Cret following his selection
as architect were approved by the National Capital Park and Planning
Commission and the Fine Arts Commission.
After considering carefully the various types of contracts which might be entered into for the construction of the new
building, the Board decided to issue invitations to a number of
leading builders to bid for the work on a lump sum competitive basis
X-9542
and on January 29, 1936, these bids were opened. The George A.
Fuller Company was found to be the lowest bidder and the contract
was awarded to that company for the aggregate sum of $3,484,000.
The contract was entered into on January 50, 1936, and calls for
completion of the work within 485 calendar days from the date of
notice to proceed, which was given on January 31. The work of
excavation is nearing completion and pile driving has been started.
The Board decided not to avail itself of the option
under its contract with the architect of requiring the architect
to provide the inspection of the building operation, but instead
decided to employ a superintendent and the necessary help, who
would be directly responsible to•the Board for this aspect of the
job but would cooperate fully with the architect.
Very truly yours,
03GSA/ )
Chester Morrill,
Secretary.
TO CHAIRMEN OF ALL F. R. BAMS.
407
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO T H E B O A R D
X-9543
April 10, 1936.
SUBJECT: Code Word Covering New
Issue of Treasury Bills.
Dear Sir:
In connection with telegraphic transactions in Government securities between Federal
reserve banks, the following code word has been
designated to cover a new issue of Treasury Bills:
"NOYLAF" - Treasury Bills to be dated
April 15, 1936, and to
mature January 13, 1937.
This word should be inserted in the Federal Reserve Telegraph Code book, following the
supplemental code word "NOYKUD" on page 172.
Very truly yours,
J. C. Noell,
Noell
Assistant Secretary
TO PRESIDENTS OF ALL F. R. BANKS
408
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO T H E B O A R D
r
**<tj5t23i£>41
X-9544
April 13, 1936
Dear Sir;
There are enclosed herewith copies of
statement rendered by the Bureau of Engraving
and Printing, covering the cost of preparing
Federal reserve notes for the month of March,
1936.
Very truly yours,
0. E. Foulk,
Fiscal Agent
Enclosure
TO ALL F. R. PRESIDENTS
409
X-9544-a
Statement of Bureau of Engraving and Printing
for furnishing Federal Reserve Notes,
March 2 to 51, 1936.
SERIES 1954
Boston,
New York,
Philadelphia,....
Cleveland,
St. Louis,
Kansas City,.....
San Francisco,...
S5
. Sio
$20
Total Sheets
Amount
72,000
90,000
2,000
164,000
$14,104.00
160,000
404,000
20,000
584,000
50,224.00
44,000
18,000
62,000
5,552.00
26,000
45,000
50,000
99,000
8,514,00
76,000
50,000
126,000
10,856.00
55,000
20,000
20,000
75,000
6,450.00
124,000
106,000
54,000
264,000
22,704.00
-
-
24,000
-
24,000
2,064.00
50,000
28,000
-
58,000
4,988.00
50,000
48,000
24,000
122,000
10,492.00
50,000
56,000
10,000
116,000
9,976.00
80,000
41,000
26,000
147,000
12,642.00
705,000
954,000
184,000
1,841,000
#158,526.00
-
1,841,000 sheets, @ $86.00 per M,
$158,526.00
410
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
:
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO T H E B O A R D
X-9545
April 13, 1956.
SUBJECT: Payment of Interest after Maturity on
Time Certificate of Deposit Renewed
Within Ten Days after Maturity.
Dear Sir:
There is inclosed herewith a copy of a letter
to the Assistant Federal Reserve Agent at Chicago relating to the payment after maturity of interest on a
time certificate of deposit which has been renewed within ten days after maturity.
It will be appreciated if you will bring the
substance of this letter to the attention of all of the
member banks in your district.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO ALL FEDERAL RESERVE AGENTS EXCEPT CHICAGO AND
MINNEAPOLIS.
411
X-9545-a
April 15, 1956.
Mr. C. S. Young,
Assistant Federal Reserve Agent,
Federal Reserve Bank of Chicago,
Chicago, Illinois.
Dear Mr. Young:
This refers to the letter of March 15, 1956, from
Mr. Stevens, regarding the difference between section 5(f) of
Regulation Q and section 5(e) of Regulation IV of the Federal
Deposit Insurance Corporation, relating to the payment of interest after maturity on deposits which are renewed within ten days
after maturity.
The terms of Regulation Q do not contain a provision
for the payment by a member bank of interest on a time deposit
between the date of maturity of the certificate representing
such deposit and the date of the renewal of such certificate
even though such renewal certificate is dated back to the date
of the maturity of the original certificate.
However, after considering all of the attendant circumstances, the Board has decided that it will offer no objection to
the payment by a member bank of interest on a time deposit at a
rate not exceeding the applicable maximum rate prescribed in
Regulation Q for the period between the maturity date of the certificate representing such deposit and the date of renewal thereof,
provided such certificate is renewed within ten days after maturity
-
2
X-9545-a
-
and the renewal certificate is dated back to the date of maturity
of the original certificate.
It will be appreciated if you will bring the substance
of this letter to the attention of all of the member banks in
your district.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
INTERPRETATION
X-9546
BiiNKING ACT OF 1055
-•/
(Copies to be sent to all Federal reserve banks)
April 10, 1936.
Mr. C. S. Young,
Assistant Federal Reserve Agent,
Federal Reserve Bank of Chicago,
Chicago, Illinois.
Dear Mr. Young:
This refers to your telegram dated April 7, 1956, requesting a specific ruling by the Board upon the question whether
a deposit of a labor union may be classified by a member bank as
a savings deposit under the provisions of section 1(e) of Regulation Q.
As you know, this section provides that a deposit of a
corporation, association, or other organization may not be classified as a savings deposit unless the organization is not operated
for profit and, in addition, is operated primarily for religious,
philanthropic, charitable, educational, fraternal or other similar
purposes. Without regard to the question whether or not labor unions
are operated for profit, it is the view of the Board that they may
not properly be considered as organizations operated primarily for
the above purposes within the meaning of section l(e) of Regulation Q. Accordingly, deposits of labor unions may not be classified
by member banks as savings deposits.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
414
X-9547
(Not to be released
to the press)
THE BANKING ACT OF 1935 - TITLE II
Address by
M. S. S2YMCZAK, MEMBER
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Delivered at
The Forum Dinner of the
Baltimore Chapter of the American Institute of Banking
Friday, April 17, 1956
6:00 p. m.
Main Ballroom, Lord Baltimore Hotel,
Baltimore, Maryland.
X-9547
BANKING ACT OF 1935
TITLE II
The Banking Act of 1935 is divided in three parts. The first
part, Title I, deals exclusively with Federal Deposit Insurance. The
third part, Title III, comprises almost exclusively amendments intended to clarify and correct previously existing provisions of the
law, and is chiefly of technical importance. The second part, Title
II, makes changes in the organization of the governing board of the
Federal Reserve System and in its authority to control credit. I
shall limit myself to discussion of the provisions of Title II.
In general terms, I think the most important accomplishment of
the Banking Act of 1955 so far as the Federal Reserve System is concerned is that it strengthened and clarified the lines of credit
control. A few changes affecting the organization and functions of
the Federal Reserve banks were made, but they were not changes in
essentials. The most conspicuous of these changes was that the title
of President was given to the principal executive officer. Formerly
his title was Governor. The title of Vice President now replaces
the former title of Deputy Governor. As you know, the former titles,
Governor and Deputy Governor, were not mentioned in the Federal Reserve Act. The office of Governor was originally created under the
general authority which the Federal Reserve Act gave the directors of
the Federal Reserve banks to arrange for such officers as were necessary for the administrative work of the banks. Originally, the only
-z
X-9547
office specifically mentioned by the Act, other than that of director,
was that of Federal Reserve Agent and Chairman, with assistant agents
and deputy chairmen. The Banking Act of 1955 in designating the President of the Federal Reserve bank as its chief executive officer merely
recognized an arrangement that had developed under general authority
and that had proved itself desirable from the point of view of Federal
Reserve Bank administration.
The organization of the governing board of the System was changed
considerably by the Banking Act of 1935.
In the first place, the old
name "Federal Reserve Board" was changed to "Board of Governors of the
Federal Reserve System". At the same time, the chief executive officer
of the Board was designated as Chairman. Furthermore, the number of
members of the Board was changed from eight to seven and all of these
members were made appointive. Formerly, as you know, the Secretary of
the Treasury and the Comptroller of the Currency were ex officio members of the Board.
The term of office of the members of the Board was formerly 12
years. Under the new law, the terms of members now in office range
from 2 to 14 years and their successors in office will have terms of
.14 years so arranged that the term of one member will expire every 2
years. Since a member who has served a full term of 14 years is not
eligible for reappointment, there will be a regularly recurring change
in membership; one member leaving the Board and a new one being appointed every 2 years, unless more frequent changes occur from deaths
417
-3-
X-9547
or resignations*
The more important changes effected by the 1935 Act, however,
have not to do with these matters of organization so much as with the
function and authority of the governing Board in the field of credit.
The instrumentality that is now considered the most important
for the control of credit is one that in the original reserve act was
given only rudimentary attention. I refer to open market operations,
with respect to which very significant changes were made by the Banking Act of 1935.
The principle of open market operations is of course simple. If
securities are sold in the market by the Federal Reserve banks, they
must of necessity be paid for with bank funds, for they will be bought
either by the banks themselves or by bank customers. Consequently, in
the process of paying for them there will necessarily be debits to be
entered against the reserve accounts maintained with the reserve bank
by the member banks. Upon completion of these entries, the reserve
bank will have disposed of certain assets and simultaneously will have
decreased the total amount outstanding to the credit of member banks
in their reserve accounts. The Reserve bank does not know in advance
of its transactions what particular member bank accounts will be affected nor by how much, but it knows that if it sells securities available member bank credit will be diminished.
If, as a consequence, reserves are reduced to a minimum, the
member banks are immediately impelled to restrict their extensions of
I
418
X-9547
credit, for they cannot continue making loans and increasing the deposit credit outstanding on their books without incurring a deficiency
in their reserves. The result of the Reserve bank's action in selling securities, therefore, is to curtail the lending power of member
banks and to tighten the money market.
On the other hand, if securities are bought by the Reserve bank,
the result will be that in the process of paying for them the Reserve
bank will have to credit the reserve accounts of member banks. Again
it does not know to what extent particular member banks will be affected, but it does know that reserves in general will be increased.
By the same token the lending power of the member banks will be increased and general credit conditions will be eased. In the first
stages of a buying program, the effect will be to enable banks to pay
off any obligations they may owe, but if a buying program is continued
long enough it may result in an accumulation of excess reserves.
In addition to the effect upon the reserves of member banks,
there is also an effect upon bank deposits in general - even non-member
bank deposits; because, if an investor or an institution buys some of
the securities sold by the Reserve bank, payment will ordinarily be
made out of a checking account and deposits will be decreased by so
much. If, on the other hand, the Reserve bank is buying securities,
and institutions and individuals are selling to it, the payments made
by the Reserve bank will increase the deposit credit outstanding on
the books of banks. Accordingly, banks which are not members of the
X-9547
Federal Reserve System and banks which themselves have not purchased
or Sold securities as a result of the Reserve bank's action, will
nevertheless be affected by it, either in their reserves or in their
deposits, or in both. The money market as a whole will be influenced.
In the early days of the System the Federal Reserve banks at
first attempted to carry on their open market operations independently
of one another, but it soon became clear that their actions must be
coordinated. Otherwise they might find themselves competing with one
another, and in conflict as between their own transactions and those
transactions which as fiscal agents of the Government they were conducting for the United States Treasury. Accordingly, in 1922 a committee of Reserve bank officers was appointed for the purpose of coordinating the operations. About the same time the purpose of the
operations was clarified. The principle laid down was:
"That the
time, manner, character, and volume of open-market investments purchased by Federal Reserve banks be governed with primary regard to
the accommodation of commerce and business and to the effect of such
purchases or sales on the general credit situation."
For some time prior to this there had been a tendency to allow
purchases and sales of securities to be influenced by profit as an
objective. The statement of principle which I have just quoted meant
a definite abandonment of that objective. This was in line with the
general policy of central banks in conducting open market operations;
they do so definitely with the idea of correcting market tendencies
-6-
and not for the
X-9547
purpose of making earnings.
The Banking Act of 1933 gave open market operations more specific
recognition than they had had in the original Act. It gave statutorystanding to the Federal Open Market Committee, which by then comprised one representative from each Federal Reserve bank. No Reserve
bank could engage in open market operations except in accordance with
regulations of the Board. At the same time the Act adopted substantially the same statement of purpose which had already governed open
market operations.
The Banking Act of 1935 gave still further attention to the machinery of open market operations and to recognition of their importance.
The Federal Open Market Committee was reconstructed to comprise the
members of the Board of Governors of the Federal Reserve System and
five representatives chosen regionally by the twelve Federal Reserve
banks. This made the members of the Board constitute a majority of
the Committee, and marked considerable development away from the original informal arrangements by which the Federal Reserve banks first
conducted open market operations on their own initiative and then
under the direction of a Committee on which the Board was not specifically represented. Furthermore, under the terms of the Banking Act
of 1935, the Federal Reserve banks may neither engage nor decline to
engage in such operations except in accordance with the directions
and regulations of the Committee.
Another requirement of the Act is that a complete record be kept
421
-7-
X-9547
of the action taken on all questions of policy relating to open
market operations, including a rccord of votes taken in connection
with the determination of open market policies and a statement of the
reasons underlying the action taken, and that this record be included
in the Board's annual report. The publication of this record will
give the public an opportunity to study the decisions as to open
market policy and credit policy in general, and should help clarify
public discussions of national credit policy. It will also accentuate the individual sense of responsibility, for members of the Committee will be called on not only to decide on credit policy, but to
give publicly the reasons for their decisions.
It is clear, I think, that as a result of experience and statutory amendments, open market operations have taken a far more important place in general credit policy than they formerly had.
It is
also clear, I think, that open market operations have become a more
important or at least a more positive device of credit control than
discount rates. When the Federal Reserve Act was adopted the prevailing idea probably was that discount rates were not only the most
definite means of credit control, but the most important. The thought
was that as banks felt more and more demand from borrowers and went
to the Reserve banks to procure the funds to meet it, they would encounter a rising discount rate, which would have the effect of
tempering the demand and preventing an excessive use of credit. Conversely, as conditions improved, business activity would be encouraged
-8-
X-9547
by the fact that banks could procure funds to lend at a progressively
lower rate. The most obvious difficulty with this theory, however,
is that banks have not shown a disposition to borrow from the Reserve
banks in order to relend. Banks don't like to borrow, and as a general thing they won1t borrow unless they have to, no matter how low
the discount rate is. Consequently, the effectiveness of the Federal
Reserve discount rate is, by itself, rather limited. It is significant as an index of the cost of credit, but it does not come into
action otherwise until a member bank finds it necessary to replenish
its reserves. As I have already indicated, however, a member bank
may be forced into such a position as the result of sales of securities by the Reserve bank, and the discount rate then becomes effective.
In other words, an important difference between discount rates
and open market operations in practical effect is that open market
operations give the central banking organization the initiative in the
control of credit, whereas the discount rate by itself offers the controlling authority no handles to seize; it must bide its time passively
until the situation is so bad that demand for funds is voluntarily
made. This delay may seriously impair the power of the Federal Reserve
bank to help the situation.
With respect to discount rates the Banking Act of 1955 made only
one change. This was to require that they be established every fourteen days or oftener. It is not necessary that the rates be changed
every time, but they must at least be reviewed and reestablished.
433
-9-
X-9547
With respect to the reserves which member banks are required to
maintain, the Banking Act of 1935 simplified the conditions under
which the Board of Governors of the Federal Reserve Qystem may alter
the amount of reserves which is prescribed in the law. Prior to
1933, there was no authority to change reserve requirements administratively , but an act of May 12 of that year empowered the Board,
with the approval of the President, to declare that an emergency
existed and during the emergency to increase or decrease the reserve
balances to be required. The Banking Act of 1935 allows reserve requirements to be changed by the Board without declaration that an
emergency exists and without approval of the President. It does not
permit, however, requirements to be reduced below the percentages
stated in the statute nor to be more than doubled. The purpose of
any change made in the requirements must be, in the words of the law,
"to prevent injurious credit expansion or contraction."
I mentioned the requirement of the Banking Act of 1935 that a
record be kept and published of the action taken with respect to open
market operations. The Act also makes a similar requirement with respect to all questions of policy determined by the Board. A record
of action taken, of votes upon policy, and of reasons underlying decisions is to be included in the annual report of the Board.
The responsibilities of the Federal Reserve banks as fiscal
agents of the United States were not changed by the Banking Act of
1935, except for a provision which permits the Reserve banks to buy
424
-10-
X-9547
government obligations only in the ooen market; direct purchases from
the Treasury are not authorized.
I think, that the foregoing covers sufficiently the more prominent
changes which the Banking Act of 1955 made with respect to Federal Reserve functions. There are also two provisions of Title II which bear
on member bank lending powers.
Indirectly, the Act tends to broaden these powers by giving the
Reserve banks authority to make advances to member banks on any satisfactory security. The former provisions still stand as to paper that
is known under the original terms of the Federal Reserve Act as
"eligible" for discount - paper, that is, which originates in connection with industrial, commercial or agricultural transactions - and
they also still stand as to advances to member banks on notes secured
by eligible paper or by Government obligations. The new provisions
are added to these old ones without altering them. Advances authorized by the new provisions are simply required to be secured to the
satisfaction of the Reserve bank, to bear a rate of interest at least
one-half percent above the Reserve bank's discount rate, and to have
maturities of net more than four months. At present, when the banks
have large excess reserves, this new provision in the law may not
seem very important. But times may change. If and when they do, the
new provisions mean that, assuming a bank's assets are good, the Federal Reserve bank will be able to advance money on them, no matter
what the type of paper, or the nature of the transactions in which
425
-11-
X-9547
they originated. In other words, borrowing from the Federal Reserve
bank has now been made possible on other than technical conditions of
eligibility alone. This is very important. Many banks in recent
years would have had much less trouble if they could have taken to
the Reserve bank some of their assets which were good, but not legally
eligible under the old terms of the law, instead of having to sacrifice
them on a demoralized market. Provision for such advances was first
adopted as a temporary, emergency measure in 1932, but the Banking
Act of 1935 made it permanent.
The original provisions of the law with respect to eligible
paper were based on the principle that since the liabilities of banks
were payable on demand they should be offset by short-term selfliquidating paper based on specific transactions involving the exchange of goods. The amendments added by the Banking Act of 1935 are
based on the principle that in fact American banks do not specialize
in one type of credit as against another. They deal in credit of all
sorts. They combine long term and short term credit functions.
There is not enough short-term commercial paper to fill more than a
small part of their portfolios. They accept the savings and time
deposits of their communities and they also hold long term obligations of their communities. The new provisions for eligibility make
the Federal Reserve Act cognizant of these realities and adapt the
powers of the Reserve banks to them.
In a more direct way, the Banking Act of 1935 broadened lending
*12*
X-9547
powers by liberalizing the conditions under which National banks maymake real estate loans. The old stipulation that the real estate
upon which such loans are made must be situated in the bank's Federal
Reserve district or within a hundred miles of the bank, has been removed; and loans which are amortized are now permitted in amounts up
to 60 percent of the appraised value of the property and with maturities of as much as ten years, provided installment payments are sufficient to repay at least 40 percent of the principal in that time.
The Act also increased the permissible aggregate of real estate loans
which a national bank may hold. •
I think the principal effects of the Banking Act of 1955 may be
summarized as follows:
In the first place, while the Federal Reserve banks remain essentially unchanged in organization and function, the importance of their
central banking activities has been more clearly recognized.
Second, the Federal Open Market Committee has been given a more
effective position in the System and more definite authority.
Third, the Board of Governors has been given larger powers and
more direct responsibilities, and the principles upon which the System is to be administered have been more clearly developed.
Fourth, the 6,400 member banks have been given broader lending
powers, and the facilities of the Federal Reserve banks have been
made available to them on less technical and restrictive terms.
427
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
o f f i c i a l
t o
c o r r e s p o n d e n c e
the
board
X-9548
April 15, 1936.
SUBJECT: Employment of special counsel
by Federal Reserve banks.
Dear Sir:
In connection with the Board's letter, X-4551, of February
15, 1926 ruling, as an administrative matter, that the compensation
paid by the Federal Reserve banks to attorneys employed to assist
the bank's regular counsel should have its approval and that before
employing a special attorney whose services were likely to require
an expenditure by a Reserve bank in excess of $1,000 the matter
should be submitted to the Board, one of the Federal Reserve banks
has pointed out that from time to time cases arise of such a nature
that it cannot be said in advance what services will be necessary
and consequently where the likelihood of the fee exceeding $1,000
is dependent entirely upon the development of the case after the
time of the original employment.
The counsel for the Federal Reserve bank in question advised
that in such cases it had heretofore been his practice to employ associate counsel where necessary but that such associate counsel had
428
-2-
X-9548
been asked to agree that the fee would be subject to the review of
the Board of Governors of the Federal Reserve System if the Board
wished to review it. The Board was asked if such practice was in
accordance with its requirements in connection with the previous
ruling.
The Board has considered the matter and has decided that in
cases where there is a possibility that the entire fee may exceed
$1,000 but where the initial fee does not exceed such sum and where
there is reasonable expectation that the case will be disposed of
without the necessity of the payment of an additional fee, Federal
Reserve banks, without the necessity of submitting the matter to the
Board, may employ special counsel subject to the following conditions:
Is That an agreement be obtained from such
special counsel that the fee will be subject to
final review and approval by the Board; and
2. That such Federal Reserve bank, before
paying any fee, which together with fees already
paid, will exceed $1,000, submit the same to and
obtain the approval of the Board.
Yours very truly,
Chester Morrill,
Secretary.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
429
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
o f f i c i a l
t o
the
c o r r e s p o n d e n c e
board
X-9549
April 15, 1956.
Sub j ect:
Deposits of Uninvested Trust
Funds in Federal Reserve Banks.
Dear Sir:
At the conference of Governors of the Federal Reserve
banks on October 23, 1935, the matter of the acceptance of deposits of uninvested trust funds from member banks by Federal Reserve banks was discussed, and the conference
as favoring such
expressed itself
a practice with the qualification that trans-
actions in an account in which such trust funds are received be
confined to transfers to and from the reserve account of the member bank. Four of the Governors voted in the negative.
This matter had been placed upon the program of the
Governors' conference pursuant to a suggestion contained in a
letter addressed by the Board to the Deputy Governor of the Federal Reserve Bank of San Francisco, a copy of which was inclosed
with the Board's letter of July 1, 1955 (X-9253). The Board's letter suggested that the Governor and Counsel for each Federal Reserve bank give careful consideration to the practical and legal
aspects of the problem involved.
— 2 «•
X-9549
Since the action of the Governors' conference this matter
has been receiving study, but before any conclusions are reached by
the Board it is desired to have the benefit of the consideration
which has been given to the problem by the Federal Reserve banks.
Accordingly, it will be appreciated if you will furnish to the Board
copies of any opinions or memoranda (not previously submitted to the
Board) which may have been prepared by Counsel or other officers of
your bank, either prior to the consideration of this question at the
Governors' conference in October or since that time, with regard to
the authority of your bank to receive such deposits of uninvested
trust funds or as to the legal or practical responsibilities which may
be assumed by the bank in accepting such deposits.
It will also be appreciated if you will advise the Board of
your views, after consulting with Counsel, on the question whether,
if deposits of uninvested trust funds are received from member banks
by Federal Reserve banks, a member bank should be permitted to deposit in one account with the Federal Reserve bank the funds of any
number of trust estates held by the member bank without earmarking or
segregation, or whether it is necessary or advisable from the standpoint either of the Federal Reserve bank or member bank that a separate account be opened for each trust estate whose funds are deposited
in the Federal Reserve bank. In this connection attention is invited
to the principle that a fiduciary should keep the properties of various
trusts separate and distinct one from another.
— 3 —
X-9549
The action of the Governors' conference appears to contemplate the possibility of a Federal Reserve bank receiving trust funds
awaiting investment or distribution not only from a member bank but
also from a trust company engaged exclusively in conducting a trust
business and owned by a member bank. Such a trust company, it is
assumed, would not be a member of the Federal Reserve System and it
does not appear on what basis the receipt by a Federal Reserve bank
of uninvested trust funds from such an institution could be legally
justified, even if the receipt of such funds from a member bank is
legally authorized. The Board will be glad to have any comments you
may care to offer with respect to this or any other aspect of the problem which you feel might well be considered in arriving at a conclusion in this matter.
Very truly yours,
<aZuhf)oi*Uf
Chester Morrill,
Secretary.
TO THE PRESIDENTS OF ALL F. R. BANKS
BOARD OF GOVERNORS
X-9550
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
official
April 16, 1956
SUBJECT:
t o
the
c o r r e s p o n d e n c e
board
Extended Leaves of Absence with Pay
Dear Sir:
There is attached, for the information and guidance of your
bank, a copy of a letter which the Board has today addressed to the
Federal Reserve Agent at the Federal Reserve Bank of Dallas, in which
the Board states that it will offer no objection, in the circumstances
stated therein, to granting employees of the bank sufficient leave in
addition to their regular annual leave to enable them to attend the
special two weeks' course offered by the Graduate School of Banking
at Rutgers University or to attend as delegates the annual conference
of the American Institute of Banking.
The Board's action in this case modifies the instructions
contained in its letter of December 5, 1932 (X-7305), by relaxing to
the extent indicated above the requirement that "the Board's advance
approval should be obtained in any case where annual leave is extended beyond the regular vacation to any officer or employee."
Very truly yours,
Inc'losure
TO CHAIRMEN
Chester Morrill
Secretary.
OF ALL FEDERAL RESERVE BANKS
433
X-9550-a
April 16, 1956.
Mr. G. C. Walsh,
Federal Reserve Agent,
Federal Reserve Bank of Dallas,
Dallas, Texas.
Dear Mr. Walsh:
Reference is made to your letter of March 31 reporting that
leave of absence has been granted, subject to the Board's approval,
from June 17 to June 19, inclusive, and from July 6 to July 8, inclusive, in excess of the usual annual vacation, to
.
to enable him to attend the second annual session of the Graduate School of Banking at Rutgers University from June 20 to July 5.
The Board will offer no objection to your granting to employees
of your bank who have been accepted for special courses offered by
the Graduate School of Banking at Rutgers University, which it is
understood is a two weeks' course, sufficient leave in addition to
their regular annual leave to enable them to attend the course. The
Board will also offer no objection to your granting such additional
leave as may be necessary to enable employees of the bank who have
been elected as delegates to the annual conference of the American
Institute of Banking to attend such conference.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
434
BOARD OF GOVERNORS
OF THE
******
FEDERAL RESERVE SYSTEM
WASHINGTON
address
official
t o
the
c o r r e s p o n d e n c e
board
X-9551
April 17, 1956.
SUBJECT:
Daylight Saving, 1936.
Dear Sir:
The Board of Governors of the Federal Reserve System is advised that, beginning Monday,
April 27, and ending Saturday, September 26, 1956,
the following Federal Reserve banks and branches
will operate under daylight saving time:
Boston
New York
Buffalo
Philadelphia
Pittsburgh
Atlanta
Please notify branches
Very truly yours,
J. C.'NoexT,
Assistant Secretary
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
435
BOARD OF GOVERNORS
X-9552
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
o f f i c i a l
to
the
c o r r e s p o n d e n c e
board
April 17, 1936.
SUBJECT: Holidays During May, 1956.
Dear Sir:
On Saturday, May 30, there will be neither transit nor Federal reserve note clearing and the books of the Board's Inter-district
Settlement Fund will be closed. The offices of the Board and all of
the Federal reserve banks and branches will be closed on that day except those listed below:
Little Rock
Memphis
Atlanta
New Orleans
Birmingham
Nashville
Jacksonville
The Board of Governors is further advised that holidays will
also be observed during the month of May, as follows:
Primary election day
Tuesday, May 5
San Francisco
Los Angeles
Monday, May 11
Charlotte
Observance of Confederate Memorial Day
(which falls on Sunday)
Friday, May 15
Portland
Primary election day
Wednesday, Mey 20
Charlotte
Mecklenburg Independence Day
On the dates given, the offices mentioned will not participate
in either the transit or the Federal reserve note clearing through the
— 2—
X-9552
Inter-district Settlement Fund. Please include transit clearing
credits for the offices concerned on each of the holidays with your
credits for the following business day. No debits covering shipments
of the Federal reserve notes for the account of the Federal Reserve
Bank of San Francisco should be included in the Federal reserve note
clearing on Tuesday, May 5.
Please notify branches.
Very truly yours,
J. C. Noell,"
Assistant Secretary.
TO PRESIDENTS OF ALL F. R. BANKS
437
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
X-9555
WASHINGTON
address
o f f i c i a l
to
April 18, 1936.
SUBJECT;
Code Word Covering New
Issue of Treasury Bills.
Dear Sir:
In connection with telegraphic transactions in Government securities between Federal
reserve banks, the following code word has been
designated to cover a new issue of Treasury Bills:
"NOYLES" - Treasury Bills to be dated
April 22, 1936, and to
mature January 20, 1937.
This word should be inserted in the Federal Reserve Telegraph Code book, following the
supplemental code word "NOYLAF" on page 172.
Very truly yours,
J*. C. Noell,
Assistant Secretary
TO PRESIDENTS OF ALL F. R. BANKS
the
c o r r e s p o n d e n c e
board
438
BOARD OF GOVERNORS
X-9554
OF THE
*******
FEDERAL RESERVE SYSTEM
WASHINGTON
address
o f f i c i a l
t o
April 18, 1956.
the
c o r r e s p o n d e n c e
board
SUBJECT: Reports by Comptroller of Violations
of Clayton Act and Section 32 of the
Banking Act of 1933.
Dear Sir:
Heretofore it has been the practice of the office of the
Comptroller of the Currency to report to the Board apparent violations of section 8 of the Clayton Act which were noted in reports
of examination of national banks. Recently, however, instructions
have been issued in his office that it is no longer necessary to
report such apparent violations to the Board.
Apparently these
instructions were issued in view of the provisions of section 4 of
Regulation L, as revised, which provides among other things that
each Federal reserve agent shall cause the information contained in
reports of examination of member banks and other information available to him to be analyzed with a view to discovering apparent violations of that Act.
It is understood that the same procedure will be followed
in the office of the Comptroller with respect to apparent violations
of section 32 of the Banking Act of 1933, on the assumption that
the Federal reserve agents will take steps, in connection with that
439
-2-
X--9554
section, similar to those prescribed in Regulation L in connection
with the Clayton Act.
It is assumed, of course, that such steps are being taken
by your office in connection with section 52, and therefore the
Board has not suggested the advisability of any modifications in
the procedure adopted in the office of the Comptroller with respect
to these two statutory provisions.
Very truly yours,
L. P. Bethea,
Assistant Secretary.
TO ALL FEDERAL RESERVE AGENTS
B O A R D OF G O V E R N O R S
OF THE
FEDERAL RESERVE SYSTEM
X-9555
440
WASHINGTON
address
o f f i c i a l
to
April 20, 1936.
SUBJECT:
Expense, Main Lines, Leased
Wire System, March, 1956.
Dear Sir:
Inclosed herewith you will find two
mimeographed statements, X-9555-a and X-9555-b,
covering in detail operations of the main lines
of the Leased Wire System, during the month of
March, 1956.
Please credit the amount payable by
your bank for your share of the expense of the
Leased Wire System to the Federal Reserve Bank
of Richmond in your daily statement of credits
through the Inter-district Settlement Fund for
the account of the Board of Governors of the
Federal Reserve System, and advise the Federal
Reserve Bank of Richmond by wire the amount and
purpose of the credit.
Very truly yours,
Fiscal Agent.
Inclosures.
TO PRESIDENTS OF ALL F. R. BANKS.
the
c o r r e s p o n d e n c e
board
X-9555-a
REPORT SHOWING CLASSIFICATION AND NUMBER OF YiORDS TRANSMITTED OVER MAIN LINES
OF THE FEDERAL RESERVE LEASED WIRE SYSTEM FOR THE MONTH OF MARCH, 1936.
Business
reported
by banks
From
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total
35,994
150,575
29,175
44,444
51,590
53,151
83,397
55,371
33,570
62,845
63,707
82.505
746,524
Board business
Reimbursable business Incoming & Outgoing
Words sent by
New York chargeable to other
F. R. Banks (l)
1,378
-
1,457
1,391
1,444
1,527
1,789
1,793
1,427
1,577
1,571
1.937
17,291
Net Federal
reserve
bank
business
37,372
150,575
30,632
45,035
53,034
54,678
85,186
57,164
34,997
64,422
65,278
84.442
763,615
338,335
. i . .
Total words transmitted over main lines
Per cent of total
bank business (*)
4.89
19.72
4.01
6.00
6.94
7.16
11.16
7.49
4.58
8.44
8.55
11.06
100.00
1,101,950
520.209
1,622,159
(*) These percentages used in calculating the pro rata share of leased wire expense as shown
on the accompanying statement (X-9555-b).
(l) Number of words sent by New York to other F. R. Banks for their sole benefit charged to
banks indicated in accordance with action taken at Governors' Conference
November 2-4, 1925.
^
X-9555-b
REPORT OF EXPENSE MAIN LINES
FEDERAL RESERVE LEASED WIRE SYSTEM, MARCH, 1936.
Name of ba.ik
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Board
Total
Operators'
Salaries
Retirement
Contributions
| 260.00
$ 12.45
64.80
1,285.50
225.00
11.39
506.66
15.03
190.00
9.79
262.50
13.26
5,948.7l(#) 184.21
176.00
8.91
154.16
8.29
237.00
16.16
251.00
12.55
580.00
19.11
-
$7,724.33
-
$575.75
Operators1
overtime
#1.00
1.00
-
8.00
-
$10.00
Main line rental, Richmond-Washington
Includes salaries of Washington operators
Credit
Amount reimbursable to Chicago
Includes $536.19, which represents cost of
handling contingent expense telegrams for the
Treasury Department for the month of March, 1936.
-
275.45
1,549.10
236.39
321.69
250.00(&)
429.79
275.76
4,140.92
184.91
162.45
303.16
265.35
399.11
14,997.02
14.997.02
#15,227.02 #23,557.10
Less Reimbursable Charges
(&)
(#)
(*)
(a)
(b)
Total
expenses
Wire
rental
s
Pro rata
share of
total
expenses
$
I
-
-
-
-
-
-
-
—
-
775.22
5,126.24
635.71
951.19
1,100.21
1,135.09
1,769.21
1,137.40
726.07
1,538.01
1,555.44
1,755.56
—
$15,855.15
7.435.95
115,355.15(b)
Credits
I
Payable to
Board
273.45 $ 501.77
1,549.10 1,777.14
236.39
599.52
321.69
629.50
429.79
670.42
275.76
359.33
4,140.92 2,571.7](*)
184.91 1,002.49
162.45
565.62
503.16
1,054.85
263.55
1,092.09
599.11 1,554.25
—
—
$3,540.08 $9,884.78
2.571.71(a)
$,7,513.07
£iO
443
X-9556
(Not to be released to
the press)
THE FEDERAL RESERVE SYSTEM AND THE BANKING ACT OF 1935
Address by
M. S. SZYMCZAK, MEMBER
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Delivered Before The
Forty-Fifth Annual Convention of the
Georgia Bankers Association
Thursday, April 23, 1936
9:00 P. M.
Bon Air Hotel
Augusta, Georgia.
X-9556
444
THE FEDERAL RESERVE SYSTEM AND THE BANKING ACT OF 1935.
In the course of my duties, I have occasion from time to time to
visit different parts of the country, and it happens that week before
last I was in the state of Washington, the extreme opposite corner of
the United States from where we are today. Such visits as these, with
the opportunities they afford to observe from place to place the special economic activities in which people are engaged, always give me a
fresh idea of how important and significant the business of banking is,
and how firmly it ties the interests of different communities and regions
into one great whole. Banking has both a local and a universal significance.
In one sense, banks are local institutions engaged in local extensions of credit; and banking from this point of view is a question
of one risk after another - who can be safely financed and to what extent and on what security, and who can not. But that is not all. In
another and larger sense every local bank is part of a nation-wide, even a
world-wide, credit system; and individual banks are constantly engaged
with one another in moving the products of their regions out to the markets and consumers of the world and in moving in to their own population
the things it buys in exchange. The communities which you bankers represent are partly agricultural and partly industrial, for Georgia is one
of the states that has considerable diversification of economic activity.
Your economic activity is partly devoted to the production of commodities which are disposed of outside the state, and partly to the production of commodities which find their market within the state. You
445
t
- 2 -
X-9556
ship to outside markets your cotton, cottonseed-oil, and cotton goods,
your lumber, furniture, and naval stores, your sugar cane syrup, your
fruit, and your tobacco; Georgia peaches, Georgia peanuts, Georgia
watermelons, and Georgia marble are known everywhere. Great shipments
of these products are made annually from the state, by rail, by truck,
and by sea. And it is through you bankers that they are exchanged for
what your people buy from outside. As these products are sold in New
York, Chicago and Liverpool, the reserves of your banks accumulate and
those reserves enable your customers to purchase the special products
of other regions, such as flour, meats, oil, gasoline, automobiles and
electrical apparatus.
Here in this delightful and interesting old city, where we are
today, we must remember that the climate and the beauties of your state
are also products which increase your wealth; they bring money into
your state quite as substantially as do the physical commodities you
produce and sell.
Your banks are also instrumental in the exchange of products which
are consumed as well as produced within the boundaries of Georgia, such
as fertilizer and cotton goods. It is through the banks that the fertilizer manufacturers are able to receive payment from farmers in all
parts of the state. It is through the banks that the producers of the
fruit and vegetables, which are consumed in your cities, receive their
payment.
It is through the banks that payment is made to producers
and distributors of clothing, groceries, printed matter, and similar
446
*
- 5 -
X-95S6
things sold in every community. Wherever producers are situated and
whatever their products, nine times out of ten they receive payment
for those products in bank funas.
It is unfortunate that people generally fail to realize this fundamental function of the banks in effecting payments between consumers
and producers in different communities and regions. They think of the
banks as merely local affairs, which they have a hard time borrowing
from at one season of the year and a hard time repaying at another.
They do not see that because of the banks, credit is enabled to flow
into the region to pay them for their products, and is enabled to flow
out again in payment for the products they buy elsewhere. Your customers
see very plainly that steamers and trucks and railways carry away their
cotton, their fruit, and their yellow pine, and in exchange bring in to
them from other regions the clothing and the automobiles they need, but
it is not so easy to see that without the system of credit the system
of transportation would be of little use.
The importance of bank credit in the form of deposits is indicated
by the fact that people almost invariably prefer it for payments in
large amounts. A farmer who is selling his year's crop usually expects a check and would be surprised and inconvenienced if he were
paid in currency or coin. The check represents bank credit; and when
the farmer takes or sends it to the bank, the credit goes on the bank's
books under his name. The arrangement is safe and convenient.
But there is far more to be said for bank credit in the form of
deposits than that its use is convenient and safe. In our economy it
447
- 4 -
X-9S66
has become indispensable. Without it how would it be possible for the
people all over the United States and all over the world, who use the
products of your state, to pay for the things you furnish them? Should
currency be shipped in to pay for it all; and then shipped out again to
pay for what your people buy?
The system of bank credit covers the whole country like a network of power linesj it supplies means of payment wherever needed. Whereever and whenever local bank reserves run low, as must regularly be the
case in a region where productivity is seasonal, the temporary deficiency
can be made up. Whenever things produced in one place are paid for and
consumed by people in another place the system of bank credit makes it
possible to effect the payment readily. There is, however, one essential - the credit must be everywhere liquid and based on sound values;
otherwise the system becomes clogged and stops working. The loss in that
event is more than a loss to local stockholders and depositors. The loss
is to the community whose processes of production and consumption have
been to some extent disrupted.
Before 1914 this country had quite inadequate means of mobilizing
its bank credit. Every bank in the country constituted a separate pool
of credit - a pool that was not always adequate for local purposes, and
yet that had no close connection by which it could always be replenished
swiftly and easily. The banking system bore the same relation to what
we have now, as a scattered number of independent power plants with potential connections would bear to an articulated power net-work. The
banks in regions such as yours were comparatively well off under such
448
•» 5 -
X-9556
an arrangement because your economic activities are diversified. But
in regions which are dominated to a greater extent than Georgia is by a
few great cash crops, and where everyone is being paid at one period of
the year and is paying out the rest of the time, the difficulties of
mobilizing bank credit were extreme.
It was such difficulties as these that led to the establishment
of the Federal Reserve System. They were difficulties that arose from
the fact that the inter-regional exchange of commodities and services
had to be accomplished with banks whose interests and facilities were
primarily local. In order that banks might meet the requirements of
their communities more adequately, they needed closer interconnections
with other communities, and a system through which means of payment for
their regional products might be always and unfailingly available. The
Federal Reserve banks were established to meet that need. They bind
the 6,400 member banks of the country into a system which can make credit
available for production and trade wherever and whenever it is required
and in any amount.
In the course of the twenty-two years which have elapsed since
the Federal Reserve banks were established, much experience and knowledge have been accumulated. Some problems which the System was devised
to remedy have now been settled and others have taken their place. At
the same time the conception of central banking functions has changed in
many respects. The net result is that the System presents in certain
ways a different aspect from what it did formerly.
- 6a
X-9&56
The instrumentality that is now considered the most important for
the control of credit is one that in the original reserve act was given
only rudimentary attention. I refer to open market operations. These
operations are important because they make it possible for the central
banking organization - in this case the Federal Reserve banks directed
by the Federal Open Market Committee - to exercise control over the
volume of bank deposits and reserves. This means control over the
volume of "money", or means of payment, required by the people in their
economic life.
The principle of open market operations is of course simple. If
securities are sold in the market by the Federal Reserve banks, they
must of necessity be paid for with bank funds, for they will be bought
either by the banks themselves or by bank customers. Consequently, in
the process of paying for them there will necessarily be debits to be
entered against the reserve accounts maintained with the reserve bank
by the member banks. Upon completion of these entries, the reserve
bank will have disposed of certain assets and simultaneously will have
decreased the total amount outstanding to the credit of member banks in
their reserve accounts. The Reserve bank does not know in advance of
its transactions what particular
member bank accounts will be affected
nor by how much, but it knows that if it sells securities, bank credit
in general will be diminished.
If, as a consequence, reserves are reduced to a minimum, the member banks are immediately impelled to restrict their extensions of credit,
for they cannot continue making loans and increasing the deposit credit
-1
-
X--9556
outstanding on their books without incurring a deficiency in their reserves. The result of the Reserve bank's action in selling securities,
therefore, is to curtail the lending power of member banks and to
tighten the money market.
On the other hand, if securities are bought by the Reserve bank,
the result will be that in the process of paying for them the Reserve
bank will have to credit the reserve accounts of member banks. Again
it does not know to what extent particular member banks will be affected,
but it does know that reserves in general will be increased. By the
same token the lending power of the member banks will be increased and
general credit conditions will be eased. In the first stages of a buying program, the effect will be to enable banks to pay off any obligations they may owe, but if a buying program is continued long enough
it may result in an accumulation of excess reserves.
In addition to the effect upon the reserves of member banks, there
is also an effect upon bank deposits in general - even non-member bank
deposits; because, if an investor or an institution buys some of the
securities sold by the Reserve bank, payment will ordinarily be made
out of a checking account and deposits will be decreased by so much.
If, on the other hand, the Reserve bank is buying securities, and institutions and individuals are selling to it, the payments made by the Reserve bank will increase the deposit credit outstanding on the books of
banks. Accordingly, banks which are not members of the Federal Reserve
System and banks which themselves have not purchased or sold securities
as a result of the Reserve bank's action, will nevertheless be affected
-
8
-
X-9556
by it, either in their reserves or in their deposits, or in both. The
money market as a whole will be influenced.
In the early days of the System, the Federal Reserve banks attempted to carry on their open market operations independently of one
another, but it soon became clear that their actions must be coordinated.
Otherwise they might find themselves competing with one another, and in
conflict as between their own transactions and those transactions which
as fiscal agents of the Government they were conducting for the United
States Treasury. Accordingly, in 1922 a committee of Reserve bank officers was appointed for the purpose of coordinating the operations.
About the same time the purpose of the operations was clarified. The
principle laid down was:
"That the time, manner, character, and volume
of open-market investments purchased by Federal Reserve banks be governed
with primary regard to the accommodation of commerce and business and to
the effect of such purchases or sales on the general credit situation."
For some time prior to this there had been a tendency to allow
purchases and sales of securities to be influenced by profit as an objective. The statement of principle which I have just quoted meant a
definite abandonment of that objective. This was in line with the general policy of central banks in conducting open market operations; they
do so definitely with the idea of correcting market tendencies and not
for the purpose of making earnings.
The Banking Act of 1935 gave open market operations more specific
recognition than they had had in the original Act.
It gave statutory
standing to the Federal Open Market Committee, which by then comprised
452
- 9 -
X-9556
one representative from each Federal Reserve bank. No Reserve bank could
engage in open market operations except in accordance with regulations of
the Board. At the same time the Act adopted substantially the same statement of purpose which had already governed open market operations.
The Banking Act of 1935 gave still further attention to the machinery of open market operations and to recognition of their importance. The
Federal Open Market Committee was reconstructed to comprise the members
of the Board of Governors of the Federal Reserve System and five representatives chosen regionally by the twelve Federal Reserve banks. This
made the members of the Board constitute a majority of the Committee, and
marked considerable development away from the original informal arrangements by which the Federal Reserve banks first conducted open market
operations on their own initiative and then under the direction of a
Committee on which the Board was not specifically represented. Furthermore, under the terms of the Banking Act of 1955, the Federal Reserve
banks may neither engage nor decline to engage in such operations except
in accordance with the directions and regulations of the Committee.
Another requirement of the Act is that a complete record be kept
of the action taken on all questions of policy relating to open market
operations, including a record of votes taken in connection with the determination of open market policies and a statement of the reasons underlying the action taken, ana that this record be included in the Board's
annual report. The publication of this record will give the public an
opportunity to study the decisions as to open market policy and credit
- 10 -
X-9556
policy in general, and should help clarify public discussions of national
credit policy. It will also accentuate the individual sense of responsibility, for members of the Committee will be called on not only to decide on credit policy, but to give publicly the reasons for their decisions.
It is clear, I think, that as a result of experience and statutory
amendments, open market operations have taken a far more important place
in general credit policy than they formerly had. It is also clear, I
think, that open market operations have become a more important or at
least a more positive device of credit control than discount rates.
When the Federal Reserve Act was adopted the prevailing idea probably
was that discount rates were not only the most definite means of credit
control, but the most important. The thought was that as banks felt
more and more demand from borrowers and went to the Reserve banks to procure the funds to meet it, they would encounter a rising discount rate,
which would have the effect of tempering the demand and preventing an
excessive use of credit. Conversely, as conditions improved, business
activity would be encouraged by the fact that banks could procure funds
to lend at a progressively lower rate. The most obvious difficulty with
this theory, however, is that banks have not shown a disposition to borrow from the Reserve banks in order to relend. Banks don't like to borrow, and as a general thing they won't borrow unless they have to, no
matter how low the discount rate is. Consequently, the effectiveness of
the Federal Reserve discount rate is, by itself, rather limited. It is
- 11 -
X-9556
significant as an index of the cost of credit, but it does not come into
action otherwise until a member bank finds it necessary to replenish its
reserves. As I have already indicated, however, a member bank may be
forced into such a position as the result of sales of securities by the
Reserve bank, and the discount rate then becomes effective.
In other words, an important difference between discount rates and
open market operations in practical effect is that open market operations give the central banking organization the initiative in the control of credit, whereas the discount rate by itself offers the controlling authority no handles to seize; it must bide its time passively until
the situation is so bad that demand for funds is voluntarily made. This
delay may seriously impair the power of the Federal Reserve bank to help
the situation.
With respect to discount rates the Banking Act of 1935 made only
one change. This was to require that they be established every fourteen
days or oftener. It is not necessary that the rates be changed every
time, but they must at least be reviewed and reestablished.
With respect to the reserves which member banks are required to
maintain, the Banking Act of 1935 makes a very important change, by
simplifying the conditions under which the Board of Governors of the
Federal Reserve System may alter the amount of reserves which is prescribed in the law. Prior to 1953, there was no authority to change reserve requirements administratively, but an act of May 12 of that year
empowered the Board, with the approval of the President, to declare that
455
- 12 -
X-9556
an emergency existed and during the emergency to increase or decrease
the reserve balances to be required. The Banking Act of 1935 allows reserve requirements to be changed by the Board without declaration that
an emergency exists and without approval of the President. It does not
permit, however, requirements to be reduced below the percentages stated
in the statute nor to be more than doubled. The purpose of any change
made in the requirements must be, in the words of the law, "to prevent
injurious credit expansion or
contraction."
The Banking Act of 1935 also made important changes in the constitution of the governing body of the Federal Reserve System, which is no
longer known as the Federal Reserve Board, but as the Board of Governors
of the Federal Reserve System. The Secretary of the Treasury and the
Comptroller of the Currency ceased to be ex officio members of the
Board February 1, and provision was made for the Board to consist thereafter of seven members appointed by the President. The members now in
office have terms ranging from 2 to 14 years and upon the expiration of
the present terms all succeeding members will be appointed for terms of
14 years instead of 12 years as under the previous law.
Since March 1, under the provisions of the Act, the chief executive
officer of each Federal Reserve bank has the title "president", instead
"of "governor", and the title "vice-president" replaces that of "deputy
governor". Both the president and the first vice-president are appointed
by the Board of Directors for a five-year term with the approval of the
Board in Washington. Formerly, as you know, the offices of governor and
deputy governor were not specifically recognized by statute.
- 15 -
X^9556
The responsibilities of the Federal Reserve banks as fiscal agents
of the United States were not changed by the Banking Act of 1955, except
for a provision which permits the Reserve banks to buy government obligations only in the open market; direct purchases from the Treasury are
not authorized.
I think I have covered sufficiently the more prominent changes
which the Banking Act of 1955 made with respect to Federal Reserve functions, and I wish to speak now of those features of the Act which more
directly affect the operations of member banks»
The first of these has to do with lending powers.
Indirectly, the Act tends to broaden member bank lending powers by
giving the Reserve banks authority to make advances to member banks on
any satisfactory security. The former provisions still stand as to paper
that is known under the original terms of the Federal Reserve Act as
"eligible" for discount - paper, that is, which originates in connection
with industrial, commercial or agricultural transactions - and they also
still stand as to advances to member banks on notes secured by eligible
paper or by Government obligations. The new provisions are added to
these old ones without altering them. Advances authorized by the new
provisions are simply required to be secured to the satisfaction of the
Reserve bank, to bear a rate of interest at least one-half percent above
the Reserve bank's discount rate, and to have maturities of not more than
four months. At present, when the banks have large excess reserves, this
new provision in the law may not seem very important. But times may
change. If and when they do, the new provisions mean that, assuming a
- 14 -
X-9556
bank's assets are good, the Federal Reserve bank will be able to advance
money on them, no matter what the type of paper} or the nature of the
transactions in which they originated. In other words, borrowing from
the Federal Reserve bank has now been made possible on other than technical conditions of eligibility alone. This is very important. Many
banks in recent years would have had much less trouble if they could
have taken to the Reserve bank some of their assets which were good,
but not legally eligible under the old terms of the law, instead of
having to sacrifice them on a demoralised market. Provision for such
advances was first adopted as a temporary, emergency measure in 1952, but
the Banking Act of 1955 made it permanent.
The original provisions of the law with respect to eligible paper
were based on the principle that since the liabilities of banks were
payable on demand they should be offset by short-term self-liquidating
paper based on specific transactions involving the exchange of goods.
The amendments added by the Banking Act of 1935 are based on the principle that in fact American banks do not specialize in one type of credit
as against another. They deal in credit of all sorts. They combine
long term and short term credit functions. There is not enough shortterm commercial paper to fill more than a small part of their portfolios.
They accept the savings and time deposits of their communities and they
also hold long term obligations of their communities. The new provisions
for eligibility make the Federal Reserve Act cognizant of these realities
and adapt the powers of the Reserve banks to them.
458
- 15 -
X-9556
In a more direct way, the Banking Act of 1955 broadened lending
powers by liberalizing the conditions under which National banks may make
real estate loans. The old stipulation that the real estate upon which
such loans are made must be situated in the bank's Federal Reserve district or within a hundred miles of the bank, has been removed; and loans
which are amortized are now permitted in amounts up to 60 percent of the
appraised value of the property and with maturities of as much as ten
years, provided installment payments are sufficient to repay at least 40
percent of the principal in that time. The Act also increased the permissible aggregate of real estate loans which a national bank may hold.
I have covered the most important provisions of Title II of the
Banking Act of 1955. I think it is not necessary to go further into details of the Act; they are numerous, but mosb of them, which I have not
mentioned, are technical and minute. In my judgment the principal effects of the Banking Act of 1955 may be summarized as follows:
In the first place, while the Federal Reserve banks remain essentially unchanged in organization and function, the importance of their
central banking activities has been more clearly recognized.
Second, the Federal Open Market Committee has been given a more effective position in the System and more definite authority.
Third, the Board of Governors has been given larger powers and more
direct responsibilities, and the principles upon which the System is to
be administered have been more clearly developed.
Fourth, the 6,400 member banks have broader lending powers, and the
facilities of the Federal Reserve banks have been made available to them
on less technical and restrictive terms.
X-9557
INTERPRETATION
BANKING ACT OF 1955
(Copies to be sent to all Federal reserve banks)
April 21, 1936.
Honorable J. F. T. O'Connor,
Comptroller of the Currency,
Washington, D. C.
Dear Mr. O'Connor:
This refers to Deputy Comptroller Gough's letter of
March 9, 1956, requesting advice as to whether a loan made to
an executive officer of a member bank prior to June 16, 1955,
which has been extended by resolution of the board of directors
of such bank even though secured try marketable collateral sufficient to liquidate the loan, can be considered to have been
properly extended in view of the requirement of section 22(g) of
the Federal Reserve Act that the board of directors must be satisfied that the officer has "made reasonable effort to reduce his
obligation". Advice is also requested on the same question, with
the additional facts included that a part of the loan has been
charged off and the marketable collateral to the loan is sufficient
to liquidate the remainder. The applicable provisions of section
22(g) are as follows:
"Provided. That loans made to any such officer prior
to June 16, 1953, may be renewed, or extended for periods expiring not more than five years from such
date where the board of directors of the member bank
shall have satisfied themselves that such extension
or renewal is in the best interest of the bank and
-2-
X-9557
that the officer indebted has made reasonable effort to reduce his obligation, these findings to be
evidenced by resolution of the board of directors
spread upon the minute book of the bank:
.
You will observe that the law requires that the board
of directors of the member bank shall be satisfied as to the matters proscribed by the law before extending or renewing a loan of
the kind under discussion, and that, in addition to determining
whether the officer "has made reasonable effort to reduce his obligation", the board of directors must also be satisfied that the extension or renewal "is in the best interest of the bank". It seems
clear, therefore, that the primary responsibility for the extension
or renewal of such a loan is placed by law upon the board of directors of the member bank involved and that it is contemplated that
in reaching a determination in the matter the board of directors
will consider all of the facts and circumstances in the particular
case. It is the view of the Board, therefore, that the fact that
a loan of the kind under discussion is secured by marketable collateral in an amount sufficient to liquidate the loan would not of
itself show that an extension of the loan was not in conformity with
the requirements of section 22(g) but that all of the facts in the
particular case would have to be given consideration in determining
this question. The fact that a part of the loan had been charged
off and the marketable collateral would liquidate the remainder
would not change such conclusion. Of course, in any case where it
appears that a loan may have boon extended without a proper regard
-3-
X-9557
for the provision of law quoted above, it would be desirable for
the bank examiner, in connection with his examination of the bank,
to give particular consideration to all the facts involved in the
case in order to determine whether or not the directors have acted
arbitrarily in extending the loan.
Very truly yours,
(Signed) L. P. Bethea
L. P. Bethea,
Assistant Secretary.
462
B O A R D OF G O V E R N O R S
OF THE
FEDERAL RESERVE SYSTEM
X-9558
WASHINGTON
address
o f f i c i a l
to
the
c o r r e s p o n d e n c e
board
April 25, 1936
*******
Dear Sir:
Reference is made to my letter of December 51, 1935, (X.-9409),
with which was transmitted a copy of a resolution adopted by the Board
of Governors of the Federal Reserve System levying an assessment upon
the various Federal reserve banks in an amount equal to six hundred
five thousandths of one per cent (.00605) of the total paid-in capital
stock and surplus (Section 7 and Section 15b) of the Federal reserve
banks as of the close of business December 31, 1955, to defray the estimated general expenses of the Board for the period January 1 to June 50,
1956, together with approximately $1,000,000 to be applied upon the cost
of the erection of a building for the Board of Governors of the Federal
Reserve System. The resolution provided that twenty-two and three tenths
per cent of such assessment was to be paid in on January 2, 1956, a like
per cent on March 2, 1936, and the remainder (fifty-five and four tenths
per cent) at such times and in such amounts as the Board might call for
the payment thereof during the six months period beginning January 1,
1936.
The Board has decided to transfer to the Federal Reserve Bank of
Richmond on May 1, 1956, a part of the unpaid portion of the assessment,
-
2
X-9558
-
and you are requested, therefore, to credit the Federal Reserve Bank
of Richmond on May 1, 1956 with forty-five per cent (45%) of the unpaid
fifty-five and four tenths per cent (55 4/10%) in your daily statement
of credits through the Inter-district Settlement Fund for credit to the
account of the Board of Governors of the Federal Reserve System - Building Account, with telegraphic advice to Richmond of the purpose and
amount of the credit.
Very truly yours
0. E. Foulk,
Fiscal Agent.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS EXCEPT RICHMOND.
464
B O A R D OF G O V E R N O R S
X-9560
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
April 24, 1936
address
official
t o
c o r r e s p o n d e n c e
the
board
SUBJECT: Amendment to Federal
Income Tax Regulations
Dear Sir:
There is inclosed a copy of a recent amendment to
the Regulations issued under the Revenue Act of 1934 and
the Revenue Act of 1932, relating to the deductibility, in
computing net income for the purpose of Federal income tax,
of debts charged off in whole or in part during the taxable
year in obedience to the specific orders of supervisory authorities. For ready reference there are also inclosed
copies of the two paragraphs which were affected by the
amendment.
The Comptroller of the Currency has already advised
the national banks of the amendment, and it is suggested
that you advise the State member banks in your district for
their information.
Very truly yours,
Chester Morrill,
Secretary.
Inclosures.
TO
ALL FEDERAL RESERVE AGENTS
(T. D. 4635)
X-9560-a
Income Tax
465
Last paragraph of article 25(k)-l of Regulations 86
and last paragraph of article 191 of Regulations 77,
Amended.
TREASURY DEPARTMENT,
Office of Commissioner of Internal Revenue,
Washington, D. C.
TO COLLECTORS OF INTERNAL REVENUE
AND OTHERS CONCERNED:
The last paragraph of article 25(k)-l of Regulations 86 and
the last paragraph of article 191 of Regulations 77 are amended to
read:
"Where banks or other corporations which are subject to
supervision by Federal authorities (or by State authorities
maintaining substantially equivalent standards) in obedience
to the specific orders of such supervisory officers charge
off debts in whole or in part, such debts shall be conclusively
presumed, for income tax purposes, to be worthless or recoverable only in part, as the case may be, but in order that any
amount of the charge-off may be allowed as a deduction f or
any taxable year it must be shown that the charge-off took
place within such taxable year."
This document is issued under the authority prescribed by section
62 of the Revenue Act of 1934, and section 62 of the Revenue Act of
1932.
GUY T. HELVERING,
Commissioner of Internal Revenue.
Approved: April 3, 1936.
WAYNE c . TAYLOR,
Acting Secretary of the Treasury.
(Filed with the Federal Register Division April 7, 1936)
466
X-9660-b
Last paragraph of Article 23(k)-l of Regulations 86 (relating
to Revenue Act of 1934):
"Federal or State authorities incident to the regulation of
banks and certain other corporations may require that debts be
charged off in whole or in part. If, in any such case, the
basis of the requirement is the worthiessness or partial recoverability of the debt, as the case may be, such charging off
will, for income tax purposes, be considered prima facie evidence of worthlessness; but if the charging off is due to market fluctuations, or if no reasonable attempt has been made
to determine to what extent recovery may be made, no deduction
for income tax purposes of the amount so charged off can be
allowed."
Last paragraph of Article 191 of Regulations 77 (relating
to Revenue Act of 1952):
"Where banks or other corporations which are subject to
supervision by Federal authorities (or by State authorities
maintaining substantially equivalent standards) in obedience
to the specific orders, or in accordance with the general
policy of such supervisory officers, charge off debts in whole
or in part, such debts shall, in the absence of affirmative
evidence clearly establishing the contrary, be presumed, for
income tax purposes, to be worthless or recoverable only in
part, as the case may be."
i
X-9561
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For immediate release.
April 24, 1936.
TRANSFERS OF LOANS
Ruling No. 1 interpreting Regulation U.
In response to an
inquiry from certain banks in New York City concerning section
5(e) of Regulation U, the Board of Governors of the Federal Reserve System rules as follows:
A bank may accept the transfer of a loan from another
lender, provided the- loan is not increased and the collateral
for the loan is not changed, even though the "maximum loan
value" of the collateral be less than the amount of the loan,
but may not thereafter permit at any time withdrawals or substitutions of collateral that would increase the deficiency at
such time.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
X-9562
WASHINGTON
address
o f f i c i a l
t o
c o r r e s p o n d e n c e
t h e
board
April 25, 1936.
Dear Sir:
It will be appreciated if reports of examinations
of State member banks made by your examiners and the analyses thereof, with the recommendation as to what action, if
any, should be taken by the Board of Governors on the basis
of the condition of the bank as reflected in the report of
examination, are forwarded to the Board as soon as they are
available.
It is requested, also, that in cases where the
examination discloses a critical situation, by reason of a
serious capital impairment or otherwise, the Division of
Examinations be advised as to the general situation as soon
as practicable without waiting for the submission of the
complete report.
http://fraser.stlouisfed.org/ TO ALL
Federal Reserve Bank of St. Louis
Very truly yours
Chief, Division of Examinations
FEDERAL RESERVE AGENTS.
469
BOARD OF GOVERNORS
X-9563
• F THE
*******
FEDERAL RESERVE SYSTEM
WASHINGTON
address
April 25, 1936.
o f f i c i a l
t o
the
c o r r e s p o n d e n c e
board
SUBJECT: Comptroller's "Interpretative Rulings
With Respect To Section 5136, U.S.R.S."
Dated February 15, 1936*
Dear Sir:
For your information there is quoted below an extract from
a letter sent by the Board to the Assistant Federal Reserve Agent
at San Francisco regarding an inquiry from a State member bank concerning the "Interpretative Rulings With Respect to Section 5136,
U.S.R.S. % issued try the Comptroller of the Currency under date of
February 15, 1936:
While the practices covered by questions (a), (b),
(d), and (f) on page 2 of the letter from the State
member bank are not fully described, it appears, on
the basis of the information presented, that a State
member bank is not prohibited from engaging in such
practices by the provisions of section 5136 or the
"Regulations" of the Comptroller issued thereunder.
These questions, as well as question numbered 3 on
page 2 of such letter, appear to relate to the provisions of the "Interpretative Rulings With Respect
To Section 5136, U.S.R.S.", which were issued to all
national banks by the Comptroller under date of
February 15, 1936. Although the limitations and conditions of section 5136, including the limitations
and conditions contained in the Comptroller's regulations issued pursuant to such section, are made applicable to State member banks by the provisions of
section 9 of the Federal Reserve Act, it will be
observed that the "Interpretative Rulings With
Respect To Section 5136, U.S.R.S.dated February
-2-
15, 1956, are addressed only to national banks,
it is understood that they were not intended to
to State member banks. Accordingly, it appears
unnecessary to answer the questions relating to
"Interpretative Rulings."
Very truly yours,
Chester Morrill,
Secretary.
TO ALL FEDERAL RESERVE AGENTS
X-9563
and
apply
to be
such
471
BOARD OF GOVERNORS
X-9564
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
April 25, 1956.
o f f i c i a l
to
SUBJECT: Code Word Covering New
Issue of Treasury Bills.
Dear Sir:
In connection with telegraphic transactions in Government securities between Federal
reserve banks, the following code word has been
designated to cover a new issue of Treasury Bills:
"NOYLIT" - Treasury Bills to be dated
April 29, 1956, and to
mature January 27, 1957.
This word should be inserted in the Federal Reserve Telegraph Code book, following the
supplemental code word "NOYLES" on page 172.
Very truly yours,
. C. Noell,
Assistant Secretary.
TO PRESIDENTS OF ALL F. R. BANKS
the
c o r r e s p o n d e n c e
board
4.72
B O A R D OF G O V E R N O R S
X-9565
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
April 25, 1956
address
o f f i c i a l
t o
t h e
c o r r e s p o n d e n c e
board
Dear Sir:
Under the regulations of the Federal Open Market Committee adopted on March 19, 1936, relating to open market
transactions of the Federal Reserve banks, the term "System
Open Market Account" is designated to apply "to government
securities and other obligations heretofore or hereafter purchased in accordance with open market policies adopted by the
Committee and held for the account of the Federal Reserve banks".
To insure uniformity in the use of the new title by
the Federal Reserve banks, the name of the account when referred to in code words in the Federal Reserve Telegraph Code
book should be changed, effective immediately, from "System
Special Investment Account" to "System Open Market Account".
The code words in which the term is used are MOCKLER, MOCKLOVE,
NEGROAT, NAPP1NTLE, NAVIDE and NEBULONG.
Very truly yours
v
TO PRESIDENTS
J. C. Noell,
Noell
Assistant Secretary
OF ALL F. R. BANKS
473
B O A R D OF G O V E R N O R S
X-9566
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
official
to
the
c o r r e s p o n d e n c e
board
April 27, 1936.
Dear Sir:
There are being sent to you under separate cover
copies of a List of Stocks Registered on National Securities Exchanges as of March 31, 1936.
This list is being published by the
Board to facilitate compliance by banks with the provisions of
Regulation U.
One copy of this list is also being sent to each member
and nonmember bank in the United States.
The copies which are be-
ing sent to you are not only for the information of the Reserve
bank but also for distribution to banks desiring additional copies
and to other interested persons.
If you have use for more copies,
please notify the Board before May 15.
The Board plans to issue, in June and from time to time
during the remainder of the year 1936, supplementary lists indicating changes in the present list.
The Board will be glad to mail
these supplementary lists directly, not only to banks but also to
other interested persons. Please supply the Board before June 1,
therefore, with a list of persons in your district desiring these
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X-9566
supplementary lists and a list of the banks in your district desiring more than one such list.
Very truly yours,
L. P. Bethea,
Assistant Secretary.
TO ALL FEDERAL RESERVE AGENTS
475
X-9567
(Not to be released
to the press)
THE FEDERAL RESERVE SYSTEM AND CliuDIT CONTROL
ADDRESS BY
M. S. SZYMCZAK, MEMBER,
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
DELIVERED BEFORE
THE ECONOMIC CLUB OF CHICAGO
Wednesday, April 29, 1936
8:00 P. M.
The Palmer House
Chicago, Illinois
476
X-9567
THE FEDERAL RESERVE SYSTEM AND CREDIT CONTROL
It is now nearly three years since I left Chicago to take up my
present duties in Washington. In those three years the administrative organization and functions of the Federal Reserve System have
undergone important and interesting changes, mainly brought about by
the Banking Acts of 1933 and 1935.
In general terms, I think the most important accomplishment of
recent legislation so far as the Federal Reserve System is concerned
is that it strengthened and clarified the lines of credit control.
A few changes affecting the organization and functions of the Federal Reserve banks were made, but they were not changes in essentials.
The most conspicuous of these changes was that the title of President
was given to the principal executive officer. Formerly his title was
Governor. The title of Vice President now replaces the former title
of Deputy Governor. As you know, the former titles, Governor and
Deputy Governor, were not mentioned in the Federal Reserve Act.
The
office of Governor was originally created under the general authority
which the Federal Reserve Act gave the directors of the Federal Reserve banks to arrange for such officers as were necessary for the
administrative work of the banks. Originally, the only office specifically mentioned by the Act, other than that of director, was that of
Federal Reserve Agent and Chairman, with assistant agents and deputy
chairmen. The Banking Act of .1935 in designating the President of
the Federal Reserve bank as its chief executive officer merely
X-9567
recognized an arrangement that had developed under general authority
and that had proved itself desirable from the point of view of Federal Reserve bank administration.
The organization of the governing board of the System was
changed considerably by the Banking Act of 1955. In the first place,
the old name "Federal Reserve Board" was changed to "Board of Governors of the Federal Reserve System". At the same time, the chief
executive officer of the Board was designated as Chairman. Furthermore, the number of members of the Board was changed from eight to
seven and all of these members were made appointive. Formerly, as
you know, the Secretary of the Treasury and the Comptroller of the
Currency were ex officio members of the Board.
The term of office of the members of the Board was formerly 12
years. Under the new law, the terms of members now in office range
from 2 to 14 years and their successors in office will have terms of
14 years so arranged that the term of one member will expire every 2
years. Since a member who has served a full term of 14 years is not
eligible for reappointment, there will be a regularly recurring change
in membership; one member leaving the Board and a new one being appointed every 2 years, unless more frequent changes occur from deaths
or resignations.
The most important changes effected by the 1935 Act, however,
have not to do with these matters of organization so much as with the
function and authority of the governing Board in the field of credit.
X-9567
In the course of the twenty-two years that have elapsed since
the Federal Reserve banks were established much experience and knowledge have been accumulated. Some problems which the System was devised to remedy have now been settled and others have taken their
place. At the same time the conception of central banking functions
has changed in many respects. The net result is that the System presents in certain ways a different aspect from what it did formerly.
Twenty-two years ago the ideas prevailed that the important
functions of the Federal Reserve banks were to furnish an elastic
currency, to lend to member banks which were short of money some of
the reserve funds accumulated by other member banks, and to curb the
speculative use of credit by rediscounting only paper representing
self-liquidating commercial transactions. These ideas now appear
quite inaccurate, or at least inadequate. Furnishing currency is
seen to be less important than it was thought to be, because currency
cuts a very small figure in the total of payments that are made by
people in their dealings with one another. What they use for the
most part is bank credit in the form of deposits. The control of
bank credit as a whole is, therefore, of greater importance than the
control merely of the currency supply; it is also incomparably more
difficult.
In the second place, the reserve banks do not depend on the deposits which member banks maintain with them for the ability to make
loans and buy securities. They pay for such assets by entering deposit
479
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X-9567
credits on their books in favor of the member banks whose paper they
discount or whose investments they buy. If a member bank's reserves
are deficient, it can turn over some of its assets to the Reserve Bank
and receive a credit to its reserve account. The Reserve Bank in such
a transaction is not lending to one bank what it owes to another; it
is exercising the familiar banking power of paying for assets by the
entry of deposit credit.
In the third place, it is recognized that there is no necessary
connection between the form in which credit is procured from a bank
and the form in which it is used. Money may be borrowed on acceptances
and yet be used in the stock market. It may be borrowed on a real estate mortgage and yet be used to buy merchandise. It may be borrowed
on the security of speculative stocks and yet be used to finance the
production and shipment of commodities. Consequently, any discrimination for or against a certain type of paper offered for discount does
not mean that speculation is being controlled or that credit is being
supplied for the needs of commerce. The task of controlling the use
of credit is far more difficult than such a supposition would imply.
Under various provisions of federal law there are five principal
means of credit control which the Federal Reserve banks or the Board
of Governors may use. These are:
Discounts
Open Market Operations
Direct Action
Reserve Requirements
Margin Requirements
480
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X-9567
Discounts
The Federal Reserve Act has from the beginning provided that
each Federal Reserve bank establish from time to time rates of discount to be charged by it on various classes of paper; these rates to
be subject to review and determination by the Board of Governors of
the Federal Reserve System, and to be fixed with a view of accommodating commerce and business. To this the Banking Act of 1955 added the
new requirement that such rates shall be established "every fourteen
days, or oftener if deemed necessary by the Board". This does not
mean that the rates must be changed every time, but that they must be
regularly and frequently reviewed. In general the initiative in making
changes in discount rates rests with the Federal Reserve banks, but
the Board has authority to make changes on its own initiative if the
public interest demands.
When the Federal Reserve Act was adopted the prevailing idea
seems to have been that discount rates were not only the most definite
means of credit control but the most important. This idea was apparently based upon a belief that member banks would seize the opportunity
to borrow funds from the Reserve banks at a low rate of interest, in
order to relend them to their own customers at a higher rate. This
was a logical supposition and it appears to be widely held even at the
present time. As a matter of fact, it has not worked out that way in
practice at all. Member banks rarely show a disposition to borrow
from the Reserve banks for the purpose of relending. They do not like
-t-G-
X-9567
to borrow and as a general thing they will not borrow unless they have
to, no matter how low the rediscount rate is. Custom appears to exercise a very imperious control over them in this respect. As a consequence, they borrow from tho Reserve banks as a usual thing only when
they have to augment depleted reserves.
The Federal Reserve Act formerly limited the classes of paper
which Federal Reserve banks could discount for member banks, but the
Banking Act of 1955 eased these limitations. The principle followed
in the original provisions was that a definite preference should be
maintained for short-term credit based on self-liquidating commercial
transactions. The Reserve banks were, therefore, given the power to
discount only such paper, that is notes, drafts, bills of exchange
and bankers' acceptances arising out of commercial, industrial and
agricultural transactions, or paper backed by United States Government
obligations. These were narrowly defined classifications. Advances
on a wide range of other assets which made up an important part of the
total earning assets of banks were not authorized.
Moreover, as a result of various financial and economic developments the classes of paper which could be used as a basis for borrowing from the Reserve banks had for many years constituted a decreasing
proportion of the assets of member banks. In 1929 it was only about
twelve percent of their total loans and investments, and in 1934 it
was only eight percent. Consequently, in 1931 and 1952 when the great
liquidation occurred, many banks whose assets as a whole were good
-7-
X-9567
nevertheless had very little that was technically eligible for use
in borrowing at the Reserve bank. They therefore had to dump their
assets on a falling market in order to raise the funds they needed.
The new banking act increases the powers of the Federal Reserve
banks so that such a necessity may be avoided. It authorizes advances
to be made to member banks for periods not exceeding four months on
any security satisfactory to the Reserve bank. This amendment modifies and makes permanent the emergency legislation which was adopted
in 1932.
Beside the foregoing general powers of discount and purchase,
special authority was given the Reserve banks in 1934 to discount
loans which member banks and other financing institutions may make to
established industrial and commercial businesses for the purpose of
supplying them with working capital.
These changes made by recent legislation enlarge very greatly the
kind of credit which the Federal Reserve banks may deal in directly,
and allow greater freedom of action in meeting the requirements of the
money market.
Open Market Operations
It must be obvious, however, that the power of a Federal Reserve
Bank to grant credit at predetermined rates of discount and interest
can be exercised only when credit is asked for. Consequently, if the
Reserve bank had no other means of credit control than the power to
discount the paper of member banks at given rates, it might have to
-8-
X-9567
wait passively and idly until individual member hanks decided that they
would like to borrow. Then only would it have opportunity to act and
what it might do then would be far from constituting real credit control. As a consequence of the need of meeting the Federal Reserve
System's responsibilities more positively, two other means of credit
control have been developed. These are open market operations and direct action. Both are outgrowths of experience, primarily.
Open market operations consist of the purchase and sale by the
Reserve banks of certain classes of securities, mainly government
obligations, for the purpose of increasing or decreasing the supply
of credit available in the money market as a whole. By selling securities the Reserve banks withdraw funds from the market and less
credit becomes available. The reason for this is that in the process
of paying for the securities that are sold the reserves of member
banks become diminished, because every payment means a debit sooner
or later to some member bank's reserve account. And as a member
bank's reserves decline toward the legal minimum it is less able to
make extensions of credit.
On the other hand, by purchasing securities the Reserve banks
put funds into the market and more credit becomes available; because
the funds which are released in payment flow directly or indirectly
into the reserve accounts of the member banks and enlarge them. And
as their reserves expand, they are in a position to extend more and
more credit.
—9—
X-9567
In principle, therefore, the Reserve banks can increase or decrease the funds available for lending, accordingly as they buy or
sell securities. Of course, there are in practice many limitations
on the effectiveness of open market operations, but their tendency
is to enable the Federal Reserve banks to take corrective action
with respect to abnormal credit conditions on their own initiative.
The powers of the Reserve banks to buy and sell securities in
the open market were granted in general terms in the original Federal Reserve Act, and at the time were not generally considered to
be of very great importance. The first operations were carried on
by the Federal Reserve banks independently of one another, but it
was soon found that action would have to be coordinated; otherwise
the banks would be buying or selling in competition with one another
*
and following different, and perhaps conflicting, policies. To
avoid this, a committee representing several banks was formed for
the purpose of directing the operations. About the same time the
purpose of the operations was clarified. For some time purchases
had been made with the idea of providing income to meet expenses,
but it was eventually realized that such an objective was in conflict with that of moderating a given condition of the money market,
and must, therefore, be subordinated or even abandoned.
The Banking Act of 1933 gave specific recognition to open market operations as a System matter and established a Federal Open
Market Committee of twelve members, one representing each Federal
485
-10-
X-9567
Reserve bank, to take the place of the former non-statutory committee.
At the same time the law adopted substantially the statement of purpose which had already governed open market operations. This was to
the effect that they be conducted "with a view to accommodating commerce and business and with regard to their bearing upon the general
credit situation of the country."
The Banking Act of 1935 made a further change by providing that
the Federal Open Market Committee should comprise the members of the
Board of Governors of the Federal Reserve System and five representatives chosen by the twelve Federal Reserve banks. The law also makes
the decisions of this committee obligatory upon the Federal Reserve
banks and provides that the record of the Committee's actions shall
be included in the annual report of the Board submitted to Congress.
Thus an activity which was barely recognized in the original Federal
Reserve Act, and which was gradually developed in the process of administration of the System, has come to be emphasized in the law as
one of the System's most important functions.
Direct Action
I also mentioned direct action as a means of credit control.
Direct action means efforts by the Federal Reserve banks or the Board
to discourage credit policies of given member banks in given circumstances. Opportunity for it occurs on various occasions, but particularly when a member bank is being examined, and when it is seeking
to rediscount some of its paper. In this sense, direct action is
-11-
X-9567
aimed at the correction of specific conditions in particular banks.
It may also be resorted to, however, with reference to general conditions and for the purpose of enforcing general credit policy.
The effectiveness of direct action was specifically strengthened "by the Banking Act of 1933 in several particulars. If a member
bank makes undue use of bank credit for any purposes inconsistent
with sound credit conditions, it may be suspended from recourse to
credit facilities of the Federal Reserve System. Furthermore, authority has been given to the governing Board of the System to remove from office any officer or director of a member bank who continues to violate the law governing the bank's operation or who has
persisted in unsafe and unsound practices in conducting the bank's
business. The Board also has power to limit for each Federal Reserve
district the individual bank capital and surplus which may be represented by loans secured by stock or bond collateral.
Power to Change Reserve Requirements
Recent legislation has also established two other new forms of
general credit control which previously did not exist. The first
of these is the power given the Board to change the reserve requirements now imposed upon member banks by the statute. For most banks
(chiefly those outside the larger cities) the requirement is and has
been for years that they have reserves on deposit with the Federal
Reserve bank equal to at least 7 percent of their demand deposits,
and 5 percent of their time deposits. The power to alter these
487
-12-
X-S567
reserve requirements was first given the Board in 1935, but under
limitations which were later removed by the Banking Act of 1935.
The Board is now authorized to change the reserve requirements "in
order to prevent injurious credit expansion or contraction", but it
is not permitted to lower them below the present requirements nor increase them to more than twico the present requirements. The result
of raising them - which is the only action that could now be taken,
since the minimum is already in effect - would be to decrease the
lending power of member banks and consequently the amount of available credit. The effect of lowering them later on would be, of
course, to enlarge the lending power and the amount of available
credit.
Margin Requirements
The second new form of general credit control recently authorized pertains to margin accounts and loans made for the purpose of
purchasing or carrying registered securities. Authority for the
Board to issue regulations in this field was granted by the Securities Exchange Act of 1954. This grant of authority was in line with
various provisions of the Federal Reserve Act, such as I have already
referred to, aimed at restricting the use of credit for speculative
purposes.
Pursuant to these provisions the Board has issued twin Regulations, T and U. Regulation T, following Sections 7 and 8(a) of the
Securities Exchange Act of 1934, governs the extension and maintenance
-15-
X-9567
of credit by brokers and dealers in securities for the purpose of
purchasing or carrying securities, Regulation U, following Section
7(d) of the Act, governs loans made by banks for the purpose of purchasing or carrying stocks registered on exchanges. In general,
these regulations fix the maximum loan value of securities subject
to their provisions at 45 percent of their current market value.
This means a margin requirement of 55 percent. This loan value applies equally to margin accounts with brokers and to similar leans
made by banks.
In the case of brokers who are financing other brokers in order
to enable them to carry accounts of their customers - as may happen,
for example, when a large city broker is financing a correspondent
broker in a smaller community - loan values of 60 percent are permitted. Special provision is also made to facilitate the financing
of securities' distribution.
The Board, has authority to change the loan value percentages as
necessary in order to prevent, in the language of the Act, "the excessive use of credit for the purchase or carrying of securities."
The provisions of the law and of the regulations are too technical and too numerous for me to discuss in detail, but I shall mention a few distinctions and exceptions which are to be observed.
To begin with, Regulation U does not prevent a bank from taking collateral in addition to that required by regulation; it does not require a bank to have any outstanding loan reduced or paid, nor additional collateral put up. Neither regulation applies to loans on
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X-9567
government obligations, nor on a number of similar types of exempted
securities. They do not apply to loans, however secured, which were
not made for the purpose of purchasing or carrying registered securities. I wish to emphasize this last point. Regulation U does not
restrict the right of a bank to extend credit, whether on securities
or otherwise, for any commercial, agricultural or industrial purpose,
or for any other purpose except the purchasing and carrying of stocks
registered on a national securities exchange. In other words, it
does not interfere with the available supply of credit in general,
Instead, it achieves its purpose by imposing restrictions upon the
demand for credit from the speculative quarter.
For example, under the regulation last issued, it is possible
to borrow $45 on each $100 of stocks, valued at the market. That
obviously means a very definite restriction upon the extent to which
speculators can expand their holdings. If market prices nevertheless rise so that the $100 worth of securities becomes worth $125,
$150, or $200, at the market, the amount that can be borrowed, namely
45 percent, becomes of course progressively greater, until such time
as the Board finds it advisable to reduce the ratio of loan value.
As the Board reduces the ratio, the effective demand is checked. In
principle, therefore, the Board has the power to prevent the use of
too much credit for speculation and to prevent an expansion dependent
too largely upon the ease with which money can be borrowed. Moreover
it is enabled to do this without making credit any the less available
-15-
X-9567
for commercial, agricultural or industrial purposes, and without
raising its cost for such purposes. It is not the function of the
Board to attempt control of security prices nor to do anything in
conflict with the responsibilities of the Securities and Exchange
Commission in its supervision of securities exchanges. The function
of the Board is confined to control of credit.
As you will recall, one of the conditions at which the original
provisions -of the Federal Reserve Act were aimed was the use of bank
funds to finance stock market speculation. It has always been clear
that the Act sought to make credit ample for commercial, industrial,
and agricultural purposes without encouraging its speculative use;
but the difficulty has been to make measures of control work in one
field without producing corresponding but undesired results in the
other. A discount rate that was advantageous to agriculture was advantageous to speculation, and a rate that was disadvantageous to
speculation was disadvantageous to agriculture. This difficulty in
the way of discriminating between the possible uses to which credit
might be put was characteristic of attempts to reach the objective
by control from the angle of supply. It appears to be obviated in
the new provisions, which, as I have said, attempt to reach the objective from the angle of demand.
This is because the power which has been given the Board to impose and relax restraints upon the demand for credit for speculative
purposes is definitely selective. It is aimed at a particular use
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X-9567
of credit and at the specific channels through which demand becomes
effective. For this purpose, it extends the powers of the Board
outside the Federal Reserve Sly stem to reach directly brokers and nonmember banks. It differs from powers of discount, because while
these powers may be exercised to discriminate against paper directly
involved in speculative uses, they cannot prevent the speculative use
of funds procured by the discount of paper not directly involved in
speculation. Moreover, the discount power is not of effect until
such time as individual banks make up their minds to dispose of some
of their assets.
Open Market Operations are even more general in their effect.
They influence the total amount of funds but not the uses to which
they can be put. The same thing is true of the power to alter reserve requirements. Direct action can be used to discriminate against
the speculative use of credit, but only in individual cases. It cannot be applied comprehensively, uniformly, and simultaneously in all
relevant cases as can the power to fix the loan values of securities.
In the case of margin accounts, the regulation is directed at
an unmistakable objective and cannot miss affecting the speculative
use of credit. In the case of loans by banks for purposes of speculation it may be felt that the objective is less distinct, since the
purpose of such loans may be disguised. This may appear especially
possible since Regulation U permits a bank to rely upon a signed
statement, accepted in good faith, as to the purpose of a given loan.
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X-9567
Of course if means of evasion develop, they will have to be dealt
with, but the Board has chosen to avoid imposing inquisitorial investigations in the absence of reason for believing that evasions
will be deliberate or of serious consequence.
I have alluded to the exemptions from these new regulations;
I imagine they are of special interest to you and should be mentioned
in detail. The regulations covering brokers and dealers do not apply
to United States Government obligations, State, county, and Municipal
obligations, and such other securities as the Securities and Exchange
Commission may exempt. These regulations also do not apply to credit
extended by a broker for bona fide commercial or industrial purposes
or extended for limited periods to finance bona fide cash transactions in securities.
In the case of the regulations covering bank loans made for the
purpose of purchasing or carrying stocks, the following are some of
the transactions to which the regulations are not applicable:
Any loan made for any agricultural or industrial purpose, even though the loan be collateraled by stocks.
Any loan for the purpose of purchasing or carrying
securities not registered on a national securities exchange.
Any temporary advance to finance the purchase or sale
of securities for prompt delivery which is to be repaid in
the ordinary course of business upon completion of the
. transaction.
Any loan to a dealer to aid in the financing of the
distribution of securities to customers not through the
medium of a national securities exchange.
Any loan to a broker or dealer that is made in exceptional circumstances in good faith to meet his emergency needs.
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X-9567
Conclusion - Limitation on Means of Credit Control
Although the five means I have discussed by which credit control
may be exercised - discounts, open market operations, direct action,
reserve requirements, and margin requirements - appear to be very
comprehensive and powerful, it would be a mistake to convey the impression that a perfect control of credit will be effected through
them, in the first place, their application cannot be mechanical
nor governed by simple unvarying rules. Credit and economic relationships are extremely intricate, and the circumstances under which
the need for action arises are always to some extent different and
special. Let me mention a few things that complicate the task of
credit control.
For one thing, there has never been a time when the membership
of the Federal Reserve System included as many as half the banks in
the countiy. It does not now. The majority of banks in the United
States are outside the System. Although it is true that the System
includes most of the large banks and that it, therefore, includes the
bulk of the banking business of the country, still from the point of
view of the communities they serve and of relations with other banks,
the importance of the thousands of small banks which are outside the
System is not negligible.
For another thing, there is always the important consideration
that United States Treasury activities must be'taken into account.
These have to do in part with the operations of the Exchange
»
494
«
-19-
X-9567
Stabilization Fund and the issue of circulating media, e.g., coins,
silver certificates, and United States notes; and in part with the
public debt, and the government's receipts and expenditures. These
operations involve large sums and intimately affect the banking and
credit situation.
Finally there are conditions that arise not only outside the
System, but outside the country, and yet affect the domestic banking
situation powerfully. There is, for example, the recent great movement of gold to the United States from abroad - a movement that in
the last two years has added over three billion dollars to the reserves of member banks and created a quite unprecedented credit situation.
These factors, among others, necessarily limit and modify the
exercise of credit control.
In concluding I want to assure you how much I appreciate the
opportunity you have given me to discuss these matters with you.
In the first place, it is particularly important to me because I am
at home here. I feel as if I were coming back to report to friends
who have more than a formal interest in what I have to say; certainly
in addressing you I feel more than a formal interest in my subject
matter.
In the second place, it is important to discuss matters with
people such as yourselves who have understanding and who are able
to enlighten others. I feel, as I have probably said before, that
495
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X-9567
an administrative agency cannot function properly without having behind it a well informed and sympathetic public interest. Credit
control unfortunately is a matter which bristles with technical
difficulties and abstract ideas; but it is nevertheless essential,
if the important objectives of credit control are to be achieved,
that at least their general purpose and philosophy be understood.
X-9568
BOARD OF GOVERNORS
49S
OF THE
FEDERAL RESERVE SYSTEM
Apro.
ADDRESS OFFICIAL CORRESPONDENCE
SUBJECT: Applicability of Public Utility Holding
Company Act
TO THE BOARD
Dear Sir:
There is inclosed a copy of a letter dated April 7, 1936,
addressed to the Chairman of the Board by the Chairman of the Securities and Exchange Commission, with reference to the applicability
of the Public Utility Holding Company Act of 1935 to banks, as well
as a copy of the letter referred to therein and a copy of the Commission's Rule 3A5-1 and of its form U-5A3-1.
In view of the fact that the matter has been brought to
the attention of a number of the largest banks in the country and
that a statement regarding it has been released to the press, the
office of the Comptroller of the Currency has not thought it desirable to circularize the national banks regarding the matter, and
it is not suggested that you should circularize the State member
banks in your district. However, the matter is being brought to
your attention in order that you may be in a position to answer
any questions which may arise in connection with member banks in
your district.
Very truly yours,
Inclosures.
TO ALL FEDERAL
/ y > i A u L f
Chester Morrill,
Secretary.
RESERVE AGENTS.
COPY
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
Office 01 the Chairman
•
X-9568-a
.
April i, 19.5b
Mr. Marriner S. liccles, Chairman
Board of Governors of the Federal
Reserve System
Washington, D. C.
Dear Mr. Eccles:
It has come to my attention that until just recently
two of the larger banks which hold voting securities of public utility companies in one capacity or another were unaware
of the fact that they may be subject to the provisions of the
Public Utility Holding Company act of 1955 and were equally
unaware of the rules adopted by this Commission granting them
exemptions in connection with certain typos of holdings, We
have felt that it would be unfortunate if any banks should
inadvertently cone into conflict with the statutory provisions
so I am sending the enclosed letter to the hundred largest
banks of the country as listed in the amjrican Banker of January 21, 1956, and to mutual savings banks having deposits of
$50,000,000 or more, as listed, in the same publication. The
letter has also been released to the press.
I hope that, directly and indirectly, this letter
will result in a general understanding of the situation among
the banks of the country. It is obvious, however, that there
may be many smaller banks which own* control, or hold substantial blocks of voting securities in utility or holding companies. accordingly, the Commission will greatly appreciate
anything you can do to promote a more general understanding
of the situation.
Very truly yours,
(Signed) James M. Landis
James M. Landis
Chairman
Encl.
Holding Company act
Rule 3a3-l
Form U-545-1
Copies to:
J. F. T. O'Connor
Comptroller of the Currency
Robert V. Fleming, President
American Bankers Association
497
498
COPY
X—9h68—1>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
Office of the Chairman
Gentlemen;
It has come to our attention that a number of banks
are apparently unaware of the fact that, as a result of acquiring public utility securities in liquidation of debts or holding •
them in trust capacities, or otherwise, such banks may constitute
"holding companies" as defined in the Public Utility Holding Company Act of 1935.
Section 2(a)(7) of the Act defines as a "holding company" any company which owns, controls, or holds with power to
vote, 1056 or more of the outstanding voting securities of a public
utility company. A public utility company is defined in Section
2(a)(5) as an electric or gas utility company, and the latter are
further defined in paragraphs (5) and (4) of Section 2(a).
Section 4(a) of the Act requires all holding companies
which use the mails or interstate commerce in any of the ways
therein specified, to register with this Commission, except that
the Commission is directed by Section 3(a) to exempt certain
classes of holding companies. Acting pursuant to this authority,
the Commission has promulgated Rule 3A3-1 exempting certain banks
from the provisions of the Act applicable to them as holding companies, subject to the condition that they file quarterly statements with this Commission on Form U-5A3-1. The first of these
statements is due not later than April 30, 1936.
Enclosed you will find copies of the Act and also of
the Rule and Form mentioned above.
Very truly yours,
(Signed) James M. Landis
James M. Landis
Chairman
Enclosures.
COPY
"
"
X-9568-c
SECURITIES M D EXCHANGE COMMISSION
WASHINGTON
499
Rule 5A5-1, as promulgated November £5, 1955 (Release No. 24)
ana amended March 18, 1956 (Release % . 115)
Rule 5A3-1. Exemption of certain banks. (a) Any ban:, he defined in
paragraph (b) of this Rule shall, except insofar as specified in paragraphs
(c) and (d) of this Rule, bo exempt from any obligation, duty, or liability
imposed by the Act upon such bank as a holding company, if such bank do> e
not own, control, or hold with power to vote, 10% per cent or more of the
voting securities of any public-utility or holding company other than
(1) securities of which such bank is not the beneficial owner;
(2) securities pledged as security for, or acquired in connection with
the liquidation of, a debt resulting from a loan or otnur credit
at any time in good faith extended by such bank either alone or in
conjunction with other lenders;
(5) securities acquired by such bank, under any plan of reorganization
or otherwise, in satisfaction in whole or in part of any such debt
or in exchange for such debt;
(4) securities acquired Dy such bank in exchange for securities described in paragraphs (l), (k) and (5) above, as a result of any
reorganization or recapitalization of the issuer of such securities.
(b) The term "bank" as used in this Rule shall mean (l) a banking institution organized under the laws of the United States, (2) a banking institution or trust company incorporated under the lews of any State or of the
District of Columbia, which is primarily engaged in the commercial banking
business or in the business of exercising fiduciary powers, or both, or (3)
a receiver, conservator, or other liquidating agent of any of the foregoing
in his capacity as such.
(c) ^ny bank exempted under paragraph (a) of this Rule shall, within
thirty days after the last day of February, May, August and November in each
year or such later date thereafter as the Commission may by order prescribe,
file with the Commission a statement on Form U-5.i5-l, as required try the
instructions for said form, containing the information therein specified and
such further information as the Commission may require; provided, however,
that the statement for the quarter ending February 29, 1956, may be filed
not later than April 50, 1956.
(d) No bank exempted by paragraph (a) of this Rule shall enter into
or take any step in the performance of any service contract, as the term is
used in Section 15(a), whereby such bank is given the exclusive right to
render financial services to any associate company thereof which is a publicutility or holding company.
(e) In addition to its power to amend or rescind this Rule, the Commission by order, after notice and opportunity for hearing, may terminate, suspend, or modify t he exemption provided by this Rule as to any bank, if
(l) such bank shall fail to comply with any of the provisions of paragraphs
(c) or (d) of this Rule, or (2) such bank shall evade, seek to evade, or bo
used
to evade the provisions of the Act.
X-9569
INTERPRETATION
BANKING ACT OF 1925
(Copies to be sent to all Federal reserve banks)
April 25, 1956.
Mr. R. L. Austin,
Federal Reserve Agent,
Federal Reserve Bank of Philadelphia,
Philadelphia, Pennsylvania.
Dear Mr. Austin:
This refers to your letter dated April 9, 1936, regarding
the maximum rate of interest payable try The
.
deposit issued to Mr.
National Bank of
, on a time certificate of
under date of April 4, 1936.
This certificate provides that the principal amount thereof
is payable to the order of the depositor upon presentation and surrender of the certificate after 6 months' written notice of intention to withdraw it, together with interest thereon, at the rate of
per cent per annum. The certificate also contains the following
provision:
"This certificate may be called for payment by the bank
at any timefcygiving thirty days' notice thereof to the depositor
- - - after the expiration of which thirty days' notice all interest
shall cease."
Section (3) of the supplement to Regulation Q provides that
no member bank shall pay interest accruing after January 1, 1936, at
a rate in excess of 1 per cent per annum, compounded quarterly, on
a time deposit "having a maturity date less than 90 days after the
date of deposit or payable upon written notice of less than 90 days".
500
501
-2-
X-9569
It is the view of the Board that a provision authorizing the bank to
call a time certificate of deposit for payment at any time by giving
30 days' written notice thereof to the depositor would cause the
certificate to be "payable upon written notice of less than 90 days"
within the meaning of section (S) of the supplement to Regulation Q
and, accordingly, the maximum rate of interest payable thereon would
be 1 per cent per annum. In other words, when a certificate provides
that it is payable upon a written notice ty the depositor and also
provides that the bank may call the certificate by giving a written
notice to the depositor, the shorter period of notice controls in
determining the maximum rate of interest payable by a member bank on
the certificate.
Your attention is invited to the fact that the certificate
under consideration does not require that the 30 days' notice to be
given by the bank to the depositor shall be in writing and, therefore,
does not comply with the definition of a time certificate of deposit
in section 1(c) of Regulation Q, which requires that written notice of
not less than 30 days shall be given before payment.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
502X-9570
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
For release in morning newspapers of
Friday, May 1, 1936.
April 30, 1936.
Statement for the Press
At the request of the Board of Governors of the Federal Reserve System,
F. H. Curtiss of Boston, R. L, Austin of Philadelphia, and C. C. Walsh of
Dallas, who were designated as Chairmen and Federal Reserve Agents until April
30, 1936, have consented to remain as Chairmen and Federal Reserve Agents at
the Federal Reserve Banks in those cities, respectively, until the end of the
current year, serving on an honorary basis in accordance with the procedure
initiated by the Board on March 1st,
J. H. Case, Chairman of the Federal Reserve Bank of New York, whose term
also expired today, preferred to sever his official connection with the New
York Bank in order to be free to engage in private business and, accordingly,
tendered his resignation as Chairman and Class C Director, which has been accepted by the Board.
J. S. Wood, previously Chairman and Federal Reserve Agent at the Federal
Reserve Bank of St. Louis, has been elected Vice President of that bank, effective May 1.
Vacancies in the office of Chairman and Federal Reserve Agent remain to be
filled at New York, San Francisco, St. Louis and Chicago.
503X-9571
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Statement for the Press
For immediate release.
The following stock should have been included
in the "List of Stocks Registered on National Securities Exchanges as of March 31, 1956," published by
the Board for purposes of Regulation U, and will be
added by the supplementary list to be issued in
June:
Corn Exchange Bank Trust Company, registered
on New York Stock Exchange.
#
May 1, 1936.
504
BOARD OF GOVERNORS
X-9572
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
May 2, 1956
SUBJECT;
o f f i c i a l
t o
the
c o r r e s p o n d e n c e
board
Code Words Covering New
Issues of Treasury Bills.
Dear Sir:
In connection with telegraphic transactions in
Government securities between Federal reserve banks,
the following code words have been designated to cover
new issues of Treasury Bills:
"NOYLOX" - Treasury Bills to be dated
May 6, 1956, and to mature
December 15, 1956.
"NOYLUG" - Treasury Bills to be dated
May 6, 1956, and to mature
February 5, 1957.
These words should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental
code word "NOYLIT" on page 172.
Very truly yours,
Assistant Secretary.
TO PRESIDENTS OF ALL F. R. BANKS.
X-9573
INTERPRETATION
BANKING ACT OF 1935
(Copies to be sent to all Federal reserve banks)
May 5, 1936.
Mr. S. G. Sargent,
Assistant Federal Reserve Agent,
Federal Reserve Bank of San Francisco,
San Francisco, California.
Dear Mr. Sargent:
This refers to your letter of April 23, 1936, presenting the
question whether, under the terms of the Board's letter of April
13, 1936 (X-9545-a) stating that no objection would be offered to
the payment by a member bank of interest after maturity on a time
certificate of deposit renewed within ten days after maturity, the
bank is required to date the renewal certificate back to the date
of maturity of the original certificate.
As you know, section 19 of the Federal Reserve Act prohibits
the payment of interest on deposits payable on demand, and it appears that when a time certificate of deposit matures on a certain
date and is subsequently renewed as of a later date there is an
intervening period during which the deposit is payable on demand.
It is believed that the position taken in the Board's letter of
April 13, 1936, which regards the renewal certificate as taking
effect as of the maturity date of the original certificate, represents a liberal interpretation of the statute and in the circumstances it does not appear that an extension of the provisions of
—2—
X-9575
the letter by the elimination of the requirement that the bank
date the renewal certificate back to the date of maturity of the
original certificate would be justified.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
507
X-9574
BUSINESS RECOVERY AND INDUSTRIAL LOANS
Address by
M. S. SZYMCZAK, MEMBER
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Before the
Real Estate Board of Kansas City
Friday, May 8, 1956
12:10 P.M.
Francis I Room, Baltimore Hotel,
11th and Baltimore Streets,
Kansas City, Missouri. "
508
X-9574
BUSINESS RECOVERY AND INDUSTRIAL LOANS
There are three principal aspects to be noted in the credit
situation during the last three years.
These are:
1. The growth of bank reserves.
2. The increase in the volume of bank deposits.
5. The limited use by business and by
individuals of the funds which banks
have available.
Growth of bank reserves
Since June 1933 the reserves of member banks have shown exceptional growth. They now stand at the highest levels on record,
$5,800,000,000. Between June 1933 and March of this year total member bank reserve balances had increased $3,500,000,000. Required
reserves increased in that period ty about $1,000,000,000, which
left an increase, therefore, of about $2,500,000,000 in excess reserves. Excess reserves are now about $3,000,000,000.
The growth of reserves has resulted principally from the
movement of about $3,300,000,000 of gold to this country from abroad.
Since June 1933 the public debt has increased about
$9,000,000,000. Banks (including Federal Reserve banks, member
banks, mutual savings banks, and other non-member banks) increased
their holdings of Government obligations by nearly $6,000,000,000,
or 2/3 of the total increase of the public debt. These funds borrowed by the Government from the banks have been expended to provide
relief and employment. They increased bank deposits.
509
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X-9574
The increase in the volume of bank deposits
The deposits of the general public, excluding inter-bank and United
States Government deposits, but including deposits at non-member as well
as at member banks, now total about $45,000,000,000. There has been an
increase of about #11,000,000,000 since June, 1955.
Deposits at present
are still below the 1929 peak by about $5,000,000,000. However, since that
time Postal Savings deposits not redeposited in banks have increased by
nearly $900,000,000, and money in circulation outside of banks has increased
try $1,500,000,000. Accordingly, the available cash resources of the public
are altogether only about #5,000,000,000 - or 5 percent - less than they
were in 1929.
The increase of $11,000,000,000 in deposits since June 1955 is due
largely to an increase of about $4,000,000,000 in monetary gold and silver
stock and of about $5,500,000,000 of Government expenditures from the proceeds of direct obligations purchased try banks, including the Federal
Reserve banks, and by the Postal Savings System.
The limited use by business of the funds which banks have available
Although the volume of bank deposits is now almost as large as at
the peak in 1929, the rate of turn-over is still relatively small; deposits
turned over about fifteen times per annum in 1955 as compared with twentyseven times in 1929, and as compared with twenty times in other years more
normal than 1929. Accordingly, although it is to be expected that deposits
will increase still further this year, as the result of government borrowing and expenditure, it does not necessarily follow that the rate of turnover will increase.
510
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X-9574
It is unusual for banks to have any large amount of excess reserves
such as they now have. Prior to 1931 they never had excess reserves of
more than $75,000,000 or ^100,000,000 altogether for any great length of
time. With excess reserves in such an amount as £-3,000,000,000 it is
natural that the banks should be seeking ways of putting theSe funds to use.
It is obvious that the possible expansion that may take place on
the basis of present reserves is far greater than may be needed for sound
business conditions. On the present basis, credit could be extended and
bank deposits thereby increased to &90,000,000,000 or #100,000,000,000.
This would be about twice what deposits are now, and about twice the amount
that they were in 1929 at the peak. These deposits would represent funds
immediately available for use.
The possibility of increasing the use of funds and also the amount
of funds to be used depends upon two things: First, it depends upon the
desire of owners of existing deposits to use what they have either for
spending on a freer scale or for permanent investment. In the second place,
it depends upon the desire of business to use the funds already available
and to borrow still more for the purpose of expanding operations.
In the past year developments in capital markets were marked by a
sharp increase of activity. Stock market trading increased and securities
prices rose by over 50 percent. New security issues in 1935 were the
largest since 1930. The principal issues however were for refunding;
these totaled $3,300,000,000. Issues to raise new capital totaled only
$1,400,000,000, of which #1,000,000,000 represented issues of States, municipalities, and Federal land banks. Corporate issues for new capital totaled
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only $400,000,000. This compares strikingly with the figures in the late
twenties when corporate issues for new capital amounted to $4,000,000,000
or more a year.
Although the greater portion of the financing indicated has been
for refunding of existing indebtedness, this refunding has been at lower
interest rates and consequently has tended to decrease costs and to increase
the profitableness of enterprise. The small volume of issues for new capital
id not in any event an accurate measure of business expenditures for plant
and equipment, since not all the proceeds of such issues are used for this
purpose, and since, on the other hand, corporations have a large volume of
idle funds available. Moreover, developments in the business situation
indicate that these funds are being more freely used.
Industrial loans
In this connection I think it will be interesting to mention the
experience of the Federal Reserve banks in making industrial loans. In June
1934 the Federal Reserve Act was amended by the addition of a new section,
namely 13b, authorizing the Federal Reserve banks to make credit available
for working capital purposes to established industrial and commercial enterprises on maturities not exceeding five years. This authorization was made
because it was felt that as a result of the depression a good many business
enterprises had suffered such depletion of working capital that they were
unable to take advantage of new business opportunities. It was also felt
that the local banks in many instances were still reluctant to make credit
advances. Under these circumstances the Reserve banks were authorized to
discount such paper for local banks, and also to grant commitments to local
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banks insuring such paper up to as much as 80 percent of its face value•
The Reserve banks were also authorized, in exceptional cases where credit
was not available from the usual sources, to make loans for working capital
purposes direct to the borrower. This was a marked departure for the Federal Reserve banks, which hitherto had held only short term obligations or
marketable securities, and had not made loans direct to the borrowing public.
The new functions seemed required by the emergency however, and the Reserve
banks set out energetically to make the fact known to the business public
that credit for working capital purposes was amply available. Local banks
were also informed of the exceptionally favorable conditions upon which
they could make loans for such purposes. At the time banks were especially
anxious to maintain a highly liquid condition, and would not have been interested in long term loans unless there were provision for their liquidity.
This was provided however by tho commitments granted by the Reserve banks.
Under their terms, the Reserve banks would agree to purchase such loans
from local banks practically on demand, provided of course the loan had
been approved in advance by the Reserve bank. When it is considered that
beside this provision for liquidity, there was also a provision that the
local bank might be relieved of 80 percent of the risk, it is apparent that
the terms were calculated to give substantial encouragement to the local
banks to make the loans which the depleted condition of many businesses
made necessary. By the same token it is clear that the Reserve banks wore
in no sense entering into competition with local banks.
As of April 29 the Federal Reserve banks had approved 2,139 applications for working capital credit in the amount of $131,000,000. In recent
X-9574
months there has been very little increase in the amount of such
applications approved. At the same time, however, there has been
a distinct falling off in the number and the amount of applications
received. In the first three months of last year 841 applications
were received and the total amount was $29,000,000. In the first
three months of this year the number of applications received was
only 347 and the amount was only $13,000,000. Both in number and
amount, applications were less than half what they were in the corresponding period last year. Moreover, there has been an almost
uninterrupted decline every quarter since the beginning of last year.
Repayments, on the other hand, show marked increases. In
the first quarter of last year they amounted to about $1,700,000; in
the second quarter, $2,100,000; in the third quarter, $1,600,000j in
the fourth quarter, $3,600,000; and in the first quarter of this
year, $3,500,000.
The Federal Reserve banks still stand ready to make this
credit available wherever it can be done on a reasonable and sound
basis and local institutions are unwilling to advance it.
In this
connection, however, it is important to emphasize that the law permits the Reserve banks to make this credit available only for working capital purposes and only to established industrial and commercial businesses. The credit is not available for permanent capital,
nor to refund existing indebtedness (except in minor amounts incidental to provision of working capital), nor to new enterprises.
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Increased production and trade
In.1935 there was a large increase in production and trade
following an irregular upward movement since 1932.
The index of
industrial production for 1935 as a whole averaged 90 percent of the
1923-1925 average and rose to 104 in December, partly because of an
unusually large output in the automobile and related industries.
There has since been some decline, February and March showing an index of 94. There appears to have been an advance in the index since
that time. It appears, therefore, that the recoveiy in industry
reached in 1935 is being maintained in 1956.
This recovery appears in many lines of industry. It is apparent to some extent in non-durable goods, comprising mostly articles
of everyday consumption, which declined but moderately in the depression. It is apparent principally in durable goods, comprising building material, industrial equipment, automobiles, and more lasting
household equipment.
The greatest decline in the depression occurred in the field
of construction. Residential building, which in 1935 declined to 11
percent of the 1923-1925 average, did not increase until 1935.
Then,
however, contracts almost doubled those of the previous year.
In the
first quarter of 1956 there was an important increase in private construction other than residential. The greatest hope for expansion
lies in the field of private construction. Shortages of residences
have developed; new and improved types of housing are availablej
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financing costs are lower; the burden of financing as a whole has
been lightened; and the facilities for financing have improved.
Construction costs are also somewhat lower.
In the field of trade, consumer purchasing has increased.
Department store sales in 1955 were at 79 percent of the 1923-1925
average, compared with 67 percent in 1953. Sales in March of this
year were up to 88 percent. In rural areas sales have shown a marked
increase in recent years, which indicates that the status of farmers
has improved. In recent weeks automobile sales have been at high
levels, and gasoline consumption has been the largest on record.
Wholesale sales have increased considerably, particularly in the
durable goods lines - agricultural implements, hardware, and household equipment.
These, then are the facts and figures on business recovery
as of today.
Let me suggest in connection with industrial loans under
section 15b that you avail yourself of the willingness of the Kansas
City Federal Reserve Bank to give you further and more detailed information on the subject for the general good of your community.
B O A R D OF G O V E R N O R S
Y Q,7C
X
~ 9 5 7 5
OF THE
*******
516
FEDERAL RESERVE SYSTEM
WASHINGTON
address
o f f i c i a l
to
"»•»»»»»»"
1936.
Dear Sir:
For your information there is inclosed
a copy of a letter sent to the Assistant Federal Reserve Agent at San Francisco pertaining
to certain questions raised regarding responsibilities of examiners for the Federal reserve
banks in connection with loans made by banks
under the provisions of the Securities Exchange
Act of 1934.
Very truly yours,
L. P. Bethea,
Assistant Secretary.
Inclosure.
TO ALL FEDERAL RESERVE AGENTS.
the
c o r r e s p o n d e n c e
board
517
X-9575-a
May 6, 1936.
Mr. S. G. Sargent,
Assistant Federal Reserve Agent,
Federal Reserve Bank of San Francisco,
San Francisco, California.
Dear Mr. Sargent:
This refers to the letter of Mr. A. H. Sonne, Assistant Chief
Examiner, dated December 5, 1955, regarding certain questions raised
by Mr. Swengel, one of your examiners, with regard to bank loans which
come under the provisions of the Securities Exchange Act of 1934 and
as to examining procedure in connection with such loans. Specifically,
Mr. Swengel asks:
1. Is a bank on notice to restrict such credits as it may
grant to members of national security exchanges and/or
brokers and/or dealers to the margin requirements, as
set forth in Regulation T?
2. To what extent is an examiner, as incidental to an examination of a bank, expected to investigate loans to
brokers and dealers? In particular, is it necessary to
investigate all transactions in connection with a loan,
including substitutions and withdrawals of collateral
made since inception of the loan or since previous examination?
Since Mr. Swengel's letter was written the Board has issued
Regulation U which relates to loans made by banks on and after May 1,
1936, for the purpose of purchasing or carrying stocks registered on
a national securities exchange and Regulation U, rather than Regulation T, is the regulation governing bank loans under the Securities
Exchange Act.
In their examinations of a member or nonmember bank, your
518
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X-9575-a
examiners should see that all loans outstanding on the date of examination and subject to Regulation U comply with the provisions thereof , and any violations of the regulation should be reported. The
compliance or noncompliance of a loan with the regulation depends
upon the circumstances at the time a loan was made or increased and
the circumstances in connection with the withdrawal or substitutions
of collateral, and not upon subsequent variations in the value of the
collateral. As a practical matter it would seem that in most cases if
a loan were found to comply at the time of the examination with the requirements of the regulation as of that date, no further investigation
under the regulation need be made. However, if the examiner has reason
to believe that the loan may have been made or handled in violation of
Regulation U, because the loan value of the collateral at the time of
examination is barely sufficient and there has been a substantial rise
in its value since the date of the loan, or for other reasons, he
should then make appropriate investigation to determine whether such
has been the case. Also, if the examiner has reason to believe that in
connection with loans no longer held other violations of Regulation U
have occurred since the previous examination, he should make appropriate investigation of such transactions and report any violations
disclosed.
Under the provisions of the Securities Exchange Act of 1954
itself, it is unlawful for any member of a national securities exchange
or any broker or dealer who transacts a business in securities through
X-9575-a
the medium of any such member, to borrow in the ordinary course of
business as a broker or dealer on any registered Security other than
an exempted security from any nonmember bank unless such nonmember
bank shall have filed with the Board of Governors of the Federal Reserve System an agreement which is still in force and which is in the
form prescribed ty the Board's Regulation T. Your examiners, therefore, should report any instances discovered in their examinations of
nonmember banks (in connection with applications for membership or
because of affiliate relationships or for other special reasons) where
nonmember banks which have not executed the agreement referred to in
Regulation T have made loans of the type described above.
It is to be noted also that those few member or nonmember
banks which are members of registered securities exchanges are subject
to Regulation T to the same extent as other members of such an exchange,
in their loans to other members, or to brokers or dealers.
This letter relates to the specific questions discussed and
does not attempt to cover all possible implications of the Securities
Exchange Act and Regulation U as they may affect bank loans. It is
contemplated that, after Regulation U has been in effect and rulings
and interpretations have been issued thereunder, further instructions
will be forwarded as a guide to examiners.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
X-9576
INTERPRETATION
BANKING ACT OF 1955
(Copies to be sent to all Federal reserve banks)
May 4, 1956.
Mr. Frederic H. Curtiss,
Federal Reserve Agent,
Federal Reserve Bank of Boston,
Boston, Massachusetts,
Dear Mr. Curtiss:
This refers to your' letter of March 5, 1936, submitting an
inquiry from the
Trust Company,
,
and an opinion of counsel for your bank as to whether members of the
boards of managers of branches of the trust company, chairmen of the
boards of managers of branches of the trust company, and members of
the finance committees of such branches are "executive officers" within
the meaning of that term as defined in section 1(b) of the Board's Regulation 0.
It appears from the information submitted that the members of
the Board of managers of a branch of the trust company are chosen by
the board of directors of the trust company; that such members give no
regular time to the business of the bank other than attendance at meetings of the board; that the individual member of the board has no powers
in the management of the branch other than his vote as a member of the
board of managers and has no compensation other than fees for attendance
at meetings; and that the board of managers elects branch officers,
passes on loans of limited amount, and acts as a board of directors of
the branch, but with every act subject to the approval and control of
the board of directors of the trust company. While it is clear that
521
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such members are not strictly directors, since they are not elected
by the stockholders, it is apparent that their duties are analogous to
the functions usually exercised by a board of directors of a bank and,
on the basis of the facts stated above, it is the view of the Board that
the members involved are not included within the definition of the term
"executive officer" as contained in the Board's Regulation 0.
The chairman of the board of managers of a branch would not
be considered an "executive officer" unless he "participates in the management of the bank or any branch thereof" within the meaning of that
phrase as used in section 1(b) of Regulation 0, and the determination
of this question must be based upon the facts in each case. It appears
from the by-laws of the trust company that the chairman of the board of
managers of a branch is appointed by the board of managers subject to
the approval of the board of directors of the trust company, and that
such chairman is only authorized to preside at meetings of the board at
which he may be present. It is stated in the letter from the trust company that the only duties of a chairman are to preside at meetings of
the board of managers. It is also understood that there are two chairmen of boards of managers of branches of the trust company who are paid
a small salary in lieu of a fee for attendance at meetings. These salaries are reported as being $250.00 and $528.00 per annum. Although the
payment of a salary may in some cases indicate that the recipient has
duties to perform in an individual capacity which would bring him within
the classification of an "executive officer", it is the Board's understanding that the chairmen involved perform no other duties than to preside at
522
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X-9576
meetings of the boards of managers. Therefore, on this basis, it is
the opinion of the Board that such chairmen are not included within
the meaning of the term "executive officer" as contained in the Board's
Regulation 0.
In connection with members of the finance committees of such
branches, it appears that such committees are appointed by the boards
of managers pursuant to the general authority of the by-laws of the trust
company and that the functions of such committees are similar to the
functions of the executive committee of the trust company, such as passing upon loans in a preliminary way between meetings of the boards of
managers. Assuming that the members of such committees exercise no other
duties in the management of the bank or branch except those of attending
committee meetings and voting upon matters considered at such meetings,
it is the Board's view that such members are not executive officers within
the meaning of the Board's Regulation 0.
The conclusions reached above are limited to those persons
whose only duties are to serve in the capacities referred to above, and
who hold no other office in the trust company or any branch thereof.
Very truly yours,
(Signed) L. P. Bethea
L. P. Bethea,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
For release in morning newspapers
of Saturday, May 9, 1936.
ADDRESS OF
CHAIRMAN MARRINER S. ECCLES
AT THE
CONFERENCE ON
DEBT, TAXATION AND INFLATION
SEVENTH ANNUAL WHARTON INSTITUTE
OP'
THE UNIVERSITY OF PENNSYLVANIA
SPONSORED BY
THE ALUMNI AND FACULTY OF
THE WHARTON SCHOOL OF FINANCE AND COMMERCE
HELD AT THE WALDORF-ASTORIA
NEW YORK CITY
FRIDAY EVENING, MAY 8, 1956
524.
'
'
X-9577
THE THEORY AMD PROGRESS OF THE RECOVERY PROGRAM
The Problem in 1935
As one who has followed with keen interest the comprehensive program
adopted three years ago to bring about recovery, I should like to attempt to
explain my understanding of developments since it was adopted, and how, in
my view, it may achieve and maintain the complete restoration which we all
desire.
Let me first direct your attention to the conditions prevailing in 1932
and early 1933, and to that most fundamental of all economic data, the national
income. The national income, which was estimated at more than $80 billions in
1929, had shrunk to half that amount by 1932. The annual buying power and debtpaying capacity of the community, therefore, had been reduced by more than $40
billions. The problem of recovery was to raise that national income to above
its 1929 level, which could only be brought about by the government undertaking
activities and expenditures which private enterprise was not in a position to
undertake. How could it be accomplished?
Leaving aside plans which involved fundamental and far-reaching changes
in our whole economic organization, the solutions offered to the country in
1933 were of two main types. On the one hand there were those who contended
that all that was needed was the restoration of confidence. They insisted that
it was essential to balance the budget; that the gold standard must be retained
at all costs; that no legislation disturbing to business should be enacted.
On the other hand there were those who, like myself, felt that recovery in
the present situation could only be achieved by bold and aggressive intervention
by the government, largely through underpinning the entire private credit
structure which had collapsed, and undertaking to restore purchasing power
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through relief, public expenditures and other measures.
I think the hope of success by the former method rested on faith rather
than logic* After all, a budgetary surplus did not prevent the downturn in
1929; a balanced budget in 1930 did not prevent an acceleration of the decline. Not only were we on the gold standard in those years, but gold was
flowing in steadily. Efforts to balance the budget in 1931 and 1952, maintenance
of the gold standard, and the absence of reform legislation, did not prevent
us from descending to lower and yet lower economic depths. What reason was
there for thinking that factors which failed to prevent or check the downturn
would in themselves lead to an upturn?
The Question of Confidence
Looking at this question of confidence a little more closely, let us try
to see exactly what conditions are necessary for its establishment. With the
national buying power cut in half the demand for goods of all kinds was reduced accordingly. Industry as a whole possessed more than enough equipment
to satisfy the current demand. What does confidence mean in conditions such
as these? Does it not mean confidence that increased expenditure on plant,
equipment and inventory will be profitable? What business man would have added
to his plant, when he already possessed a great amount of excess capacity,
merely because he read that the budget had been balanced?
It is difficult
to understand why people would be expected to invest money in new enterprise
when existing investments were becoming less profitable every day. It should
not require any great insight to understand that a reduction of government expenditures while everybody else as a matter of self-protection was being forced
to reduce expenditures, could only accentuate the processes of deflation by re-
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-3ducing buying power. An increase in tax rates at such a time would have had a
deflationary effect to the extent that they reduced expenditures that otherwise
would be made, and would consequently have yielded little, if any, additional
revenue.
A belief that industry would have voluntarily entered upon capital expenditures in 1933 if the government had restricted its expenditures and raised
taxes is unrealistic to the highest degree; It displays an utter miscomprehension
of the considerations that influence a business man in planning expenditures.
There must be reason to believe that capital expenditures can be profitably
made before they are undertaken. This profitable outlook existed at the bottom
of the depression in but few industries, such as brewing, distilling and gold
mining. In these industries plant expenditures actually occurred and an
abundance of capital was readily available. Why?
Because there was confidence,
that is, an expectation that funds could be profitably invested in these industries, which had been renewed by repeal of prohibition and the premium on
gold.
What was the opportunity generally throughout the country for profitable
investment in new enterprise? Throughout industry there was excess capacity in
relation to consumer buying power, nor was there any inducement for residential
construction so long as it was cheaper to rent or buy than it was to build.
X-9577
«»4""
The Theory of the Recovery Program
Obviously, what was needed to absorb excess capacity generally was an
increased demand arising from increased consumer buying power. And here, it
seems to me, is the crux of the matter. Increased demand could come about
only as a result of increased incomes; and increased incomes depended upon
increased disbursements by industry or by government or by both. As far as
industry was concerned, it was being forced, in self-preservation, to reduce
wages and expenditures of all kinds, thus rapidly increasing the number of
unemployed, further shrinking consumer buying power and accelerating the deflationary forces which threatened complete collapse of the entire credit
structure.
The only alternative, under the circumstances, was intervention by government. Only in this way was it possible to arrest the forces of deflation by
bringing about an increase in incomes and hence an increase in the demand for
goods and services of all kinds, through increasing disbursements financed
initially by borrowings rather than by taxes. Those of us who advocated this
course believed that an increase in incomes brought about in this way would
lead to an increase in the demand for goods. Industry would pay out more in
wages and materials in making these goods. These payments would result in
further increased demands until finally the stage would bo reached when here
and there individual business men would see seme point in taking up deferred
maintenance, in adding to plant or venturing to establish a new type of service
or industry. Here and there it would become profitable to build new houses
as the demand for houses, and consequently rents, rose. As this process pro-
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-5ceeded, we anticipated that tax revenues would increase as incomes increased,
and the gap between expenditures and receipts would gradually close. A little
later the whole burden of the recovery movement could rest on increasing business and individual expenditures and the Federal Government could not only
balance the budget, but could begin to retire the debt built up in the depression. The expenditures of the Federal Government can be fully justified solely
on humanitarian grounds—on the urgent necessity of relieving the home-owners
and the farmers, who were about to lose their homes and their farms, and aiding
the great army of unemployed who were destitute and helpless through no fault
of their own. However, I feel that the expenditures are fully justified as a
means of achieving business recovery.
Has the Program Been Successful to Date?
Has the economic philosophy of the past three years which I have attempted
to outline fulfilled reasonable expectations?
The answer is to be found by looking without bias at the results to
date. On the debit side we should put the gross increase in the Federal debt
from $20,935,000,000 on February 28, 1933, to $31,459,000,000 on March 31,
1936, and the continuing large number of unemployed, many of whom are dependent
on relief. Neither of these adverse factors is as unfavorable as most of the
business and financial community have been led to believe. Against the increase in the debt must be offset the increase in the Treasury's cash balance
from $221,000,000 to $2,866,000,000 in the same period (exclusive of the
Stabilization Fund), and an increase in the recoverable assets of Government
agencies from an estimated #2,400,000,000 to $4,300,000,000, largely in the
Reconstruction Finance Corporation which was used very largely to support directly
X-9577
5 3 9
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the banking and private credit structure. So that this leaves a net increase
in the national debt of $5,979,000,000, which is less than a month's national
income in 1928-1929. The annual interest charge on the Federal debt as computed at the end of March, 1936, increased by only 8 percent over the end of
March, 1933. This may be compared with an increase in the gross debt of 50
percent in the same period. The total carrying charges amount to a little
over 1 percent of our current national income, not, I think you will admit,
an excessive burden.
In considering the continuing heavy volume of unemployment, it should be
remembered that there were 2,000,000 to 2,500,000 of unemployed prior to the
depression, and that the number of people seeking work has increased since then
by 3,500,000 to 4,000,000, due to the increase in the number of those reaching
employment age. The lack of employment in many cases of the principal breadwinner of the family is also responsible for other members of the family, who
would not ordinarily be employed, seeking employment. More important than these
considerations, however, is the fact that millions of workers who were formerly
working only one or two days a week and yet were listed as employed are now
working four and five. The increase in man hours worked, in other words, has
been much greater than the increase in the number of men working. The introduction of labor-saving machinery has doubtless also played its part. I am
not saying that the employment situation is at all satisfactory. I am merely
saying that the progress has been far more substantial than appears at first
sight. Because of the various factors I have just mentioned, the burden of
relief has not diminished correspondingly with the increase in employment.
As recovery proceeds, we can, of course, expect relief expenditures to diminish.
5
X-9577
-7Income. Production and Restoration of Money Supply
On the favorable side of the recovery program to date, I would stress
particularly the rise in the national income and production, the restoration
of the supply of money, increasing tax revenues, and the rise in building
activity.
Although current direct estimates are not available, it would appear from
other evidence that the national income is running currently about 60 billions
a year as contrasted with approximately 40 billions in 1932. The index of
production has risen from 58 percent to 94 percent of its 1923-25 level. The
supply of deposits of all commercial banks rose from $27,000,000,000 on June
30, 1933, to $37,000,000,000 on December 31, 1935, or about the pre-depression
level, so that the contraction in the money supply which occurred as a result
of deflation has been largely offset. This replenishing of bank deposits is
chiefly attributable to the increase in bank holdings of government securities
and to the inflow of gold. It is directly attributable, in other words, to
the relief and recovery expenditures of the government and indirectly attributable to the revaluation of gold, which was a necessary condition for the
reversal of the international flow of capital. In the absence of government
borrowing and the revaluation of gold no progress would have been made toward
a restoration of the community's supply of purchasing power, since private
loans and investments of banks continued to decline until 1935. It is encouraging to note that recovery is bringing about some increase in the demand
for an extension of private credit by the banking system.
X-9577
531
Progress Toward a Balanced Budget
Turning to government revenues, the trend is most reassuring. In the
calendar year 1932 they amounted to $1,880,000,000. In 1935, despite the nonpayment of part of the processing taxes, they amounted to $3,857,000,000, an
increase of nearly $2 billions. With bonus payments met and a revision in
taxes enacted, this favorable trend should be accelerated so that we would have
every reason to expect a balanced budget within a reasonable period. Balancing
the budget through, increasing taxes or decreasing expenditures, or both, as the
national income is restored, is an absolutely indispensable element in the
eventual and complete success of a program of recovery requiring government
intervention which entails large deficit-financing.
Orderly Character of the Recovery Movement
Finally, I would stress the increasing activity in the heavy industries
and in building construction. During 1934 and 1935 it was constantly said that
the deficit-financing experiment had been a failure because heavy industry and
building construction had not picked up substantially. Such criticism displayed a misconception of the necessary sequence of events. First, the process
of forced liquidation, caused by deflation, had to be stemmed. Second, the demand for consumer goods had to be greatly increased before there could possibly
be any inducement for corporations or individuals to add to productive capital
facilities to provide more goods and services. Third, long-term interest rates
had to be brought down to encourage and make profitable the use of capital for
new enterprise, and to adjust, through refunding, a substantial portion of the
existing debt structure on a supportable basis.
X-9577
532
-9In the real estate field liquidation had to be stopped and rents had to
rise, this together, with lowered interest rates, bringing about a reopening of
the mortgage market. All of these necessary steps took time. They could not
have been accomplished in a much shorter space of time considering the depth of
the depression and the immensity of the problems thus created. For more than a
year the improvement of underlying conditions has become increasingly steady and
orderly in character. The ground has been well prepared. The national income
has been increased by some 50 percent. Industry and finance have been enabled
by the recovery program to improve greatly their financial position through
increased earnings, adjustment and reduction of debts and refunding on more
favorable terms. Favorable long-term interest rates are available for financing
in practically every field of activity. Rents have risen, hence real estate
values have increased, making it again profitable to increase building construction. Excess capacity in nearly every field of production is rapidlydiminishing. The index of commodity prices has remained steady for more than
a year.
The Present Phase of the Recovery Movement
The present phase of the recovery movement is a most important one.
Will the disbursements of private business and individuals increase sufficiently
to warrant a lessening of the government's contribution to the growth in the
national income?
It is encouraging to note that activity in the housing field
is rapidly increasing; capital financing is gradually being undertaken for new
enterprise; an expansion of private credit on the part of the banking system is
in evidence; activity in the machine tool, industrial equipment and heavy industries reflects substantial improvement.
5:
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X-9577
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Barring unforeseen contingencies, the present improvement Should continue.
The outlook at the moment is very encouraging.
Conclusion
The Federal Government cannot and should not decrease its expenditures
on recovery faster than private industry is able profitably to take over the
load. To do so would reduce consumer buying power and thus retard, if not
reverse, the progress of recovery.
The flow of money must be maintained and increased in an expanding
economy. If private capital fails to maintain and expand the flow, and
widespread unemployment exists or develops, government must act as a compensatory
factor.
Purchasing power can only be maintained by private business as a whole
disbursing its income, or insofar as it fails to do so, by government expenditure either on the basis of deficit-financing, or by taxing in such a way as to
insure the flow of funds that individuals and corporations otherwise would accumulate and maintain in idle balances, so that socially beneficial work will
be provided for those who are able and willing to work but for whom private
enterprise fails to provide.
1 am sure that we will all agree that our objective should be the
maintenance of long-term prosperity und the avoidance of the twin evils of
inflation and deflation. The attainment of this objective depends not only
upon the effective coordination of monetary and fiscal policies, but also upon
an enlightened body of public opinion.
534
BOARD OF GOVERNORS
OF THE
X-9578
FEDERAL RESERVE SYSTEM
WASHINGTON
address
official
May 8, 1936.
Dear Sir;
There is attached a copy of the report
of expenses of the main lines of the Federal
Reserve Leased Wire System for the month of
April, 1936. This report is in the form which
accompanied the Board's letter of March 26,
1936 (X-9534).
Please credit the amount payable by
your bank to the Board, as shown in the last
column of the statement, to the Federal Reserve Bank of Richmond in your daily statement
of credits through the Inter-district Settlement Fund for the account of the Board of
Governors of the Federal Reserve System, and
advise the Federal Reserve Bank of Richmond
by wire the amount and purpose of the credit.
Very truly yours,
0. E. Foulk,
Fiscal Agent.
Inclosure.
TO PRESIDENTS OF ALL F. R. BANKS.
to
the
c o r r e s p o n d e n c e
board
X-9578-a
REPORT OF EXPENSES OF MAIN LItiES OF FEDERAL RESERVE
LEASED KIKE SYSTEli FOR THE MOM :K OF APRIL, 1936.
Federal
Reserve
Bank
i-i umber Words sent
by N. Y.
of
chargeable
words
to other
sent
F. R. Banks
Boston
42,412
New York
150,188
Philadelphia
40,512
Cleveland
59,174
Richmond
64,464
Atlanta
86,697
Chicago
105,873
St. Louis
92,267
Minneapolis
40,862
Kansas City
79,865
Dallas
89,665
San Francisco 112,521
Board of
Governors
488,759
Total
1,453,259
1,076
1,129
1,084
1,066
1,087
1,439
1,499
1,149
1,120
1,126
1,134
12,909
Total
words
chargeable
Personal
services (l)
43,488 S 251.50
150,188 1,591.87
41,641
236.39
60,258
363.65
65,530
263.92
. 87,784
275.76
107,312 1,645.28
93,766
196.88
42,011
162.47
80,985
259.43
90,791
267.55
113,655
399.11
Total
expenses
Wire
rental
—
—
— —
— —
230.00
— —
—
— —
— —
— —
$
Pro rata
share of
total expenses (2)
Credits
Payable
to
Board
of Governors
251.50 # 442.74
251.50 $
694.24 |
1,391.87
1,391.87 1,005.73
2,397.60
256.39
428.37
236.39
664.76
363.65
598.31
961.96
363.65
552.20
433.92
433.92
1,046.12
275.76 1,125.62
275.76
1,401.38
1,645.28
1,645.28
67.85
1,713.13
196.88
1,496.88
136.83
1,300.00
162.47
508.19
670.66
162.47
259.43 1,033.41
1,292.84.
259.43
267.55
267.55 1,181.84
1,449.39
399.11 1,415.28
399.11
1,314.59
488.759 2,531.01 14,881.07
17.462.08
7.802.54 17.462.08
1,466,168 #8,294.82 $15,111.07 |23,405.89 $23,405.89 #23,405.89 $9,659.54
(l) Includes salaries of main line operators and of clerical help engaged in work on main line business such as
counting the number of words in messages, also, overtime and supper money and Retirement System contributions
at the current service rate.
(2) Based on cost per word ($.015963989) for business handled during the month.
X-9579
INTERPRETATION
BANKING ACT OF 1955
(Copies to be sent to all Federal reserve banks)
May 6, 1956.
Mr.
, Vice President,
Bank and Trust Co.,
Dear Sir:
This refers to your letter dated March 24, 1956, addressed
to the Comptroller of the Currency, which has been referred to the
Board of Governors of the Federal Reserve System for reply. You request a ruling as to whether a State member bank of the Federal Reserve System is permitted to purchase called preferred stock.
As you know, under the provisions of section 5156 of the
Revised Statutes and section 9 of the Federal Reserve Act, State
member banks are not permitted to purchase stock for their own account .
After considering this matter in the light of the decisions
of the courts on similar questions, it is the view of the Board that
preferred stock which has been called for redemption or retirement
must still be considered as stock within the meaning of section 5156
of the Revised Statutes and, therefore, may not be purchased by a
State member bank for its own account.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
536
X-9580
INTERPRETATION
BANKING ACT OF 1955
(Copies to be sent to all Federal reserve banks)
May 6, 1956.
Mr. W. A. Day, President,
Federal Reserve Bank of San Francisco,
San Francisco, California.
Dear Mr. Day:
This refers to your letter of April 25, 1956, requesting an
interpretation of the underscored portion of the following provisions
of the twentieth paragraph of section 9 of the Federal Reserve Act:
"After the date of the enactment of the Banking
Act of 1955, no certificate evidencing the stock of any
State member bank shall bear any statement purporting to
represent the stock of any other corporation, except * * *
a corporation engaged on June 16, 1954, in holding the
bank premises of such member bank, * * *." (Underscoring
added.)
The question is whether such exception is limited to corporations engaged solely in holding the bank premises of the affiliated bank.
Prior to the enactment of the Banking Act of 1955, such
statutory provisions read as follows:
"After one year from the date of the enactment
of the Banking Act of 1955, no certificate representing
the stock of any State member bank shall represent the
stock of any other corporation, except * * * a corporation existing on the date this paragraph takes effect engaged solely in holding the bank premises of such State
member bank.
(Underscoring added.)
The memorandum accompanying your letter correctly summarizes
the legislative history of the provisions of the Banking Act of 1955
amending the above-quoted provisions of section 9 of the Federal Reserve Act and the corresponding provisions of section 5159 of the
537
X-9580
-
2
-
Revised Statutes of the United States relating to national banks. The
Board concurs in your counsel's opinion that, in view of such legislative history, the exception, in its present form, can not properly be
interpreted as being limited to corporations engaged solely in holding
the bank premises of the affiliated bank.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
539
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
May 8, 1933.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
X-9581
Subject: Rulings by the Comptroller of the Currency
interpreting his regulations governing the
purchase of investment securities.
Dear Sir:
There is inclosed herewith for your information a
copy of a letter which has been addressed to the Assistant
Federal Reserve Agent at the Federal Reserve Bank of San Francisco, setting forth the views expressed by the Comptroller of
the Currency with regard to certain questions presented by a
State member bank concerning the interpretation of the regulations governing the purchase of investment securities issued
by the Comptroller under the provisions of section 5136 of the
Revised Statutes.
Very truly yours,
} Y~)oVUJZ{>
Chester Morrill,
Secretary.
Inclosure
http://fraser.stlouisfed.org/ TO PRESIDENTS
Federal Reserve Bank of St. Louis
OF ALL FEDERAL RESERVE BANKS
X—9581—£i
May 6, 1956.
Mr. S. G. Sargent,
Assistant Federal Reserve Agent,
Federal Reserve Bank of San Francisco,
San Francisco, California.
Dear Mr. Sargent;
This refers to your letter dated March 24, 1936
with which was inclosed a copy of a letter from Mr.
, Auditor of the
Bank,
_
,
, a State member bank, presenting certain questions concerning the interpretation of the regulations
governing the purchase of investment securities, issued by
the Comptroller of the Currency under the provisions of
section 5136 of the Revised Statutes. Several of the questions presented in Mr.
' s letter were answered by
the Board's letter to you dated April 25, 1936.
Question numbered 2 and the second and third questions under the heading "Additional Questions" have been submitted to the Comptroller of the Currency for an expression
of his views thereon. The questions and the Comptroller's
views thereon are set forth below.
Question numbered 2 in Mr.
1
s letter reads
Mr. S. G, Sargent — Z
X-9581-
as follows:
"Item 4(a) of Section Z of the Regulations covering
the purchase of investment securities reads in part,
1
Purchase of investment security at a price exceeding par is prohibited unless the bank shall: provide
for the regular amortization of the premium paid
- and the security (including premium) shall at
no intervening date be carried at an amount in excess
of that at which the obligor may legally redeem such
security.1 Is it the intention of the Regulations
that any bonds bearing a call provision may not be
carried at a price in excess of the call price, so
that an immediate writedown is required of any such
bonds carried in excess of the call price, or is it
the intent that such bonds be amortized so that they
shall be written down to the call price by the date
upon which a call may legally be made?"
With regard to the above question, the Comptroller
of the Currency stated the following:
"The first inquiry refers to Item 4(a) of Section
Z of the regulations, relative to amortization of premium bonds. The question is whether or not an immediate writedown is required to call price on such bonds.
"It was not the intention that an immediate writedown of the call price need be made but it was the intent of the regulation that the premium be gradually
written down to the call price by the call date so that
at the call date the bond will be carried at an amount
not in excess of the call price."
The second question under the heading "Additional
Questions" reads as follows:
"Do the regulations intend that no bond can be
carried in excess of call price, whether or not a call
has been made? What about premium above call price on
bonds purchased after call date is set (and is wi.thin say 6 months or less), where the bonds are usually purchased on a low yield basis, as a temporary investment,
Mr. S. G. Sargent — 3
X-9581-a
'land the entire investment will be liquidated on
the near future call date?"
With reference to this question, the Comptroller made
the following statement:
"The second inquiry is as to whether or not a
bond can be carried in excess of call price, regardless of whether or not a call has been made, and refers particularly to the purchase of bonds at a premium above call where the call date has been set and
is within six months of purchase.
"The first part of the inquiry is not clearly
understood but it is our position as respects bonds
which are callable within a short time after purchase,
as for instance bends that may be callable on thirty
days' notice, or may be callable on any semi-annual
payment date, that in such cases the premium should
be immediately amortized down to the call price.
Usually such a bond is purchased at a very slight premium above the call price due to the imminence of the
call date."
The third question under the heading "Additional Questions" reads thus:
"Where bonds have been amortized to the call price
by the earliest possible call date (which was in the
past, and no call was made), and such amortization is
in excess of normal amortisation as ordinarily calculated, is it necessary to amortize balance of premium
(which equals the excess of call price over par) over
the remaining life of bonds to maturity, or can credit
be taken for excess premium therefor set up?"
The Comptroller stated the following with reference to
the above question:
"Inquiry is made with reference to bonds purchased
at a time when a call could have been made prior to
purchase, but was not. It is assumed that the type of
X—9581—a
S. G. Sargent — 4
"callable bond contemplated is one that is callable
on any semi-annual interest date. After such bond
has been amortized to call price, the question is
submitted as to whether or not it is necessary to
amortize the balance of the premium (which equals
the excess of call price over par) over the remaining life of the bond to maturity, or can credit be
taken for excess premium theretofore set up.
"It is our position that the amount of premium
represented by the excess of call price over par
should be gradually amortized over the remaining life
of the bonds, without taking credit for the excess
premium over call price theretofore amortized."
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
544
B O A R D OF G O V E R N O R S
OF THE
X-9582
FEDERAL RESERVE SYSTEM
WASHINGTON
address
May 9, 1956.
o f f i c i a l
t o
the
SUBJECT: Code Words Covering New
Issues of Treasury Bills
Dear Sir:
In connection with telegraphic transactions in
Government securities between Federal reserve banks,
the following code words have been designated to cover
new issues of Treasury Bills:
"NOYMAG" - Treasury Bills to be dated
May 15, 1956, and to mature
December 15, 1956.
"NOYMEA" - Treasury Bills to be dated
May 15, 1956, and to mature
February 10, 1957.
These words should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental
code word "NOYLUG" on page 172.
Vc^zy truly yours
J. C•
C. Noell
Noell,
Assistant Secretary
TO PRESIDENTS OF ALL F. R. BANKS.
c o r r e s p o n d e n c e
board
545
B O A R D OF G O V E R N O R S
X-9583
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
May 9, 1936
Dear Sir:
There are enclosed herewith
copies of statement rendered by the
Bureau of Engraving and Printing,
covering the cost of preparing Federal reserve notes for the month of
April, 1936.
Very truly yours,
0. E. Foulk,
Fiscal Agent
Enclosure
TO ALL F. R. PRESIDENTS
official
t o
the
c o r r e s p o n d e n c e
board
X-9583-a
546
Statement of Bureau of Engraving and Printing
for furnishing Federal Reserve Notes,
April 1 to 50, 1936.
SERIES 1954
$5
Boston,
Philadelphia,...
Cleveland,
$10
$20
Total Sheets
Amount
-
162,000
$ 13,932.00
72,000
90,000
160,000
404,000
20,000
584,000
50,224.00
90,000
44,000
35,000
170,000
14,620.00
30,000
30,000
2,580.00
75,000
6,450.00
-
—
75,000
—
Atlanta,
55,000
-
20,000
55,000
4,730.00
Chicago,
124,000
-
98,000
222,000
19,092.00
24,000
7,000
31,000
2,666.00
St. Louis,
-
—
Minneapolis,....
30,000
14,000
24,000
68,000
5,848.00
Kansas City,....
25,000
46,000
10,000
81,000
6,966.00
Dallas,
30,000
54,000
9,000
93,000
7,998.00
San Francisco,..
80,000
82,000
13,000
175,000
15,050.00
721.000
758.000
267.000
1.746.000
Si50.156.00
1,746,000 sheets, S $86.00 per M ..
$150,156.00
B O A R D OF G O V E R N O R S
OF THE
FEDERAL RESERVE SYSTEM
X-9584
WASHINGTON
address
o f f i c i a l
to
May 13, 1956.
SUBJECT: Necessity of Receiving Request From
Secretary of Treasuiy for Performance
of Certain Fiscal Agency Functions.
Dear Sir;
There is inclosed herewith for your information a copy of a letter by the Board to
the First Vice President of the Federal Reserve
Bank of St. Louis regarding the necessity of a
Federal reserve bank's receiving a request from
the Secretary of the Treasury for the performance of certain functions in connection with the
redemption of joint stock land bank bonds.
Very truly yours,
L. P. Bethea,
Assistant Secretary
Inclosure
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
the
c o r r e s p o n d e n c e
board
548
X-9584-a
May 13, 1936.
Mr. 0. M. Attebery, First Vice President,
Federal Reserve Bank of St. Louis,
St. Louis, Missouri.
Dear Mr. Attebery:
This refers to your letter of April 29, 1936, which sets forth
the acts performed by the
Branch of the Federal Reserve
Bank of St. Louis in connection with the redemption of bonds of the
__Joint Stock Land Bank and the
of .
t
by the
Joint Stock Land Bank
National Bank,
It appears from your letter that the
Branch of your
bank receives funds which are held subject to the order of the Governor of the Farm Credit Administration to pay for the total amount of
the called issues of bonds of the joint stock land, banks; that the
Branch makes entry on its general ledger crediting "Fiscal Agency Account of the Governor of the Farm Credit Administration" and notifies
the treasurers of the joint stock land banks and the Governor of the
Farm Credit Administration of the receipt of such funds; that the
Branch receives bonds from the
National Bank giving
its receipt therefor and thereafter cancels such bonds; that the Branch
credits
•
National Bank with the face amount of the bonds
deposited and debits the account "Fiscal Agency Account of the Governor of the Farm Credit Administration"; that the Branch notifies the
549
-2Registrar at the
X-9584-a
Federal Land Bank of the receipt of the
bonds and notifies the Farm Credit Administration and the treasurers
of the two joint stock land banks, giving thorn lists of the securities redeemed; and that the Branch delivers the canceled securities
to the Registrar at the
Federal Land Bank and takes his
receipt.
As stated in the Board's letter of April 17, 1936, to President
Martin, in view of the provisions of the first paragraph of section
15 of the Federal Reserve Act, the Board has been customarily guided
by the views of the Secretary of the Treasury as to what constitutes
a fiscal agency function and has taken the position that, in the absence of a specific authorization such as that appearing in the third
paragraph of section 15 of the Federal Reserve Act relating to Federal
Intermediate Credit Banks, Federal Reserve banks should perform fiscal
agency functions only after receiving a request to do so from the
Secretary of the Treasury.
Although it appears that the Farm Credit Administration has requested the
___
Branch of your bank to perform the acts de-
scribed in your letter in connection with the redemption of joint
stock land bank bonds, the Bor.rd is of the opinion that these acts
constitute functions which should be performed only after receiving a
request from the Secretary of the Treasury. Accordingly, if the Farm
Credit Administration desires your bank to continue to perform these
functions and your bank wishes to continue to do so, it is suggested
—3—
X-9584-a
that you advise the Farm Credit Administration of the opinion of the
Board expressed above, with the suggestion that it take the matter up
with the Secretary of the Treasury with a view to having the Secretary
request your bank to perform the functions in question.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
551
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
X-9585
WASHINGTON
address
official
t o
c o r r e s p o n d e n c e
t h e
board
May 15, 1936.
Dear Sir:
As you know, on May 8, 1936, Chairman Eccles
addressed the Seventh Annual Lharton Institute of the
University of Pennsylvania, at New York. Because of the
public interest in the matters discussed in the address,
it was felt that copies should be sent to the Federal
reserve banks for the information of the officers and
directors of the bank who may wish to read it.
Accord-
ingly, six copies of the address are being forwarded to
you today under separate Cover and additional copies will
be sent to you on request.
Very truly yours,
H o
Chester Morrill,
Secretary.
TO ALL PRESIDENTS.
o w J t ^
B O A R D OF G O V E R N O R S
A-9586
552
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
May 14, 1936.
address
official
to
the
c o r r e s p o n d e n c e
board
Dear Sir:
Referring to the Board's letter of July 26, 1935 (X-9271),
in regard to the quarterly audit of the books and records of the
Board's Fiscal Agent by the Auditor of the Federal Reserve Bank
of Cleveland, there is transmitted herewith, for your information, a copy of the auditor's certificate in connection with his
audit of the Board's accounts for the period January 1 to April
18, 1956, inclusive.
For your further information in this regard, the Board
is today addressing a letter to the Auditor of the Federal Reserve Bank of Cleveland approving his recommendation that audits
of the Board's books ahd accounts be limited to three in each
calendar year, one to be made at the close of each year and the
other two at irregular dates.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO ALL
CHAIRMEN.
X-9586
I, F. V. Grayson, hereby certify:
That a complete audit has been made of all entries in the
accounts, "Board of Governors of the Federal Reserve SystemSpecial Fund", "Board of Governors of the Federal Reserve System-Building Account", "Board of Governors of the Federal Reserve System-Fiscal Agent" and "Board of Governors of the
Federal Reserve System-Fiscal Agent Building Account", for the
period January 1 to April 18, 1936, inclusive.
That all cash receipts received by the Board as shovm try
the "Collection Schedules" furnished the Fiscal Agent by the
Secretary's office have been deposited by the Fiscal Agent and
properly credited by the Federal Reserve Bank of Richmond in
the account, "Board of Governors of the Federal Reserve S>ystemSpecial Fund" except schedules Nos. 888 to 892 inclusive totaling $5,070.97 which according to the Richmond bank's availability schedule are to be credited on April 20 and April 24.
That all remittances made direct to the Richmond bank for
the account of the Board of Governors of the Federal Reserve
System by the Federal reserve banks and others in compliance
with the Board's instructions have been properly credited to
the accounts, "Board of Governors of the Federal Reserve SystemSpecial Fund" and "Board of Governors of the Federal Reserve
System-Building Account."
That each expenditure made by the Fiscal Agent was properly
authorized by an administrative officer of the Board.
That the items of receipts and expenditures shown by the
books of the Fiscal Agent have been reconciled with the items
shown in the statements of the Board of Governors of the Federal
Reserve System's accounts prepared by the Federal Reserve Bank
of Richmond.
That the balances in each account as shown by the books of
the Fiscal Agent have been reconciled with the balances standing
to the credit of the Board of Governors of the Federal Reserve
System on the books of the Federal Reserve Bank of Richmond as
certified by the auditor of that bank.
That all "Transfers of funds" have been properly authorized
by the Chairman or Chairman pro-tem of the Board.
Respectfully submitted,
(Signed) F. V. Grayson
May 4, 1956
Auditor
554
.X-9587
"THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM"
Address before the Annual Convention
of the
Texas Bankers Association
by
Walter Wyatt, General Counsel
Board of Governors of tho Federal Reserve System
Houston, Texas, May 20, 1936.
For release in afternoon papers
Wednesday, May 20.
X-9587
«
Mr. Chairman, Ladies and Gentlemen;
I have selected as thu subject of my talk the "Board of Governors of the Federal Reserve System," which is the new name given by
the Banking Act of 1935 to the organization in Washington formerly
known as the Federal Reserve Board.
In discussing the Board, I wish to make it perfectly clear that
I am not referring personally to the distinguished gentlemen who constitute the Board today or have served on the Board at various times
in the past. On the contrary, I always think, and I am now speaking,
of the Board as an institution or an organization, and I hope that you
will interpret all of qy remarks in this light.
The Federal Reserve System consists of three principal elements —
the member banks, the Federal Reserve banks, and the Board in Washington.
The member banks are as much a part of the Federal Reserve System as the Federal Reserve banks or the Board in Washington. They own
all of the stock of the Federal Reserve banks and elect two-thirds of
the directors. It is principally through the member banks that the
Federal Reserve banks serve the public.
The System is fundamentally a cooperative arrangement by which
member banks join together and pool a portion of their resources for
mutual assistance. The member banks in each district make their contributions by depositing their reserves in their own Federal Reserve
bank; and, when any member bank needs assistance, it goes to its own
t
556
#
-2-
X-9587
Federal Reserve bank in its own district.
The Federal Reserve banks are neither Government institutions
nor private institutions. They are privately owned but they are devoted entirely to the public service. The Supreme Court of the
United States has declared that banking is a business affected with
a public interest. That is true of all banking business; but it applies to Federal Reserve banks with much greater force than it does
to ordinary commercial banks.
The Federal Reserve System is not a central banking system but
a regional banking system. This country is too vast and conditions
in different parts of the country vary too much to make it feasible
or desirable to have a single central bank for the entire country.
Instead, therefore, we have twelve Federal Reserve banks, each serving a definite geographical area and managed by directors, officers
and employees who live in and are familiar with the conditions in its
district. However, each Federal Reserve bank is authorized, and may
be required, to go to the assistance of any other Federal Reserve bank
which needs assistance in handling any situation arising in its
district.
With respect to matters affecting the country as a whole the
activities of the twelve Federal Reserve banks are coordinated by the
Board of Governors in Washington. The Board is given the broad power
to exorcise general supervision over the twelve Federal Reserve banks
and certain specific powers designed to enable the Board to see that
-5-
X-9587
they pursue a banking policy which is uniform and harmonious for the
country as a whole.
The fundamental characteristics of the Federal Reserve System
were stated by Honorable Carter Glass in the official report which
he made to the House of Representatives on the bill which became the
original Federal Reserve Act. He said:
" * * * The only factor of centralization which has
been provided in the committee1s plan is found in the
Federal reserve board, which is to be a strictly Government organization created for the purpose of inspecting
existing banking institutions and of regulating relationships between Federal reserve banks and between them and
the Government itself. Careful study of the elements of
the problem has convinced the committee that every element
of advantage found to exist in cooperative or central
banks abroad can be realized by the degree of cooperation
which will be secured through the reserve-bank plan recommended, while many dangers and possibilities of undue
control of the resources of one section by another will
be avoided. Local control of banking, local application
of resources to necessities, combined with Federal supervision, and limited by Federal authority to compel the
joint application of bank resources to the relief of
dangerous or stringent conditions in any locality are
the characteristic features of the plan as now put forward . * * It is proposed that the Government shall
retain a sufficient power over the reserve banks to enable it to exercise a directing authority when necessary
to do so, but that it shall in no way attempt to carry
on through its own mechanism the routine operations of
banking which require detailed knowledge of local and
individual credit and which determine the actual use of
the funds of the community in any given instance. In
other words, the reserve-bank plan retains to the Government power over the exercise of the broader banking
functions, while it leaves to individuals and privately
owned institutions the actual direction of routine."
In this form of organization we have something which is characteristically American — local management of local affairs, national
-4-
X-9587
management of national affairs, and the strength which lies in unity,
coordination and cooperation.
The Board is an independent establishment carefully safeguarded
from political influence and pressure.
Under the original Federal Reserve Act it consisted of the
Secretary of the Treasury, the Comptroller of the Currency, and five
members appointed by the President with the advice and consent ot
the Senate. The appointive members were given ten year terms and
their appointments were arranged so that not more than one term would
expire within any two years. By the Agricultural Credits Act of 1923,
a sixth appointive member was added to represent agriculture. %
the
Banking Act of 1933 the appointive members wore given twelve year
terms of office and the terms wore rearranged accordingly.
By the Banking Act of 1935 the Board was given a still greater
measure of independence ty the amendments which removed from membership on the Board the Secretary of the Treasury and the Comptroller
of the Currency and provided for a Board of seven members serving for
terms of fourteen years each, with such terms arranged so that not
more than one of them would expire in any two years, furthermore, a
member who has served a full term of fourteen years is ineligible for
reappointment, so that his actions while in office will not be influenced by the desire to be reappointed.
In selecting the members of the Board, not more than one of whom
may be selected from any one Federal Reserve district, the President
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X-9587
is required to have due regard to a fair representation of the financial, agricultural, industrial and commercial interests and geographi
cal divisions of the country. Before taking office, the members of
the Board are required to divest themselves of all interest in any
bank, banking institution or trust company; and the members of the
Board are made ineligible during the time they are in office and for
two years thereafter to hold any office, position or employment in
any member bank, except that this restriction does not apply to a
member who has served the full term for which he was appointed.
Another feature of the original Federal Reserve Act, which has
been preserved and which affords the Board very important protection
against political pressure is the fac% that it is not dependent upon
Congress for appropriations but defrays all of its expenses out of as
sessments levied on the Federal Reserve banks.
Appointments to and promotions within the Board's staff, and
appointments by the boards of directors of the Federal Reserve banks
of their own officers and employees, are entirely free of politics
and entirely on a merit basis. A real student of the subject told me
recently that he believed that the Federal Reserve System comes
closer to having an effective merit system of appointments and promotions than any other Governmental or business organization in the
United States.
In view of the vast injury which could be done if the official
actions of the Board of Governors and the Federal Reserve banks were
560
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X-9567
influenced by politics or favoritism, it is vitally important that
this merit system be preserved. It is not only important to the public interest, but it is of especial and immediate importance to every
member bank. It is vitally important to keep banking out of politics
and politics out of banking.
Nobody realizes this more thoroughly than the Board of Governors
and no one has done more throughout the history of the Federal Reserve
System to promote, protect and preserve the merit system than the
Board in Washington. The present Board has demonstrated its purpose
to maintain this fine tradition.
Some bankers feared that the amendment contained in the Banking
Act of 1955 which makes the appointment of the presidents of the Federal Reserve banks subject to approval by the Board of Governors of
the Federal Reserve System would inject an element of politics into
the management of the Federal Reserve banks. That such is not the
case is demonstrated by what has happened with respect to the appointments of presidents and first vice presidents of Federal Reserve banks.
Of the twelve presidents elected by the directors of the Federal
Reserve banks, eleven wore already the executive heads of such banks
and one was the Chairman of his bank. Of these twelve, nine were
promptly approved by the Board of Governors in Washington.
Three were
not approved because they were over seventy years of age and the
Board felt that it would not be consistent with the purpose of the
law or the System's established policy to approve for terms of five
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X-9587
years persons who had already passed the compulsory retirement age
adopted by the Federal Reserve System for its own guidance several
years ago.
However, the vacancies created by the retirement of those three
governors were all filled by men who were not only the free choice of
the directors of the respective Federal Reserve banks, but were already serving those banks in official capacities. In othjr words,
the vacancies wore filled entirely from promotions within the existing official staffs of the Federal Reserve banks. Moreover, every
one of the original first vice presidents appointed to date was selected by the directors of the Federal Reserve banks from the existing official staff of the Federal Reserve System and every one of
them was promptly approved by the Board of Governors in Washington.
These appointments were all for statutory terms of five years,
giving the appointees a greater measure of independence and permanence
than they have ever enjoyed before.
The result has been that tha established practice of making appointments to and promotions within the staffs of the Federal Reserve
banks solely on the basis of merit and ability has been preserved and
strengthened.
The most important and most widely discussed powers of the Board
relate to national credit policies. These include the power to approve or disapprove discount rates of the Federal Reserve banks, to
change reserve requirements or member banks, to prescribe margin
562
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X-9587
requirements for loans by brokers and dealers in securities and by
banks for the purpose of purchasing or carrying securities, and to
regulate the rates of interest which may be paid by member banks on
time and savings deposits. In addition, the Federal Open Market
Committee, which consists of the seven members of the Board and five
representatives of the Federal Reserve banks, is given control over
the open market operations of the Federal Reserve banks - that is
over the amount of credit which they can place in or remove from the
money market through the purchase or sale of Government bonds, bankers' acceptances or other obligations of the kinds which Federal Reserve banks are authorized to purchase and soli in the open market.
These powers are of vast importance; but they have been so thoroughly
discussed during recent years in public speeches both in and out of
Congress and in numerous articles by economists and financial writers
that I shall not dwell upon them now.
The most numerous powers of the Board relate to the operations
of the Federal Reserve banks and are a part of an intricate system
of checks and balances designed to leave the management of local affairs and the granting of individual credits to the directors and officers of the Federal Reserve banks but at the same time to give the
Board in Washington sufficient powers of general supervision and regulation, and in some instances the power of veto, to enable the Board
to coordinate the activities of the twelve Federal Reserve banks and
see that they carry out the purposes of the Federal Reserve Act and
563
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X-9587
pursue policies which are harmonious for the country as a whole. However, most of these powers affect the member banks only indirectly,
if at all, and an adequate discussion of them would require much more
time than I have available.
I believe that you would be much more interested in a discussion
of some of the powers entrusted by Congress to the Board which directly
affect the daily operations of the member banks and especially some of
the powers in connection with which the Board has issued regulations
which member banks have been receiving in increasing numbers in recent
years.
There have been complaints about the number of new regulations
issued by the Board since the passage of the Banking Act of 1955, and
you probably will be interested in that subject.
I sympathize with the member banks; because thay have been through
very trying times since 1929. After all the troubles which they experienced in the unhappy years leading up to the banking holiday in March,
1933, and the very difficult months of reorganization and rehabilitation following that period, they had to contend with many perplexing
new provisions of law imposed upon them by the Banking Act of 1935.
That was distinctly a reform measure resulting from public resentment
over certain practices which were brought to light by the large number
of bank failures in the years immediately preceding.
The Banking Act of 1953 made it necessary for the Board to issue
a number of new regulations; and, before the banks finished familiarizing
564
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X-9587
themselves with these new laws and regulations and adjusting themselves to them, we had the Banking Act of 1935 and a new set of regulations issued thereunder. The banks probably feel that they are
being legislated and regulated to death; but an analysis of the situation will disclose that it is not as bad as it seems.
Since the passage of the Banking Act of 1955, the Board has issued nine regulations under that Act and one under the Securities
and Exchange Act of 1934, making ten in all issued since last summer.
Of these ten only two are new or additional regulations.
Sight of
them are merely revisions of pro-existing regulations, and most of
the changes made are in the direction of greater liberality, simplicity and clarity.
In view of the fact that the Board designates its various regulations by the letters of the alphabet and has now reached the letter
U, you may wonder what the Board will do when it has exhausted the
alphabet. I personally hope that the Board will never exhaust the
alphabet, but that it will be able in tine to work out ways and means
of simplifying its regulations and greatly diminishing their number.
There being one gap in the Board's series of regulations lettered
from A to U, inclusive, the Board has outstanding at the present time
twenty different regulations. This sounds like a tremendous volume
of regulations; but it is not really as formidable as it sounds. Each
regulation is limited to a particular subject and only a few affect
the operations of member banks to any material extent. A quick review
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X-9587
of the list of regulations will illustrate my ooint. With your indulgence, I shall take them up in alphabetical order and run through the
entire list from A to U.
Regulation A relates to discounts and advances by Federal Reserve
banks to member banks; but it does not affect member banks unless they
are discounting with, or obtaining advances from, the Federal Reserve
banks.
Regulation B relates to the purchase of bills of exchange, trade
acceptances and bankers' acceptances by Federal Reserve banks on the
open market. It only affects indirectly those member banks who issue
bankers' acceptance credits or have occasion to sell bills of exchange,
trade acceptances or bankers' acceptances on tho open market.
Regulation C relates to the granting of bankers' acceptance credits by member banks, but affects only the relatively small number of
member banks which issue such credits.
Regulation D relates to the reserves of member banks.
It affects
all member banks; but, it is something to which they have become adjusted over a long period of time and is of little practical importance
at a time like the present when most member banks have reserves greatly
in excess of tho legal requirements.
Regulation E relates to the purchase of State and municipal warrants by Federal Reserve banks on the open market and has practically
no effect on member banks.
Regulation F relates to trust powers of national banks and has
X-9587
—12—
recently been revised, effective June 1, 1936.
It states the proced-
ure under which national banks obtain and surrender permits to exercise trust powers and a few general principles regarding the management of the trust department, the investment of trust funds, and
similar matters.
Regulation G relates to the rediscount by Federal Reserve banks
of notes secured by adjusted service certificates and is practically
a dead letter today.
Regulation H relates to the membership of State banks in the Federal Reserve System, but has no effect whatever upon national banks.
Zven as to State banks, it relates only to such matters as the procedure for obtaining or relinquishing membership in the System, the
conditions upon which such banks will be admitted to the System, the
circumstances under which they will be permitted to establish or maintain branches, and the publication of reports of member banks and
their affiliates.
Regulation I relates to the increase or decrease of holdings by
member banks of capital stock of Federal Reserve banks.
It affects
member banks only at the time of their organization or admission to
the Federal Reserve System and at times when they increase or decrease
their capital or surplus, consolidate with other banks, become insolvent,
go into voluntary liquidation, or withdraw from membership in the Federal Reserve System.
Regulation J relates to the clearance and collection of checks by
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X-9587
Federal Reserve banks. It affects all member banks, but only with respect to the terms and conditions upon which Federal Reserve banks receive checks from them for collection and make the credits therefor
available to them.
Regulation K relates to the organization and regulation of foreign banking corporations, and is of no interest to member banks except the few owning stock in such foreign banking corporations or
contemplating the organization of such corporations.
Regulation L relates to interlocking bank directorates under the
Clayton Act and affects only those member banks which have directors,
officers or employees serving also as directors, officers or employees
of other banks.
Until March 1st, 1936, the Board had a Regulation M relating to
open market operations by Federal Reserve banks. It did not affect
member banks at all and has now been superseded by a regulation issued
by the Federal Open Market Committee, which likewise does not affect
member banks.
Regulation N pertains only to the relations of Federal Reserve
banks with foreign banks and bankers, and has no effect upon member
banks.
Regulation 0 relates to loans by member banks to their executive
officers, but was issued to relieve the member banks from the more
onerous provisions of the pre-existing criminal statute on this subject.
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X-9587
Regulation P relates to holding company affiliates of member
banks and affects only indirectly those member banks which are controlled by bank holding companies.
Regulation Q relates to the payment of interest on deposits by
member banks and affects all member banks.
Regulation R relates only to those member banks who desire to
have security dealers or underwriters serving as their officers, directors or employees.
Regulation S relates to loans by Federal Reserve banks to furnish
working capital to established industries and affects only those member banks which participate in such loans or which make such loans
themselves and obtain commitments from the Federal Reserve banks to
take them off of their hands.
Regulation T relates to the extension and maintenance of credit
by brokers, dealers and members of national securities exchanges, and
does not affect any member banks except a very few which are members
of notional securities exchanges. Incidentally, it prescribes the
procedure under which, nonmombor banks may qualify to make advances
to brokers and dealers in securities.
Regulation U, which became effective May 1, 1955, relates to
loans by banks for tho purpose of purchasing or carrying stocks registered on a national securities exchange but probably will not have
much effect on the operations of any member banks except those located
in the largo financial centers.
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X-95S7
Out of twenty regulations which the Board has in effect at the
present time, therefore, I think it is fair to state that five of
them have no effect whatever upon member banks, ten of them affect
the member banks only occasionally or affect only a few of them, and
only fiVe of them materially affect the ordinary operations of all
member banks.
Of these five, Regulation D, relating to reserves of member banks
and Regulation J, relating to the clearance and collection of checks
by Federal Reserve banks, are so well-established and so well known
to all member banks that they require no further discussion at this
time.
That leaves Regulation 0, relating to loans to executive officers
of member banks, Regulation Q, relating to the payment of interest on
deposits, and Regulation U, relating to loans by banks for the purpose
of purchasing or carrying stocks registered on a national securities
exchange. I shall discuss these three regulations a little further.
Regulation 0, relating to loans by member banks to their executive officers may not have gone as far in the direction of liberality
as some member banks desired; but it is much more liberal and practical
than what preceded it.
When the Banking Act of 1955 was under consideration by Congress
there was much public resentment over the fact that a number of banks
which had failed in the years immediately preceding had sustained
large losses on loans made to their own executive officers. This
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X-9587
resulted in a provision in the Banking Act of 1933 making it a criminal offense, punishable try fine or imprisonment, for any executive
officer of a member bank to borrow from or otherwise become indebted
to such bank or for any member bank to make any loan, or extend credit
in any other manner to any of its own executive officers.
The term "executive officer" was not defined, and the Board received a large number of requests for rulings as to what officers of
member banks should bs considered "executive officers" within the
prohibitions of the Act. Unfortunately, the Board had to decline to
express any opinion on those questions, because the enforcement of
Federal criminal statutes is entirely within the jurisdiction of the
Department of Justice and any opinion expressed by the Board would not
have been binding upon that Department.
If the Board had expressed the opinion that certain officers of
member banks were not "executive officers" within the meaning of the
statute, they might have obtained loans from their banks in good faith
and in reliance upon the Board's opinion. If the Department of Justice
had subsequently adopted a different interpretation of the law such
officers might have been prosecuted for obtaining loans which the
Board had told them were entirely lawful. In the circumstances, the
only thing the Board could do was to decline to express opinions on
such questions.
It was contrary to the established policy of the Department of
Justice to issue rulings interpreting penal statutes; and there was
X-9587
-17-
110 place for the member banks to go to obtain authoritative rulings on
such questions.
The situation was extremely unsatisfactory; and the Board and
the Comptroller of the Currency jointly sought relief for the member
banks in the Banking Act of 1935. As a result of their efforts, the
section was rewritten by the Banking Act of 1955 so as to repeal the
criminal penalties, thus withdrawing the subject entirely from the
jurisdiction of the Department of Justice.
It also authorized the
Board to define the term "executive officer", to determine what should
be deemed a borrowing, indebtedness, loan, or extension of credit and
to prescribe rules and regulations to effectuate the purposes of the
section and prevent evasions thereof. In addition, certain exceptions
were made to the prohibitions of the section, one of which permits any
member bank with the approval of a majority of its own board of directors, to extend credit to any executive officer thereof in an amount
not exceeding $2,500.
Regulation 0 issued by the Board pursuant to the provisions of
this section adds nothing whatever to the restrictions contained in
the law itself, but consists principally of a definition of the term
"executive officer" and answers to other questions on which member
banks had been clamoring for interpretative rulin,.,s. Instead of
creating additional burdens for the member banks, therefore, this
regulation should be of great assistance to them.
There was one respect in which the Board could not see its way
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clear, in defining the term "executive officer", to make a concession
which many banks desired but which others felt could not properly be
made — namely, the proposal to exempt honorary or inactive officers.
After hearing all of the arguments on both sides, the Board adopted
the view that a person who accepts the title of an executive officer
and holds himself out to the public as an executive officer should be
required to comply with the rules governing executive officers. I
know that there are some who differ with this view; but I have never
hoard any one who could successfully answer the moral arguments upon
which it is based.
Regulation Q relates to the payment of interest on deposits by
member banks and also grows out of provisions added to the Federal
Reserve Act by the Banking Act of 1935, which were later amended and
modified by the Banking Act of 1935.
The underlying purposes which Congress had in mind when it enacted these provisions have never been authoritatively stated; but it
is my personal opinion that they were two-fold: First, to put an
end to cut-throat competition for deposits, which frequently led the
banks to pay higher rates of interest than they could afford to pay
and thus tended to weaken their financial condition; and, second, to
compensate the banks somewhat for the assessments, whieh under another
provision of the Banking Act of 1953, they were required to pay for
the insurance of thoir deposits. The section was adopted for the
benefit and protection of the banks; and it is in the interest of
573
>
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1-9587
every bank to cooperate with the Board in its efforts to obtain compliance with the spirit as well as the letter of this law and to
eliminate every form of unfair competition for bank deposits. The
sole purpose of Regulation Q is to accomplish this result.
In view of the technical nature of the subject and the many
points in respect to which there was a danger that some banks would
attempt to gain unfair advantages over their competitors, it was
necessary to go into considerable detail in defining the different
classes of deposits, in determining what shall be considered a payment of interest, and in regulating the circumstances under which
time and savings deposits may be withdrawn. Every effort was made,
however, to produce a regulation which was as clear and practicable
as possible and which eliminates as far as possible unfair competition between member banks. Many practical difficulties encountered
under the Banking Act of 1933 and the regulation issued thereunder
were corrected by the amendments contained in the Banking Act of 1935
and the revised regulation.
The Banking Act of 1955 contained an amendment authorizing the
Federal Deposit Insurance Corporation to issue similar regulations
governing insured nonmember banks in order to eliminate unfair competition between member and nonmember banks. In order to promote
this result, the Board conferred with the Federal Deposit Insurance
Corporation at every step in the preparation of its own regulation
from August, 1935, until the Board's regulation was issued about the
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X-9537
first of December5 and the Board had every reason to expect that the
Federal Deposit Insurance Corporation's regulation would be substantially the same as the Board's. The regulation of the Federal Deposit
Insurance Corporation, however, which was issued over a month after
the Board's, differed in a number of respects from the Board's regulation and gave nonmember banks some competitive advantages over member banks. Every effort is being made to reconcile these differences;
and it is hoped that they will be successful.
Regulation U, which became effective May 1st, 1936, and which
was issued pursuant to the Securities Exchange Act of 1934, governs
loans by banks for the purpose of purchasing or carrying stocks registered on national securities exchanges. Unlike the Board's other regulations, it applies to nonmember banks as well as member banks.
The Board could have spared itself a great amount of trouble and
expense by leaving this subject to regulation by the Federal Trade
Commission or the Securities and Exchange Commission, as proposed in
the original bill. But Governor Black and other members of the Board
at that time felt that the banks wore already subject to regulation
by too many different supervisory authorities and that they would
fare better if this additional duty were performed by the Board instead of some other agency less familiar with practical banking
problems. Governor Black, therefore, persuaded Congress to impose
this duty upon the Board instead of the Securities and Exchange Commission, even though, in order to accomplish this result, the Board
575
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X-9587
also had to accept the burden of regulating the extension of credit
by brokers, dealers and members of national securities exchanges,
which it was very reluctant to do.
In the preparation of Regulation U every effort was made to
make it as short and simple as possible and to interfere no more
with the ordinary operations of the banks than is absolutely necessary to accomplish the purpose of the regulation, which is to prevent
the excessive use of bank credit for the purchasing or carrying of
securities.
The regulation applies to no loans except those made after May
1, 1936 which are secured by stocks and are made for the purpose of
purchasing or carrying stocks registered on a national securities
exchange.
If a loan is not secured directly or indirectly by stocks, the
regulation has no application to it and the bank need not inquire
into the purpose of the loan. It is recognized that this leaves the
regulation open to the possibility of some evasion; but it was believed better to accept this risk than to affect every loan a bank
makes in order to regulate a relatively small portion of them. It
is believed that most of the bankers will endeavor in good faith to
comply with the regulation and will not make loans for the purpose
of purchasing or carrying stocks without requiring the customers to
pledge such stocks as collateral.
Even if a loan is secured by stocks the regulation doas not
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X-9587
apply tc it if the loan is made for a commercial, agricultural or
industrial purpose or for any other purpose except the purpose of
purchasing or carrying listed stocks. If the bank desiros to do so
for its own protection, it can obtain a written statement from the
borrower or from one of the bank's own officers that the loan is
not for the purpose of purchasing or carrying stocks. If such a
statement is obtained in good faith the loan is completely exempted
from the regulation.
Even if a loan is secured by stocks and the bank is unwilling
to inquire into its purpose, the regulation will not be violated if
the amount of the total loans to that customer does not oxceed
forty-five per cent of the current market value of the stocks pledged
as collateral.
The net practical result is that a bank need not think about the
regulation except with respect to loans that are secured directly or
indirectly by stocks when the amount of the borrower's indebtedness
exceeds forty-five per cent of the current market value of the stocks
securing such indebtedness. Even with respect to this limited class
of loans, the banker can forget about the regulation if he obtains
in good faith a written statement from the customer or from one of
the bank's own officers that the loan is not for the purpose of purchasing or carrying stocks.
I think it is fair to say, therefore, that the Board succeeded
in promulgating a regulation which does not interfere with the
577
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X-9S87
ordinary operations of the banks any more than is absolutely necessary to accomplish the purposes of the regulation.
While I am on the subject of regulations, I would like to tell
you something about the procedure followed in preparing them.
A tentative draft of each proposed regulation is sent to all the
Federal Reserve banks with a request that they give the Board the
benefit of their criticisms and suggestions. In addition to studies
and discussions tjy their officers and counsel, the Federal Reserve
banks frequently consult some of the member banks about these tentative drafts. The criticisms and suggestions resulting from these
studies, discussions and consultations are transmitted to the Board
in writing.
Copies of the tentative drafts of all regulations affecting member banks are also sent to the American Bankers Association for study
by a committee representing the Association. Special committees are
appointed by the President of the Association for this purpose and
the members of each special committee are practical operating officers
of member banks carefully selected on the basis of outstanding ability
and special familiarity with the particular subject dealt with in the
regulation. If there is anything impractical or undesirable in the
proposed regulation these men are sure to find it and bring it to
light.
And, believe me, these committees really work. After each member has made a thorough study of the tentative draft sent to him for
4
578
»
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X-9587
that purpose, they meet, exchange views on the subject and formulate
their tentative views as a committee. After it has finished its own
deliberations, the committee has a joint conference with the members
of the Board and its staff, at which there is a full and free round
table discussion of every point about which any question has been
raised.
Following this joint conference the committee prepares and files
its written report and copies are furnished to every member of the
Board and every division of its staff, furthermore, in our final report to the Board, the staff has to tell the Bo:, rd what it thinks
should be done about every definite recommendation made by the American Bankers Association committee.
After all of this study, the regulations are taken up by the
Board for final action; and there is a further discussion of the regulation between the members of the Board and the members of the staff
and frequently further changes are made in the regulation before it
is finally adopted.
While it is impossible to reconcile all conflicting viewpoints
or to adopt all suggestions made from these various different sources,
nevertheless it is believed that this thorough discussion and the attending criticisms and suggestions from so many different sources
tend to produce regulations which are as reasonable and workable as
it is possible to produce by any method. Certainly it provides
elaborate safeguards against the danger of the issuance of regulations
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X-9537
which are undesirable or unworkable from a practical banking standpoint.
Probably the most important of these safeguards is the precaution
which the Board takes in seeking the cooperation of the American Bankers Association. This practice was instituted at the suggestion of
Chairman iccles and has produced splendid results. The Board has received the finest kind of cooperation from the American Bankers Association, and I believe that the results have been very constructive
and helpful. President Fleming and the other officials of the Association are rendering a very fine public service in this and many other
respects, and not only the bankers but the general public owe them a
large debt of gratitude.
In conclusion, please permit mo to remind you that the Federal
Reserve System is not something separate and apart from the member
banks. They are as much a part of it as the Federal Reserve banks or
the Board in Washington; and it is very much in their interest and in
the public interest for then: to cooperate with the Board in every possible way and to join with the Board and the Federal Reserve banks in
their efforts to improve our banking system, in order that it may
render to this great country of ours the greatest possible public
service.
580
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
•£
•
H
9*
&
Z
z>
>
X-9588
WASHINGTON
address
o f f i c i a l
t o
the
May 16, 1956
SUBJECT:
Code Words Covering New
Issues of Treasury Bills
Dear Sir;
In connection with telegraphic transactions in
Government securities between Federal reserve banks,
the following code words have been designated to cover
new issues of Treasury Bills:
"NOYMIS" - Treasury Bills to be dated
May 20, 1956, and to mature
December 15, 1956.
"NOYMUF" - Treasury Bills to be dated
May 20, 1956, and to mature
February 17, 1957.
Those words should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental
code word "NOYMEA" on page 172.
TO
Very truly yours
J: C. Noel!
Assistant Secretary
PRESIDENTS OF ALL F. R. BANKS
c o r r e s p o n d e n c e
board
*******
581
B O A R D OF G O V E R N O R S
OF THE
X—9589
FEDERAL RESERVE SYSTEM
WASHINGTON
address
o f f i c i a l
t o
May 16, 1956.
Dear Sir:
There are inclosed, for your information,
a copy of a letter dated April 8, 1936, from Mr.
Young, President of the Federal Reserve Bank of
Boston, inquiring whether all direct or participating transactions of Federal reserve banks in
the purchase or sale of bills payable in foreign
currencies will come under the jurisdiction of
the Federal Open Market Committee, and a copy of
the Board's reply thereto of May 15, both of
which are self-explanatory.
Very truly yours,
Chester Morrill,
Secretary.
Inclosures.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
the
c o r r e s p o n d e n c e
board
X-9589-a
FEDERAL RESERVE BANK
of Boston
April 8, 1936
Mr. Chester Morrill, SecretaryFederal Open Market Committee
Board of Governors of the Federal Reserve System
Washington, D. C.
Dear Mr. Morrill;
With further reference to your letter of March 24
regarding the action of the Federal Open Market Committee on March
19, 1936, I observe from the last paragraph that the Committee
authorized the Federal Reserve Bank of New York to direct the purchase of bills payable in foreign currencies in such amounts as
may be necessary to replace maturing bills now held for the account of the Federal reserve banks by foreign central banks, including the Bank for International Settlements.
I assume from this that all direct or participating transactions of Federal reserve banks in foreign transactions
will come under the Federal Open Market Committee. At your convenience will you advise me if my assumption is correct.
Yours very truly,
(Signed)
R. A. Young
R. A. Young
President.
583
X-9589-b
May 15, 1956.
Mr. R. A. Young, President,
Federal Reserve Bank of Boston,
Boston, Massachusetts.
Dear Mr. Young:
This refers to your letter of April 8, 1956, inquiring whether all
direct or participating transactions of Federal Reserve banks in the purchase or sale of bills payable in foreign currencies will cdme under the
jurisdiction of the Federal Open Market Committee. Inasmuch as this
question involves the jurisdiction of the Board as %ell as that of the
Federal Open Market Committee, I have submitted the question to the Board.
It is the Board's view that all open market operations of Federal
Reserve banks under the provisions of section 14 of the Federal Reserve
Act are within the jurisdiction of the Federal Open Market Committee, and
Federal Reserve banks cannot lawfully engage or decline to engage in such
transactions except in accordance with the direction of and regulations
adopted by the Committee pursuant to section 12A.
This, however, is in addition to the requirements contained in
section 14 of the Federal Reserve Act and no Federal Reserve bank can lawfully engage in open market transactions at home or abroad except in accordance with the provisions of section 14 and the regulations issued pursuant thereto. Thus, no Federal Reserve bank can open ;:nd maintain accounts in foreign countries, appoint correspondents or establish agencies
in such countries except with the consent of the Board, nor can it engage
584
- 2 -
X-9589-b
in the purchase or sale of bills through such accounts, correspondents
or agencies without the consent also of the Federal Open Market Committee.
Likewise, all relationships and transactions between Federal Reserve banks
and foreign banks or bankers continue to be subject to the provisions of
section 14(g) and the Board's Regulation N; and, if such transactions involve open market operations, they are also subject to the jurisdiction
of the Federal Open Market Committee.
As the Board had already authorized the establishment of the
foreign accounts referred to in my letter of March 24, 1936, written as
Secretary of the Federal Open Market Committee, it was within the province
of the Committee in the direction of open market operations to authorize
the replacement of maturing bills held in such accounts by the purchase
in the open market of a like amount of bills payable in foreign currency.
A copy of your letter and this reply is being forwarded to the
Presidents of all Federal Reserve banks for their information.
Yours very truly,
(Signed)
Chester Morrill
Chester Morrill,
Secretary.
X-9590
INTERPRETATION
BANKING ACT OF 1955
(Copies to be sent to all Federal reserve banks)
May 15j 1956
Mr. R. B. Coleman,
Vice President and Cashier,
Federal Reserve Bank of Dallas,
Dallas, Texas.
Dear Mr. Coleman:
This refers to your letter of April 10, 1956, in regard to
a possible inconsistency that you believe may exist between the
second paragraph of section 1 of Regulation U and the last clause
of the third paragraph of that section. The discussion below will
show, it is believed, that the provisions in question are in fact
consistent.
The last clause of section 1 is to be regarded as making it
clear that the first two paragraphs of that section do not prevent
a bank which has made a loan subject to the Regulation from making
another such loan regardless of the status of the collateral securing the first loan, if the borrower provides additional collateral
having a maximum loan value at least equal to the amount of the additional loan. Even if the first loan is unsecured the second loan
may be made if this amount of collateral is provided. Since a competing bank with no previous loans to the borrower would be permitted
to make a loan on the basis of this amount of collateral, it seemed
desirable to provide clearly that the first bank could do the same
regardless of the status of prior loans.
X-9590
-
2
-
The second paragraph of section 1, considered with the first
paragraph of that section, permits a bank, if the maximum loan value
of the collateral securing all the loans subject to Regulation U exceeds the total amount of such loans, to make an additional regulated
loan equal to the amount of the excess. This is permissible regardless of the cause of the excess, whether an increase in the market
value of the collateral, a decrease in the amount of the loan, or some
other cause.
The second paragraph of section 1 also means that, after loans
subject to the Regulation have been made, the bank must treat the total
amount of such loans and the maximum loan value of all the collateral
securing them, respectively, as "the amount of the loan" and "the
maximum loan value" referred to in the first sentence of the third paragraph reading as follows;
"After any such loan has been made, a bank shall not at
any time permit withdrawals or substitutions of collateral
that would cause the maximum loan value of the collateral
at such time to be less than the amount of the loan."
The above discussion covers both your first and second questions.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill
Secretary
587
BOARD OF GOVERNORS
• F THE
X-9591
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 18, 1936
Dear Sir:
With ite letter of January 50, 1956, (X-9475),
the Board inclosed copies of several letters and telegrams containing interpretations of various provisions
of the agreement which accompanied the Board's letter
of December 5, 1955, (X-9385), relating to the issuance
of general voting permits. Inclosed herewith are copies
of two additional letters of a similar nature.
Very truly yours,
Chester Morrill,
Secretary.
Inclosures.
TO ALL FEDERAL RESERVE AGENTS.
588
X-9591-a
February 5, 1956.
. ..
}
3>
?
Dear Sir:
This refers to your letter of January 20, 1956, addressed to
the Federal Reserve Agent at the Federal Reserve Bank of Minneapolis,
in which you make certain inquiries concerning the agreement which the
Board requires holding company affiliates to execute as a condition to
the issuance of general voting permits.
With reference to your first question, it is not the intent of
the Board that such agreement shall deprive the holding company affiliate
or its subsidiary banks of any rights which they may have to resort to
any court or other tribunal of proper jurisdiction.
With reference to your second question, it must be noted that
the execution of the agreement and the terms thereof have been prescribed by the Board in the discharge of responsibilities placed upon
it by law and that any differences between the situation of banks which
are subsidiaries of holding company affiliates and the situation of other
banks necessarily arise from the enactment, of the legislation by Congress relating specifically to holding company affiliates and their banking subsidiaries. However, it is intended that the Board shall act in
accordance with sound principles of banking practice in enforcing requirements relating to subsidiary banks pursuant to the agreement
589
- 2 -
X-9591-a
prescribed. In view of its responsibilities under the holding company
affiliate legislation, the Board could not be excused for a failure on
its part to require holding company affiliates to cause their subsidiary
banks to comply with sound principles of banking practice on the ground
that other banks may not in all cases be required to do so. Moreover,
the Board must be free to consider all of the facts and circumstances
of each case and, in doing so, it cannot properly ignore the relationships between the particular bank and other members of the group. The
Board, of course, does not feel that the mere fact that a bank is a
subsidiary of a holding company affiliate justifies the imposition of
arbitrary or unreasonable requirements relating to such bank and the
Board has no intention to make or enforce such requirements in acting
pursuant to the prescribed agreement.
Very truly yours,
(Signed)
Chester Morrill
Chester Morrill,
Secretary.
590
X-9591-b
April 4, 1936.
Mr. Frederic H. Curtiss,
Federal Reserve Agent,
Federal Reserve Bank of Boston,
Boston, Massachusetts.
Dear Mr. Curtiss:
This refers to Mr. McRae's letters of January 2, 1936, and
their enclosures, relating to voting permit applications of
and The National
Bank of
, both of
. As you probably know, the matters re-
,
ferred to therein have since been discussed informally by representatives of the applicants and the Board.
-){•
a* ~)v
-}(- *)<• *>c
-)(- -)f ->f
-X- -X*
Both of the applicants object to the following provision of
paragraph numbered 7 of the form of agreement accompanying the Board's
letter of December 5, 1935, (X--9585):
"and that, except with the permission of the Board
of Governors of the Federal Reserve System, it shall
not cause or permit any change to be made in the
general character of its business or investments."
In view of the restrictions and limitations imposed upon
national banks by law, the Board feels that such a provision is not
essential where the holding company affiliate is a national bank and
that, accordingly, there is no objection to authorizing its omission
in such a case. Hence, the Board hereby amends the authorization contained in .its ANCILDALE telegram of
, relating to The
591
*
- 2 National
Bank of
X-959"l-b
, to provide that the above-mentioned
paragraph shall read as follows in the agreement to be executed by such
bank as a condition to the issuance of a general voting permit to it;
"That the management of the undersigned will be, and
the undersigned will take such action within its power
as may be necessary to cause the management of each of
its subsidiaries to be, conducted under sound policies
governing its financial and other operations, including statements issued relating thereto; that the undersigned will maintain a sound financial condition; and
that its net capital and surplus funds shall be adequate
in relation to the character and condition of its assets
and to its liabilities and other corporate responsibilities."
The Board does not feel that it should authorize any modification of such paragraph in connection with the agreement to be executed by
. In connection with the matters which it
is required by law to consider in granting voting permits, the Board
must consider the character of the holding company affiliate's business
and investments, and the Board feels that it should provide requirements to assure that during the life of the voting permit the general
character of the business and. investments will not be changed in a
way which might have an adverse effect on the condition of the holding
company affiliate or its relationships with its subsidiary banks. However, the Board has no intention or desire to exercise detailed supervision over the investments of the applicant or to pass upon individual
investments and it is felt that the pertinent provisions of the agreement which refer to a change in the "general character" of business or
investments do not indicate such supervision is contemplated.
states "To follow the regulations which
you insist upon, we would have to mark up and down on our books, all
securities every month". Paragraph numbered. 1 of the standard form
of agreement requires the elimination of lessen and certain depreciation in securities by the applicant as soon as practicable and in any
event within two years. However, when the particular eliminations described in paragraph numbered 1 have once been made, such paragraph
does not require any further eliminations. Under paragraph numbered
7, the applicant's management must be conducted under sound policies
governing its financial and other operations, including statements issued relating thereto. While the Board feels that in the public interest the books and published statements of a holding company affiliate should correctly reflect the value of its assets and the amount
of its liabilities, this provision of the agreement contemplates only
such adjustments in the books of the holding company affiliate as would
not interfere with its normal operations, would be required by sound
accounting practice, and would be necessary to prevent misrepresentation to shareholders and the public.
The National
Bank of
suggests a change of a
perfecting nature in paragraph lettered (A) of the agreement to be executed by it. While it is not believed to be essential, the Board
authorizes the substitution of the words "any of the undersigned's"
for the words "the undersigned or by any of its" in such paragraph of
the agreement to be executed by that applicant and amends the author-
- 4 -
X-9591-b
ization contained in its ANC1LDALE telegram of
,
, ac-
cordingly.
The Board extends to
,
, the time within which
you may issue to The National ______ Bank of
and
the general voting permits authorised in its ANCLLDALE
telegrams of
,
. Please advise applicants in accor-
dance with this letter.
Very truly yours,
(Signed)
Chester Morrill
Chester Morrill,
Secretary.
594
BOARD OF GOVERNORS
Y Q _ of)
J
OF THE
'
FEDERAL RESERVE SYSTEM
WASHINGTON
address
o f f i c i a l
to
the
c o r r e s p o n d e n c e
board
May 18, 1936
SUBJECT: Requirement that Renewal Certificate be
Dated Back to Date of Maturity of Original
Certificate where Interest is Paid after
Maturity on Time Certificate of Deposit
Renewed within 10 Days after Maturity.
Dear Sir:
This refers to the Board's letter to the Assistant Federal Reserve Agent at Chicago dated April 15, 1956, (X-9545-a)
stating that no objection would be offered to the payment by a
member bank of interest after maturity on a time certificate of
deposit renewed within 10 days after maturity provided the renewal certificate were dated back to the date of maturity of the
original certificate. Reference is also made to the Board's letter to the Assistant Federal Reserve Agent at San Francisco dated
May 5, 1936, (X-9575) with reference to the necessity for dating
the renewal certificate back to the date of maturity of the original certificate in such circumstances.
After reconsidering this matter, the Board has reached the
conclusion that, in cases where a member bank pays interest after
maturity on a time certificate of deposit which is renewed within
X-9592
-2-
10 days after maturity, it will not be necessary to date the renewal
certificate back to the date of maturity of the original certificate.
Very truly yours,
XZv hT)<nAUA
Chester Morrill,
Secretary.
TO ALL FEDERAL RESERVE AGENTS
595
X-9593
"THE FEDERAL RESERVE SYSTEM AND THE BANKING ACT OF 1935."
ADDRESS BY
M. S. SZYMCZAK, MEMBER,
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
DELIVERED BEFORE
THE MARYLAND BANKERS' ASSOCIATION
AT ITS
FORTY-FIRST ANNUAL CONVENTION
Friday, May 22, 1936
10:00 A.M.
Marlborough-Blenheim Hotel
Atlantic City, New Jersey.
597
X-9593
As I was on my way here from Washington yesterday afternoon and
was turning over in my mind what I should be saying to you today, it
occurred to me that I should by all means say something about the richness and diversity of the State of Maryland, which I was crossing.
Cutting across the state in a northeasterly direction through Baltimore
toward Philadelphia, I had on my right hand a part of the state that I
understand is devoted largely to the production of tobacco and of
tomatoes for canning. That part of the state also includes Chesapeake
Bay with its shipping and its production of sea food. It includes the
Eastern Shore with its fertile vegetable farms. It includes also the
city of Baltimore, with its important shipping, manufacturing, and distributing activities.
To the left and running far out toward the west is another fertile
region largely devoted to the cultivation of vegetables and other farm
crops; and in the farther most counties, where the mountains rise, there
is coal, buckwheat flour, and maple syrup.
It is the production of commodities such as these that furnishes
the basis of the wealth of Maryland and of the business of its banks.
Your customers live largely by producing these commodities and exchanging them for commodities produced outside the state. In facilitating
this exchange, which is indispensable to the economic life of the state,
you bankers perform an essential function. You make it possible for the
tobacco, the sea food, and the vegetables produced in Maryland to be
shipped outside to other markets, and to be paid for in the simplest and
-
surest way.
2
X-9593
-
If it were not for your instrumentality, and if all these
exchanges of goods had to be effected by the actual handling of currency,
the whole economic process would be disrupted. But, through the utilization of bank credit, the process is facilitated.
This monetary function that you bankers perform involves your cooperation with one another. The banks not only of your state but of
the country as a whole and even of the world constitute a net work of
credit connections by means of which the trade between different regions
is carried on. One of the most important steps ever taken in this
country in the way of making this net work more effective was the establishment of the Federal Reserve Banks. These institutions knit the
banking business of different communities and regions closely together
so that inter-regional and inter-community payments and exchanges can
be smoothly effected. They help to bridge with credit the distances
that separate consumers from producers, and the intervals of time that
elapse between production and consumption - between seed time and harvest - between the fabrication of goods and their delivery.
Instead of going into special phases of federal reserve policy, I
want to survey briefly but comprehensively the structure and functions of
the Federal Reserve System as a whole. This means I must mention many
things already quite familiar to you;
I trust you will understand that
I do so not because I underestimate your knowledge of the System, but
because I want to fill in the whole picture.
The Federal Reserve Act, which in 1915 established the Federal Reserve
— 3—
X-9593
Banks, is one of the most important pieces of financial legislation ever
passed in this country. It represented the decision reached after many
years of dissatisfaction with our banking and currency facilities,
brought to a head by the panic of 19075 after a thorough study of banking here and abroad by a National Monetary Commission established by
Congress in 1908; and after long and earnest public discussions of banking reform over a period of twenty years or more. Since 1913, on the
basis of actual experience and in response to new developments, numerous amendments have been made to the original Federal Reserve Act.
During the depression changes were made by the Glass-Steagall Act of
1932, the Emergency Banking Act, the Banking Act of 1933, the Gold Reserve Act of 1934, and other acts. The most recent as well as the most
important of these is the Act approved August 23, 1935.
Federal Reserve banks
The work of the System may be considered first from the point of
view of the Federal Reserve banks in their relations with the banking
institutions of the country, and then from the point of view of the
broader responsibilities for credit policy which come under the central
organization in Washington, now known, under the Banking Act of 1935, as
the Board of Governors of the Federal Reserve System.
The location of the Federal Reserve banks was not determined by
Congress, but by the Secretary of the Treasury, the Secretary of Agriculture, and the Comptroller of the Currency acting as the Reserve Bank
Organization Committee. To this Committee Congress delegated the authority to designate not less than eight nor more than twelve reserve cities
BOO
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X-9593
and to divide the continental United States into a corresponding number
of reserve districts. These districts, according to the law, were to
be apportioned with due regard to the convenience and customary course
of business. They may be readjusted by the Board of Governors of the
Federal Reserve System. In addition to the twelve reserve banks there
are now in all twenty-five branches and two agencies. The Federal Reserve Bank of Richmond has branches in Baltimore and Charlotte.
All National banks were required to become members of the System,
subscribing to the capital stock of the Reserve banks, and depositing
their reserves therein. State banks were permitted to become members
on similar terms, provided they fulfilled certain requirements as to
capital structure and as to the general nature of their business. This
division of the banks of the country into National and State banks, with
different laws, powers, and supervisory authorities, was a basic condition upon which the Federal Reserve System was superimposed, and it is
a basic condition to which its operations have always had to be adjusted.
About forty percent of the banks in the country now belong to the
Federal Reserve System and these banks account for about seventy percent
of the country's banking resources. About 35 percent of the banks in
Maryland are members of the Federal Reserve System, and they hold about
50 percent of the banking business in the state. In the United States
as a whole the member banks include 5,586 national banks and 1,001 State
banks and trust companies. The State banking institutions which are
still outside the System are for the most part small. There are about
—
5
—
X-9593
9,000 non-members; about 1,400 of them have deposits of less than
$100,000, and about 2,600 have deposits of less than #250,000.
Under provisions of the Banking Act of 1955 State non-member banks,
with certain exceptions, having average deposits of $1,000,000 or over,
must become members of the System after July 1, 1942 or lose the right
of having their deposits insured with the Federal Deposit Insurance Corporation.
The Federal Reserve banks differ from ordinary commercial banks
in both their organization and their functions. Their customers are
the member banks who make deposits with them and secure credit or currency just as the public does with the local banks. Of the nine directors of each Federal Reserve bank, three known as Class C directors are
selected by the Board of Governors of the Federal Reserve System and
six are selected by the member banks, three known as Class A directors
representing the stock holding member banks, and three known as Class B
directors representing commerce, agriculture, or industry in the district. The chief executive officer of the bank, designated as president
under the new banking act, is appointed by the board of directors of the
bank subject to the approval of the Board of Governors of the System.
The legal requirements for ownership and management of the Reserve banks,
therefore, recognize that their functions must be performed in the public
interest and that their management must take account of both the banking
and the general business interests of the region.
Holding member bank reserves
One of the purposes of the Federal Reserve Act was to provide
%
—
6
—
X-9593
602
institutions which would hold the reserves of the nation's banking system.
Before the establishment of the Federal Reserve System, National banks were
required to keep part of their reserves in their own vaults and part on deposit in other banks, usually metropolitan banks. Banks in the central reserve cities, however, of which there were then three, New York, Chicago
and St. Louis, had to hold all their reserves in cash. When there was a general and heavy demand for funds, especially at crop moving times, for example,
and country banks everywhere drew down their balances with their city correspondents, a situation was developed in which a currency and credit crisis
of greater or less magnitude might readily occur. Country banks then had
difficulty in getting money from the city banks, and the public in turn had
difficulty in getting money from the country banks and from the city banks as
well.
Now all member banks are required by law to keep their reserves on deposit in the Federal Reserve bank of their district and it is the business of
the Reserve banks to supply member banks with credit or cash in such emergencies.
The required reserves vary with the type of deposit and the class of
bank. Banks in central reserve cities, which now are only New York and Chicago, are required by law to maintain reserves equal to thirteen percent of
demand deposits, that is, deposits which can be withdrawn without advance
notice. For example, if a customer of a New York bank borrows &1,000, his
deposit balance is credited with $1,000 and the bank in turn must provide for
$130 of reserve deposit at the Federal Reserve Bank of New York, unless prior
to the loan it already had excess reserves of that amount or more. Banks in
so-called reserve cities, of which there are about sixty, are required to
603
- 7 -
X-9595
maintain reserves of ten percent against demand deposits, and all other banks
are required to maintain reserves of seven percent. Reserves of three percent
against time deposits are required to be maintained by all banks. Member
bank reserve balances on deposit with the twelve Reserve banks amount now to
over $5,000,000,000. Because of unusual conditions, the total of these
balances is about twice as much as the banks are required to have.
Loans to member banks
The Reserve banks also supply funds to member banks either by reaiscounting paper or by making advances to member banks, as provided by law and Board
regulations, or by purchasing bills and securities, and entering corresponding credits to the account of the member banks, thus increasing their reserve
balances. Member banks in turn can increase their loans to the public, in the
aggregate by an amount several times the amount of the additional reserves.
The Federal Reserve Act, however, makes distinctions as to the
charac-
ter of paper on which loans may be obtained from the Reserve banks. For many
years Reserve banks have had the power to discount only short-term selfliquidating commercial paper, that is notes, drafts, bills of exchange and
bankers' acceptances arising out of commercial, industrial and agricultural
transactions, and to make advances to member banks on their promissory notes
backed by paper eligible for discount or purchase or by United States Government obligations. They were not authorized to make advances on a wide range
of other assets which made up an important part of the total earning assets of
banks. These included real estate loans, securities other than those of the
United States Government, and loans to business men which did not meet the
requirements of the narrowly-defined eligible commercial paper.
604
-8-
X-9593
As a result of many developments in our financial organization,
paper which qualified for borrowing from the Reserve banks has constituted a constantly decreasing proportion of the total assets of member
banks ever since the System was established. In 1929 it was only about
twelve percent of total loans and investments of such banks, and in 1954
it was but eight percent. Consequently, in 1931 and 1932 when the great
liquidation occurred, many banks with assets which were good but technically ineligible for borrowing at Reserve banks, were obliged either
to dump them on a falling market, suffer severe loss and contribute to
the deflation in values or to close their doors.
The new banking act corrects this situation. It authorizes the
Reserve banks to make advances to member banks for periods not exceeding four months on any security satisfactory to the Reserve bank, at a
rate of interest at least one-half of one percent above the highest
discount rate in effect at the particular Reserve bank. This amendment
modifies and makes permanent the emergency legislation which it was necessary to pass in 1932.
In addition to the foregoing general powers of discount and purchase the Federal Reserve banks have special powers with respect to loans
to commerce and industry for working capital purposes. These powers are
grantedfcySection 15b of the Act. Under this section the Reserve banks
are authorized to discount loans made by member banks and other financing
institutions to established industrial and commercial businesses for the
— 9 -
X-959S
purpose of supplying working capital. Such loans are to have maturities of not to exceed five years. The Reserve banks are authorized to
discount these loans without recourse for as much as 80 percent of
any loss thereon. The Reserve banks also have authority to grant commitments to discount such loans. This makes it possible for a member
bank to hold in its portfolio loans which the Reserve bank is under
obligation to take over upon request, and upon which the Reserve bank
assumes 80 percent of any loss. In other words the member bank has an
earning asset which is insured 100 percent as to liquidity and 80 percent as to loss. This arrangement is not restricted to member banks;
it is open to non-members as well.
Under the same section the Reserve banks are authorized in exceptional cases, and when credit is not available from the usual sources,
to make such loans for working capital purposes direct to the borrower.
As of May 13, the Federal Reserve Bank of Richmond had received
594 applications for working capital loans aggregating $24,000,000. Of
these, 199, aggregating $11,000,000, had been approved. The Reserve
bank's outstanding advances on that date were $4,200,000 and at the
same time it had commitments outstanding for another $2,400,000.
These loans have been made to all kinds of enterprises, industrial and commercial. In many cases they have been loans which bankers
have not been accustomed to making, and which would not be made were it
not for the fact that the Reserve bank stands behind the bank which makes
them. But as it is, they constitute secure and liquid assets, yielding
a good rate of interest.
606
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X-9593
Currency issued by Reserve banks
Another activity of the Reserve banks is the issuance of Federal Reserve notes. These constitute the paper money authorized by the Reserve
Act for the purpose of supplying the country an elastic currency - that is,
a currency whose volume can be readily increased or decreased according to
the public demand for it.
Federal Reserve notes are obligations of the United States and are
secured by specific collateral pledged by the Reserve bank. The bank is
required to keep reserves in gold certificates at least equal to forty
percent of the notes in actual circulation. The Federal Reserve banks,
of course, do not supply the entire currency of the country. The Government issues other paper money, silver dollars and minor coin, and National
bank notes are still in circulation. The larger part of money in circulation, however, consists of Federal Reserve notes.
A member bank that has satisfactory assets can always secure all
the currency that it needs. If it has a demand for more cash that it has
in its vault, it can readily obtain Federal Reserve notes at its Reserve
bank. It can borrow and take the proceeds in notes or it can draw against
its account and, if necessary, restore the account to the required level
by borrowing. If it receives on deposit from its customers more currency
than it needs to keep on hand for current requirements, it can send the
excess to the Reserve bank to be added to its reserve balance.
The function of supplying elastic currency is important, but it
is less important than the lending power, because currency does not
607
-11-
.X-9595
play a major role In present-day business transactions. About ninety
percent of our business is conducted by the use of checks. Currency is
used, for example, for purchases at retail stores and filling stations,
for car fare, and for payrolls, but such uses account for only about
ten percent of the total monetary transactions in the country. Such fluctuations in the demand for currency as appear regularly on pay days, during the period of Christmas shopping, and near holidays, are met completely
by the machinery provided by the Federal Reserve Act.
Other activites of Reserve banks
Beside their work in holding the banking reserves of the country, in
making loans to member banks, and in supplying currency when needed, the
Reserve banks have other important functions which facilitate the
smoother working of our financial machinery.
The Reserve banks have greatly simplified the procedure
whereby
banks
collect checks dram on other banks. This has been very useful to business in general because it has permitted more prompt and cheaper settlement of monetary transactions. The Reserve banks in effect act as a nationwide clearing house, not only for checks, but for other credit items such
as notes, drafts, bonds and coupons.
In order to effect the prompt transfer of funds from one part of the
country to another without actual movement of currency, the System maintains
an inter-district Gold Settlement Fund in Washington. The fund was established by deposits of the twelve Federal Reserve banks, and transfers
from one district to another are made daily by debits and credits to the
608
t
-12'
Z-9S95
respective accounts of the Reserve banks.
The Federal Reserve System has centralized the work of the fiscal
agencies of the United States Government. The Reserve banks act as fiscal agents in connection with the issue and retirement of Government debt
and as depositaries of Government funds in administering deposit accounts
of the Government in the Reserve banks.
Central control of.'.credit policy
I wish to turn now from this discussion of the functions which the
Federal Reserve banks perform for the local banks and consider how these
activities tie in with the general responsibility of the System, through
its Board of Governors, for the nation's credit policy.
When the Federal Reserve System was established it was realized
that for certain activities, particularly those related to local banking
conditions, a regional organization was necessary. Only in this way
could the System meet local bank needs in a country as large as the United
States, with economic conditions varying so much from one section to another.
Each regional bank would have intimate knowledge of developments in agri-.
culture, commerce and industry in its district and of the district's special
credit needs and problems. The principle was also established by the
original Federal Reserve Act that under the authority of the Act and of regulations of the Board in Washington the Reserve banks should have final responsibility in their dealings with member banks.
At the same time, it was also realized that the credit policy of
the different Federal Reserve banks must be coordinated so that policies
adopted in one district would not be harmful to another. More than that,
there should be a credit policy for the country as a whole which would
take account of general business and credit conditions. The direction
of this policy is the duty of the Board of Governors of the Federal Reserve System, which is the central organization located in Washington.
The Board is aided by other organizations which work closely with it,
the Federal Advisory Council and the Federal Open Market Committee.
Board of Governors, of, the Federal, Reserve System
Experience has indicated that this power of the Board to affect
the expansion and contraction of the general supply of credit is of vital
importance to the country, since the volume of credit is a factor in
determining the course of business, and proper changes in the cost and
volume of credit may tend to moderate excessive expansion or contraction
of business, or, in other words may reduce the danger of inflation and
deflation.
The Board's ability to influence the volume of credit rests on
three important powers: the power to determine discount rates, the power
to change reserve requirements, and the power, exercisable through its
majority of members on the Federal Open Market Committee, to determine
open-market policies.
Discount rates
Discount rates are the rates charged by the Federal Reserve banks
on loans to member banks. These rates determine the cost of borrowing
by member banks and consequently have a bearing on the cost at which the
public can borrow from these banks. Indirectly they affect other rates
610
-14-
a-35'•io
in the money market. Under the Federal Reserve Act changes in discount
rates are made by the various Federal Reserve banks but are subject to
review and determination by the Board of Governors. This gives the Board
final responsibility over the discount rates, and enables it to keep the
cost of borrowing in the different sections of the country consistent
with general credit conditions for the country as a whole.
The new banking act strengthens the Board's power to control
these ratestoymaking the further provision that discount rates must be
submitted to the Board of Governors every fourteen days. This insures
frequent review of the rates.
Reserve requirements
The Board of Governors also has the power to change the reserve
requirements of member banks. The volume of credit which any member
bank may extend is limited by the amount of reserves which are required
by law to be maintained against its deposit liabilities. An increase in
the reserve requirements reduces and a decrease increases the potential
volume of member bank credit. Consequently the power to change reserve
requirements gives the Board an important means of controlling the general
volume of credit. Formerly this power could be exercised only in the
event of an emergency arising out of credit expansion and then only with
the approval of the President of the United States. Under the new act
these conditions are omitted. The power is to be exercised in order to
prevent injurious credit expansion or contraction, provided that reserve
requirements may not be reduced below the present requirements specified
in the law nor increased to more than twice the amount of these legal requirements.
A
611
»
-15-
X-9595
Open-market operations
The third important means of control over the supply of credit are
the so-called open-market operations, responsibility for which under the new
banking act will be vested in a now Federal Open Market Committee. This committee will consist of the seven members of the Board of Governors and five
representatives of the Reserve banks selected by the Reserve banks in different regions.
Open-market operations consist of the purchase and sale by Reserve
banks of certain classes of securities, chiefly Government obligations. These
operations have the effect of increasing or decreasing the supply of credit
available in the market. By selling securities the Reserve banks withdraw
funds from the market and there is a decrease in the supply of credit.
Through a purchase of securities a Reserve bank puts funds into the market,
thus tending to ease credit conditions.
Purchases and sales of securities by the Reserve banks were unimportant
in the early days of the System. It was not until 1922 that they were large
enough to affect the money market. At that time it became necessary to take
steps to coordinate purchases and sales so that credit conditions for the
country as a whole would not be adversely affected. Gradually these purchases
and sales have become one of the most important means whereby the System can
take the initiative in influencing credit conditions.
The responsibility for determining what security transactions should
be undertaken and the authority for enforcing a program were not clearly defined by law until the new banking act. At the time this act was passed an
-16-
X-9533
Open Market Committee consisting of representatives of the twelve Reserve banks was authorized to propose purchases and sales. Its proposals were then submitted to the Federal Reserve Board, which had the
authority to approve or disapprove but not to initiate a policy.
The new act clearly places responsibility for determining openmarket transactions on the new Open Market Committee and directs the
Reserve banks to carry out the transactions determined, by this committee. This is one of the most important changes in the Federal Reserve
System which the new act introduces.
Other work of the Board
The Board of Governors has a variety of other duties which tie in
with its general responsibility for supervision of the System. These
include the examination of Reserve banks, passing on applications of
State banks and trust companies for membership in the System, obtaining
condition reports from State member banks, administration of those provisions of the Clayton Anti-trust Act which relate to interlocking bank
directorates, regulation of the maximum rate of interest to be paid ty
member banks on time and savings deposits, regulations under the Security and Exchange Act governing the margin requirements for loans on securities listed on the stock exchanges, and maintenance and operation
of the inter-district Gold Settlement Fund.
Information bearing on credit policy
It has always been a part of the System's work to watch credit trend
and to develop a better general understanding of the facts bearing upon
-17-
X-9593
credit policy. Information bearing on banking conditions throughout
the country and on production, employment, trade and prices, has been
regularly collected. In its monthly publication, the Federal Reserve
Bulletin, and in its Annual Reports, the Board has undertaken from the
beginning to give the public a comprehensive view of current banking
and financial developments at home and abroad and also to furnish detailed information on conditions of banks throughout the country and on the
business situation. Each of the Federal Reserve banks also publishes
a monthly review of the business and banking conditions in its district.
There is no central bank in the world which makes available such
exhaustive information on domestic banking and business developments and
on the formulation of its credit policy as that which is published by the
Federal Reserve System.
In the foregoing description of the System and its functions I have
had occasion to mention most of the important changes effected by the
Banking Act of 1955, but I think it is desirable to summarize them for
the sake of completeness. I omit reference to Title I of the Act, for
it deals exclusively with deposit insurance. I also omit reference to
Title III, for the changes it effects are mainly technical and by way of
clearing up previously existing provisions. The following changes are
summarized from Title II:
1. Since March 1 the chief executive officer of each Federal Reserve bank is designated president instead of governor, and the deputy
governors are designated as vice presidents.
L
614
#
-18-
X-9595
2. The Board is given authority to waive in whole or in part the
statutory requirements relating to the admission of State members to
the Federal Reserve System, if such waiver is necessary to facilitate
the admission of any State bank which is required to become a member in
1942 in order to be an insured bank or to continue to have its deposits
insured.
3. The old designation of the Board as the Federal Reserve Board
is changed to Board of Governors of the Federal Reserve System. An important change in the composition of the Board became effective February 1 when the Secretary of the Treasury and the Comptroller of the Currency ceased to be members, and the number of members was changed from
eight to seven. The regular term is now fourteen years, and no member
having served a complete term of fourteen years can be reappointed. The
title of the chief executive officer of the Board has been changed from
Governor to Chairman.
4.
The Board is required to keep a complete record of the action
taken by the Board and by the Open Market Committee upon all questions
of policy and of the reasons underlying such action and to include a
copy of the records in its annual report.
5. The Federal Reserve banks may make advances to member banks with
maturities of not to exceed four months, secured to the satisfaction of
the Reserve bank, and at a rate of interest not less than l/2 percent
higher than the Reserve bank's discount rate. This is the authorization
I have already discussed which enables member banks to borrow from the
—19—
X-9595
Reserve bank not merely on so-called eligible paper, but on any good
assets.
6. The Open Market Committee is made to consist of the members of
the Board and of five representatives of the Reserve banks, and is given
definite authority over the open market operations of all the Reserve
banks.
7. The express stipulation is made that direct obligations of the
United States and obligations which are fully guaranteed by the United
States may be bought and sold by Reserve banks without regard to maturities, but only in the open market. This is to prevent direct purchases
of issues of government securities from the Treasury.
8. Federal Reserve bank discount rates are required to be established every fourteen days, or oftenor if d&emed necessary cy the Board.
9.
The Board of Governors, on the affirmative vote of four of its
members may by regulation change the requirements as to reserves to be
maintained against time and demand deposits hy member banks; but the
change shall not make the required reserves less than now established
by law nor more than twice that now required. Formerly the existence of
an emergency and the approval of the President were necessary conditions
of such action by the Board.
10. National banks may make real estate loans up to SO percent of
the appraised value of the mortgaged property for periods not exceeding
five years; except that if the loan is on an amortization basis it mixy
be made up to 60 percent of appraised value and for a term of not longer
-20-
X-9595
than ten years. Real estate loans must not exceed the capital and surplus of the bank, or 60 percent of the bank's time and savings deposits,
whichever is greater.
There are two important changes effected under the new banking legislation, and I should like in conclusion to emphasize them.
First there are the provisions that fix responsibility more definitely for the determination and direction of national credit policy through
control of open market operations, of discount rates, and of reserve requirements .
Second there are the provisions that broaden the classes of member
bank assets eligible as security for loans from Reserve banks, and encourage local banks to meet a wider range of credit needs in their communities.
It must be recognized, however, that if the System is to achieve as
much as we all hope, it will need more than these new provisions. It will
need the cooperation of business men, bankers, and the general public. For
that reason I appreciate the opportunity I have had of discussing with you
the System's powers and purposes.
617
BOARD OF GOVERNORS
X-9594
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
official
t o
t h e
c o r r e s p o n d e n c e
board
May 22, 1956
SUBJECT:
Holidays during June, 1956
Dear Sir:
The Board of Governors of the Federal Reserve System is advised that the following Federal Reserve banks and branches will
be closed on Wednesday, June 5, in observance of the Birthday of
Jefferson Davis and Confederate Memorial Day:
Richmond
Atlanta
Birmingham
Jacksonville
Nashville
Now Orleans
Louisville
Memphis
Dallas
El Paso
Houston
San Antonio
The Board is further advised that the Federal Reserve Bank
of Boston will bo closed on Wednesday, June 17, in observance of
Bunker Hill Day.
On the dates given the offices mentioned will not participate
in either the transit or the Federal Reserve note clearing through
the Interdistrict Settlement Fund. Please include transit clearing
credits for the offices affected on each of the holidays with your
credits for the following business day. No debits covering Federal
X-9594
Reserve note shipments for account of the head offices concerned
should be included in your note clearings of June 3 and 17.
Please notify branches.
Vei^ntruly yours,
Assistant Secretary.
TO ALL PRESIDENTS
/
619
B O A R D OF G O V E R N O R S
OF THE
X-9595
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 23, 1936
SUBJECT:
Code Words Covering New
Issues of Treasury Bills
Dear Sir:
In connection with telegraphic transactions in
Government securities between Federal reserve banks,
the following code words have been designated to cover
new issues of Treasury Bills:
"NOYNAK" - Treasury Bills to be dated
May 27, 1936, and to mature
December 15, 1936.
"NOYNEV" - Treasury Bills to be dated
May 27, 1936, and to mature
February 24, 1937.
These words should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental
code word "NOYMUF" on page 172.
truly yours
TO PRESIDENTS OF ALL F. R. BANKS.
620
BOARD OF GOVERNORS
OF THE
X-9597
FEDERAL RESERVE SYSTEM
WASHINGTON
address
official
to
the
c o r r e s p o n d e n c e
board
May 27, 1936
SUBJECT: Maximum Rates of Interest Payable on
Time Deposits under Regulation Q.
Dear Sir:
The Board has recently received an inquiry which indicated
that there may be some misinterpretation of the provisions of the
supplement to Regulation Q establishing a graduated scale of maximum
rates of interest payable upon time deposits having different maturities or payable upon written notice of different periods.
This in-
quiry indicated that such misinterpretation of the regulation may
possibly have been caused in part by the forms of time certificates
of deposit published at page 708 of the Federal Reserve Bulletin for
November, 1935.
These forms complied with the definition of "time certificates of deposit" under the edition of Regulation Q in effect when
they were published and also comply with the definition of such term
in the current revision of Regulation Q. However, the rate of interest provided in such forms (3 per cent per annum) may not now be
paid by a member bank.
The provision of these forms which may have caused misunderstanding is the following provision contained in forms 3 and 4:
X-9597
"Interest payable for full months only at
left
(days or months)
or
per cent per annum if
per cent if left more than
(days or months)
A time certificate of deposit payable upon 30 days' written
notice which provides for interest at 1 per cent per annum if left
30 days but less than 90 days, or 2 per cent per annum if left 90
days but less than 6 months, or 2g per cent per annum if left 6 months
or longer is not permitted ty the provisions of the supplement to Regulation Q. Since such a time certificate of deposit would be payable
upon 30 days' written notice, it would fall within the provisions of
section (3) of the supplement, and the maximum rate of interest payable thereon would be 1 per cent per annum even though the deposit
were left with the bank for a year or more.
In other words, the applicable maximum rate of interest payable on a time deposit may not be determined by the length of time
the deposit is left with the bank but must be determined by the length
of the period from the date of the deposit to its specified maturity
or the period of notice of withdrawal or payment required by the certificate. Of course, a certificate payable upon 30 days' written
notice could provide for interest at l/2 per cent per annum if left
2 months, 3/4 per cent per annum if left 3 months, or 1 per cent per
annum if left 4 months, but no matter how long the deposit is left
with the bank the rate of interest payable on such a certificate may
not exceed 1 per cent per annum.
In any case in which a member bank, under a misapprehension
622
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X-9597
as to the rate of interest payable on a time certificate of deposit
of the kinds published at page 708 of the Federal Reserve Bulletin
for November 1953 has, in good faith, issued any time certificate of
deposit which provides that interest shall be paid thereon at a rate
determined by the length of time the deposit is left with the bank
when such interest would be at a rate in excess of the maximum rate
determined on the basis of the length of the period of notice required
for withdrawal or payment, the Board will not object to the payment of
interest on such certificate in accordance with its terms, provided
that the certificate and the rate of interest payable thereon comply
in other respects with the provisions of Regulation Q and that such
steps be taken by the bank through notice to the depositor or otherwise as may be necessary to bring such certificate into conformity
with the provisions of the regulation as soon as possible.
Very truly yours,
Chester Morrill,
Secretary.
TO ALL FEDERAL RESERVE AGENTS.
BOARD OF GOVERNORS
OF THE
X-9598
FEDERAL RESERVE SYSTEM
WASHINGTON
address
May 29, 1936,
*******
official
to
the
SUBJECT: Code Words Covering New
Issues of Treasury Bills.
Dear Sir:
In connection with telegraphic transactions in
Government securities between Federal reserve banks,
the following code words have been designated to cover
new issues of Treasury Bills:
"NOYNIP" - Treasury Bills to be dated
June 3, 1936, and to mature
December 15, 1936.
"NOYNOD" - Treasury Bills to be dated
June 3, 1936, and to mature
March 3, 1937.
These words should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental
code word "NQYNiiV" on page 172.
J. C. Noell,
Assistant Secretary
TO PRESIDENTS OF ALL F. R. BANKS.
c o r r e s p o n d e n c e
board
.
624
BOARD OF GOVERNORS
X-9599
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
official
to
June 1, 193':
Deer Sir:
There is inclosed, for your information, a
copy of a letter sent to Mr. Oliver P. Wheeler,
Assistant, Federal Reserve A,?;ent at the Federal Reserve Bank of San Francisco, in connection with
certain questions submitted to him by a national
bank located in the Twelfth Federal Reserve District regarding the effect on the bank's operations under Regulation U of its "general pledge
agreement".
Very truly yours
S. R. Carpenti
Assistant Secretary.
Inclosure.
TO ALL FEDERAL RESERVE AGENTS
the
c o r r e s p o n d e n c e
board
X-9599-a
May 20, 1956.
COPY
Mr. Oliver P. Wheeler,
Assistant Federal Reserve Agent,
Federal Reserve Bank of San Francisco,
San Francisco, California.
Dear Sir:
This refers to your letter of May 11, 1956, containing questions
submitted to you by the
National Bank regarding the effect
on the Rank's operations under Regulation U of its "general pledge agreement"
enclosed with your letter.
Before answering the specific questions relating to this general
loan agreement it may be pointed out that in the preparation of Regulation
U consideration was given to the fact that most banks use a general loan
agreement of this type. Although no attempt will be made in this letter to
construe the legal effect of the enclosed agreement in the State of
it will be assumed that it will have an effect similar to general loan
agreements which have been considered and which subject to the lien of each
existing or future loan of the bank to a given borrower, all collateral or
property of that borrower in the possession of the bank.
You first ask whether the pledge resulting from such a general
loan agreement of all property in the possession of the bank as security
for ail the borrower's indebtedness prevents the separate allocation under
Regulation U of certain collateral to loans subject to the regulation and
of other collateral to loans not subject to the regulation. Regulation U
is not intended to prevent a borrower from pledging specifically securities
or other collateral for a particular loan or to prevent a bank from
,
allocating definite collateral to such a loan. However, if a. general loan
agreement bo in effect by vvhich collateral securing each loan also secures
all other loans, the loan value of collateral specifically pledged for or
allocated to loans not subject to the regulation may be considered go a
basis for making or increasing loans subject to the regulation. Further,
in determining whether collateral specifically pledged or allocated to loan
not subject to the regulation may be withdrawn, the bank must combine the
collateral for all loans. The bank may not in this case permit withdrawal
of such an amount of collateral as will cause the maximum loan volue of the
remainder to be less than the amount of the loans subject to the regulation
In answer to your second question, it follows from the foregoing
that such a general loan agreement permits the use of collateral previously allocated to loans not subject to the regulation in computing the maximum loan value for the purpose of making a loan subject to the regulation.
In this connection, it is recognized that resort to this practice would
tend to nullify the regulation and that evidence of extensive use of the
practice would give the Board reason to consider tightening the regulation.
Your last question is whether specific inclusion under the lien
of a general loan agreement of all property deposited for safekeeping by
the borrower conclusively indicates that securities in safekeeping are
relied upon, so that under section 5(f) of Regulation U a bank must treat
a loan as collateralled by such securities. Although subjection to the
lien in such a case may not conclusively establish the reliance referred to
in section 5(f), it will raise a presumption that the bank must have relied
627
X-9599-a
-5-
upon the securities in safekeeping, This might be overcome, houevur, byclear evidence to the contrary in the records of the bank or elsewhere.
The Bulletin of the
Trust Company referred to by you
represents, it is understood, the construction by that bank of Regulation U.
The statements therein will be treated, it is believed, as a reasonable interpretation made in good faith by a member bonk. This letter, however,
will not attempt to approve or disapprove the construction quoted by you from
that Bulletin, as the Board does not feel that it should, st least for the
present, pass upon any documents published or used by member banks in connection with Regulation U. To do so in a particular case mi^ht result in
requests from many Danks for approval of their forms.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
r
THE FEDERAL RESERVE SYSTEM AND BANKING ACT OF 1935
Address by
M. S. SZIMCZAK, MEMBER,
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,
Delivered Before
BANK MANAGEMENT CONFERENCES,
SEATTLE CONVENTION, AMERICAN INSTITUTE OF BANKING,
June 9, 1956,
Seattle, Washington.
X-9600
In speaking before the American Institute of Banking it is appropriate to stick to facts and fundamentals.
I want to describe the Federal Reserve System from the point of
view first of the Federal Reserve Banks and then from the point of
view of the Board of Governors in Washington, and in passing to indicate such changes as were effected by the Banking Act of 1935.
Federal Reserve Banks
The Federal Reserve Banks have direct relations with about 6,400
banks which are members of the Federal Reserve System. This is less
than half the banks in the country. However the banks which belong to
the System do about 70 percent of the banking business of the country;
and the proportion of the total banking business handled by them has
shown in recent years a strong tendency to increase.
Holding Member Bank Reserves
The fundamental purpose of the Federal Reserve Banks is to hold
reserves of member banks. Before the establishment of the System it
was long recognized that one of thu greatest weaknesses of our banking
was the lack of a scientific system of reserves. The requirements for
national banks thirty years ago, for example, just before the panic of
1907, - which had much to do with bringing about the establishment of
the Federal Reserve Banks - was that each country bank should keep reserves of 15 percent, of which at least 6 percent was to be kept as
cash on hand and the rest on deposit in correspondent banks in reserve
or central reserve cities. National banks in reserve cities had to
-2-
X-9600
keep reserves of 25 percent, at least 12|- percent in cash and 12-| percent on deposit with correspondent banks in central reserve cities.
There were three central reserve cities: New York, Chicago, and St.
Louis. The banks in these cities had to keep reserves of 25 percent all in vault cash.
The percentage of reserves which such banks are now required to
keep on demand deposits is 7 percent for country banks, 10 percent for
reserve city banks, and 13 percent for central reserve city banks; and
on time deposits all banks must keep 3 percent.
The great difference, however, is that whereas at that time the
banks partly kept their legal reserves in their own vaults and partly
kept them with one another, and had no certain means of augmenting
their reserves except when everything was easy, the banks now have to
keep their legal reserves with the Reserve Banks and they have in the
Reserve Banks a moans of augmenting their reserves by the discount or
sale of assets.
The Federal Reserve System substitutes a flexible arrangement for
a rigid one; and a bank with sound assets can no longer find itself
without the means of maintaining its reserves.
These conditions remain the same substantially as they were in
the original act. With respect to the assets which a bank can discount
at the Federal Reserve Bank, however, the law has made important change
Lending Powers
The original act sought to encourage banks to make commercial loan
631
-5-
X-9600 '
and it therefore definitely discriminated in favor of such loans bylimiting the class of paper eligible for discount. This comprises, in
the words of the act, "notes, drafts, and bills of exchange issued or
drawn for agricultural, industrial or commercial purposes." Moreover,
such paper, to be eligible, had to mature in three months or less from
the time of discount, except that agricultural paper might mature in
six months.
Whatever the intention, this limitation did not in fact result
in a preponderance of such paper in the portfolios of banks. On the
contrary eligible paper has showed for many years a tendency to occupy
relatively a smaller and smaller place among bank assets. In 1929 it
was only about 12 percent of loans and investments of member banks,
and in 1934 it was only 8 percent. This change is due to a variety
of factors. In the large it represents the fact that American banks,
instead of specializing in any one type of credit, have tended to deal
in all kinds of credit, long term as well as short, required by their
communities. The effect of this was to limit the power which it was
originally intended that the Reserve Banks should have of enabling
banks with sound assets to maintain their reserves. Consequently,
banks which still needed to convert assets into reserves after having
discounted their eligible paper were often forced to dump other sound
assets on the market and get what they could.
The Banking Act of 1935 sought to correct this condition by amending the Federal Reserve Act to authorize the Federal Reserve Banks to
X-9600
make advances to member banks for not to exceed four months on any
security satisfactory to the Reserve Bank. Previous legislation had
already enlarged the lending powers of the Reserve Banks, but this
change went farthest by making it possible for a member bank to discount any sound asset at the Reserve Bank regardless of type.
Currency
At the time the -Federal Reserve Act was adopted, probably its
most important purpose in most people's minds was to furnish an elastic
currency. The difficulties at which the System was aimed were thought
of mainly as currency problems and not as credit problems. It is now
generally recognized, however, that the supply of currency is principally a routine matter that presents no difficulties so long as
credit and banking conditions are sound.
This brings me to the matter of general credit control and to the
functions which pertain largely if not mainly to the Board of Governors of the Federal Reserve System.
Discount Rates
The establishment of discount rates as authorized by the Federal
Reserve Act is partly the responsibility of the Federal Reserve Banks
and partly the responsibility of the Board of Governors. The Reserve
Banks, in the words of the act, are to establish the rates "subject
to review and determination of the Board". Since discount rates affect other rates in the money market and since the rate in one district
should take into account the rates in other districts, the Board has
-5-
X-9600
to consider the question from the point of view of general credit conditions. It has, therefore, the final responsibility.
The Banking Act of 1935 strengthened the Board's power by requiring that rates be established every fourteen days or oftener. It is
not necessary that the rates be changed every time, but they must at
least be reviewed.
The great limitation upon discount rates as a means of general
credit control is that they are not effective except as banks voluntarily seek to discount their paper. When the Federal Reserve Act
was adopted the importance of this limitation was not fully realized,
and discount rates were generally regarded as the most prominent means
of credit control. At the same time a device that is now regarded as
most important received at that time very little consideration. This
is open market operations.
Open Market Operations
Open market operations are now regarded of great importance because they are not subject to the limitation just referred to.
They
enable the central banking organization to take the initiative instead
of having to wait on individual banks to take the initiative. Moreover, their effect is comprehensive rather than local.
Open market operations consist of purchases and sales of securities - mainly government securities - by the Federal Reserve Banks.
By selling securities the Reserve Banks withdraw funds from the market
and there is a decrease in the supply of credit, because as the
-6-
X-9600
securities are paid for the reserves of member banks are diminished.
By purchasing securities the Reserve Banks put funds into the market,
and tend to ease credit, because their payments increase the reserves
of member banks.
It was not till 1922 that open market operations became large
enough to affect the money market. As a result of war financing the
Federal debt had increased from one to twenty-six billions with a correspondingly large volume of government securities. It then became
necessary for the individual Reserve Banks to coordinate their purchases and sales. Accordingly a committee was formed for that purpose.
At the same time it was definitely established that the purpose of the
operations was not profit but control of credit. The principle was as
follows:
That the time, manner, character, and volume of open
market investments purchased by Federal Reserve Banks be
governed with primary regard to the accommodation of commerce and business and to the effect of such purchases or
sales on the general credit situation.
The Banking Act of 1955 gave statutory recognition to the Federal
Open Market Committee, and forbade any Reserve Bank to engage in open
market operations except in accordance with regulations of the Board.
At the same time the Act adopted substantially the same statement of
purpose as had already governed the operations.
The Banking Act of 1935 went still further. It directed that the
635
-7-
X-9600
Federal Open Market Committee should consist of all the members of the
Board of GovettiorS and five representatives chosen by the Federal Reserve Banks regionally. This was a definite centralization of control.
Reserve Requirements
The Banking Act of 1955 increased the Board's power in another
respect also by authorizing it to change the statutory reserve requirements, which have already been mentioned. The Board may increase them
to as much as twice the present requirement, but may not lower them
below the present. This is a very important power because the volume
of credit which any member bank may extend is limited by the amount of
reserves it is required to hold.
Formerly this power could be exercised only in emergency and with
the approval of the President of the United States. The matter is now
one simply of the Board's discretion.
Other Changes
The most important changes effected by the Banking Act of 1955
have been covered in the foregoing. A few others may be mentioned.
The title "president" was given to the chief executive officer
of each Federal Reserve Bank instead of the former title "governor".
The old designation "Federal Reserve Board" was changed to "Board
of Governors of the Federal Reserve System", and the title of the
chief executive officer of the Board, which was formerly "governor",
was changed to "chairman".
The ex officio membership of the Secretary of the Treasury and
636
—8—
X—9600
the Comptroller of the Currency was discontinued and appointment of
seven appointive members was authorized.
Other Activities
The Federal Reserve Banks and the Board of Governors have a variety of duties which cannot be mentioned in brief space. Notable among
these is the compilation and publication of information bearing on
banking and credit conditions, here and abroad, and including data on
production, employment, trade, and prices. In the Federal Reserve
Bulletin, which is published monthly, and in tha Annual Report of the
Board, a comprehensive view is presented of the current banking and
financial situation. Bach of the Federal Reserve Banks also publishes
a monthly review and an annual report.
No other central banking organization in the world makes available such comprehensive information on domestic banking and business
developments, and on the considerations taken into account in formulating credit policy, as does the Federal Reserve System.
637
X-9601
CREDIT CONTROL
Address by
M. S. SZYMCZAK, MEMBER,
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,
Delivered Before
OREGON BANKERS ASSOCIATION CONVENTION - PORTLAND, OREGON,
June 13, 1936.
638
X-9601
Under various provisions of federal law there are five principal
means of credit control which the Federal Reserve Banks or the Board
of Governors may use. These are:
Discounts
Open Market Operations
Direct Action
Reserve Requirements
Margin Requirements
Discounts
The Federal Reserve Act provides that each Federal Reserve Bank
establish from time to time rates of discount, subject to review and
determination by the Board of Governors of the Federal Reserve System.
To this the Banking Act of 1955 added the new requirement that such
rates shall be established "every fourteen days, or oftener if deemed
necessary by the Board". This does not mean that the rates must be
changed every time, but that they must be regularly and frequently reviewed.
When the Federal Reserve Act was adopted the prevailing idea
seems to have been that discount rates were the most important means
of credit control. This idea was apparently based upon a belief that
member banks would borrow funds at a low rate of interest in order to
relend at a higher rate. As a matter of fact, banks rarely borrow from
the Reserve Banks for the purpose of relending. They do not like to
borrow and as a general thing they will not borrow, no matter how low
the rediscount rate is, except when they have to augment depleted reserves .
639
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X-9601
Trie Federal Reserve Act formerly limited the classes of paper
which Federal Reserve Banks could discount for member banks, on the
principle that a definite preference should be maintained for shortterm credit based on self-liquidating commercial transactions. The
Reserve Banks were, therefore, given the power to discount only paper
arising out of commercial, industrial, and agricultural transactions,
or paper backed by United States Government obligations.
As a result of various financial and economic developments, the
classes of paper which could be used as a basis for borrowing from
the Reserve Banks for many years constituted a decreasing proportion
of the assets of member banks. In 1929 it was only about twelve percent of their total loans and investments, and in 1934 it was only
eight percent. Consequently, in 1931 and 1952 when the great liquidation occurred, many banks whose assets as a whole were good nevertheless had very little that was technically eligible. They therefore
had to dump their assets on a falling market in order to raise the
funds they needed.
The new banking act increases the powers of the Federal Reserve
Banks so that advances may be made to member banks for periods not
exceeding four months on any security satisfactory to the Reserve Bank.
This amendment modifies and makes permanent the emergency legislation
which was adopted in 1932.
Open Market Operations
If the Reserve Bank had no other means of credit control than the
power to discount the paper of member banks at given rates, it might
640
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X-9601
have to wait passively and idly until individual member banks decided
that they would like to borrow. As a consequence of the need of meeting responsibilities more positively, other means of credit control
have been developed.
Open market operations consist of the purchase and sale by the
Reserve Banks of securities, mainly government obligations, for the
purpose of increasing or decreasing the supply of credit available in
the money market as a whole. By selling securities the Reserve banks
withdraw funds from the market and less credit becomes available; because in the process of paying for the securities that are sold the
reserves of member banks become diminished. And as a member bank's
reserves decline toward the legal minimum it is less able to make extensions of credit.
On the other hand, by purchasing securities the Reserve Banks put
funds into the market and more credit becomes available; because the
funds which are released in payment flow directly or indirectly into
the reserve accounts of the member banks and enlarge them. And as
thoir reserves expand, they are in a position to extend more and more
credit.
In principle, therefore, open market operations enable the Reserve
banks to increase or decrease the funds available for lending, by buying or selling securities. They enable the Federal Reserve banks to
take corrective action with respect to abnormal credit conditions on
their own initiative.
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X-9601
The powers of the Reserve Banks to buy and sell securities in the
open market were granted in general terms in the original Federal Reserve Act. The first operations were carried on by the Federal Reserve
Banks independently of one another, but it was soon found that action
would have to be coordinated; and a committee representing several
banks was formed for the purpose of directing the operations. For
some time purchases had been made with the idea of providing income to
meet expenses, but it was eventually realized that such an objective
was in conflict with that of moderating a given condition of the money
market, and must, therefore, be subordinated or even abandoned.
The Banking Act of 1935 gave specific recognition to open market
operations and established a Federal Open Market Committee of twelve
members, one representing each Federal Reserve Bank, to take the place
of the former non-statutory committee. At the same time the law
adopted substantially the statement of purpose which had already governed open market operations. This was to the effect that they be
conducted "with a view to accommodating commerce and business and with
regard to their bearing upon the general credit situation of the
country."
The Banking Act of 1955 made a further change by providing that
the Federal Open Market Committee should consist of the members of the
Board of Governors of the Federal Reserve System and five representatives chosen by the twelve Federal Reserve Banks.
Direct Action
Direct action means efforts to discourage credit policies of
-5-
X-9601
given member banks in given circumstances. Opportunity for it occurs
on various Occasions, but particularly when a member bank is being
examined, or when it is seeking to rediscount some of its paper. In
this sense, direct action is aimed at the correction of specific conditions in particular banks. It may also be resorted to with reference
to general conditions and for the purpose of enforcing general credit
policy.
The effectiveness of direct action was increased by the Banking
Act of 1953 in several particulars. If a member bank makes undue use
of bank credit for any purposes inconsistent with sound credit conditions, it may be suspended from recourse to credit facilities of the
Federal Reserve System. Furthermore, authority has been given to remove any officer or director of a member bank who continues to violate
the law governing the bank's operation or wjio has persisted in unsafe
and unsound practices in conducting the bank's business.
Power to Change Reserve Requirements
Recent legislation has also given the Board power to change reserve requirements. For most banks (chiefly those outside the larger
cities) the requirement is and has been for years that they have reserves equal to at least 7 percent of their demand deposits, and 5 percent of their time deposits. The power to alter these requirements
was first given the Board in 1953, but under limitations which were
later removed by the Banking Act of 1935. The Board is now authorized
to change the reserve requirements "in order to prevent injurious
643
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X-9601
credit expansion or contraction", but it is not permitted to lower
them below the present requirements nor increase them to more than
twice the present requirements. The result of raising them would be
to decrease the lending power of member banks and consequently the
amount of available credit. The effect of lowering them later on would
be, of course, to enlarge the lending power and the amount of available
credit.
Margin Requirements
Another new form of general credit control recently authorized
pertains to margin accounts and loans made for the purpose of purchasing or carrying registered securities. Authority for the Board to
issue regulations in this field was granted by the Securities Exchange
Act of 1934.
Pursuant to these provisions the Board has issued twin Regulations,
T and U. Regulation T, following Sections 7 and 8(a) of the Securities
Exchange Act of 1934, governs the extension and maintenance of credit
by brokers and dealers in securities for the purpose of purchasing or
carrying securities. Regulation U, following Section 7(d) of the Act,
governs loans made by banks for the purpose of purchasing or carrying
stocks registered on exchanges. In general, these regulations fix the
maximum loan value of securities subject to their provisions at 45 percent of their current market value. This means a margin requirement
of 55 percent. This loan value applies equally to margin accounts with
brokers and to similar loans made lay banks.
644
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X-9601
In the case of brokers who are financing other brokers in order
to enable them to carry accounts of their customers - as may happen,
for example, when a large city broker is financing a correspondent
broker in a smaller community - loan values of 60 percent are permitted.
Special provision is also made to facilitate the financing of securities' distribution.
The Board has authority to change the loan value percentages as
necessary in order to prevent, in the language of the Act, "the excessive use of credit for the purchase or carrying of securities."
For example, under the regulation last issued, it is possible to
borrow $45 on each $100 of stocks, valued at the market.
If market
prices nevertheless rise so that the $100 worth of securities becomes
worth $125, $150, or $200, at the market, the amount that can be borrowed, namely 45 percent, becomes of course progressively greater,
until such time as the Board finds it advisable to reduce the ratio
of loan value.
is checked.
As the Board reduces the ratio, the effective demand
In principle, therefore, the Board has the power to pre-
vent the use of too much credit for speculation and to prevent an expansion dependent too largely upon the ease with which money can be
borrowed.
Moreover it is enabled to do this without making credit any
the less available for commercial, agricultural or industrial purposes,
and without raising its cost for such purposes.
The power which has been given the Board to impose and relax restraints upon the demand for credit for speculative purposes is
X-9601
-8-
definitely selective.
It is aimed at a particular use of credit and
at the specific channels through which demand becomes effective.
For
this purpose, it extends the powers of the Board outside the Federal
Reserve System to reach directly brokers and nonmember banks.
It dif-
fers from powers of discount, because while these powers may be exercised to discriminate against paper directly involved in speculative
uses, they cannot prevent the speculative use of funds procured by the
discount of paper not directly involved in speculation.
It also dif-
fers from the power to conduct open market operations which influence
the total amount of funds but not the uses to which they can be put.
The same thing is true of the power to alter reserve requirements.
Direct action can be used to discriminate against the speculative use
of credit, but only in individual cases.
In the case of margin accounts, however, the regulation is directed at an unmistakable objective and cannot miss affecting the
speculative use of credit.
In the case of loans by banks for purposes
of speculation it may be felt that the objective is less distinct,
since the purpose of such loans may be disguised.
This may appear
especially possible since Regulation U permits a bank to rely upon a
signed statement, accepted in good faith, as to the purpose of a given
loan.
Of course if means of evasion develop, they will have to be
dealt with, but the Board has chosen to avoid imposing inquisitorial
investigations in the absence of reason for believing that evasions
will be deliberate or of serious consequence.
646
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X—9601
It is not the function of the Board to attempt control of security prices nor to do anything in conflict with the responsibilities
of the Securities and Exchange Commission in its supervision of securities exchanges.
Conclusion - Limitation on Means of Credit Control
Although the five means I have discussed by which credit control
may be exercised - discounts, open market operations, direct action,
reserve requirements, and margin requirements - appear to be very comprehensive and powerful, it would be a mistake to convey the impression that a perfect control of credit will be effected through them.
In the first place, their application cannot be mechanical nor governed
by simple unvarying rules.
Credit and economic relationships are ex-
tremely intricate, and the circumstances under which the need for action arises are always to some extent different and special.
For one thing, there has never been a time when the membership
of the Federal Reserve System included as many as half the banks in
the country.
Although it is true that the System includes most of the
large banks and that it, therefore, includes the bulk of the banking
business of the country, still from the point of view of the communities they serve and of relations with other banks, the importance of
the thousands of small banks which are outside the System is not
negligible.
For another thing, United States Treasury activities must be
taken into account.
These have to do in part with the operations of
647
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X-9601
the Exchange Stabilization Fund and the issue of circulating media,
e.g., coins, silver certificates, and United States notes; and in part
with the public debt, and the government's receipts and expenditures.
These operations involve large sums and intimately affect the banking
and credit situation.
Finally there are conditions that arise not only outside the System, but outside the country, and yet affect the domestic banking situation powerfully. There is, for example, the recent great movement of
gold to the United States from abroad - a movement that in the last
two years has added over three billion dollars to the reserves of member banks and created a quite unprecedented credit situation.
These factors, among others, necessarily limit and modify the
exercise of credit control.
In concluding I want to assure you how much I appreciate the opportunity you have given me to discuss these matters. I feel, as I
have probably said before, that an administrative agency cannot function properly without having behind it a well informed and sympathetic
public interest. Credit control unfortunately is a matter which
bristles with technical difficulties and abstract ideas; but it is
nevertheless essential, if the important objectives of credit control
are to be achieved, that at least their general purpose and philosophy
be understood.
648
BOARD OF GOVERNORS
X-9602
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
o f f i c i a l
t o
c o r r e s p o n d e n c e
t h e
board
June 2, 1936.
Dear Sir;
There are inclosed, for your information,
copies of a letter dated April 14, 1936, and its inclosures, received from Mr. Clark, Assistant Federal
Reserve Agent at the Federal Reserve Bank of Atlanta,
and of the Board's reply thereto, with regard to the
Board's Regulation U, Loans by Banks for the Purpose of
Purchasing or Carrying Stocks Registered on a National
Securities Exchange.
Very truly yours
k> -
av
•
- - j
Assistant Secretary
Inclosures.
TO ALL FEDERAL RESERVE AGENTS.
X-9602-
COPY
FEDERAL RESERVE BANK
OF ATLANTA
April 14, 1936.
Mr. Ronald Ransom,
Board of Governors of the
Federal Reserve System,
Washington, D. C.
Dear Mr. Ransom:
At the request of Mr.
, Vice
President of The
National Bank of
, I am transmitting to you a memorandum that he has prepared of Regulation U.
Mr.
is anxious to have a meeting
of branch managers and credit officials of the main office
for the purpose of studying Regulation U. Prior to that
meeting he would like to have the benefit of the Board's views
as to whether the statements contained in the memorandum are
in accordance with the provisions of the regulation, and have
answered the questions raised in the second paragraph of item
1 and itfcm 5 under (A) and item 4 under (B).
Any further interpretations or rulings that
the Board might wish to give in this connection I know will
be greatly appreciated by Mr.
.
With kindest regards, I am
Very truly yours,
(Signed)
L. M. Clark
L. M. Clark,
Assistant Federal Reserve Agent.
enclosure
X-9602-a
Under the above regulation the following points appear of interest and are
apparently worthy of note:
A -
Loans to brokers and dealers.
1.
On all loans made to brokers and dealers accompanied by Certificate
"A", 60$ of the market value of the collateral pledged can be loaned if the collateral consists of listed stocks.
When Certificate "A" is used and the collateral tendered includes
both listed and unlisted stocks, what percentage of the market value of the unlisted stocks can be used as the maximum loan value?
B -
2.
If accompanied by Certificate "B", a loan signed by a broker or
dealer will not be subject to the regulation.
3.
A loan which is not accompanied by either Certificate must not be
in excess of 45$ of the market value of the stocks offered as collateral.
4.
A temporary loan to a dealer for the purpose of completing a transaction where securities are purchased against a bonafide order is
not subject to the regulation.
5.
Does Item "C" of Section Two refer to the distribution of new issues,
exclusively, or will it include the distribution of issues already
outstanding and presently listed on a national exchange?
Loans to others than dealers and brokers.
1.
If the bank accepts in good faith Certificate "B", executed by a borrower, the loan in connection with which it is executed is not subject to the regulations and the margin to be required is optional
to the bank.
2.
After May 1, when both secured and unsecured loans are made to the
same borrower at the same time or at different times, the total indebtedness of that borrower must not exceed the maximum loan value
of the collateral as prescribed in the regulation and any loan not
considered in the total must be accompanied by Certificate "B".
3.
According to our attorneys and according to the attorneys of the Federal Reserve Bank, the regulation does not in any way restrict the
substitution or release of collateral securing loans which were in
existence prior to the effective date and which have not been increas
ed except as provided for in the regulation.
4.
Does item "L" of Section Three intend to include bonds convertible
into stock at the option of the holder or carrying warrants entitling the holder to purchase stock under certain conditions?
4-14-36
651
X-9602-a
CERTIFICATE "A"
April
National Bank of
1956.
z
•
»
Dear Sirs:
For the purpose of enabling you to make
a loan to me in excess of 45% of the current market value
of certain stocks registered on a national securities exchange which I will pledge to you as security for said
loan, I certify that
1. I am subject to the provisions of Regulation
T of the Board of Governors of the Federal
Reserve System, prescribed in pursuance of
the Section 7 of the Securities Exchange Act
of 1954
or (indicate which)
I do not extend or maintain credit to or for
customers except in accordance with such Regulation T as if we were subject thereto,
and
2. That the securities hypothecated to secure said
loan are securities carried for the account of
my customers other than my partners.
Yours very truly,
652
X-9602-a
CERTIFICATE "B"
I hereby certify thi.t the loan evidenced by
this note is not being obtained for the purpose of purchasing or carrying stocks registered on a national securities exchange and
that the proceeds will not be used for
either of said purposes.
653
X-9602-b
May 20, 1936.
Mr. L. M. Clark
Assistant Federal Reserve Agent
Federal Reserve Bank
Atlanta, Georgia
Dear Mr. Clarkj
Reference is made to your letter of April 14 to Governor Ransom, enclosing a memorandum on the subject of Regulation U prepared by Mr.
Vice President, (national bank), and to the copy of Mr. Parker's letter
to Mr.
of April 21 which was forwarded to the Board.
,
The statements made and the questions asked in the memorandum appear to
relate to matters upon which you may receive further inquiries, and for this
reason they will be discussed somewhat fully. They will be treated in the
order in which they appear in the memorandum.
A-l. Stocks which are not registered on a national securities exchange have a maximum loan value of 45 percent when serving as collateral
for a regulated loan, even in the case of a loan to a broker made in accordance with the second paragraph of the supplement to Regulation U. It is
only registered stocks that have, in this case, a loan value of 60 percent.
A-2. The Board does not feel that it should attempt to approve or disapprove, at the present time at least, the forms which banks may employ in
complying with the provisions of Regulation U. To do so in any particular
instance might have the result that requests for approval of many forms
would be made of the Board by many banks. In this connection it should be
pointed out that such certificates are not required by the regulation but
the bank is permitted to rely upon them if it obtains them in good faith.
A -3. It may be noted that neither "Certificate 'A'" nor "Certificate
•B'" attached to the memorandum relates to loans which are excepted by the
provisions of section 2 of Regulation U. It is not, therefore, correct to
say that a "loan which is not accompanied by either certificate must not
be in excess of 45 percent of the market value of the stocks offered as
collateral."
A-4. A loan of the following description comes within the provisions
of section 2(f) of Regulation U:
A dealer in securities receives an offer from a customer
to purchase a registered stock. It is agreed between the dealer
and the customer that the dealer will deliver the stock to the
—2—
X-9602-b
Customer promptly, and that the customer will pay for the stock
promptly upon delivery of the security. The dealer purchases
the security, instructing the seller to deliver it to a designated bank against payment. The bank, knowing the facts of the
case and understanding that it will be repaid by the dealer as
soon as the dealer can arrange for his customer to take delivery
of and pay for the stock, makes a loan to the dealer for the purpose of paying the seller of the stock.
If Mr.
has in mind a case differing from that described above,
it is suggested that he address a new question to you, giving you the facts
of his case.
A-5. It is suggested that in order to assist the Board in answering
this question, which relates to the interpretation of section 2(c) of Reguto give you a specific case, describing in
lation U, you ask Mr.
some detail the exact nature of the operation which the bank is being asked
to finance.
ing
the
U.
not
the
B-l. If a given loan is not "for the purpose of purchasing or carrya stock registered on a national securities exchange", a bank may make
loan without being required to obtain the margin prescribed by Regulation
Withdrawals and substitutions of collateral securing any such loan are
subject to the regulation unless the collateral secures also a loan for
purpose specified in section 1 of the regulation.
B-2. The question which the memorandum seeks to answer is not altogether clear. If this question is how a loan which is made after May 1 for
the purpose of purchasing or carrying registered stocks, but which is unsecured, shall be treated in the event that the bank makes, or has made,
another loan to the same borrower after May 1 for the same purpose secured by
a stock, the answer is as follows:
If a bank has outstanding to a borrower no loan whatever which
is secured directly or indirectly by any stock, any loan by the
bank to such borrower, even if the purpose of the loan be to purchase or
carry registered stocks, is not subject to the regulation, if it is itself not secured by any stock. If, however, a bank has outstanding a
loan to a borrowe which, by reason of its purpose and its collateral,
is subject to Regulation U, the bank may not make to the borrower any
additional loan secured, under a general loan agreement, by stock
securing the first loan or by other stock and for the purpose of purchasing or carrying registered stock unless the bank obtains the margin
on the additional loan required by the regulation.
If a bank has outstanding a loan to a borrower which is unsecured or which is not secured by any stock, and is, therefore, not
subject to Regulation U, it may make a second loan which is subject
to the regulation, without regard to the status of the first loan,
655
—5—
X-9602-b
i.e., if the bank obtains additional collateral with a maximum loan
value at least equal to the amount of the second loan. Thereafter,
however, if the bank permits withdrawals or substitutions of collateral for either loan, it is obliged to ascertain the purpose of
the first loan. If the first loan was for the purpose of purchasing
or carrying registered stocks, the two loans must be treated as a
single loan, and all the collateral securing both loans must be considered in determining whether or not the contemplated withdrawals or
substitutions may be made.
B-5. As a general rule, the provisions of Regulation U are not applicable to the withdrawal or substitution of collateral for any loan made prior
to May 1, 1956. This general rule is subject, however, to one qualification:
If a bank has made another loan on or after that date (other than a loan excepted fcy section 2 of the regulation) which is secured directly or indirectly by any stock and is for the purpose of purchasing or carrying a stock
registered on a national securities exchange, and if the terms of the bank's
agreements with the borrower are such that the collateral securing the first
loan also secures the second loan, the bank must then combine the collateral
for both loans in determining whether any of the collateral for either loan
may be withdrawn. The bank may not, in this case, permit withdrawal of such
an amount of collateral as would cause the maximum loan value of the remainder to be less than the amount of the second loan.
B-4. The term "stock" as used in section 3(1) of Regulation U does not
include any bond, even a bond convertible into stock, or a bond carrying
stock purchase warrants.
Very truly yours,
(Signed)
Chester Morrill
Chester Morrill
Secretary
656
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
June 2, 1936
TO THE BOARD
X-9603
SUBJECT:
Code Words Covering New Issues of
Treasury Notes and Treasury Bonds.
Dear Sir:
In connection with telegraphic transactions between
Federal reserve banks covering Government securities, the
following code words have been designated to cover new issues
of Treasury Notes and Treasury Bonds:
"NOtfKYNE" - 1 3/8% Treasury Notes, Series
B-1941, to be dated and to bear
interest from June 15, 1936, and
to mature June 15, 1941.
"NOWCORN" - 2 3/455 Treasury Bonds of
1951-54, to be dated and to
bear interest from June 15, 1936,
and to mature June 15, 1954.
These code words should be inserted in the Federal Reserve Telegraph Code book, on page 172.
TO PRESIDENTS
•y truly yours
J. C. Noell,
Assistant Secretary
OF ALL F. R. BANKS.
657
BOARD OF GOVERNORS
X-9604
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
o f f i c i a l c o r r e s p o n d e n c e
to
June 4, 1936.
Dear Sir;
There is inclosed, for your information, a copy of a letter dated May 26, 1936,
to Mr. Oliver P. Wheeler, Assistant Federal
Reserve Agent at the Federal Reserve Bank of
San Francisco, in reply to a question submitted to him with regard to the Board's Regulation T, Extension and Maintenance of Credit
by Brokers, Dealers, and Members of National
Securities Exchanges.
Very truly yours
S. R. Carpenter,
Assistant Secretary.
Inclosure.
TO ALL FEDERAL RESERVE AGENTS.
the
board
X-9604-a
May 26 j, 1936.
Mr. Oliver P. Wheeler,
Assistant Federal Reserve Agent,
Federal Reserve Bank of San Francisco,
San Francisco, California.
Dear Mr. Wheeler:
This refers to your letter of May 12, 1936, inclosing a
copy of a letter from Messrs.
,
, and
, sub-
mitting the following case under Regulation T:
The account of a customer with a broker is restricted. The customer sells 100 shares of stock
realizing the sum of #1000 after taxes and commissions. On the same day he asks the broker to pay
him from the account the sum of $450. Would this
combination of transactions effected on the same day
result in a net withdrawal from the account under
section 4(d) of the Regulation?
The net effect of such a combination of transactions
made on the same day would be a "net withdrawal" as defined in
section 2(l) of Regulation T, since there would occur a payment
from the account of money ($450) and delivery of registered securities having an aggregate current market value ($1000), together exceeding the amount of money ($1000) paid into the
account on the same day.
Very truly yours,
(Signed)
Chester Morrill
Chester Morrill,
Secretary.
659
BOARD OF GOVERNORS
X-9605
DF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
official
to
correspondence
the
board
June 4, 1936,
Dear Sir:
In the Board's letter of April 16, 1936, (X-9550)
you were advised that no objection would be offered to your
granting employees of your bank sufficient leave, in addition to their regular annual leave, to enable them to attend
the special two weeks' course offered by the Graduate School
of Banking at Rutgers University.
The Board has since decided to grant members of its
staff attending the summer session leave of absence with
pay, in addition to the regular annual leave, of sufficient
duration to enable them to attend the session, and also to
assume the transportation expenses of such employees to and
from the University.
Very truly yours,
Chester Morrill,
Secretary.
TO ALL PRESIDENTS
660
BOARD OF GOVERNORS
X-9606
• F THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
o f f i c i a l c o r r e s p o n d e n c e
t o
June 4, 1956.
t h e
board
Dear Sir:
Recently the Board made arrangements whereby the mailing of
all statements and publications issued by it may be handled by its
personnel or by the printer and* accordingly, the Board beginning
July 1 will mail direct from Washington copies of the weekly statement of debits to individual accounts and the member bank quarterly
call report now furnished the Federal reserve banks for mailing.
By mailing these statements from Washington their receipt by
the addressees will be expedited and at the same time there will be a
considerable saving in postage and in expenses incident to their rehandling at the Federal reserve banks.
It will be appreciated, therefore, if you will furnish the
Board with a copy of your mailing lists for each of the above statements arranged alphabetically ty states and keep the Board currently
advised of changes therein.
In replying to this letter please state
the number of copies you will wish to have sent to your head office
and to each of your branches, if any, after July 1.
TO ALL FEDERAL
Very truly yours,
- 5 > & < i z l v
kyi
Chester Morrill,
Secretary.
RESERVE AGENTS
< > v v ,
-
e
^'
661
BOARD OF GOVERNORS
X-9607
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
official
t o
June 4, 1936.
SUBJECT: Basis of Issuance of Federal
Reserve Bank Stock.
Dear Sirs
There is inclosed for your information and guidance, in the event that cases
involving similar circumstances come to your
attention, a copy of a letter to the Assistant Federal Reserve Agfent at the Federal
Reserve Bank of Kansas City regarding the
basis of subscriptions to Federal Reserve
bank stock.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO ALL FEDERAL RESERVE AGENTS EXCEPT KANSAS CITY.
t h e
c o r r e s p o n d e n c e
board
663
X-9607-a
June 4, 1936.
Mr. A. M. McAdams,
Assistant Federal Reserve Agent,
Federal Reserve Bank of Kansas City,
Kansas City, Missouri.
Dear Mr. McAdams:
Reference is made to your letter of April 29, in which you refer
to the Board's letter X-9324 of September 20, 1935, and inquire
whether, in the circumstances described in your letter, it will be
satisfactory to defer adjustments of Federal Reserve bank stock holdings of member banks when it appears that an existing impairment in
the book surplus account (by reason of a deficit in the undivided
profits account) will be eliminated Within a reasonably short period.
I
It is noted that in the c&se in question the member batik holds
Federal Reserve stock issued on a basis of $100,000 capital and
$12,500 surplus; that the. December 51, 1935, and March 4, 1936, call
reports showed net surplus of $5,234.92 and $7,757.08, respectively;
that the bank h&s advised you that its net surplus account has been
increased to $9,328.64 and that it anticipates that the book surplus
of $12,500 will show no impairment by June 30, 1936; and that the
bank has inquired whether, in view of the circumstances, an immediate
adjustment of Federal Reserve bank stock holdings is necessary.
It is also noted that you feel that it would be better from a
practical standpoint to base the Federal Reserve bank stock holdings
on the amount of book capital and surplus, with a possible exception
in cases in which a deficit in the undivided profits account is greater
663
-2-
X-9607-a
than the amount of book surplus, on tlie theory that any impairment in
the book surplus account is a purely temporary condition which, unless
corrected promptly through the accumulation of earnings, profits, or
recoveries, will be corrected by a reduction in the amount of surplus
shown by the books. This suggestion is in harmony with the ruling
contained in the Board's letter X-7459 of June 19, 1953, that, while
any impairment in a member bank's, capital stock or surplus should be
corrected as soon as possible, its holdings of Federal Reserve bank
stock should be based upon the amount of issued and outstanding capital stock and surplus as shown on its books, rather than upon unimpaired capital and surplus. That ruling was somewhat modified by the
Board's letter X-9324 primarily to avoid the issuance of any Federal
Reserve bank stock against book surplus in cases where the book surplus was less than the deficit in the undivided profits account. To
be consistent, letter X-9324 also provided that, if a bank shows a
deficit in its undivided profits account not in excess of the amount
of surplus shown by its books, the deficit should be deducted from
the book surplus in determining the basis for required Federal Reserve
bank stock holdings.
The Board feels that, if a bank has a deficit in its undivided
profits account, the ruling contained in letter X-9324 should continue
to be observed. If, however, the deficit in the undivided profits account is relatively small and the Federal Reserve bank is satisfied
that it is likely to be extinguished either by accumulation of earnings
664
-3-
X-9607-a
Or by a formal reduction in surplus, there is no objection to deferring
the adjustment of Federal Reserve bank stock holdings until the end of
the current semi-annual period. As you know, the procedure outlined
in paragraph number 6 of the Board1s letter X-9371 of November 26,
1955, contemplates that as a general rule semi-annual adjustments in
holdings of Federal Reserve bank stock will be sufficient.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill*
Secretary.
665
X-9608
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
»
June 5, 1956
address
o f f i c i a l
to
the
c o r r e s p o n d e n c e
board
SUBJECT: Purchase of Convertible Bonds under
Regulations of Comptroller Regarding
Investment Securities.
Dear Sirj
There is inclosed herewith a copy of a telegram
received from the Assistant Federal Reserve Agent at Chicago
presenting the question whether the statements of the Comptroller of the Currency in his address before the California
Bankers Association at Sacramento, California, on May 22,
1936, affected the Comptroller's previous ruling, stated
in X-9539-d, that the provisions of section 11(5) of the
regulations were not intended to prohibit member banks from
purchasing bonds convertible into stock only at the option
of the holder. This question was submitted to the Comptroller of the Currency and a copy of his reply is inclosed
herewith.
Very truly yours,
L. P. Bethea,
Assistant Secretary
Inclosures
TO ALL FEDERAL RESERVE AGENTS.
666
COPY
FEDERAL RESERVE SYSTEM
(Leased Wire Service)
X-9608-a
Received at Washington, D. C.
Chicago May 27-28 916am
Board
Washn
Reference is made to Comptroller's letter to Board dated March 18
1956 governing purchase of investment securities by member banks
wherein comptroller states "With regard to the provision 'purchase
of securities convertible into stock at the option of the issuer
is prohibited', it was not intended that such provision should
operate to prohibit the purchase of securities convertible only at
the option of the holder". The larger state banks of this district
have raised the question whether in view of comptroller's speech
before California Bankers Association it is now intended that such
provision referred to above should operate to prohibit the purchase
of securities of any convertible bonds. One large bank in particular desires to buy a large block of bonds today convertible into
stock at the option of the holder. After carefully reading the
Comptroller's speech it is ny opinion that the Comptroller intended
to prohibit the purchase of all bonds convertible into stock.
Shall appreciate your advice today if possible.
Young
930am
667
COPY
X-9608-b
TREASURY DEPARTMENT
COMPTROLLER OF THE CURRENCY
Washington
May 29, 1956
Board of Governors,
Federal Reserve System,
Washington, D. C.
Dear Sirs:
This acknowledges yours of May 28, forwarding copy of a telegram you have received from the Assistant Federal Reserve Agent at
the Federal Reserve Bank of Chicago, with regard to the purchase by
member banks of bonds convertible into stock at the option of the
holder.
The telegram raises the question whether or not in view of
the speech of the Comptroller of the Currency before the California
Bankers Association it is now intended that the banks should be considered as prohibited from the purchase of any convertible securities even though convertible only at the option of the holder.
The provisions of Paragraph (5) of Section II of the investment security regulations of February 15, 1936, stating that "purchase of securities convertible into stock at the option of the
issuer is prohibited" by implication permit the purchase of convertible securities which are convertible only at the option of the
holder. However, what was said by the Comptroller of the Currency
in his speech, with respect to investment in securities carrying
stock purchase rights, and the purchase price of such securities,
frequently reflecting in part the conjectural value of the stock
right, may also apply to securities carrying conversion rights,
with the result that the question will arise in each case as to
whether or not a particular security complies with Paragraph (3)
of Section II of the regulations, prohibiting the purchase of investment securities in which the investment characteristics are
distinctly or predominantly speculative.
It is consequently our position that while there is no prohibition on the purchase of securities convertible into stock at the
option of the holder, the purchaser thereof must be prepared to
satisfy the Examiners that the purchase is not in conflict with'the
provisions of Paragraph (5) of Section II of the regulations.
Very truly yours,
/s/ Gibbs Lyons,
GIBBS LYONS,
Deputy Comptroller.
668
BOARD OF GOVERNORS
X-9609
OF THE
FEDERAL RESERVE SYSTEM
6
»
WASHINGTON
I:
address
official correspondence
to
the
June 6, 1956
SUBJECT?
Code Words Covering New
Issues of Treasury Bills
Dear Sir:
In connection with telegraphic transactions in
Government securities between Federal reserve banks,
the following code words have been designated to cover
new issues of Treasury Bills:
"NOYNUT" - Treasury Bills to be dated
June 10, 1936, and to
mature December 15, 1936.
"N0Y0A" - Treasury Bills to be dated
June 10, 1936, and to
mature March 10, 1957.
These words should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental
code word ''-NOYNOD" on page 172.
try truly yours,
Assistant Secretary
TO PRESIDENTS OF ALL F. R. BANKS
board
X-9610
669
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
o f f i c i a l
t o
June 8, 1936.
Dear Sir:
There are enclosed herewith
copies of statement rendered by the
Bureau of Engraving and Printing,
covering the cost of preparing Federal reserve notes for the month of
May, 1936.
Very truly yours,
0. E. Foulk,
Fiscal Agent.
Enclosure.
TO ALL F. R. PRESIDENTS
t h e
c o r r e s p o n d e n c e
board
X—96 lD—st
670
Statement of Bureau of Engraving and Printing
for furnishing Federal Reserve Notes,
May 1 to 29, 1956.
SERIES 1934
M.
Boston,........ 72,000
<10
$20
#50
#100
90,000
Total
Sheets
Amount
162,000
13,932.00
584,000
50,224.00
177,000
15,222.00
160,000
404,000
20,000
Philadelphia,.. 42,000
84,000
26,000
Cleveland...... -
55,000
31,000
86,000
7,396.30
Richmond,
-
74,000
55,000
129,000
11,094.00
Atlanta,
30,000
30,000
2,580.00
Chicago,
124,000
264,000
-
388,000
35,368.00
St. Louis...... 154,000
21,000
10,000
185,000
15,910.00
Minneapolis,... 28,000
8,000
36,000
5,096.00
8,000
688.00
156.000
13,416.00
New York,
8,000
Kansas City,... San Francisco,. 80.000
Totals
63.000
15.000
690,000 1,063,000 163.000
20,000 5,000
-
Z
20.000 5,000 1.941.000 Sl66.926.00
1,941,000 sheets, @ #86.00 per M,
$166,926.00
671
BOARD OF GOVERNORS
X-9611
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
S
address
o f f i c i a l
t o
t h e
June 8, 1956
SUBJECT: Exchange of Defaulted Bonds by Member
Bank under Comptroller's Regulations
Regarding Investment Securities.
Dear Sir:
There is inclosed herewith for your information a copy of a letter dated June 1, 1936,
from the Comptroller of the Currency relating to
the question whether member banks may exchange
defaulted bonds for other defaulted bonds under
the provisions of the regulations of the Comptroller of the Currency governing the purchase of .
investment securities.
Very truly yours
L. P. Bethea,
Assistant Secretary
Inclosure
TO ALL FEDERAL RESERVE AGENTS.
c o r r e s p o n d e n c e
board
672
COPY
X-9611-a
TREASURY DEPARTMENT
COMPTROLLER OF THE CURRENCY
Washington
June 1, 1936.
Board of Governors,
Federal Reserve System,
Washington, D. C.
Dear Sirs:
This acknowledges your letter of May 6, submitting an inquiry
you have received from a State member bank with respect to regulations
issued by this office under date of February 15, 1936, governing the
purchase of investment securities.
The inquiry in question is as follows:
"This bank is cariying in Non-Book Assets approximately
$100,000.00 of defaulted bonds, principally Real Estate
issues. These have all been entirely charged off and do
nob appear in any way in our assets.
"During the past two years we have at times sold, or
exchanged certain of our charged off bonds, for others
which seemed to present better opportunities for recovery,
and the results so far have been very satisfactory. In
view of the recent requirements laid down by the Comptroller of the Currency, we are wondering if we will be permitted to continue this practice of exchanges. Of course,
the bonds which we have heretofore obtained in this manner
do not measure up to the Comptroller's requirements as to
investment quality, but occasions frequently arise where
defaulted Real Estate Subdivision issues which are in
apparently hopeless condition can be switched into other
issues which have better prospects of recovery. Of course,
the bonds acquired in this manner are likewise carried in
Non-Book Assets, and we have made, and will make no exchanges that will require the outlay of any additional
cash."
The regulations prohibit the purchase of securities which
are in default and also prohibit the purchase of securities in which
the investment characteristics are distinctly or predominantly speculative. Consequently, the sale of a defaulted or sub-standard bond
and purchase with the proceeds therefrom of another defaulted or substandard bond, even though such security in itself may be better than
those sold, would, nevertheless, constitute a prohibited purchase of
a sub-standard or defaulted security under the regulations.
-2-
X-9611-a
We do, however, recognize an exception to the foregoing interpretation in that we will not consider it a prohibited purchase
of a defaulted or sub-standard security where the security purchased
is purchased exclusively with funds derived from the sale of a substandard or defaulted security and both the securities sold and the
securities purchased are obligations of the same obligor, provided
that as a result of the transaction the bank can satisfy the Examiner
that through the exchange of securities it has definitely improved
its position with respect to its holdings of obligations of the issuer in question. Such situation has come to our attention oh several
occasions with respect to certain railroad issues where two issues
of a particular railroad are outstanding, both of sub-standard or defaulted classification but one having a definitely better underlying
security than the other. A similar situation exists with respect to
the so-called "Dawes" bonds and "Torng" bonds of the German government.
We emphasize the point that this exception is recognized
only where the securities sold and the securities purchased are
obligations of the same obligor, and the sale and purchase are so
closely connected in point of time that the transaction for practical
purposes may be considered in effect an exchange of obligations for
the purpose and with the result of improving the bank's position with
relation to the particular obligor involved.
Very truly yours,
(Signed) J. F. T. O'Connor
J. F. T. O'CONNOR,
Comptroller.
BOARD OF GOVERNORS
X-9612
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
o f f i c i a l
t o
June 9, 1956
Dear Sir
There is attached a copy of the report
of expenses of the main lines of the Federal
Reserve Leased Wire System for the month of
May, 1936. This report is in the form which
accompanied the Board's letter of March 26,
1936 (X-9534).
Please credit the amount payable by
your bank to the Board, as shorn in the last
column of the statement, to the Federal Reserve Bank of Richmond in your daily statement
of credits through the Inter-district Settlement Fund for the account of the Board of
Governors of the Federal Reserve System, and
advise the Federal Reserve Bank of Richmond
by wire the amount and purpose of the credit.
Very truly yours,
0. E. Foulk,
Fiscal Agent
Inclosure
TO PRESIDENTS OF ALL F. R. BANKS
the
c o r r e s p o n d e n c e
board
X-9612-a
REPORT OF EXPENSES OF MAIN LINES OF FEDERAL RESERVE
LEASED WIRE SYSTEM FOR THE MONTH OF MAY, 1936.
Number
of
words
sent
Federal
Reserve
Bank
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Board of
Governors
Total
44,721
145,949
45,210
58,082
66,795
88,058
98,355
91,933
42,373
75,363
80,144
108,711
Words sent
by N. Y.
chargeable
to other
F. R. Banks
936
••• —
929
935
929
944
1,366
1,245
980
1,080
1,256
1,036
552.622
1,498,316
Total
words
chargeable
45,657 $ 251.50
1,523.16
145,949
236.39
46,139
374.14
59,017
263.92
67,724
275.76
89,002
975.13
99,721
196.88
93,178
158.82
43,353
259.43
76,443
267.55
81,400
563.38
109,747
Total
expenses
Wire
rental
$
—
230.00
— —
— -
•» —
— —
— —
$
251.50
1,523.16
236.39
374.14
493.92
275.76
975.13
196.88
158.82
259.43
267.55
563.38
Pro rata
share of
total expenses^)
$
699.53
2,236.15
706.91
904.22
1,037.63
1,363.64
1,527.87
1,427.62
664.23
1,171.22
1,247.16
1,681.48
Credits
$
Payable
to
Board
of Governors
251.50 S 448.03
712.99
1,523.16
470.52
236.39
530.08
374.14
543.71
493.92
1,087.88
275.76
552.74
975.13
1,230.74
196.88
505.41
158.82
911.79
259.43
979.61
267.55
1,118.10
563.38
2.573.12
14.985.43
17.558.55
8.466.95
17.558.55
1,509,952 $7,919.18
$15,215.43
$23,134.61
$23,134.61
$23,134.61
552.622
11,636
Personal
services (1)
— —
$9,091.60
(l)
Includes salaries of main line operators and of clerical help engaged in work on main line business such as
counting the number of words in messages, also, overtime and supper money and Retirement System contributions
at the current service rate.
(2)
Based on cost per word ($.01532142) for business handled during the month.
05
X-961
INDUSTRIAL LOANS
ADDRESS BY
M. S. SZYMCZAK, MEMBER
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
DELIVERED BEFORE
WASHINGTON BANKERS ASSOCIATION CONVENTION - SPOKANE, WASHINGTON
June 18, 1956.
X-9613
INDUSTRIAL LOANS
When the Federal Reserve Banks were established they were authorized to discount for member banks only certain eligible types of paper•
These represented advances of credit for short terms only on the basis
of commercial and agricultural activities. The idea in limiting the
discount powers of the Federal Reserve Banks to these classes of paper
was to facilitate the use of bank credit for legitimate commercial and
productive purposes, and to discourage its use for speculative and nonproductive purposes.
Without departing from this objective, it has been found necessary
from time to time in recent years to modify the limitations in the original Act. Most of these departures were made as the result of emergency
needs arising during the depression. It was for this reason that in 1932
the Federal Reserve Banks were authorized under certain conditions to
make advances to member banks on the basis of any collateral satisfactory
to the Reserve Banks. In the Banking Act of 1935 this provision, which
had previously lapsed, was restored to the Federal Reserve Act in Section 10b and made more general in its application. The result is that
at the present time, as you know, Reserve Banks may make advances to
member banks on any type of collateral satisfactory to them, provided
the paper has not more than four months to run. This power is no longer
restricted, as it formerly was, to periods of emergency. Advances of
Federal Reserve Bank credit on such bases as well as on the basis of the
class of paper originally defined as eligible are now within the scope
677
678
-2-
X-9615
of the regular powers of the Federal Reserve Banks. At the present
time, of course, when banks in general have an abundance of funds, the
authorization for the Federal Reserve Banks to make such advances has
little occasion to be exercised. If the banks have occasion to borrow
in the future as they have in the past, however, these powers may come
to be of great importance.
There is one special type of loan which the ordinary bank would
probably hesitate to make if the law did not permit the loans to be discounted at the Reserve Bank on especially favorable terms. These are
working capital loans with five year maturities, authorized by Section
13b of the Federal Reserve Act.
The difference between Section 10b and 13b is mainly that 10b authorizes advances on any satisfactory collateral for not more than four months;
whereas 13b authorizes advances and discounts for working capital purposes for not more than five years.
The powers to discount industrial loans were given to the Federal
Reserve Banks under the terms of an Act of June 19, 1934, which added
Section 13b to the Federal Reserve Act. The adoption of this measure was
preceded by considerable discussion as to the proper means of making
credit available to business enterprises whose working capital had been
depleted. One suggestion that has often been made is that there should
be intermediate credit banks established for the purpose. The basis for
the suggestion usually is that small business enterprise has great difficulty in procuring capital. Whatever the merits of this question, Congress
X-9613
decided to use an existing agency rather than establish new ones, and
to provide the facilities aimed at through extension of the powers of
the Federal Reserve Banks.
The amendment which was adopted authorized the Federal Reserve
Banks to discount loans made try member banks and others for working
capital purposes, or in cases where credit was not procurable from the
usual sources to make such loans direct. The law stipulated that the
loans were to be made to established industrial or commercial enterprises; they were to be for the purpose of furnishing working capital;
and they were to have maturities not exceeding five years. With respect
to such loans to be discounted try the Federal Reserve Banks, the law
reads as follows:
"Each Federal Reserve Bank shall also have power to
discount for, or purchase from, any bank, trust company,
mortgage company, credit corporation for industry, or other
financing institution operating in its district, obligations
having maturities not exceeding five years, entered into
for the purpose of obtaining working capital for any such
established industrial or commercial business; to make loans
or advances direct to any such financing institution on the
security of such obligations; and to make commitments with
regard to such discount or purchase of obligations or with
respect to such loans or advances on the security thereof,
including commitments made in advance of the actual undertaking of such obligations. Each such financing institution
-4-
X-9613
shall obligate itself to the satisfaction of the Federal
Reserve bank for at least 20 per centum of any loss which
may be sustained by such bank upon any of the obligations
acquired from such financing institution, the existence
and amount of any such loss to be determined in accordance
with regulations of the Board of Governors of the Federal
Reserve System."
You will notice that the Federal Reserve Banks may make these discounts
not only for member banks, but for non-member banks or any other type
of financing institution.
The arrangements that may be made under this authorization are extremely favorable to the bank which desires to make the loans in coopera
tion with the Federal Reserve Bank; for the commitment which the Federal
Reserve Bank is authorized to grant is an agreement under which a local
bank may carry such a loan in its own portfolio at a good rate of interest and with the privilege of disposing of it at any time at the Federal Reserve Bank. Moreover, when it is sold or transferred to the Federal Reserve Bank, the latter will assume without recourse as much as
80 percent of any eventual loss on the loan. The commitment, therefore,
gives the local bank assurance that the loan is perfectly liquid even
though it may run for a period of five years, and also that its own loss
on the loan may be limited to 20 percent.
The Federal Reserve Bank of San Francisco makes a charge of from
1/2 to 2 percent per annum on the commitments it grants. The exact
rate depends upon various factors of credit risk, maturity, etc. It
681
-5-
X-9615
charges a discount rate of from 5 to 4 percent on that portion of any
loan for which the bank which made the loan retains obligation, and
from 4 to 5 percent on that portion from which the bank which made the
loan is released from obligation.
•
In granting a commitment, of course, the Federal Reserve Bank has
to consider the credit risk exactly as if it were making the loan itself.
It may be said indeed that the Federal Reserve Bank assumes somewhat
more risk in granting a commitment than in making a direct loan, since
a loan which it makes itself is under its own immediate care, whereas
a loan held by another institution is not. Obviously the circumstances
are such that the Federal Reserve Bank must be assured that the loan is
a good one and that it will be properly serviced. In practice, therefore,
applications for such loans are usually considered simultaneously by the
Federal Reserve Bank and by the bank which contemplates making the loan.
In cases where a loan is refused by the local banker but is considered try the Federal Reserve Bank a good loan, the Reserve Bank may
make it direct. Under such circumstances it cannot be said that the Reserve Bank is competing with member banks. The Reserve Banks in general
prefer that local business be handled by local banking agencies. They
do not desire to develop direct banking relations with the public as a
matter of policy in any cases where local banking facilities are adequate.
As you know, the central banks of some other countries, for example,
the Bank of England and the Bank of France, have a certain amount of private business which they conduct in competition with other banking institutions. Before their central banking functions developed, these insitutione
-6-
X-9613
had much more of such business. The private business which they still
have, however, is not essential to their functioning as central banking organizations. The same thing is true in the United States. The
basic functions of the Federal Reserve Banks are central bank functions.
The Reserve Banks are in the main intended to supplement regular banking facilities and to stand in reserve behind the local banks. They
are not competitors of their members.
It is now nearly two years since the Federal Reserve Banks were given
the authority I have been discussing. In that period they have received,
as of June 3, 8,127 applications of which 2,165 have been approved. The
total amount that has been applied for is $330,026,000. The amount approved is $132,626,000. Of this amount, $27,144,000 has been conditionally approved, and $105,482,000 finally approved. These final approvals
include direct advances outstanding of $30,701,000 and commitments outstanding of $24,878,000. Repayments have amounted to $14,988,000. Withdrawals of approved applications, etc. have amounted to $21,676,000*
Financing institutions participations with the Federal Reserve Banks have
amounted to $11,970,000, and there is in process of completion advances
and commitments of about one and one-quarter million.
During the same period, that is since June, 1934, the Federal Reserve Bank of San Francisco has received 1,065 applications, of which
254 have been approved. The total amount applied for was $31,524,000,
and the amount approved was $11,942,000. Outstanding advances now amount
to $1,668,000, and commitments outstanding amount to $4,363,000. Repayments have amounted to $150,000. The Bank now has in process of completion
682
-7-
X-9613
approved advances and commitments of about $463,000.
The statute limits the amount available for these loans and commitments to $>280,000,000 for all the Federal Reserve Banks, of which
the Federal Reserve Bank of San Francisco has $19,500,000. This constitutes a revolving fund, so that as payments are received and new loans
made, the total credit that may be extended far exceeds the amount mentioned.
In order to assist the Federal Reserve Banks in dealing in a field
of credit which Congress felt might be new to them, it provided that
each Reserve Bank should have an Industrial Advisory Committee. The members of the Industrial Advisory Committee of the Federal Reserve Bank of
San Francisco are as follows;
Stuart L. Rawlings
V.P., Calaveras Cement Co.
San Francisco,
Calif.
Ralph Burnside
V.P., Eatonville Lumber Co.
Eatonville,
Wash.
Shannon Crandall
Pres., Calif. Hardware Co.
Los Angeles,
Calif.
Henry D. Nichols
V.P., Tubbs Cordage Co.
San Francisco,
Calif.
William G. Volkmann
Sec., A. Schilling & Co.
San Francisco,
Calif.
All applications received by the Reserve Bank are considered by the
Industrial Advisory Committee and recommended for approval or disapproval.
The Bank's action, however, is final. It is lending its own funds and
it has the say as to whether or not a loan should be made. Consequently
it may reject a loan recommended by the Industrial Advisory Committee or
684
X-3613
it may decide to make one even though the Industrial Advisory Committee's
recommendation is adverse.
Furthermore, applications are not referred to Washington. They are
considered and passed upon finally by the Reserve Bank of the district
in which they originate.
685
X-9S14
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
June 9, 1936.
official
t o
t h e
c o r r e s p o n d e n c e
board
Dear Sir:
In accordance with Paragraph 22 of Section 4 of the Federal
Reserve Act, the Board, on December 21, 1914, wrote to the Federal
reserve banks with respect to the fees, compensation, and traveling
expenses of directors. An examination of our files indicates that
the fees and compensation now paid ty the Federal reserve banks are
in substantial accord with those set forth in the Board's letter.
In order, however, that the Board may review the existing
practice of the Federal reserve banks with respect to fees, compensation, and traveling allowances provided for directors, it will be
appreciated if you will furnish, the Board with a statement on the
attached form showing the fees, compensation and traveling allowances
paid to directors for attending Board meetings, meetings of the Executive and Discount Committees, and other meetings.
The term other
meetings, as here used, is intended to include all services rendered
by directors except those rendered in connection with directors'
meetings and meetings of the Executive and Discount Committees.
Such
information should be furnished with respect to directors of the head
office and of branches, if any, and should cover all payments to
686
-2-
X-9614
directors residing in the city in which the meeting is held, to directors residing within 50 miles of the place of meeting, and to direcI
tors residing more than 50 miles from the place of meeting.
It will also be appreciated if you will submit to the Board
any suggestions you may wish to make with respect to the method of
compensating directors, with particular reference to whether the 50
mile radius mentioned in the Board's letter of December 21, 1914, is
a satisfactory basis for per diem allowances.
Very truly yours,
'
.Chester Morrill,
Secretary.
Inclosuro.
TO ALL PRESIDENTS
X-9614-a
687
STATEMENT AS TO FEES, COMPENSATION,
AND TRAVELING EXPENSES PAID DIRECTORS
Federal Reserve bank or branch
Meetings of
Board of
Directors
Fees for attendance at Meetings;
1. Amount paid for meeting not
exceeding one day
2.
Amount paid for meetings held
on two or more consecutive days
(a) First day
(b) Subsequent days-per day
3. Amount paid for an adjourned
meeting where a day intervenes
between the original meeting
and the adjourned meeting
(a) First day
(b) Intervening days-per day
(c) Subsequent days-per day
4. Amount paid for meeting where
a quorum is not present
5. Is more than one fee paid when
two or more meetings are held
on the same day?
Per diem allowance to directors
residing more than 50 miles from
place of meeting for each day of
absence from place of residence;
1. Amount
2. When absence from place of residence
includes a part of one or more calendar days in addition to the day or
days on which director is in attendance at meetings, is per diem
allowance paid for
(a) Day or days of meeting only
(b) For each fractional part of
a calendar day away from home
Meetings of
Executive
Other
Committee Meetings
688
-2C. Subsistence expenses or allowance therefor:
1. Are directors residing in city in
which meeting is held given luncheon
at bank1s expense
2. Are nonresident directors living
within 50 miles of place of meeting
reimbursed for any subsistence expense
not covered by item 1
3. Are directors residing more than 50
miles from place of meeting
(a) Reimbursed for actual subsistence
expenses
(b) Given an allowance in lieu of
actual expenses
(c) If answer to (b) is "Yes", what
is amount of per diem allowance
D. Transportation expenses or allowance
therefor
1. Are directors residing in city in
which meeting is held reimbursed
for any transportation expenses
2. Are nonresident directors living
within 50 miles of place of meeting
(a) Reimbursed for actual transportation expenses
(b) Given an allowance in lieu of
actual expenses
(c) If answer to (b) is "Yes" does
allowance closely approximate
actual cost (If not please
explain in footnote)
5. Are directors residing more than 50
miles from place of meeting
(a) Reimbursed for actual transportation expenses
(b) Given an allowance in lieu of
actual expenses
(c) If answer to (b) is "Yes" does
allowance closely approximate
actual cost (If not please
explain in footnote)
X-9614-a
BOARD OF GOVERNORS
OF THE
x 9615
FEDERAL RESERVE SYSTEM
"
WASHINGTON
address
o f f i c i a l
to
the
June 11, 1956.
Dear Sir;
There is inclosed, for your information, a
letter addressed to the Federal Reserve Agent at
the Federal Reserve Bank of Minneapolis under date
of June 5, 1956, in reply to certain inquiries made
of him by the president of a national bank with
respect to the provisions of Regulation U, Loans by
Banks for the Purpose of Purchasing or Carrying
Stocks Registered on a National Securities Exchange.
Very truly yours,
L. P. Bethea,
Assistant Secretary.
Inclosure.
TO ALL FEDERAL RESERVE AGENTS
c o r r e s p o n d e n c e
board
X-9315--a
June 5, 1956
Mr. W. B. Geery,
Federal Reserve Agent,
Federal Reserve Bank of Minneapolis,
Minneapolis, Minnesota.
Dear Mr. Geery:
Reference is made to your letter of May 22, 1936, inclosing
a copy of a letter addressed to you by Mr.
dent of the
, Presi-
National Bank & Trust Company,
,
making certain inquiries with respect to the provisions of Regulation
U.
The first inquiry is addressed to a hypothetical case in
which a borrower who has borrowed $1,000 without security from a bank
for a purpose other than purchasing or carrying a registered stock applied to the bank after May 1, 1956, for a further loan of $900 which
is for the designated purpose and otherwise subject to Regulation U,
to be secured by stocks having a market value of $2,000. Since, in
connection with the second loan, the borrower in the hypothetical case
provides additional collateral having a maximum loan value equal to th
amount of the loan, it can be made under the provisions of the last
paragraph of section 1 of the regulation and this would be true even
if the first loan were for the purpose of purchasing or carrying regis
tered stocks.
The second inquiry is addressed to a hypothetical case in
which a borrower who has received a loan subject to Regulation U in
691
- 2 -
X-9615-a
the amount of #900 for which he has deposited as collateral stocks having a market value of $2,000 applies to the bank after May 1, 1956, for
a further loan of $1,000 to be used in his business and not subject to
the regulation. Since the provisions of Regulation U restricting the
making of loans apply only to loans for the purpose of purchasing or carrying stocks registered on a national securities exchange, the second
loan, in so far as Regulation U is applicable, could be made without the
deposit of additional collateral.
The third inquiry is addressed to a hypothetical case in which
a borrower who has received a loan of $1,000 for business purposes and
not subject to Regulation U, but which is secured by stocks having a.
market value of $£,000 applies after May 1, 1955, for a further $900
loan subject to the provisions of Regulation U. Under the provisions of
Regulation U a loan subject to the regulation may be made in an amount
not exceeding the maximum loan value of the collateral which secures it
and loans previously made which are not subject to the regulation need
not be combined with this loan in estimating the total amount of the loan
subject to the regulation. Accordingly, without discussing the case from
the standpoint of good banking practices, it follows that the second loan
would be permissible without additional collateral, since the maximum
loan value of the stocks which secure it, assuming that the loan agreement of the bank would have the effect of subjecting the collateral to
the lien of the second loan as well as the first, is equal to the amount
of the $>900 loan applied for. However, all of the collateral securing
X—9615—&
- 5-
it would become subj ect to the restrictions upon withdrawals and substitutions of collateral as provided in the third paragraph of section 1.
Very truly yours,
(Signed)
Chester Morrill
Chester Morrill,
Secretary.
B O A R D OF G O V E R N O R S
*******
OF THE
FEDERAL RESERVE SYSTEM
X-9616
WASHINGTON
address
June 12, 1956.
official
to
the
c o r r e s p o n d e n c e
board
Dear Sir:
During the Presidents' Conference on May 26, 1956, advice was given as to actions taken on May 25, 1956, by the Federal
Open Market Committee in regard to the adoption of the formula for
the allotment of securities in the system open market account to
the individual Federal reserve banks; the transfer to the system
account of Government securities held in the individual accounts
of Federal reserve banks; the discontinuance by Federal reserve
banks of purchases for their own investment accounts of Government
securities pending sale of such securities for the account of member or non-member banks; authority to each Federal reserve bank
to make temporary purchases of Government securities under resale
agreements; and authority to individual Federal reserve banks to
replace maturing securities and to make shifts between maturities
of securities held in their individual accounts.
There is inclosed herewith for the records of your bank
a set of copies of excerpts from the minutes of the meeting of the
Federal Open Market Committee setting forth the resolutions adopted
by the committee on these matters.
X-9616
Since the date on which these actions were taken complications in working out the details connected with the allocations among the Federal reserve banks of the securities held in
that account have developed with the result that the members of
the Federal Open Market Committee who participated in its meeting
on May 25 have unanimously approved deferring the effective date
of the transfers to the system account of Government securities
held in the individual accounts of Federal reserve banks and of
the reallocations of the securities in the system account from
June 15 to June 25.
Very truly yours,
ho
Chester Morrill, Secretary,
Federal Open Market Committee.
Inclosures.
TO ALL PRESIDENTS
695
X-9616-a
Excerpts from Minutes of Meeting of Federal Open
Market Committee on May 25, 1956.
"After detailed discussion of the various aspects of the questions involved, upon motion duly made and seconded and by unanimous vote, the Committee (a) approved and continued in effect
the formula adopted by the Federal Open Market Committee as constituted prior to March 1, 1956, and the practice followed under
its authority, with respect to allotments to the various Federal
Reserve banks of Government securities held in the System open
market account; (b) authorized and directed the executive committee to make such adjustments as of June 15, 1956, as may be
necessary to bring the allotment to each Federal reserve bank of
Government securities held in the System open market account into conformity with such formula; and (c) authorized and directed
the executive committee to make thereafter from time to time such
readjustments as may be necessary to maintain the distribution
of Government securities among the Federal reserve banks in accordance with such formula; provided, however, that if at any
time the reserve ratio of any Federal reserve bank should fai^
below 50% or would be reduced below 50% by reason of the operation of such formula the executive committee shall make such readjustments in the allotments as shall be necessary to raise the
reserve ratio of such bank to 50% by allocating the necessary
amount of securities to the other Federal reserve banks in accordance with the formula. In this connection it was agreed that
any profit received by any individual Federal reserve bank as a
result of the transfer as of June 15, 1956, to the System open
market account of United 'States Government securities held in
the individual investment account of such Federal reserve bank
should be treated as a non-recurrent item which should not be
taken into account in the application of such formula. It was
also agreed that there should be obtained from each Federal reserve bank at quarterly intervals reports showing the nature and
amount of any unusual charge-offs which such bank anticipates
will be made during or at the end of each calendar year and that
the Board of Governors of the Federal Reserve System should be requested to endeavor to bring about the observance of a uniform
policy among the Federal reserve banks with reference to such
charge-offs."
* # * # * # * * * -* * *
"Accordingly, upon motion duly made and seconded and by unanimous vote, the Committee directed that the Federal reserve banks
transfer on June 15, 1956, to the System- open market account, at
the market prices prevailing on that date, all the United States
696
X-9616-a
Government securities held in the individual investment accounts
of such Federal reserve banks, including Government securities
held as investments of self-insurance funds."
-a* -)f
-A-
-)(- •>(- -)(-
"Upon motion duly made and seconded, and by unanimous vote,
the Committee directed that any Federal reserve bank which purchases and holds for its own investment account Government
securities pending their sale for the account of member or nonmember banks shall not later than June 15, 1936 discontinue such
purchases and sell all Government securities so held."
* * * * * * *
* * * * *
"Upon motion duly made and seconded and by unanimous vote, the
Committee granted authority to each Federal reserve bank to make
temporary purchases of Government securities under resale agreements for periods not exceeding fifteen days."
* * * * * * *
* * * * *
"Accordingly, upon motion duly made and seconded, and by unanimous vote, authority was granted, until June 15, 1956, to each
Federal reserve bank holding Government securities in its individual investment account to replace maturing securities in such
account and, with the approval of the executive committee, to
make shifts between the maturities in such account, provided that
no change in the total amount of Government securities held by
such Federal reserve bank shall be effected by such transactions."
* * * * * * * * * * * *
697
B O A R D OF G O V E R N O R S
OF THE
*******
x
FEDERAL RESERVE SYSTEM
~9617
WASHINGTON
address
official
to
June 12, 1936.
Dear Sir:
There is inclosed, for your information, a
copy of a letter to the Federal Reserve Agent at the
Federal Reserve Bank of Boston, with regard to the
question whether a deposit of trust funds by a State
member bank in a State nonmember bank in excess of
10 per cent of the capital and surplus of the member
bank is a violation of one of the conditions of membership to which the bank is subject.
Very truly yours,
L. P. Bethea,
Assistant Secretary.
Inclosure.
TO ALL FEDERAL RESERVE AGENTS
the
correspondence
board
698
X-9617-a
June 11, 1936.
Mr. Frederic H. Curtiss,
Federal Reserve Agent,
Federal Reserve Bank of Boston,
Boston, Massachusetts.
Dear Mr. Curtiss:
In the report of examination of the trust department of The
Trust Company,
,
, made as of October 7,
1935, the examiner for your bank has presented the question whether
a deposit of trust funds in a State nonmember bank by The
Trust Company in excess of 10 per cent of the capital and surplus of
the latter is a violation of the following condition of membership to
which it is subject:
"Such bank shall reduce to an amount equal to 10 per
cent of its capital and surplus all balances in excess
thereof, if any, which are carried with banks or trust
companies which are not members of the Federal Reserve
System, and shall at all times maintain such balances
within such limit."
Section 19 of the Federal Reserve Act provides, in part, that:
"No member bank shall keep on deposit with any State
bank or trust company which is not a member bank a sum
in excess of ten per centum of its own paid-up capital
and surplus."
While the condition of membership does not adopt the precise
language used in section 19 of the Federal Reserve Act, the Board
feels that, in so far as the present question is concerned, the same
interpretation should be given to both requirements.
As you know, in a ruling published on page 572 of the Federal
Reserve Bulletin for the year 1922, the Board distinguished between
699
- 2 -
X-9617-a
trust funds deposited in another member bank by a member bank as fiduciary and deposits made by the member bank in its own right and ruled
that a deposit falling within the former classification should be treated by the depositary member bank as an individual deposit rather than a
bank deposit and, therefore, may not be included by the depositary bank
among the amounts due to "other banks" from which the amounts due from
other banks may be deducted in computing its required reserve under the
provisions of section 19 of the Federal Reserve Act.
While the provision of section 19 of the Federal Reserve Act giving rise to the 1922 ruling was amended by the Banking Act of 1955, the
Board is of the opinion that the principle announced in that ruling
should be applied in the present case. In the circumstances, you are
advised that a deposit of trust funds with a State nonmember bank by a
member bank as fiduciary in excess of 10 per cent of the member bank'6
capital and surplus is not prohibited by the provision of section 19 or
the condition of membership quoted above. Attention is also called to
the fact that the limitation contained in this provision and in the
condition of membership is based upon a specified percentage of the
"capital and surplus" of the member bank and that it would be possible
for all the funds of one trust to be deposited with a nonmember bank
and still not exceed such specified percentage. It would seem that,
had Congress intended the limitation of section 19 to apply to a deposit of trust funds, it would have provided an appropriate limitation
for the protection of individual trusts bearing a relation to the funds
700
- 3 -
X-9617-a
of each individual trust rather than to the capital and surplus of the
member bank.
Of course, in any case a bank exercising fiduciary powers is charged
with the responsibility of exercising due care in handling the funds of
any trust which it is administering and, in carrying out its responsibility, such a bank, when it deposits trust funds in another bank, must
among other things give consideration to what part of the funds of any
individual trust and what aggregate amount of trust funds it is justified in depositing in any other single bank. If, in the light of comments contained herein, you or your examiner should feel at any time
that The
Trust Company or any other member bank has
not exercised appropriate care in depositing trust funds in another bank,
you should take the matter up with the member bank.
Very truly yours,
(Signed)
Chester Morrill
Chester Morrill,
Secretary.
701
BOARD OF GOVERNORS
X--9618
OF THE
a*.
FEDERAL RESERVE SYSTEM
WASHINGTON
address
official
to
the
c o r r e s p o n d e n c e
board
June 12, 1936
SUBJECT:
Code Words Covering New
Issues of Treasury Bills.
Dear Sir:
In connection with telegraphic transactions in
Government securities between Federal reserve banks,
the following code words have been designated to cover
new issues of Treasury Bills:
"NOYOLK" - Treasury Bills to be dated
June 17, 1936, and to
mature December 15, 1936.
"NOYOND" - Treasury Bills to be dated
June 17, 1958, and to
mature March 17, 1937.
These words should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental
code word "NOYOA" on page 172.
ery truly yours
J. C. Noell,
Assistant Secretary
TO PRESIDENTS OF ALL F. R. BANKS.
702
X-9619
B O A R D OF G O V E R N O R S
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
June 15, 1956
address
Dear Sir:
There is inclosed, for your information, a copy of a letter to the Assistant
Federal Reserve Agent at the Federal Reserve Bank of New York, relating to the
applicability of the Board's waiver of the
requirement for reports of affiliates which
accompanied the Board1s letter of December
21, 1935 (B-1124).
Very truly yours,
S. R. Carpenter,
Assistant Secretary
Inclosure
TO ALL FEDERAL RESERVE AGENTS.
official
t o
the
c o r r e s p o n d e n c e
board
X-9619-a
June 1, 1936.
Mr. R. M. Gidney,
Assistant Federal Reserve Agent,
Federal Reserve Bank of New York,
New York, Now York.
Dear Mr. Gidney:
This refers to your letter of January 10, 1936, and its enclosures, relating to reports of certain affiliates of
Trust
Company and to the applicability of the following paragraph of the
Board's waiver of the requirement for reports of affiliates which
accompanied the Board's letter of December 21, 1935, (B-1124):
"The Board of Governors of the Federal Reserve
System also waives the requirement for the submission
of reports of affiliates in all cases where the affiliate relationship is based solely on ownership or
control of any voting shares of the affiliate by a
member bank as executor, administrator, trustee, receiver, agent, depositary, or in any other fiduciary
capacity, except where such shares are held for the
benefit of all or a majority of the stockholders of
such member banks."
It appears that
Trust Company owns or controls a
portion of the stock of certain affiliates in its individual capacity
and a portion of such stock in fiduciary capacities. Your inquiry
relates specifically to the instances in which neither the shares
held in the trust company's individual capacity nor the shares held
in fiduciary capacities constitute a majority of the voting shares
but the combined holdings amount to a majority of such shares. You
assume that reports are waived in the instances in which the shares
held in fiduciary capacities constitute a majority of the voting
X-9619-a
-2-
shares although some shares are held by the trust company in its individual capacity.
It is not intended that reports shall be waived in either of
such situations under the above-quoted paragraph of the Board's
waiver. It is, of course, possible that other paragraphs of the
Board's waiver are applicable and that the reports are waived thereunder. Please advise
Trust Company accordingly.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
*704:
705
BOARD OF GOVERNORS
X-9620
DFTHE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
o f f i c i a l
t o
June 15, 1956.
Dear Sir:
There is inclosed, for your information,
a copy of a letter addressed to the Assistant
Federal Reserve Agent at the Federal Reserve Sank
of San Francisco, in reply to certain inquiries
received by the San Francisco bank from national
banks with regard to the meaning of section 2(c)
of Regulation U, Loans lay Banks for the Purpose
of Purchasing or Carrying Stocks Registered on a
National Securities Exchange.
Very truly yours,
S. R. Carpenter,
Assistant Secretary.
Inclosure.
TO ALL FEDERAL RESERVE AGENTS.
the
c o r r e s p o n d e n c e
board
706
X-9620-a
June 5, 1936.
Mr. Oliver P. Wheeler,
Assistant Federal Reserve Agent,
Federal Reserve Bank of San Francisco,
San Francisco, California.
Dear Mr. Wheeler:
Reference is made to your letter of May 11, 1936, enclosing a
copy of a letter from the
National Bank of
dated May 9, 1936, and to your letter of May 16, 1936, enclosing a
copy of a letter from the
Bank of
,
,
, dated May 13, 1936, all relating to the meaning of section 2(c) of Regulation U, which excepts from the limitations prescribed in section 1 of the regulation "any loan to a dealer, or to
two or more dealers, to aid in the financing of the distribution of
securities to customers not through the medium of a national securities exchange".
We understand the question of the
National Bank
to be whether the following loan would come within the description
contained in section 2(c): The borrower is a dealer, a part of whose
business consists of "making a market" in a stock registered on a national securities exchange. In this business he purchases this stock
from time to time for his own account on the exchange, or "over the
counter" from or through members of a national securities exchange or
brokers or dealers who transact a business in securities through the
medium of such members. In this business he also sells this stock
from time to time for his own account on the exchange, but more often
he sells the stock "over the counter" to his customers or to other
persons, his sales in either case being on a cash basis. The loan to
this dealer is secured by this stock, and is for the purpose of enabling him to purchase the stock and to carry it pending its sale.
We understand the question of the
Bank of
to be whether the following loan would come within the description
contained in section 2(c) of Regulation U: The borrower is a dealer
who is a member of a national securities exchange. A part of his
business consists of purchasing on the exchange stocks registered
thereon and of selling them on a cash basis to his customers or to
other persons "over the counter". The loan is for the purpose of enabling the dealer to purchase these stocks and to carry them pending
their sale. The loan might be expected to be outstanding for several
months and to be reduced or increased several times during its life.
On the basis of the facts as stated above, neither of these
loans comes within the description of a loan contained in section
-2-
X-9620-a
2(c) of Regulation U, because neither loan is a loan to aid in the
financing of the distribution of securities within the meaning of the
term "distribution" as used in such section.
Although neither of these loans is within the exception expressed
in section 2(c), the Board is granted power by section 7(d) of the Securities Exchange Act of 1934 to exempt loans of this nature if it
deems it necessary or appropriate in the public interest or for the
protection of investors. If either of the banks which presented the
inquiries, or the dealers involved, regard such an additional exemption
as necessary or desirable their recommendations will be given careful
consideration by the Board, with such consultation with the Securities
and Exchange Commission as may be necessary.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
X-9621
BOARD OF GOVERNORS
Of THE
FEDERAL RESERVE SYSTEM
Statement for the Press
For immediate release.
June 17, 1956.
Mr. Owen D, Young has been appointed by the Board of Governors as a
Class C Director of the Federal Reserve Bank of New York for the unexpired
portion of the term ending December 31, 1937, and has been designated as
Deputy Chairman for the remainder of the current year, in which capacity he
will act as Chairman of the New York Bank pending the filling of the
vacancy in that position by the Board of Governors in accordance with its
procedure initiated last March.
In addition to his broad experience in the business and industrial
life of the country and in public affairs, Mr. Young has an intimate knowledge
of the Federal Reserve System through his previous service as a Class B and
Class C Director of the Federal Reserve Bank of New York.
The Board of Governors was unanimous in its request to Mr. Young to
resume his official connection with the System to which he has long rendered
distinguished service.
X-9622
B O A R D OF G O V E R N O R S
709
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
official
to
June 18, 1936.
the
c o r r e s p o n d e n c e
board
SUBJECT: Holidays during July, 1936.
Dear Sir;
On Saturday, July 4, the offices of the Board of Governors of
the Federal Reserve System and all Federal reserve banks and branches
will be closed in observance of Independence Day.
The Board has been advised that holidays also will be observed
during July by the following Federal reserve banks and branches:
Tuesday, July 7
Oklahoma City
Primary Election Day
Monday, July 13
Nashville
Memphis
Birthday of General
Bedford Forrest
Friday, July 24
Salt Lake City
Pioneer Day
Saturday, July 25 Dallas
El Paso
Houston
San Antonio
Primary Election Day
Tuesday, July 28
Run-off Primary
Election
Oklahoma City
On the dates given the offices mentioned will not participate
in either the transit or the Federal reserve note clearing through
the Inter-district Settlement Fund. Please include transit clearing
credits for the offi.ces affected on each of the holidays with your
credits for the following business day. No debits covering Federal
X-9622
—2—
reserve note shipments for account of the Federal Reserve Bank of
Dallas should be included in your note clearing of July 25.
Please notify branches.
Very truly yours,
J2-&2.
J. C. Noell,
Assistant Secretary.
TO PRESIDENTS OF ALL F. R. BANKS.
711
X-9623
INTERPRETATION
BANKING ACT OF 1955
(Copies to be sent to all Federal reserve banks)
June 17, 1936.
Honorable J. F. T. O'Connor,
Comptroller of the Currency,
Washington, D. C.
Dear Mr. O'Connor:
This refers to Deputy Comptroller Lyons' letter of May 19, 1936, inquiring whether the discount with a national bank of commercial paper
held by a hardware company which is solely owned by the president of the
bank and indorsed by such company "without recourse" is to be considered
a violation of Regulation 0 or an attempt to evade the provisions thereof.
It is understood that the president of the bank is engaged in the hardware business under a trade name and that such business is not incorporated. It appears that you have previously advised the president that the
unqualified indorsement in the trade name of the hardware company of paper
held by it and discounted with the bank was considered the equivalent of
the indorsement of the president of the bank, thereby bringing him within
the prohibitions of Regulation 0 and that, following such advice, the
hardware company continued to discount with the bank notes owned by the
hardware company which it had received for merchandise sold but now indorses such paper "without recourse".
Section l(c) of Regulation 0 defines the terms "loan", "loaning",
"extension of credit", and "extend credit" as including, among other
things, the acquisition by discount, purchase, exchange, or otherwise of
any note, draft, bill of exchange, or other evidence of indebtedness upon
which an executive officer of a member bank may be liable "as maker,
712
-2-
X-9623
drawer, indorser, guarantor, or surety", and it is further provided that
such terms shall include any other transaction as a result of which an
executive officer becomes obligated to a bank directly or indirectly by
any means whatsoever, "by reason of an indorsement on an obligation or
otherwise, to pay money or its equivalent". Under the usual rules of law
an indorsement "without recourse" constitutes the indorser as the mere assignor of title to the instrument and such an indorsement is designed to
protect the indorser from liability on the instrument. In the circumstances, it is the Board's view that where an executive officer merely
indorses a note to his bank "without recourse" and docs not become liable
to the bank on such instrument, the transaction does not fall within the
provisions of section 22(g) or of Regulation 0.
While it might appear from the facts submitted that an indorsement
"without recourse" by the hardware company is an attempted evasion of the
law, the fact remains that the transaction described is not now covered
either by the terms of'section 22(g) or the Board's Regulation 0 and it
is doubtful whether cases of this kind are of sufficient importance or
will arise with sufficient frequency to justify an amendment to the
Board's regulation. If, however, you feel that the continued acceptance
by the bank of the notes of the hardware company indorsed "without recourse" is an unsafe or unsound practice, you might wish to consider proceeding against the president of the bank under the provisions of section
30 of the Banking Act of 1933. Furthermore, since the president of the
national bank is required under the law also to be a director thereof, it
is assumed that, if you have not already done so, you will determine
-3-
X-9623
whether the transactions conform to the requirements contained in section
22(d) of the Federal Reserve Act, relating to transactions between a member bank and its directors.
Very truly yours,
(Signed) L. P. Bethea
L. P. Bethea,
Assistant Secretary.
714
BOARD OF GOVERNORS
X-9624
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
June 19, 1936
official
to
the
SUBJECT: Code Words Covering New
Issues of Treasury Bills
Dear Sir:
In connection with telegraphic transactions in
Government securities between Federal reserve banks,
the following code words have been designated to cover
new issues of Treasury Bills:
"NOYORM" - Treasury Bills to be dated
June 24, 1956, and to
mature December 15, 1936.
"NOYOST11 - Treasury Bills to be dated
June 24, 1956, and to
mature March 24, 1957.
These words should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental
code word "NOYOND" on page 172.
Very truly yours,
TO PRESIDENTS OF ALL F. R. BANKS.
c o r r e s p o n d e n c e
board
715
X-9625
B O A R D OF G O V E R N O R S
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
June 19, 1936 •
ad
address
official
to
the
c o r r e s p o n d e n c e
board
Dear Sir
With my letter of December 31, 1935 (X-9409), there was sent to
your bank a copy of the resolution adopted by the Board of Governors of
the Federal Reserve System levying an assessment upon the various Federal
reserve banks covering the estimated expenses and salaries of the members
and employees of the Board for the first half of 1936, and approximately
$1,000,000 to be applied to the cost of the erection of a building for the
Board. On April 23, 1936, you were requested to credit 45% of the building
fund assessment to the Federal Reserve Bank of Richmond for the account of
the Board of Governors of the Federal Reserve System - Building Account.
It has been decided to transfer to the Federal Reserve Bank of
Richmond on June 26, 1936, the uncalled portion of the building fund assessment, and you are requested, therefore, to credit the Richmond bank on
June 26, 1936, in your daily statement of credits through the Inter-district
Settlement Fund, with the remaining 55% of the building fund assessment,
for account of the Board of Governors of the Federal Reserve System Building Account. Please advise the Federal Reserve Bank of Richmond by
wire on that date of the purpose and amount of the credit.
http://fraser.stlouisfed.org/
TO PRESIDENTS
Federal Reserve Bank of St. Louis
Very tr "
0. E. Foulk,
Fiscal Agent
OF ALL F. R. BANKS - EXCEPT RICHMOND
716
BOARD OF GOVERNORS
X--9626
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
o f f i c i a l
to
the
c o r r e s p o n d e n c e
board
June 22, 1936
Dear Sir:
There is attached a copy of a resolution adopted by the
Board of Governors of the Federal Reserve System levying an assessment upon the various Federal reserve banks in an amount
equal to seven-tenths of one per cent (.007) of the total paidin capital stock and surplus (Section 7 and Section 13b) of the
Federal reserve banks as of the close of business June 30, 1936,
to defray the estimated expenses and salaries of the members and
employes of the Board from July 1 to December 31, 1936, together
with $1,250,000 to be applied upon the cost of the erection of a
building for the Board of Governors of the Federal Reserve System.
The resolution also contains instructions with regard to
the manner in which the payments on the assessment shall be de<
posited with the Federal Reserve Bank of Richmond.
Very
Foulk
Fiscal Agent
Inclosure
TO CHAIRMEN
OF ALL FEDERAL RESERVE BANKS
X-9626-a
RESOLUTION LEVYING ASSESSMENT
WHEREAS, Section 10 of the Federal Reserve Act, as amended,
contains the following provisions:
"The Board of Governors of the Federal Reserve System
shall have power to levy semiannually upon the Federal reserve
banks, in proportion to their capital stock and surplus, an assessment sufficient to pay its estimated expenses and the salaries of its members and employees for the half year succeeding
the levying of such assessment, together with any deficit carried forward from the preceding half year, and such assessments
may include amounts sufficient to provide for the acquisition
by the Board in its own name of such site or building in the
District of Columbia as in its judgment alone shall be necessary for the purpose of providing suitable and adequate quarters
for the performance of its functions. After approving such
plans, estimates, and specifications as it shall have caused
to be prepared, the Board may, notwithstanding any other provision of law, cause to be constructed on the site so acquired by
it a building suitable and adequate in its judgment for its
purposes and proceed to take all such steps as it may deem
necessary or appropriate in connection with the construction,
equipment, and furnishing of such building. The Board may
maintain, enlarge, or remodel any building so acquired or constructed and shall have sole control of such building and space
therein.
»»
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
"The Board shall determine and prescribe the manner in
which its obligations shall be incurred and its disbursements
and expenses allowed and paid, and may leave on deposit in the
Federal reserve banks the proceeds of assessments levied upon
them to defray its estimated expenses and the salaries of its
members and employees, * * * * and funds derived from such assessments shall not be construed to be Government funds or
appropriated moneys."
WHEREAS, it appears from a consideration of the estimated
expenses of the Board of Governors of the Federal Reserve System for
the six months period beginning July 1, 1936, and of the amounts
which in the judgment of the Board may be needed during such period
to provide for the costs, or part thereof, of the erection of a building suitable and adequate for the Board's quarters, that it is necessary that a fund equal to seven-tenths of one per cent (.007) of the
total paid-in capital stock and surplus (Section 7 and Section 13b)
—2—
X-9626-a
of the Federal reserve banks be created for such purposes, exclusive
of the cost of engraving and printing of Federal reserve notes;
NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM, That:
(1) There is hereby levied upon the several Federal reserve
banks an assessment in an amount equal to seven-tenths of one per cent
(.007) of the total paid-in capital and surplus (Section 7 and Section
13b) of each such bank at the close of business June 50, 1936.
(2) Twenty and five-tenths per cent of such assessment
shall be paid in on July 1, 1936, twenty and five-tenths per cent
thereof shall be paid in on September 1, 1936, and the remainder
(fifty-nine per cent) shall be paid at such times and in such amounts
as the Board may call for the payment thereof during such six months
period beginning July 1, 1936.
(3) Every Federal reserve bank except the Federal Reserve
Bank of Richmond shall pay such assessment by transferring the amount
thereof on the dates as above provided through the Inter-district
Settlement Fund to the Federal Reserve Bank of Richmond for credit
to the account of the Board of Governors of the Federal Reserve System on the books of that bank, with telegraphic advice to Richmond of
the purpose and amount of the credit, and the Federal Reserve Bank of
Richmond shall pay its assessment by crediting the amount thereof on
its books to the Board of Governors of the Federal Reserve System on
the dates as above provided.
X-9627
719
INTERPRETATION
BANKING ACT OF 1955
(Copies to be sent to all Federal reserve banks)
June 22, 1936.
Mr. L. E. Birdzell, General Counsel,
Federal Deposit Insurance Corporation,
Washington, D. C.
Dear Judge Birdzell:
This refers to your letter dated May 25, 1956, addressed to the
Board of Governors and to your memorandum dated May 27, 1936, addressed to the Board's General Counsel, presenting certain questions
regarding the interpretation of sections 1(e) of Regulation Q and
Regulation IV.
The first question presented in your' letter is whether a member
bank may, on a telephone order from a depositor, transfer a specified
sum from the depositor's savings account to his checking account,
under the provisions of section 1(e) of Regulation Q. You state that
in your opinion such a practice should not be permitted under the provisions of section 1(e) of Regulation IV, but that if the depositor
wishes to transfer funds from a savings account to a checking account
he should be required to make a withdrawal either by obtaining cash
or a cashier's check, draft, or other order payable to himself and
then make a deposit in a checking account in accordance with usual
banking practice.
Careful thought has been given to this question and to the views
which you express in your letter. In this connection it is to be observed that under Regulation Q a depositor desiring to effect a transfer
720
-2-
X-9627
of a sum from his savings account to a checking account in the same
bank might go to the bank and obtain a cashier's check or cash from
the savings account and deposit it in his checking account. Likewise, under the regulation a depositor may mail a written order to
the bank for a withdrawal of a sum from his savings account, obtain
a cashier's check through the mails and immediately return the cashier's check to the bank for deposit to his credit in his checking
account. Under an arrangement with the bank for the purpose it would
also be possible for a depositor to shorten this procedure by mailing
a written order to the bank requesting a withdrawal from his savings
account, the issuance of a cashier's check to him for the amount withdrawn, and the deposit of such check to his credit in a checking account. This could be accomplished by one written order or letter and
without the depositor ever actually coming into possession of the
cashier's check. Accordingly, it does not appear that the regulation
should be interpreted as preventing the transfer of a sum from a depositor' s savings deposit to his checking account upon written order
of the depositor, and it is felt that such an interpretation would be
regarded by the banks as an irritating and unnecessary restriction on
their business practices.
However, the Board is of the view that a member bank should not
be permitted to transfer a sum from a depositor's savings account to
his checking account or permit any other withdrawal from his savings
account merely on a telephone or other oral order or request from the
731
-3-
X-9627
depositor. While the regulation does not expressly so require, it
does contemplate that a withdrawal from a savings deposit will be made
only upon the written order or receipt of the depositor. In this connection, attention is called to the requirement that the depositor
may at any time be required by the bank to give 30 days' notice in
writing of an intended withdrawal and also to the requirement that
every withdrawal made upon presentation of the pass book shall be
entered therein at the time of withdrawal and every other withdrawal
shall be entered therein as soon as practicable thereafter. The withdrawal of funds from a savings deposit in a case where the pass book
is not presented, upon the oral request of the depositor, would facilitate evasion of the purpose of the regulation, would be inconsistent
with sound banking practice and might give rise to numerous questions
or even litigation between the bank and its depositors. The Board
feels that such a practice should be discouraged and that a deposit
with respect to which such withdrawals are permitted should not be
classified as a savings deposit. While your inquiry presents the only
case of this kind which has thus far come to the Board's attention,
the Board will give consideration, upon the occasion of the next revision or alteration of its Regulation Q, to incorporating therein an
express requirement that withdrawals from savings deposits be permitted
only upon written order or receipt of the depositor.
You also present the question whether deposits of a corporation,
association, or other organization engaged in the sale and maintenance
of cemetery lots may be classified as savings deposits, provided such
722
-4-
X-9627
organizations are not operated for profit. The Board agrees with
your opinion that such organizations engaged in the sale and maintenance of cemetery lots may be considered as organizations operated
primarily for religious, philanthropic, charitable, educational,
fraternal or other similar purposes, within the meaning of section
l(e) of the regulations. Accordingly, if such organizations are in
fact not operated for profit, their deposits in a member bank may be
classified as savings deposits. As indicated in your proposed letter
to The
&
Company of ________
, _______ the ques-
tion of whether such organizations are or are not operated for profit
will have to be scrutinized very closely and the determination of
such question will depend upon the facts and circumstances of each
particular case.
In your memorandum you also present the question whether deposits made by a city or town representing funds given to said city or
town for the perpetual care of cemetery lots opened under a title
similar to the following:
"City of
Perpetual Care, Trust
Fund, John Doe Lot" may be classified as savings deposits. If the
municipal corporation is merely a trustee holding funds for the benefit of a particular individual or group of individuals, such as the
members of a family, it appears that a deposit of such funds by the
municipal corporation may be considered in the same category as any
other deposit of funds held by a trustee for the benefit of certain
individuals, and may be classified by a member bank as a savings deposit if it meets the other requirements of section 1(e) of Regulation Q.
723
-5-
X-9327
However, it should be observed that the above expression of opinion
applies only to those cases in which a municipal corporation holds funds
as trustee for a particular individual or individuals, and does not applyto cases in which such funds are held for the benefit of the public.
In its letter to the Federal Reserve Agent at New York dated February
27, 1956 (X-9508), the Board took, the position that a deposit in the name
of a municipal corporation consisting of funds given to such corporation
for a charitable purpose, such as the erection of a memorial gate, may not
bo classified as a savings deposit. The Board stated that it believed
that a construction of the regulation which would permit funds of a municipal corporation held for a charitable purpose to be considered as funds
held for one or more individuals on the theory that the public consists of
a group of individuals, would open the door to evasions of the regulation.
Accordingly, a deposit made by the city consisting of funds held by it for
the purpose of maintaining a cemetery for the public or for indigent members of the public could not under the above ruling be classified as a
savings deposit by a member bank but would be considered the same as any
other deposit consisting of funds of the municipal corporation.
It is hoped that the abovu answers the questions submitted in your
letter and memorandum. If you should have further questions regarding any
similar matters which you desire to submit to the Board from time to time,
the Board will be glad to give consideration to them in order that substantial uniformity may be achieved in the interpretation of the two regulations.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
724
X-9628
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
official
June 24, 1956
Dear Sir:
There is inclosed, for your information, a copy of a letter addressed to the
Federal Reserve Agent at the Federal Reserve
Bank of Dallas under date of June 24, 1956,
with respect to reports on indebtedness of
officers and employees in the Federal reserve
agent's department submitted in accordance
with the Board's letter (B-1125) of December
26, 1955.
Very truly yours
L. r. Bethea,
Assistant Secretary.
Inc.losure
TO ALL FEDERAL RESERVE AGENTS
to
the
c o r r e s p o n d e n c e
board
X-9628-a
June 24, 1936.
Mr. C. C. Walsh,
Federal Reserve Agent,
Federal Reserve Bank of Dallas,
Dallas, Texas.
Dear Mr. Walsh:
This refers to your letter of June 8 with respect to reports on indebtedness of officers and employees in the Federal Reserve agent's department, submitted in accordance with the Board's letter (B-1125) of
December 26, 1935.
In view of the changes which will occur in the list of officers
and employees of the Federal Reserve agent's department in consequence
of the transfer to the bank of the non-statutory duties of the Federal
Reserve agent, you ask for information as to whether you should proceed
at once, as you have done in the past, to call for information with respect to the indebtedness as of July 1, 1936, of the some thirty-five
employees in your department.
In the case of most of the Federal Reserve banks the actual transfer of non-statutory duties from the agent to the bank will not have
been made by July 1. In order, therefore, that reports from all Federal
Reserve agents may be on a uniform basis, it is requested that your report cover all employees in the agent's department, including those in
the examination and statistical departments, which it is contemplated
will be transferred to the bank.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
X-9630
BOARD 0 F GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For release in afternoon newspapers
of Friday, June 26, 1956
AMENDMENT OF REGULATION T
Amendment No. 8 of Regulation 7. - Effective July 1, 1956.
Subsection (b) of section 3 of Regulation T is hereby amended
by adding at the end thereof a new paragraph reading as follows:
"Notwithstanding any provisions of section 4 of
this regulation, the creditor may permit such other member, broker, or dealer to withdraw money or securities from
such a special account if such withdrawal, in combination
with- any other transactions made on the same day and together with demands for additional margin in connection
therewith, does not result in any increase of the excess
of the adjusted debit balance of the account over the maximum loan value of the securities in the account."
X-9S31
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For release in the afternoon
newspapers of Friday, June 26, 1956.
AMENDMENTS OF REGULATION U
Amendment No. 1 of Regulation U - Effective July 1. 1956.
Section 2 of Regulation U is hereby amended by adding at the end
thereof two new subsections reading as follows:
"(j) Any loan to a member of a national securities
exchange for the purpose of financing his or his customers'
bona fide arbitrage transactions in securities;
(k) Any loan to a member of a national securities
exchange for the purpose of financing such member's transactions as an odd-lot dealer in securities with respect to
which he is registered on such national securities exchange
as an odd-lot dealer."
Amendment No. 2 of Regulation U - Effective July 1. 1956.
Subsection (e) of section 3 of Regulation U is hereby amended to
read as follows:
"(e) A bank may accept the transfer of a loan from
another bank, or permit the transfer of a loan between borrowers, without following the requirements of this regulation
as to the making of a loan, provided the loan is not increased
and the collateral for the loan is not changed; and, after
such transfer, a bank may permit such withdrawals and substitutions of collateral as the bank might have permitted if it
had been the original maker of the loan or had originally made
the loan to the new borrower."
727
728
BOARD OF GOVERNORS
X-9652
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
o f f i c i a l
to
the
c o r r e s p o n d e n c e
board
June 26, 1936
Dear Sir
In order to reduce the phraseology in telegrams sent
by the Commissioner of Accounts and Deposits to the Federal
reserve banks, covering authorization to hold for a temporary
period collateral as security for deposits made with general
and limited depositaries of public moneys, the following code
word has been designated for use effective July 1, 1936:
"BROKISH" This collateral should be held for
the account of the Secretary of the
Treasury, subject to the order of
the Commissioner of Accounts and
Deposits or the Chief, Division of
Deposits.
This word should be inserted in the Federal Reserve
Telegraph Code book, following the code word "BROKENLY" on
page 36.
Very truly yours,
J• C. Noell,
Assistant Secretary.
TO PRESIDENTS OF ALL F. R. BANKS.
729
BOARD OF GOVERNORS
X-9653
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
o f f i c i a l
to
the
June 26, 1956
SUBJECT: Code Word Covering New
Issue of Treasury Bills.
Dear Sir:
In connection with telegraphic transactions in Government securities between Federal
reserve banks, the following code word has been
designated to cover a new issue of Treasury Bills:
"NOYOTE" - Treasury Bills to be
dated July 1, 1936,
and to mature March
31, 1937.
This word should be inserted in the Federal Reserve Telegraph Code book, following the
supplemental code word "NOYOST" on page 172.
Very truly yours,
3". C/TtoelfT^'
Assistant Secretary.
TO PRESIDENTS OF ALL F. R. BANKS.
c o r r e s p o n d e n c e
board
X-9654
Memorandum to All Division Heads
June 50, 1956
From Mr. Morrill
The Board today adopted the following regulations, effective
immediately:
"Regulations of the Board of Governors of the Federal
Reserve System Governing Hours of Duty.
"The Board of Governors of the Federal Reserve System hereby
prescribes the following standard hours of duty for its employees:
Employees in Group 1 - duty of 7 hours per day, with 59 hours per
week. Employees in Group 2 - duty of 8 hours per day, with 44
hours per week.
"Every employee of the Board of Governors, however, will be expected to work from time to time for such additional hours as the
head of his office may deem necessary for the performance of the work
assigned to him.
"OCCUPATIONS COMING UNDER GROUP 1
Office workers in general.
Professional, scientific and technical employees, and subprofessional employees, employed principally in office
or laboratory duty.
Office messengers and office laborers.
Bank and similar examiners.,
And such other occupations as correspond in character more
nearly to those listed above in Group 1 than to those
listed in Group 2.
"OCCUPATIONS COMING UNDER GROUP 2
Professional, scientific and technical employees, and subprofessional employees, employed principally on outdoor
work.
Custodial or maintenance employees: Examples: Janitors,
cleaners, laborers, messengers with special assignments,
matrons, etc.
Laborers employed in shops end on outdoor work.
Mechanical and crafts employees.
Employees engaged in the protection of life and property.
And such other occupations as correspond in character more
nearly to those listed above in Group 2 than to those
listed in Group 1."
-2-
X-9634
The Board also directed the recording of overtime duty performed
during the last six months of the current year by all employees of the
Board's organization, exclusive of:
(1) The staff of the Chairman's office,
(2) Heads and assistant heads of divisions of the
Board's staff,
(3) Private secretaries of Board members and of
heads and assistant heads of divisions, and
(4) Field examining force and other members of the
Board's staff while in a travel status,
with the understanding that the head of each division will be responsible for submitting monthly reports on the first day of each month as
of the close of the preceding month to the Secretary's office which
will consolidate such reports, insert the necessary information with
respect to compensation, group employees according to certain salary
classifications of the Civil Service Commission, and transmit to the
Commission monthly reports on the forms furnished by it.
In order that employees in different divisions may be treated
alike, each division should observe the following rules for recording
and reporting overtime:
(1) Overtime performed by an employee less than thirty
minutes in one day should not be included in the
report,
(2) All overtime in excess of thirty minutes in any one
day should be reported in multiples of fifteen
minutes, and
(5) No overtime should be reported that has hot. been directed or approved by the head or an assistant
head of the division.
In addition the Board authorized the Secretary's office, in the
interests of uniformity and expedition, to work out the necessary procedure, including report forms, for the guidance of division heads.
Accordingly, the forms described below, specimen copies of which are
attached, have been prepared for recording and reporting overtime duty
X-9654
-5-
i.e., the total number of hours which employees have beon on duty in
excess of the minimum number required by the Board's regulations:
Form M-l Overtime Certificate
Form M-2 Overtime Record
Form M-5 Monthly Report of Aggregate Overtime
Form M-l shall be executed by each employee who has performed authorized overtime of thirty minutes or more, and turned over by him tothe clerk in the division assigned to handle the detail work of recording and reporting overtime duty to the Secretary's office. The clerk
handling overtime records will enter on the employee's Overtime Record
card, Form M-2, the overtime reported, and file Form M-l in the division
for future reference. At the end of the month the overtime entered on
the individual Overtime Record card shall be summarized and transferred
to Form M-5, Monthly Report of Aggregate Overtime. The first, second
and third columns of the report form shall be filled in by the respective
divisions. The remaining columns, as indicated, are for use of the Secretary's office in making certain computations required by the Civil Service
Commission. Upon completion of Form M-5, the head of the division shall
sign the certificate thereon, and forward it to the Secretary's office.
It will be appreciated if each division head will bring to the attention of the employees of his division the foregoing regulations and
procedure with regard to hours of duty and overtime, pointing out that
this action was taken by the Board with a view to cooperating with the
Civil Service Commission in its effort to carry out the requirements of
recent legislation with respect to the various departments and establishments of the Government.
Secretary.
B O A R D OF G O V E R N O R S
OF THE
9555
FEDERAL RESERVE SYSTEM
WASHINGTON
address
official
t o
June 50, 1956
Dear Sir:
You will find inclosed for your information a copy of a letter dated June 15, 1956,
from President Schaller, Chairman of the Leased
Wire Committee, and a copy of the Board's reply
thereto, with respect to the recommendations of
the Leased Wire Committee that the remaining
circuits on the main lines of the leased wire
system be equipped with teletype machines.
Very truly yours,
Chester Morrill,
Secretary.
Inclosures
TO ALL PRESIDENTS
the
c o r r e s p o n d e n c e
board
FEDERAL RESERVE BANK OF CHICAGO
X-9S55-
June 13, 1936
Board of Governors of the Federal Reserve System
Washington
D.C.
Attention of Mr. Chester Morrill, Secretary
Dear Mr. Morrill:
At the meeting of the Governors' Conference held in Washington on February 5, 1955, the recommendation of the Leased Wire
Committee that teletype service be adopted throughout the Federal
Reserve Leased Wire System was approved. In your letter of May 7,
1935, it was indicated * * "before anything is done in this direction a determination should be made by the Leased Wire Committee
from the standpoint of the System as a whole as to the type of
machine that should be used." Pursuant to this suggestion, careful
consideration has been given to the practicability of page equipment
as compared with tape equipment. Conferences on the subject have
also been held with representatives .from the Federal Reserve Bank
of New York and the Board of Governors of the Federal Reserve System
At present tape equipment is in use at the St. Louis,
Dallas, San Francisco, Kansas City, Minneapolis, and Chicago offices
of the Leased Wire System. The actual experience of these offices
has demonstrated that the tape equipment is entirely practicable,
and no difficulty is experienced in providing the necessary number
of copies. Representatives of the Now York bank favor the use of
tape equipment and have indicated their willingness to install tape
equipment between Chicago and New York at the convenience of the offices concerned. Correspondence with other Federal reserve banks
which do not at present have teletype service indicates that while
they are not in a position to speak from experience on the subject,
they are ready to adapt themselves to the type of equipment that may
be recommended by the committee. The Leased Wire Committee is of
the opinion that the universal adoption of tape equipment is desirable and believes that it would fully meet the requirements of the
System. The representative from the Board of Governors feels that
it would be well first to try page equipment between Washington and
Chicago, and that as soon as the operating details on that line are
worked out the wire from Washington to New York should be equipped
with tape machines. Under this arrangement, the Washington office
would be in a position to study the service rendered by each type of
equipment.
735
-2-
X-9635-a
Therefore, it is recommended that 1. Page equipment be installed on the ChicagoWashington wire.
2. At the convenience of the Washington and New
York offices, tape equipment be installed on
the Washington-New York circuit.
5. At the convenience of the New York office, the
New York-Chicago line be converted into tape
equipment.
4. After the Washington office has concluded its
study of the tape and page machines, the remaining circuits be converted to teletype at the
convenience of the Federal reserve banks
affected.
These recommendations are made
ington office will find it practicable to
that when the conversion of the remaining
be found feasible for all of the banks to
in the hope that the Washuse tape equipment, and
equipment is made it will
adopt tape machines.
Very truly yours,
(Signed) Geo. J. Schaller
Chairman
Leased Wire Committee
X-9635-b
June 30, 1956.
Mr. G. J. Scha.llor, Chairman,
Leased Wire Committee,
c/o Federal Reserve Bank of Chicago,
Chicago, Illinois.
Dear Mr. Schallsr;
Receipt is acknowledged of your letter of June 13, 1933, referring to the approval given by the Governors of the Federal reserve
banks on February 5, 1935, to the installation of teletype equipment
on the leased wire system and transmitting the recommendations of the
Leased Wire Committee that:
1. Page equipment be installed on the Chicago-Washington
wire.
2. At the convenience of the Washington and Now York
offices, tape equipment be installed on the WashingtonNew York circuit.
3. At ths convenience of the New York office, the New
York-Chicago line be converted into tape equipment.
4. After the Washington office has concluded its study
of the tape and page machines, the remaining circuits
be converted to teletype at the convenience of the
Federal reserve banks affected.
The Board approves the above recommendations and has authorized this office to proceed in accordance therewith. Arrangements
are now being made with the American Telephone & Telegraph Company
for the installation of sixty-speed page machines on the ChicagoWashington circuit. After the operating details are worked out on
that line, and at the convenience of the Federal Reserve Bank of New
York, tape machines will be installed on the Washington-New York and
-2-
X-9635-b
New York-Chicago circuits, and after the study of the tape and page
machines has been completed in the Washington office the change in
the remaining circuits will be taken up with the banks affected.
Copies of your letter of June 15 and this reply are being
sent to the Presidents of all Federal reserve banks for their information.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
the federal reserve board
January 13, 1936.
B-1129.
Dear Sir:
From time to time errors are discovered in the weekly reports
of debits to individual accounts, reflecting principally either the
inclusion of debits to deposit accounts of other banks or the omission
of debits to the accounts of the United States Government, State®, counties, municipalities, etc.
Since September 193^ the weekly member bank
condition reports, Form B-21, have made it possible to check the reports
of debits to individual accounts, insofar as reporting member banks in
101 cities are concerned, as the weekly condition reports give a classification of debits to deposit accounts.
It will be appreciated if you will kindly have a check made between the figures reported in the weekly condition statements and those
reported through the clearing houses #r ether agencies for the week
ended January 8, 1936, unless such a check has already been made for
some other recent week.
It is suggested that this be done by furnishing
to each clearing-house association or other agency from which weekly
reports ef debits to individual accounts are received, a list of the
member banks in the city from which weekly condition reports, Form B-21,
are received by your bank, with the request that the reporting agency
I
I
739
~ 2 -*
show for each such bank the total amount of debits to individual accounts
reported by it for the week ended January 8, 1936.
Upon receipt at your
bank these figures should be checked against the aggregate of code items
PILL, PUKE and P U T on Form 3-21 (revised December 1935) and any differences reconciled with the reporting member bank.
If the figures of debits
to individual accounts furnished by a reporting member bank to the clearing-house association or other reporting agency have been incorrect, such
agency should be requested to have the bank report on a correct basis in
the future.
Please advise the Board of any outstanding differences that are
found in checking, the reports.
Very truly yours,
x f j:
( Q
\/
i
<<—< •
E. L. Smead, Chief,
Division of Bank Operations,
TO ALL FEDERAL RESERVE AGENTS
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
the federal reserve board
SUBJECT:
January 20, 1936
B-1130.
Specimen copies of Federal Reserve currency.
Dear Sir;
A representative of one of the Federal Reserve banks recently
inquired whether it would be practicable for the Treasury Department
to furnish hie bank with specimen copies of Federal Reserve notes of
the 1928 and 193^ series and of Federal Reserve bank notes of the
1932 series.
Before taking the matter up formally with the Treasury Department it will be appreciated if you will advise the Board whether
your bank desires such specimen copies, and if so whether copies of
all denominations of each series, or of only one denomination of
each series, are desired.
Very truly yours,
Chester Morrill,
Secretary.
COPY TO ALL GOVERNORS
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
the federal reserve board
January 20, 1936.
SUBJECT;
Member Bank Call Report,
for November 1, 1935*
Dear Sir:
We are forwarding to you under separate cover
copies of the Board's Member Bank Call Report
No, 67 showing the condition of member banks on
November 1$ 1935*
Please forward a copy to each
member bank in your district that has expressed a desire to receive copies of call reports as issued.
Very truly yours,
Be 1. Smead, Chief,
Division of Bank Operations.
r
/ -4
TO ALL FEDERAL RESERVE AGENTS
741
FEDERAL RESERVE B O A R D
WASHINGTON
address official correspondence t o
the federal reserve board
January 31. 1936.
SUBJECT:
Preliminary figures of loans and
investments of member banks on
December 31. 1935*
Dear Sir:
There is attached for your information and confidential
use a copy of a statement prepared for the Board showing preliminary figures for each class of loans and investments of
member banks on December 31, 1935 > tiased upon data submitted
by the Federal Reserve agents, in comparison with corresponding figures for November 1, 1935
TO
an
& December yi, 193^»
Very truly yours,
E, L. Sme&d, Chief,
Division of Bank Operations.
ALL GOVERNORS AND FEDERAL RESERVE AGENTS
C O M F 1
riaTOES 0J
w
m
^
I r a s I M B
„
s
0F
toL
MEMBER M E S
ON DECEMBER 31. 1935. COMPARED W I G NOVEMBER 1. 1935.
DECEMBER 31, 193k
(In millions" of dollars)
Total
loans
and in
vestments
Total - All
member banks
I93U - Dec. 31
1935 - Nov. 1
1935 - Dec. 31
Wew York City*
1934 -"Dec. 31
1935 - Nov. 1
1935 - Dec. 31
Chicago*
1934 - Dec. 31
— NOV". 1 ' :
1935 - Dec. 31
Reserve
1934 1935 1935 -
city
Dec.
Nov.
Dec.
banks
31
1
31
Country
1934 1935 1935 -
banks
Dec. 31
Nov. 1
Dec. 31
To tirokers out-
Total
28,150
29,301
29,934
rities
Open market loans
Loans to
Purchased -paper
Commer
Accept~
cial
Bills
in U.S.
bought
N. Y.
City 1/
I U.S. Government
obligations
fully
Total
guaranteed
8,400
1,581
1,792
1,865
10,028
10,521
10,767
8,?S0
8,821
8,901
Other
16,122 9,90b
17,^60 10,080
17,775 10,500
10,509
10,465
10,531
1,078
2,202
BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
DIVISION OF BANK OPERATIONS
JANUARY 29, 1936.
others
(except banks)
Reporting Otherwise
secured
and
unacceptsecured
B-1134
1,223
1,146
2,185
2,191
435
433
454
29
25
28
170
154
1%
18
15
15
4,024
4,089
4,140
90
82
98
1,124
1,055
1,055
1,090
1.103
1,094
3,849
3,758
3,746
14
13
19
996
902
886
1,026
1,026
1,035
229
267
242
279
§ !
1,810
1,815
1,804
,
.
•Central reserve city banks only.
y L o a n s (secured by stocks and bonds) to brokers and dealers x n securities.
2,108
1,874
1,937
355
609
623
1,628
1,706
1,689
2,293
2,419
2,429
I
744
FEDERAL RESERVE BOARD
WASHINGTON
January
30, 1936•
"
^
^
j
address official correspondence t o
the federal reserve board
b ~ 1 1 3 5 •
SUBJECT:
Forms for use during 1936.
Dear Sir:
There are being forwarded to you today under
separate cover, the number indicated of the following
forms for use at your bank during 1936s
Form 4 4 ,
copies
Form 9 5 ,
copies
Form l 6 o ,
copies
Form l60-a,
copies
l60~b,
copies
Form l60-c,
copies
Form 1 9 4 ,
copies
Form
A supply of forma 3& and 96 will be furnished
within a few days when received from the printer.
Very truly yours,
E. Ii. Smead, Chief,
Division of Bank Operations.
TO AGrSiTTS OF ALL F. R. BANKS
745
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
address
o f f i c i a l
to
the
c o r r e s p o n d e n c e
board
February 1J, 1936•
B-113S.
SUBJECT:
Revision of Form 105,
Condition Report of
State Bank Members.
Dear Sir:
Some of the State banking departments may wish to amend the
forms to be supplied by them to State banks for use on the next call
for condition reports so as to conform to changes recently approved in
the Board's Forms 105 and 10^e, thereby making it possible to avoid
duplicate publication of condition reports rendered by State bank members to the State banking departments and to the Federal Reserve banks.
Accordingly, you are advised that certain items appearing on the face
side of the Board's Forms 105 and 105® have been changed so that, on
the next call for condition reports made upon State bank members, they
will read as follows:
Item 9 of Assets "Cash, balances with other basks, and cash items in process of
collection"
Item 1% of l i a b i l i t i e s "Demand deposits of individuals, partnerships, and corporations"
Item 15 of liabilities "Time deposits of individuals, partnerships, and corporations"
Item l6 of Liabilities "State, county, and municipal deposits"
746
Item 18 of Liabilities On Form 105 this will read "Deposits of other banks, certified
and officers' checks, and cash letters of credit and travelers'
checks" and on Form 10$e it will read "Deposits of other banks,
certified and officers' checks, etc,11
Memorandum Item 36b "Against State, county, and municipal deposits"
Please convey this information to the State banking departments
in your districts.
It is understood that corresponding changes are being made in
the forms to be used by national banks in submitting condition reports
on the next call.
Very truly yours,
j"Y~|<ruVL^
Chester Morrill,
Secretary.
TO ALL FED5BAL EESERVE AGENTS
747
B O A R D OF G O V E R N O R S
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS
OFFICIAL CORRESPONDENCE
TO T H E
BOARD
February 18, 1936.
B-1139.
Dear Sir:
Certain questions have been raised regarding the correct interpretation of items 5, 6, 7, 2 and 9 on page 50 of the Board's "Manual of
Instructions Governing the Preparation of Functional Expense Reports".
For your information, these questions, together with the answers thereto,
are shown below;
Item. 5.
"Motos Received as Collateral",
Inquiry; Does this include bills assigned as collateral
to secure loans under Section 13b and if it
includes bills assigned, does it also include
accounts assigned?
Answer;
Item 6.
This item should include bills pledged as
collateral, including additional collateral, to
secure loans under Soction 13b actually held
by Reserve ban!:, but it should not include
accounts assigned as collateral, no# should
it include any collateral held by a participating bank.
"Payments received on customers' notes held as collateral",
Inquiry: Does this include payments received on bills
saaS. accounts aaaigaed to secure loans under
Section 13b?
Answer:
This item should include payments received
on bills and notes pledged as collateral and
as additional collateral under Section 13b
actually held by Reserve bank, but it should
not include payments on accounts assigned as
collateral.
- z Item 7,
Item 8.
748
"Payments received on Section 13b loans".
Inquiry:
Does this mean all payments on IJb loans or
just those made when due? If it includes all
payments made is it not duplicated in Item 9»
captioned "Notes rebated"?
Answer:
This item should include all payments which result in a reduction in the principal amount
of advances made under Section 13b, Such
payments are not duplicated in item 9» as item
9 is intended to refer only to notes received
under sections other than ljb»
"Releases applied on warehouse receipts held as collateral,"
Inquiry: Does this include releases applied on warehouse
receipts held as collateral to secure loans
under Section 13b?
Answer:
Item 9»
This item should include releases applied on
warehouse receipts held in custody of Reserve
bank as collateral to secure loans under
Section 13b,
"Notes rebated".
Inquiry: Is this intended to cover all payments received
prior to the date such payments are due, including payments on loans under Section 13b? For
example, under Section 13b we may have a loan say
$400,000.00 payable in installments of $25,000.00
each month. During the course of one month there
may be several payments prior to the due date of
the first installment. Should each payment be
counted as an item for this report under item 9
or is it intended that where all payments are made
on one note that only the one note is counted?
• Also, if the reference is to the note only and not
to the several payments should it be counted each
time an installment is due and paid, or only at
the final payment of the note?
Answer:
The term "Notes rebated" refers only to those notes
on which partial or full payments have been made
prior to maturity, and for which interest has been
rebated. (Member bank notes and rediscounts).
This caption should not include any payments
received on Section 13b advances and
commitments.
Very truly yours,
'gvU-/
E. L. Smead, Chief,
Division of Bank Operations
TO ALL GOVERNORS
750
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
%
IA
WASHINGTON
a*
ADDRESS
OFFICIAL CORRESPONDENCE
TO T H E
BOARD
February 21, 1936.
B-llUo.
SUBJECT:
Condition of member "banks.
Dear Sir:
There is inclosed, for use pending the printing
of Member Bank Call Report No, 6S, a statement showing
the assets and liabilities of member banks on December
31, 1935, by classes of banks and by districts.
Very truly yours,
' — 2 ^ — _ _
E. L. Smead, Chief,
Division of Bank Operations
Inclosure
TO
ALL GOVERNORS AND F. R. AGENTS
751
BOARD OF GOVERNORS
of the
FEDERAL RESERVE SYSTEM
washington
ADDRESS
OFFICIAL CORRESPONDENCE
TO T H E
BOARD
February 19, 1936.
B-ll4l.
SUBJECT;
Revised Federal Reserve Baflk
Weekly Statement Figures.
Dear Sir:
For your information, and in order that correct comparative
figures may be published in the consolidated weekly condition statement of the Federal Reserve banks for 1936, if issued at your bank,
there are shown on the attached statement revisions made in the
weekly Federal Reserve bank press statements issued during 1935,
which were received too late to be shown in the comparative column
of the following week's statement.
Very truly yours
E. L. Smead, Chief,
Division of Bank Operations.
TO ALL FEDERAL RESERVE AGEHTS
CORRECTIONS IK CONSOLIDATED WEEKLY STATEMENT OF CONDITION OF FEDERAL
RESERVE BA11KS III 1935, H)T SIIOW1T III THE COMPARATIVE COLUMN OF THE
FOLLOWING WEEK'S STATEMENT:
Change from
Change to
(In thousands of dollars)
August 21 - Commitments to make industrial
advances
24,781
24,779
4,703
4,690
4,935
4,948
145,772
145*501
Surplus (Section 13b)
24,233
24,235
Reserve for contingencies
34,869
35*081
3*975
4*032
September 18 - Secured by U. S. Gov't obligations, direct and/or fullyguaranteed
Other bills discounted
December 31 - Surplus (Section 7)
All other liabilities
(B-ll4la)
753
BOARD OF GOVERNORS
of the
FEDERAL RESERVE SYSTEM
washington
ADDRESS
OFFICIAL CORRESPONDENCE
TO T H E
BOARD
February 24, 1936.
B—ll42«
Dear Sir:
Recently a number of the Federal Reserve banks have
made advances to member banks on promissory notes secured
by bonds of the Home Owners' Loan Corporation and have inquired as to how such advances should be reported on
Form 38, It will be appreciated if any such advances made
by your bank are reported against the caption "Secured by
HOLC bonds", to be inserted following the colon after the
caption "Advances on member bank's own promissory notes".
TO
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations
ALL GOVERNORS
754
B O A R D OF G O V E R N O R S
of the
FEDERAL RESERVE SYSTEM
washington
ADDRESS
OFFICIAL CORRESPONDENCE
TO T H E
BOARD
March 7, 1936
B-1U3
SUBJECT: Call Reports of State Bank
Members and their Affiliates
Dear Sir
There have been forwarded to you today under separate cover the indicated number of copies of the six forms attached hereto, for the use of
State bank members and their affiliates in submitting reports as of the
next call date:
Number of
copies
Form
Form 105, Report of condition of State bank member.
Form 105b (Schedule"0"), Loans and advances to
affiliates and investments in and loans secured
by obligations of affiliates.
Form 105e, Publisher's copy of report of condition
of State bank member.
Form 220, Report of affiliate or holding company
affiliate.
Form 220a, Publisher's copy of report of affiliate
or holding company affiliate.
Form 220b, Instructions for preparation of reports
of affiliates and holding company affiliates.
The number of copies of Forms 105b, 220 and 220a, being forwarded to
you, is based on the number requested in response to telegram TRANS 2374
755
2 —
of February 12, 1936.
Please hold the forms at your bank until receipt of telegraphic advice
from the Board giving the date on which the forms should reach State bank
members in your district. Upon receipt of such advice please arrange to
mail to each State bank member, scheduled to reach the bank as nearly as
practicable on the date given in the Board's telegraphic advice, three copies
of Form 105, two copies of Form 105e, and an appropriate number of copies of
Forms 105b, 220, 220a and 220b, with the request that the forms be held pending tho receipt of a call for reports thereon.
Please furnish the Board with a copy of the letter transmitting the
forms to State bank members, a copy of the letter calling for reports, and
a list of the State bank members on which the call is made.
The original copies of reports on Forms 105, 105b and 220 should be retained' for the files of your bank, while the duplicate copies thereof and reports on Forms 105e and 220a should be forwarded to the Board.
Certain changes have been made on Form 105 in the captions of asset
item 9# liability items 14, 15 and 16, memorandum item 36b, items 1 and 2 in
Schedule I and item 7 in Schedule J. These changes do not affect the meaning
of the items, but were made in the interest of simplicity and clarity, largely in the light of experience gained and inquiries made in connection with
the last call for condition reports. Corresponding changes have been made
in the form (2130) to be furnished by the Comptroller's office to national
banks for use in submitting their next condition reports. Form 220b, Instructions for preparation of reports of affiliates and holding company
(B-1L43)
756
- 3 affiliates, has been reprinted so as to include the modified terms of waiver
which were approved by the Board at the time of the last call for condition
reports.
Please advise the State bank members of the Board's rulings contained
in its letter X-9395 of December 17, 1935 and telegram TRANS 2359 of January 11, 1936, with regard to the conditions under which the Board will accept a single publication of reports of condition rendered by State bank
members to State banking departments pursuant to requirements of State law
and to Federal Reserve banks pursuant to the requirements of the Federal
Reserve Act.
The reports should be examined at your bank in accordance with past
procedure and any necessary corrections obtained, if practicable, before
they are forwarded to the Board. The printed copies of reports of State
bank members and their affiliates, clipped from the newspapers and attached to the reverse side of Forms 105e and 220a, should be examined to
see that they appear to be in proper form. Copies of letters sent to
State bank members in connection with published reports and of any replies
received thereto should be furnished the Board, to assist the Board in
determining whether the differences between the reports submitted to your
bank and the published statements are sufficiently important in any case
to warrant republication.
Please have compiled from the next call reports and mailed or wired
in time to reach the Board within 3 weeks after the date on which the call
(B-1U3)
757
- A is made, if practicable, a summary statement showing separately for central
reserve city member banks, reserve city member banks, and country member
banks, the amount of (1) each class of loans and discounts as shown against
Items 1 to 8 of Schedule E, (2) each class of United States Government
obligations, direct and/or fully guaranteed, as shown against items 1(a) to
2(c) of Schedule F, and (3) total other bonds, stocks and securities, as
shown against Asset item four (total of•Schedule G)«
Very truly yours,
L. r. Bethea
Bethea,
Assistant Secretary.
Inclosures
TO ALL FEDERAL RESERVE AGENTS
(B-1143)
758
B O A R D OF G O V E R N O R S
of the
FEDERAL RESERVE SYSTEM
washington
March 7, 1936
B-1144
ADDRESS
OFFICIAL CORRESPONDENCE
TO T H E
BOARD
SUBJECT: Federal Reserve Bank Stock Certificates
Dear Sir:
In view of the provisions of the Banking Act cf 1935, it will be
necessary to amend the plates from which Federal Reserve bank stock certificates are printed in order to make provision for the signature of the
President or a Vice-President of the Federal Reserve bank in lieu of the
signature of the Governor. In the circumstances, the form of certificates
issued by the Federal Reserve banks has been examined with the view of
determining whether any other changes should be made at the same time.
The form of certificate ncv: used at eight of the Federal Reserve
banks is identical except for the name of the Federal Reserve bank and
district, which changes are made in a single plate at the Bureau of Engraving and Printing without the requirement of a plate for each of the
banks. The certificate in use at one bank differs from that in use at the
majority of banks only in that it provides for the signature of the "Secretary" instead of the "Cashier". The certificates in use at two
other banks differ from the one in use at the majority of banks in that
the words "paid up" are used instead of "paid" in referring to the 50 percent
—
2
759
—
payment on the par value, etc., and the phrase "and is liable to further
assessments aggregating not more than 50 percent of its par value" is
omitted. The certificate of one of these banks provides for the signature
of the Secretary and the other for the signature of the Cashier. The remaining bank issues non-negotiable receipts in lieu of stock certificates.
The differences in the form of certificates now issued by the Federal
Reserve banks are not of major importance and it appears to the Board that a
uniform certificate might well be adopted. It also appears to the Board that
it should be sufficient to have the certificates signed by the President or
a Vice-President and by the Secretary, instead of also requiring the countersignature of the Federal Reserve agent, since Federal Reserve bank stock is
not transferable and cannot be hypothecated and the certificate is merely
formal evidence that the member bank has made the required payment on its
subscription to Federal Reserve bank stock. The Board would like to have any
comments that your bank may wish to make on these proposals, together with
suggestions for any additional changes that may appear desirable. In order
to expedite consideration of the matter, there is inclosed a draft of a
proposed revised form of certificate. It will be noted that the revised form
provides for the signature of the First Vice-President, but when the certificates are prepared this title may be changed as desired by the individual
Reserve banks (without making separate plates). Furthermore, even if the
title "First Vice-President" appears on all of the certificates, the w~>rd
"First" can be stricken out when the certificate is signed by another VicePresident and the words "First" and "Vice" can be stricken out when it is
signed by the President.
B-1144
760
- 3 -
Please advise the Board of the number of unissued certificates
that you now have on hand and approximately how long the supply may be
expected to last. If a uniform form of certificate is decided upon it
will be desirable to cancel the existing supply of certificates and to
issue certificates only on the new form. Please, therefore, also advise
the Board of the number of certificates of the revised form that should
be ordered, together with the serial numbers to be shown thereon.
Very truly yours,
L. P, Bethea,
Assistant Secretary
Inclosure
TO ALL FEDERAL RESERVE AGENTS
B-1LU
Suggested revised form of Federal Reserve bank stock certificate:
FEDERAL
RESERVE
BANK
of
Certificate
No.
Number of Shares
This is to certify that
is the owner of
shares of the par value of One Hundred Dollars (#100)
each, of the capital stock of the Federal Reserve Bank of
. which shares
of stock cannot be transferred or hypothecated. The stjck represented by this certificate, issued
in pursuance of the provisions of the Act of Congress, approved Dec. 23, 1913, known as the Federal
Reserve Act, as amended, is paid up ti the extent of fifty percent of its par value.
In Witness Whereof, the said Federal Reserve Bank of
has caused its corporate seal to be hereunto affixed and this certificate to be
signed by its duly authorized officers this
Secretary
day nf
19
First Vice-President
B-11U
.
762
BOARD OF GOVERNORS
of the
FEDERAL RESERVE SYSTEM
washington
ADDRESS OFFICIAL CORRESPONDENCE
TO T H E
March 13, 1936.
B-UU5.
SUBJECT:
Member Bank Call Report
for December 31, 1935*
Dear Sir:
We are forwarding to you under separate cover
copies of the Board's Member Bank Call Report
Ho. 68 showing the condition of member banks on
December 31, 1935*
Please forward a copy to each
member bank in your district that has expressed a
desire to receive copies of call reports as issued.
Very truly yours
E e L. Snead, Chief,
Division of Bank Operations.
TO ALL FEDERAL RESERVE AGENTS
BOARD
763
BOARD OF G O V E R N O R S
of the
FEDERAL RESERVE SYSTEM
washington
ADDRESS
OFFICIAL CORRESPONDENCE
TO T H E
March 16, 1936.
B-11U6.
Dear Sir;
There are enclosed for your information six copies
of the fourth edition of circular Ho, 86, "Instructions
relative to deposits of gold and gold certificates for
credit in gold certificate fund account with the Board of
Governors of tho Federal Reserve System and payments therefrom under Act of June 21, 1917*
as
amended", which was
issued by tho Treasury Department as of March 4, 1936.
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations.
Enclosures
TO ALL PRESIDENTS
BOARD
764
INSTRUCTIONS RELATIVE TO DEPOSITS OF GOLD AND GOLD
CERTIFICATES FOR CREDIT IN GOLD CERTIFICATE FUND
ACCOUNT WITH THE BOARD OF GOVERNORS OF THE FEDERAL
RESERVE SYSTEM AND PAYMENTS THEREFROM UNuER ACT OF
JUNE 21, 1917, AS AMENDED.
1936
Department Circular No. 86
Amended and Supplemented
TREASURY DEPARTMENT,
Office of the Secretary,
Washington, D. C.,
March 4, 1936
Accounts and Deposits
(Fourth Edition) 1
To the Treasurer of the United States, Superintendents of the Mints at
Philadelphia. Denver and San Francisco, and the Assay Office at
New York, and the Federal Reserve Banks;
(1) Paragraph 16 of Section 16 of the Federal Reserve Act, as
amended# authorizes and directs the Secretary of the Treasury to receive
deposits of gold or of gold certificates with the Treasurer of the United
States when tendered by any Federal Reserve bank or Federal Reserve agent
for credit to its or his account with the Board of Governors of the Federal
Reserve System, and requires the Secretary to prescribe by regulation the
form of receipt to be issued by the Treasurer to the Federal Reserve bank
or Federal Reserve agent making the deposit, a duplicate of which receipt
is to be delivered to the Board of Governors of the Federal Reserve System
by the Treasurer at Washington. The Section of the Federal Reserve Act just
cited also requires that deposits so made shall be held subject to the orders
of the Board of Governors of the Federal Reserve System and shall be payable
in gold certificates on the order of the Board of Governors of the Federal
Reserve System to any Federal Reserve bank or any Federal Reserve agent at
the Treasury; that the order used by the Board of Governors of the Federal
Reserve System in making such payments shall be signed by the Chairman or Vice
Chairman, or such other officers or members as the Board may by regulation
prescribe; and that * the form of such order shall be approved by the Secretary
of the Treasury.
(2) The following regulations are prescribed in pursuance of the
provisions of law cited in the preceding paragraph, and the Act approved
May 29, 1920 (41 Stat. 654):
(a) Deposits of gold and/or gold certificates may be made by
Federal Reserve
@FedFRASER