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BOARD OF G O V E R N O R S
R-28
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
-
A D D R E S S OFFICIAL C O R R E S P O N D E N C E
t o t h e b o a r d
July 1, 1957.
Bear Sir:
Reference is made to the report of the Presidents' Conference
Committee on Free Services with respect to "Shipping Expense and Movement of Currency and Coin" which report it is understood was submitted
to and approved by the Presidents at their conference held in Washington on June 7, 1857.
The report of the Committee on the services rendered by Federal reserve banks in furnishing currency and coin to member banks
and on the expense of such services is comprehensive, and the data
contained therein should prove helpful in the efforts of the banks to
reduce the expense of the currency and coin function to the minimum
consistent with the efficient operation of such function and the rendering of reasonable services to member banks.
The Board has read
this report with much interest, and has requested me to advise you
that it concurs in the recommendations contained on page 52 of the
report.
U0
PRESIDENTS
Very truly yours,
/YlcvuJcf
Chester Morrill,
Secretary.
OF ALL FEDERAL RESERVE BANKS
BOARD OF G O V E R N O R S
*******
OF THE
FEDERAL RESERVE SYSTEM
R-29
WASHINGTON
A D D R E S S OFFICIAL C O R R E S P O N D E N C E
TO T H E BOARD
July 9, 1937.
Dear Sirs
There are inclosed herewith copies
of statement rendered by the Bureau of Engraving and Printing, covering the cost of
preparing Federal reserve notes for the
month of June, 1937.
Very truly yours,
0. E. Foulk,
Fiscal Agent.
Inclosure.
r
TO PRESIDENTS OF ALL FEDERAL RESERVE B A M S .
Statement of Bureau of Engraving and Printing
for furnishing Federal Reserve Notes,
June 1 to 28, 1957.
Federal Reserve Notes, Series 1954
S10
Boston
110,000
New York
480,000
£20
Total Sheets
Amount
110,000
$10,285.00
100,000
580,000
54,250.00
Cleveland
-
29,000
29,000
2,711.50
Richmond
-
20,000
20,000
1,870.00
200,000
18,700.00
959.000
#87.796.50
Chicago
200,000
790.000
149.000
939,000 sheets, @ $95.50 per M,
$87,796.50
4
BOARD OF G O V E R N O R S
or THE
FEDERAL RESERVE SYSTEM
6
WASHINGTON
5"
*
ADDRESS OFFICIAL C O R R E S P O N D E N C E
TO T H E B O A R D
July 10, 1957,
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:
"NOZEWE" - Treasury B113s to be dated
July 14, 1957, and to mature
December 16, 1937.
"NOZEYL" - Treasury Bills to be dated
July 14, 1957, and to mature
April 15, 1358.
These words should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental
code word "NOZERP" on page 172.
Very truly yours
Assistant Secretaj
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
' R-50
5
BOARD OF G O V E R N O R S
OF THE
FEDERAL RESERVE SYSTEM
R-51
WASHINGTON
A D D R E S S OFFICIAL C O R R E S P O N D E N C E
TO T H E BOARD
July 12, 1931
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 .June, 1937,
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,
u
(o »
Josephine E. Lally,
Deputy Fiscal Agent.
Inclosure.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
R-51-a
W O R T OF EXPENSES OF MAIM LINES OF FEDERAL RESERVE
LEASED WIRE SYSTEM FOR THE MONTH OF JUNE, 1957.
Number
of
words
sent
Federal
Reserve
Bank
Boston
New York
Philadelphia
Cleveland '
Richmond
Atlanta
Chicago
St, Louis
Minneapolis
Kansas City
Dallas
San Francisco
Beard of
Governors
40,659
157,054
40,404
58,094
64,276
70,655
90,151
85,148
29,542
87,118
60,451
94,718
492,729
1,550,699
W
Words sent
by N. Y.
chargeable
to other
F. R. Banks
2,556
—
2,552
2,588
2,552
2,505
2,849
2,290
2,281
2,476
2,297
2,410
—
26,514
Total
words
chargeable
45,175
157,054
42,756
60,482
66,608
72,958
92,930
87,458
51,625
69,594
62,728
37,128
Personal
services(l)
$
519.51
1,155.65
256.59
245.75
240.12
275.75
1,152.58
187.99
166.71
259.05
267.55
590.54
492,729
2,261.59
1,577,215
#7,114.72
Wire
rental
1
— —
—
—
Total
expenses
1
—
—
— —
— —
— —
— —
14,444.11
Pro rata
share of
total expenses (2)
519.51
1,155.65
256.59
245.75
240.12
275.75
1,152.58
187.99
166.71
259.05
267.55
590.54
1
675.86
2,458.20
669.51
546.78
1,042.68
1,141.77
1,455.50
1,568.75
495.02
1,089.42
981.94
1,520.44
Credits
1
519.51
1,155.65
256.59
245.75
240.12
275.75
1,152.58
187.99
166.71
259.05
267.55
590.54
16,705.70
7,715.16
$21,558.85
$21,558.85
$
556.55
1,524.55
452.92
705.05
802.56
866.04
525.12
1,180.76
528.51
350.59
714.59
1,129.90
16,705.70
$14,444.11 $21,558.85
Payable
to
Board
of Governors
#8,992.54
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 (sp.015655955) for business handled during the month.
s
1
5
i
;
1
!
!
i
;
7
BOARD OF G O V E R N O R S
R-32
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL C O R R E S P O N D E N C E
TO T H E BOARD
July 16, 1957.
*******
SUBJECT:
Holidays during August, 1937.
Dear Sir:
The Board of Governors of the Federal Reserve System is advised that the following holidays will be observed by offices of
Federal reserve banks during the month of August:
Monday,
August 2
Denver Branch
In observance of
Colorado Day, which
falls on Sunday.
Thursday,
August 12
Havana Agency
Anniversary of Fall of
Machado Government
Monday,
August 30
Saw Orleans
Branch
Birthday of Huey Long
On August 2 and 50 the offices affected will not participate
in the transit clearing through the Inter-district Settlement Fund.
Please include transit clearing credits for the office mentioned on
each of these holidays with your credits for the following business
day.
Please notify branches.
TO PRESIDENTS
Very t£uly yours
V
J? C. tfoell/^0
Assistant Secretary
OF ALL FEDERAL RESERVE BANKS
BOARD OF G O V E R N O R S
F.-33
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS
OFFICIAL C O R R E S P O N D E N C E
TO THE BOARD
July 17, 1937.
SUBJECT;
Monthly Report of Bank and
Public Relations Activities.
Dear Sir;
There is inclosed for your information a summary of the bank relations
reports submitted by the Federal reserve
banks for the month of June in response
to the Board's letter of August 25, 1936
(X-9680).
Very truly yours,
r Y ) r v u £ f
Chester Morrill,
Secretary.
Inclosure.
TO PRESIDENTS OF ALL F. R. BANKS
July 14, 1037.
TO
The Board
FROM
SUBJECT:
Mr. Hammond, Division
of Bank Operations
Summary of Bank Relations
Reports
Reports of bank relations as requested in the Board's letter of
August 25, 1936 (X-9680) have been received for the month of June and excerpts therefrom will be found on the following pages. A table showing
for all twelve banks the number of visits made, meetings attended, and
addresses delivered has also been prepared and follows the quotations.
The attitude toward the Federal Reserve System
In addition to the familiar reasons for remaining outside the Federal Reserve System which have been noted in previous summaries, recent
reports indicate that many bankers are now influenced by anticipation
that radical changes in the structure of banking and of bank supervision
are imminent. This anticipation appears to be based in part upon measures
such as the Patman and McAdoo bills. It will be recalled that other objections to membership have related principally to exchange charges, capital requirements, multiplicity of reports, charge-offs, and surrender of
branch offices.
Banking conditions
The present reports mention little if anything that is new with respect to banking conditions. There arc frequent complaints, from small
banks, of the increased reserve requirements, There arc also complaints
that it is difficult to find profitable employment for funds. There is
some tendency for interest rates to decline, especially in the East.
General economic conditions
Remarkable improvement in farming conditions is reported by Minneapolis, Kansas City, and Dallas. In those portions of the West which in
recent years have been afflicted with drouth, grasshoppers, and other
misfortunes, there have now been normal rains, and favorable growing conditions prevail. There is in consequence a spirit of the utmost optimism.
Atlanta reports promising agricultural conditions also, but the present
year in the South does not differ so much from previous years as it does
in the West, In contrast to the remarkably encouraging prospects in farm
regions, banks in industrial regions report sluggishness in real estate
and uncertainty as to labor.
Excerpts from the reports follow;
tached to the original hereof.)
(The reports themselves are at-
1 0
E-55-a
Boston
Thirty-one member banks were visited during the latter part of June,
(25 in western Vermont, 7 in the vicinity of Boston and 1 in New Hampshire. )
On the whole, there is a far better feeling among bankers visited
than was found to be the case a year ago. Business conditions in the
several communities were reported to bo good and the indications are
that summer trade, to which these sections cater, promises to be even
better than last year. With one or two exceptions, the earning position
of the banks shows improvement, and there is a noticeable increase in
the demand for commercial loans, this increase ranging from 10 to 20 percent above that of a year ago, according to most of the bankers interviewed.
In Vermont, throughout the State generally, banks have lowered
their lending rates since January 1st, this action having been taken in
face of agitation in the State Legislature to reduce the legal rate from
6 per cent to 5 percent. Well secured collateral loans and most mortgage loans arc now being made at 5 percent, though most non-member banks
are advertising mortgage money at 4 g percent. The rates on loans to the
-small municipalities range from 5% percent to 4? percent, and bankers
report that outside city banks are not competing with them for this
class of business as was the case a year ago, competition at the present
time coming from private individuals.
Brokers are offering the Vermont banks particularly, FHA (Title II)
loans on Long Island and New Jersey properties at a yield of about 4^
percent. Some of the banks are buying these mortgages, though for the
most part the bankers interviewed expressed themselves as not caring to
go so far afield. Those of the banks which have bought in substantial
amounts have done so after sending committees of officers and directors
to inspect the mortgaged properties.
On the part of some of the smaller banks, particularly those located
in agricultural communities where the principal loan demand comes in the
spring of the year, there is a feeling that the recent increase in the
reserve requirement worked a decided hardship on this type of bank, and
inquiries were made by several bankers as to what has been accomplished
by increasing the reserve, and what is the likelihood of the reserve requirement being reduced before next spring. Several of these banks were
obliged to borrow to meet their spring demand, some from the Federal Reserve Bank and others from their correspondents. In this connection New
York and Boston banks are quoting their correspondent banks rates from lgto 1 3/4 percent. In one instance a member banker stated that he had
switched his loan from the Federal Reserve Bank to his Boston correspondent at the lower rate.
11
-5-
New York
"Southern Tier" Counties
Many bankers indicate that they are still favorably inclined toward government bonds and have increased their holdings of these securities $1,825,000 since the first of the year whereas the total of other
bonds has declined about a million dollars.
Loans and discounts of the commercial banks in this area aggregate $28,072,000, representing an increase of . 175,000 since December 31,
f
1936, due largely to loans on real estate. Most of the Federal Housing
mortgage loans granted in this section have been made by six commercial
banks located in the cities of Binghamton, Johnson City and Endicott,
which have loaned in all approximately $1,500,000 on new homes in these
cities. The president of the savings bank in one of these cities states
that because of the difficulty in obtaining good local mortgages, they
recently purchased $130,000 Title II mortgage loans in the New York market, all on homes located on Long Island. Only one bank has made plans
to continue making modernization loans now that the Federal Housing
Insurance is no longer available. Some of the bankers indicate that they
have made quite a number of small loans to farmers this year, ranging
from $20 to $500, for the purchase of seed and lime to enable these farmers to participate in the Agriculture1 Conservation Program for 1937.
Several bankers mention that they have sent some of their farm borrowers
to the Production Credit Association at Ithaca as they did not want to
make loans to them because of the risk. Only two banks in this territory have made any effort to develop personal loan departments, the former having loaned $480,000 and the latter $79,000 on this type of paper.
Columbia and Ulster Counties. New York
Demand for accommodation in general is said to be fair to good, and
loan and discount lists for the most part show a tendency to increase
slightly or, at least, to remain at levels which are normal for recent
years. Many bank officers, however, are inclined to be scmev/hat discouraged because current loan lists do not compare favorably in size
with those of the years 1928 and 1929. The loaning rate is usually 6
per cent although some banks reduce this to 5 per cent, or lower, in the
case of amortized mortgages or loans secured by exceptionally good collateral. A lower rate is generally granted on loans made to municipalities and school districts, but two banks made no exceptions whatever.
One bank has established 5 per cent as its customary rate with 4§- per
cent applying to loans secured by prime collateral.
12
—4—
"
R-5o-a
Erj.e and Niagara Counties. New York
The demand for loans, both for commercial and agricultural purposes, is reported to be light except for a few isolated cases in the
agricultural districts. In an effort to stimulate loan accounts,
some of the banks in the larger communities have established personal
loan departments, although they express themselves as being somewhat
disappointed with the results obtained.
Rochester, New York
While Rochester has six commercial banks, two of these do only
a small commercial business. Twenty-one branches are operated by three
banks, of which fifteen are within the corporate limits of the city and
six outside. Branches have been established in various communities in
this district where formerly independent banks were located. Interest
rates in Rochester vary, some banks paying 2 per cent on deposits up
to *7,500, with lower rates on amounts in excess? of this; other banks
pay the 2 per cent rate on balances as high as $15,000, and others place
no limit but will take large deposits at 2 per cent as long as they feel
they can employ the funds profitably. Loan rates range between 3 and
6 per cent.
Saratoga. Warren, and Washington Counties. New York
Deposits generally are steady or slightly higher than a year ago,
only two banks reporting material decreases. Time deposits throughout this area average approximately 66 per cent of total deposits. A
number of bank officers express the opinion that they owe it to their
depositors to pay 2 per cent as long as it can possibly be justified
by earnings, since many of them have been accustomed for years past to
rely upon this as an important, and in some cases their chief, source
of income.
Philadelphia
Luzerne County. Pennsylvania
The prevailing rates of interest are 2 per cent on deposits and 6
per cent on loans. One banker has suggested to his local clearing
house that a deposit rate of lj per cent be adopted and that the loaning rate be reduced to 5 per cent. Although the clearing house was
friendly to this proposal, no action has as yet been taken.
Some of the bankers are complaining of the competition being offered by a large insurance company, which is placing mortgages in this
county at a 4 g per cent rate. Apparently the banks concerned have not
-
13
—5—
II—00~*cl
Philadelphia continued
made much effort to meet this competition by departing from the prevailing 6 per cent rate.
Six Counties in Northeastern Pennsylvania
Conditions in the area covered by this report show an improvement
over those of a year ago in all but a few communities. However, the
unsettled labor conditions either present or prospective are a matter
of concern to officers of the banks visited. Many of them believe that
it will be necessary for the National administration to take a definite
stand in this matter in the near future and that nothing chort of that
will have a stabilizing influence.
The general attitude of the officers of non-member banks interviewed
during the month was favorable toward the System and no specific comments
were received as to why these institutions had not applied for admission.
It is believed, however, that at least ten of the institutions visited
might have some difficulty in being accepted due to the condition of assets. The officers of four other institutions stated, frankly that they
were not interested in joining the System. Two of these were officers
of banks which had withdrawn from membership since the bank holiday.
The officer of another institution stated that his bank was really a
"back-door" member,' inasmuch as it was able to dispose of its rather large
supplies of excess currency by shipping it at the expense of the reserve
bank in payment for cash letters, thus obtaining what he considers to be
the chief savings to be gotten through membership. One• institution hopes
to convert to a National bank sometime in the future and two others are
ineligible for membership due to insufficient capital.
Largely as a result of improved industrial conditions, the public
relief problem has been less acute this year than last. Total expenditures for direct relief in Columbia, Luzerne, Mountour and Monroe Counties
in the week ended June 19 were about 25 per cent smaller than a year ago,
while in Northumberland and Pike Counties the amount increased. The
amount of public money spent in connection with work relief also has been
reduced in the past few weeks, although it continues to be an important
factor in all counties under consideration.
Larger incomes from such sources as wages, salaries and dividends,
as well as from continued public expenditures have had a stimulating effect on trade in general. For example, retail trade sales in the first
five months of this year in these counties exceeded those for the same
period last year by nearly 7 per cent. Sales since May appear to have
been well maintained, although seasonal recessions are in evidence.
14
"-0—
r.-oc -3.
Philadelphia continued
Sales of new passenger automobiles this year have shown substantial increases over the previous years. The number of cars sold in the
six counties during the first five months of this year was 20 per cent
larger than in the same period last year and 96 per cent larger than
in 1955. Compared with a record, volume in 1929, however, sales still
were about 10 per cent smaller.
Cleveland
(The Cleveland report contains only statistical information as to
visits to banks, meetings attended, and addressee made. The schedule
of regular visits will probably be resumed in September.)
Richmond.
At conventions, group meetings and individual visits, our representatives report a very decided trend in favor of continuing to operate local unit banks as opposed to further supervision of banking from
Washington or by outside capital.
The officer of one nonmetnber State bank, which is also a non-par
institution, told our representative that its revenue from exchange
charges will average from $9,000 to $10,000 per annum and that without
this revenue his bank could not make the grade. This officer feels
that there are too many duplicating agencies and supervising authorities, and frankly said he would not consider membership in the System
until "pushed in" by statutory requirements. This particular community is prospering at this time, taking advantage of a growing tourist
trade.
The active officer of another noma ember bank told our representative that while he has a high regard for the Federal Reserve System,
he will undertake no move toward membership at this time as he believes
important changes in the entire banking structure are imminent.
Still another officer of a nonmember bank informed our representative that in his opinion membership in the System would be associated
locally with the National banking system, end in view of the suspension
of a National bank in the same town sometime ago, he held that State
bank membership would be of doubtful value. This same officer expressed
tc our representative the thought that some consideration is being
given by his bank to withdrawal from the F.D.I.C. He contends that
the insurance is not considered of sufficient importance locally to
justify the cost.
•
Richmond continued
Our representatives report that in sections visited by them in June,
the impression was gained that business was moving at a slower rate than
in the preceding months. However, they also report that the agricultural
outlook appears improved and that there is considerable expansion throughout the district in construction work, especially residential construction in and near larger communities. Our representatives report that
weather conditions during June were favorable for crops, which improved
materially in all sections visited by them in this district.
Atlanta
Seven banks in the City of Savannah were visited on June 16th. The
bankers, without exception, stated that earnings for the current period
are in excess of those shown for the year 1956 and all appeared to be
optimistic regarding the- earning record for the current year. They reported an increase in the loan portfolios and a substantial revival of
business conditions in general. The record shows that receipts of naval
stores are about the same as of the same period last year, but that the
stocks on hand are smaller. Prices of rosin are higher than last year,
but quotations on turpentine are slightly less.
Two member and six nonmember banks located within a radius of 75
miles from Atlanta, in the northwest portion of the state, were also
visited. The bankers advised that crop conditions have been unusually
favorable and that present prospects indicate a production much in excess
of that for 1936. The main money crop in the section visited is cotton
and farmers have increased their acreage from ten to fifteen per cent
over last year. As a rule, the farmers used fertilizer in generous proportions, purchasing the same with cash obtained from their local banks,
which resulted in good business for local merchants and a saving to the
farmers on interest.
All of the banks reported an excellent demand for loans, and the
member banks stated that in all probability they would avail themselves
of the rediscount privilege for short periods.
On June 24 and 25 fourteen banks and one branch in the territory
located in the northern part of middle Tennessee were visited. In this
section the main money crops are dark fired tobacco, wheat, and corn.
Revenue is also derived from forage crops, cattle, lambs, and wool.
Farming conditions were found to be excellent, as the weather has been
favorable since early spring. Tobacco acreage will equal or exceed that
of last year and unless damaged by insects it is reasonable to expect
a greater production than that of last year. Bankers of this section
1 6
-8-
R-52 a
Atlanta continued
advise that good prices are being received from live stock and that
the market is very active.
The activity of Governmental loan agencies as a general rule appeared to have offered no competition to the bankers in this section.
Chicago
(The Chicago report contains only statistical information as to
visits to banks, meetings attended, etc.)
St. Louis
A State bank in Missouri wishes to join the System because it is
having some difficulty with the F.D.I.C. and believes that joining the
Federal Reserve System would overcome the Corporation's objections.
Another nonmember has given no further consideration to membership
since the outcome of its initial application, and states that it has no
intention whatever of taking the matter up again, although its attitude
toward the System is friendly.
Time appears to have softened the attitude of one Illinois banker
toward the increase in reserve requirements, which thus far has caused
his bank no inconvenience whatever. However, he hopes a reduction will
be made should a bona fide local demand for accommodations materialise.
In connection with the recent closing of a nonmember bank, the
opinion was expressed that it might be the policy of the F.D.I.C. to
center all banking facilities in county seat towns.
A national bank in Missouri referred to the suggestion of the F.D.I.C.
in connection with the ratio of 1 to 10 between capital and deposits,
and stated that if this requirement is put into effect, it will reduce
its deposits rather than increase its capital.
The president of an Illinois bank commented on the relatively low
earnings of the bank, and stated that the problem was becoming more
acute each year. He says he sometimes wonders what the future has in
store for country banks.
Minneapolis
Southeastern South Dakota is in the best condition it has been for
years. Widely extended rains have greatly improved the pastures and live
17
R.-33-a
Minneapolis continued
stock feed outlook; and as a direct result, this year promises increased
business activity. Rye, barley, and oats are well advanced and show a
normal development and growth. Although the cool wet weather may have
retarded the growth of the corn to some extent, nevertheless with favorable warm weather soon and a reasonable amount of moisture, there is
every chance of a record crop. Some hatching of grasshoppers has been
reported in South Dakota, but the present cool weather has been the
best deterrent to their growth. Water levels, lakes, wells, and rivers
are high.
At every bank visited there was a definite feeling of optimism.
Farmers generally are in much better spirits because of the bright crop
prospects. Conditions have never looked more promising than at present.
But if the rains continue to too great an extent, the former dust bowls
of South Dakota may become mud bowls. However, even if the record crop
that is anticipated is not produced, it will look good against the drouth
years of 1934-1936.
Virtually all the bankers had just received a copy of the Patman
Bill sent to them by the Independent Bankers' Association of Minnesota
for their perusal and comments. The only unfavorable comment heard concerning this bill was the opinion expressed that politics would eventually creep into the System, and that if this occurred it would result in
an unhealthy banking situation.
Business in general is on the upgrade; there is a prevailing optimism; the banks visited have sufficient funds available to take care of
all legitimate demands for loans; it is difficult to get the proper kinds
of loans; many banks do not anticipate very much of a demand now until
harvest time; there is a marked trend on the part of some of the banks
to seek an outlet for their available funds in installment paper; and
there is a general tendency for lower rates on loans brought on by competition with government agencies. Automobile sales have increased; and
some of the dealers1 orders for automobiles were held up through the
strike situation. There is an increase in the sale of tractors and farm
machinery; and some wholesalers have bought heavily this winter to protect their dealers from increased prices.
Western Central Wisconsin
Bank deposits have held up very well considering the amount of money
spent for feed. A number of bankers could not account for an increase in
their deposits over last fall. Farmers are very hopeful and are now willing to make expenditures for paint and repairs, and other improvements
around their farms which have been neglected during the past few years.
18
-10-
R-3S-8
Minneapolis continued
Mercantile stores have reported an increase in sales. If the crop comes
through as anticipated, conditions will be far better than normal.
It was reported that offices established by the bonks in this territory are all on a paying basis, and that the State Banking Department,
in conjunction with the Federal Deposit Insurance Corporation, is about
ready to force consolidations in communities where a bank cannot operate
profitably. They will, it was said, suggest the establishment of offices
at some points so as to continue banking facilities.
The executive officers of one nonmember believe the examiners for
the F.D.I.C. are exceedingly severe, and in the course of our conversation asked vthat steps could be taken to become a member, therety eliminating examinations by that corporation. They did not, however, care
to give up their office now being operated in a nearby town to become
a member of the System, so no application will'be filed at this time.
A number of the bankers mentioned the Patman Bill. All of them were
opposed to government ownership of the Federal Reserve Banks.
Kansas City
Contacts with banks during the month serve to emphasize the fact that
the breaking of the drouth in the Tenth District is the outstanding recent
banking development. The growing season is still young and many things
may happen before Fall, but the month of June witnessed distinct improvement. Rains were general throughout the District and while they were too
late to save the wheat crop in regions adjacent to the "Dust Bowl", the
feed situation in those sections is grteatly improved. Indications are
that a considerably better than normal wheat crop will be harvested and
the prospects for corn are promising. Reserve stocks are so short because
of protracted crop failures that bumper crops may easily be sold at prices
much above the average. It is difficult to overestimate the bearing of
such a favorable development on the banking situation.
In drouth section^ large numbers of people have been on relief and
many bank loans have been frozen for years. Good crops and good prices
may be the means of a clean-up of bank loans such as has not been seen for
years. Even the better situated farmers have been compelled to buy feed
at very high prices to keep intact their herds and to produce dairy and
poultry products. As a rule the prices farmers have received for these
products have not justified the purchase of the necessary feed. But if
rains continue another six weeks farmers will again be raising their own
feed and it is almost impossible to overestimate the importance of this
fact alone on farm morale.
Wyoming
A serious problem confronting banks in Wyoming at the present time
is that of financing the restocking of the ranges. Moisture conditions
in Wyoming this year have been good and bankers report that ranges in many
-11-
Kansas CXzy
R-55-a
1 9
Con, cinued
sections are in the best condition in ten years.
shortage cf cattle.
The problem now is the
In making loans to restock ranges, banks are disturbed about two other
things. One of these is the relatively high price of cattle. Furthermore,
while the ranges at present are in good shape, no one can be certain this has
any degree cf permanence. The drouth of recent years in west central states
was so sensational and protracted that it will take some years of better
moisture conditions to give assurance that the dry cycle is actually at an
end.
During the past month
called on all of the State
It cannot be said that the
especially promising under
representatives of the Omaha Branch of this bank
banks in Wyoming that are eligible for membership.
prospects for new membership from that State are
the conditions that now exist.
The problem of par collection in Wyoming is not an important one and
other considerations than the desire to make exchange charges are the dominating ones. Probably the most important factor bearing on the membership
question is that of indifference. Most eligible State banks are in an easy
cash position and they do not expect to borrow money. However, at the
present time quite a number of eligible State banks appear not to be in condition for membership. Some of them are having considerable trouble with
the F.D.I.C. examiners, and many are so heavily stocked with real estate
loans that they fear their condition will be criticized by the examiners of
this bank.
In a good many cases, banks will not be interested in membership until
a number of uncertain conditions are more clear. Some are not making money
and they prefer to wait until conditions are more settled and they can make
money or liquidate their institution. Judging by present conditions, certain communities seem over-banked and there is reported to be considerable
pressure from the F.D.I.C. in the direction of consolidation. Naturally banks
will not consider membership until it is determined which ones will survive.
Another matter working against membership is the increased reserve requirements. Some bankers expressed the opinion that the uncertainty attending
a policy of fluctuating reserve requirements will be intolerable. Many of
them do not understand that changing reserve requirements is an instrument
of credit control that can be used only at infrequent intervals; that the
maximum reserve requirements have already gone into effect and that probably this matter has now been stabilized for some time. However, this uncertainty regarding legal reserves is an important factor causing banks to
hesitate about membership. In a number of cases banks expressed the opinion
that should they decide to become members they "ould prefer to take out national charters.
Dallas
West Texas
Abundant rainfall and high prices of cattle, sheep, wool and mohair
have this year transformed the plains and plateaus of Rest Texas from a
distressed drought-stricken region into a land overflowing with prosperity, according to the reports of our representatives. The bankers interviewed were more optimistic than they have been in many years over the
-12-
R—33--a
Dallas continued
improved state of the agricultural and livestock industries and the resultant bright outlook that faces their communities. The interviewed bankers
said that the feeling of discouragement and gloom that has been almost universal among their clients for the past several years is gone.
Barnes report a steady growth of deposits, and a continued accumulation of idle funds whose employment presents a problem of steadily increasing complexity. Except in the larger centers the banks have not heretofore
invested to any substantial extent in Government bonds or other securities.
This is due chiefly to the fact that in normal years the demand for loans
from stockmen and farmers is sufficient to keep their funds well employed
at profitable interest rates. There is evidence, however, that the banks
this year are turning to the government bond market in increasing numbers.
One interviewed member banker complained rather sharply that country banks
with funds to invest do not always have a fair chance to submit their subscriptions for the new government issues offered by the Treasury Department
from time to time. As an example, he cited the Treasury note offering of
June 15, saying that he received a notice of the offering and in the same
mail received a bulletin announcing that the Treasury Department's subscription books for the offering had been closed.
A surprising number of bankers praised recent banking legislation in
the highest terms and expressed gratitude for the great benefits it had
contributed to the banks as well as to the public. Such generous and benevolent expressions by bankers in regard to the various restrictive and reformative laws with which the government has in recent years encompassed
their operations are so unusual that they perhaps call for some explanation.
The answer may probably be found in the happy and jovial mood which prosperous times, like the present, bring to people in all walks of life, including
even such confirmed pessimists as bankers are known to be as a class. In
any event, this seems to be true of the bankers of West Texas.
The officers of a National bank in Texas took occasion to commend
the industrial loan facilities created by Section 13b. They were particularly gratified over the constructive results of a large industrial loan
which we made in conjunction with their bank to a local wholesale hardware
firm which at the time was threatened with bankruptcy due to the "squeezing" tactics of some of the firm's impatient creditors. The loan not only
relieved the situation but enabled the firm to take advantage of a strong
upswing in general business conditions in that section of the State, and
the company is now not only back on its feet, but its business has increased
so rapidly that it has been able to prepay more than twenty monthly installments of its obligation to our bank.
San Francisco
Southern and Western Idaho and Northern Utah
Although the growing season in the area visited during the month was
somewhat retarded, approximately two weeks late, all crops generally were
reported to be in good condition. Moisture conditions are excellent at
-15-
R—33—a
San Francisco continued
irrigation water in the principal reservoirs is above normal and greater
than at any similar time in the past five years, The larger farming sections in Southern Idaho reported a wider diversification of crops being
planted, with a heavy planting of beans, potatoes and sugar beets. There
has been some damage by pests to the sugar beets in isolated sections,
which at present is not considered serious.
Conditions on the lower livestock ranges during the late spring
months were excellent. However, forage on the higher ranges did not mature normally, due to a backward spring season. Livestock were held on
the lower ranges two or three weeks later than usual before entering the
higher ranges. It is reported that winter moisture conditions with late
spring rains on the higher ranges gives assurance of ample forage conditions prevailing all through the late summer.
Early lambs in Southern Idaho were marketed this month at weights
averaging between 80 and 90 pounds. The price received for the earlier
shipments was 12$ per pound. The wool clip in Southern and Western Idaho
was normal, most growers contracting last fall at prices between 34 and
570. There is a small percentage of all wools still unsold, and of that
practically all now has been consigned.
PUBLIC RELATIONS ACTIVITIES OF FEDERAL RESERVE BANKS
JUdE. 1337
Federal
Reserve
Bank
Boston
Mew York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas CityDallas
San Francisco
Visits to ba iiks
iiionMember
icember Total
Number
Attendance
Addresses made
Number
Attendance
#
6*
2,920
330
960
None
4
1
3
5
2
2
5
2,075
700
850
2,100
None
None
None
None
__
32
40
68
296
96
68
71
15
3
3
16
8,581
541
1,550
1,356
3
3
None
3
525
251
31
132
88
15
None
55
17
16
31
187
35
51
5
8
2
56
9
10
48
52
23
53
20
88
157
67
59
61
139
29
9
10
§ Attendance not reported
Attendance at 1 not reported
Meetings attended
355
250
170
—
386
23
BOARD OF G O V E R N O R S
R-34
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS
OFFICIAL C O R R E S P O N D E N C E
TO T H E B O A R D
July 16, 1937
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:
"NOZFAG" - Treasury Bills to be dated
July 21, 1937, and to mature
December 16, 1937.
"NOZFED" - Treasury Bills to be dated
July 21, 1937, and to mature
April 20, 1938.
These words should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental
code word "NOZEYL" on page 17?..
Very truly yours,
J. C. Noell
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For immediate release
July 25, 1937
The Board of Governors of the Federal Reserve System today
announced the following appointment:
FEDERAL RESERVE B A M OF CHICAGO
Detroit Branch of the Federal Reserve Bank of Chicago
BRANCH DIRECTOR:
For unexpired portion of term ending December 31, 1959:
Mr. H. Lynn Pierson of Detroit, Michigan.
25
BOARD OF G O V E R N O R S
DF THE
FEDERAL RESERVE SYSTEM
R-S6
WASHINGTON
A D D R E S S OFFICIAL C O R R E S P O N D E N C E
TO T H E BOARD
July 24, 1957.
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:
"NOZFIX" - Treasury Bills to be dated
July 23, 1957, and to mature
December 17, 1957.
"NOZFOE" - Treasury Bills to be dated
July 28, 1957, and to mature
April 27, 1958.
These words should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental
code word "NOZFED" on page 172.
Very truly yours
J. C. Nooll,
Assistant Secretary.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
R-37
BOARD OF GOVERNORS '
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For release in morning papers,
Wednesday, July 28, 1937.
The following summary of general business and financial conditions in the
United States, based upon statistics
for June and the first three weeks of
July, will appear in the August issue
of the Federal Reserve Bulletin and
in the monthly reviews of the Federal
Reserve banks.
Activity in most manufacturing industries and at mines continued in
June at the May level, with allowance for seasonal influences, but the
total output was decreased by labor difficulties in steel mills.
In July,
production at these mills increased.
Production and employment
Volume of industrial output, as measured by the Board's seasonally
adjusted index, was 115 percent of the 1923-1925 average in June as compared with 118 percent maintained in the preceding three months.
The
decrease was largely accounted for by the decline in steel production.
Automobile production declined seasonally and lumber output showed
little change.
There was considerable reduction in activity at shoe
factories and at sugar refineries, while textile production was close
to the level of other recent months.
At mines output continued in about
the same volume as in May.
Value of construction contracts awarded, which had declined in May,
increased considerably in June, according to figures of the F. W. Dodge
Corporation.
There was a marked rise in contracts for public projects,
R-57
and awards for private building increased somewhat., reflecting chiefly a
larger volume of contracts for factories and for apartments.
Factory employment and payrolls declined more than seasonally from
the middle of May to the middle of June, largely as a result of strikes
in the iron and steel industry.
In most other manufacturing industries
and also in non-manufacturing lines changes in employment were chiefly of
a seasonal nature.
Agriculture
The July 1 cotton report of the Department of Agriculture showed an
afcreage of 34,192,000^ which is larger than in any year since 1953, but
considerably smaller than the average of 41,424,000 acres for the five
years 1928-1952.
Reports on other major crops indicate larger production
than last season and about equal to the average for 1928-1932.
Distribution
Distribution of commodities to consumers was maintained in June at
the level of other recent months, with allowance for seasonal influences.
Department store sales showed a seasonal decline and there was little
change in mail-order business.
what.
Sales at variety stores increased some-
Department store trade in the mid-western industrial area in June
and in the first half of the year showed larger increases over a year ago
than did sales in other parts of the country.
Freight-car loadings declined somewhat further in June, reflecting
largely a decrease in shipments of miscellaneous freight.
Wholesale commodity prices
The general level of wholesale commodity prices, which had declined
gradually from the beginning of April to the middle of June, advanced
-3-
somewhat after that time.
R-57
Prices of hogs and pork rose considerably and
grain prices advanced during most of the period.
Steel scrap prices in-
creased sharply and prices of tin, zinc, and hides also advanced, while
cotton goods and rubber continued downward,
In the past week prices for
grains declined and cotton prices also moved lower.
Bank credit
In the four-week period ending July 21 the volume of excess reserves
of member banks increased from $810,000,000 to $870,000,000, owing principally to a decline in the amount, of required reserves resulting from a
decrease in deposits at member banks in leading cities.
Commercial loans of reporting member banks continued to increase
both in New York City and in other leading cities during the five weeks
ending July 21.
There was a substantial decline in adjusted demand de-
posits, mostly at New York City banks.
This decline corresponded to de-
creases in holdings of United States Government obligations, following
increases at the time of new Treasury note issues at the middle of June,
and in holdings of other securities.
Loans to brokers and dealers in
securities, which increased in June, declined during the first three
weeks of July.
Money rates
Open-market rates on Treasury bills and yields on Treasury notes and
bonds declined in July to the lowest levels since March.
It- 58
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For immediate release
July 28, 1957.
The Board of Governors of the Federal Reserve System
today announced the following appointment:
FEDERAL RESERVE BANK OF SAN FRANCISCO
Los Angeles branch of the Federal Reserve Bank of San Francisco
3RA3CK DIRECTOR:
For unexpired portion of term ending December 51, 1957:
Mr. Carl V. N e m a n of Santa Ana, California.
BOARD OF G O V E R N O R S
OF THE
FEDERAL RESERVE SYSTEM
R-39
WASHINGTON
A D D R E S S OFFICIAL C O R R E S P O N D E N C E
TO T H E BOARD
July 28, 1957.
CONFIDENTIAL
Dear Sir:
Inclosed are six copies of a tentative draft of a proposed general revision of Regulation T, Extension and Maintenance of Credit by Brokers, Dealers, and Members of National
Securities Exchanges, which has been prepared at the direction
of the Board but which has not yet been acted upon by the Board.
Additional copies are being sent under separate cover.
You will note that this is a preliminary draft and that
it is not for publication.
Please submit copies to any national securities exchanges
located in your district, and request them to consider the draft
in confidence, with every precaution against notice by the press,
and to submit to you in writing their comments, criticisms and
suggestions. Please forward these to the Board as soon as they
are received, and furnish to the Board within a reasonable time
any comments, criticisms or suggestions of your own.
It is anticipated that some of the exchanges and some of
the Federal Reserve banks will submit their comments within two
or three weeks, but that others will desire additional time. All
comments, however, should reach the Board not later than September 15, 1937.
Very truly yours,
h l < n
Chester Morrill,
Secretary.
Inclosures.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
R-40
BOARD OF GOVEE^ORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For release in morning papers
of Saturday, July 31, 1937
July 50, 1937
The Board of Governors of the Federal Reserve System has amended
its Regulation U, which relates to loans by banks for the purpose of
purchasing or carrying stocks registered on e national securities ex.
change, and at the same time has revised the "Foreword" to the regulation to accord with the regulation as revised* The effect of the amendment is to extend the scope of the regulation, which has heretofore
applied only to loans made on or after May 1, 1936, ao that it will apply also to loans made prior to that date.
The amendment, which becomes effective September 1, 1937, will appear in the forthcoming issue of the Federal Reserve Bulletin and the
regulation as revised is being reprinted and will be mailed within a
few days to all banks in the United States.
The "Foreword" to the Regulation, of which only the first paragraph
has been revised, now reads as follows:
"This regulation is issued pursuant to the provisions
of section 7 of the Securities Exchange Act of 1934.
The regulation 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.11
The amendment to Regulation U reads as follows:
"Amendment No. 3 of Regulation U - Effective September 1, 1957
Regulation U, as amended, is hereby further amended
in the following respects*
1. Section 1 of said regulation is amended by inserting
the words 1 or at any previous time,1 in the second paragraph of said section after the words 'incurred on or
after May 1, 1936,'; end by substituting the words
32
~2—
R-40
•While a bank maintains any such loan, whenever made, the' for
the words 'After any such loan has been made, a' in the third
paragraph of said section; so that said section 1 as thus
amended will read as follows:
•SECTION 1. GENERAL RULE
On and after May 1, 1936, no bank shall make any loan
secured directly or indirectly by any stock for the purpose of purchasing or carrying anj stock registered on ,
a national securities exchange in an amount exceeding the
maximum loan value of the collateral, as prescribed from
time to time for stocks in the supplement to this regulation and as determined by the bank in good faith for any
collateral other than stocks.
For the purpose of this regulation, the entire .indebtedness of any borrower to any bank incurred on or after
May 1, 1956, or at any previous time, for the purpose of
purchasing or carrying stocks registered on a national
securities exchange shall be considered a single loan;
and all the collateral securing such indebtedness shall
be considered in determining whether or not the loan complies with this regulation.
While a bank maintains any such loan, whenever made,
the 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. In case such maximum loan value
has become less than the amount of the loan, a bank shall
not permit withdrawals or substitutions that would increase the deficiency; but the amount of the loan may be
increased if there is provided additional collateral having maximum loan value at least equal to the amount of
the increase.1
2. Section Z of said regulation is amended by substituting the word
'may' for the word 'thereafter' in the unlettered portion of said
section so that the unlettered portion of said section as thus
amended will read as follows:
'SECTION 2.
EXCEPTIONS TO GENERAL RULE
Notwithstanding the foregoing, a bank may make and
may maintain any loan for the purpose specified above,
without regard to the limitations prescribed above, if the
loan comes within any of the following descriptions:1"
33
BOARD OF G O V E R N O R S
O F T H E
»*»*»»»
a
8
R-41
FEDERAL RESERVE SYSTEM
WASHINGTON
a d d r e s s
*********
o f f i c i a l c o r r e s p o n d e n c e
t o t h e b o a r d
July 30, 1837.
CONFIDENTIAL —
SUBJECT:
NOT FOR PUBLICATION OR DISTRIBUTION
Revised Draft of Proposed Regulation A
Dear Sir:
In its letter of August 28, 1955 (X-9301), the Board of Governors submitted to the Federal Reserve banks for comments and suggestions a draft of a revision of Regulation A relating to discounts
for member banks by Federal Reserve banks, and with its letter of
October 21, 1935 (X-9546), inclosed copies of memoranda covering the
recommendations made by the Board's staff with respect to the principal suggestions of the Federal Reserve banks in connection with
the proposed regulation.
There are inclosed herewith six copies of a revised draft of
the proposed Regulation A and of a proposed letter regarding marginal
collateral to be transmitted to the Federal Reserve banks in connection with the issuance of Regulation A. The inclosed draft of the
regulation contains a number of changes, and your attention is invited particularly to the provisions of subsection (d) of section 1
of the regulation regarding the kinds of collateral which may be used
as security for advances under section 10(b) of the federal Reserve
Act; to the omission from subsection (a) of section 2 of the provisions under which paper is ineligible for discount if its proceeds
are advanced to some other borrower; to the provisions of subsection
(e) of section 3 of the regulation regarding the amount of credit extended on the security of obligations of the United States; to the
omission of the words "or between foreign countries" in paragraph
(l) of subsection (b) of section 6 regarding bankers' acceptances;
to the omission in paragraph (3) of said subsection (b) of the words
"or issued by a grain elevator or warehouse company duly bonded and
licensed and regularly inspected by State or Federal authorities
with whom all receipts for such staples and all transfers thereof
are registered and without whose consent no staples may be withdrawn";
to the new footnote 9 regarding bankers' acceptances; to the recommendations in the appendix relating to real estate loans; and to the
34
-2—
R-41
recommendations in the appendix relating to loans upon installment
paper; as well as to the General Principles included as a preface to
the regulation and the proposed letter to the Federal Reserve banks
regarding marginal collateral.
Subsection (d) of section 1 of the regulation contains a list
of specified classes of collateral security upon which it may be expected that member banks will more readily be able to obtain credit
from the Federal Reserve banks under the provisions of section 10(b)
of the Federal Reserve Act than upon other classes of security not
specifically mentioned. It has been suggested that the inclusion of
this list of classes of collateral security and of the recommendations
contained in the appendix to the regulation as to the standards which
should be observed by member banks in making installment loans and
loans upon real estate may serve to foster and encourage sound practices by member banks in making loans and investments.
As you know, with the exception of paper of cooperative marketing associations and of certain factors, paper the proceeds of
which are advanced or loaned to some other borrower, such as paper
made by finance companies, has heretofore been ineligible for discount at Federal Reserve banks. You will note from subsection (a)
of section 2 of the inclosed draft of the regulation that this restriction on paper whose proceeds are loaned to others has been eliminated, so that notes, drafts or bills of exchange the proceeds of
which have been or arc to be advanced or loaned to some other borrower for a commercial, agricultural or industrial purpose would be
eligible for discount. Like any paper offered for discount, however,
such a note, draft or bill would have to comply with the other requirements of the regulation as to eligibility for discount, including the maturity limitations of 90 days in the case of commercial
paper and nine months in the case of agricultural paper. If paper
is ineligible for discount because its maturity is in excess of these
limitations, it may nevertheless be accepted by a Federal Reserve
bank as security for a member bank's promissory note under the provisions of section 10(b) of the Federal Reserve Act, as provided in subsection (d) of section 1 of the regulation.
It will be observed that under the provisions of paragraph
(l) of subsection (b) of section 6 it would no longer be possible to
discount bankers' acceptances drawn to finance the shipment of goods
between foreign countries. This change is contained in the revised
draft of the regulation in view of the disclosures regarding acceptances of this kind in the report of the Federal Reserve Committee
on Acceptance Practice. In view of the fact that Regulation B provides that, with certain exceptions, a banker's acceptance must be
eligible for discount in order to be eligible for purchase by Federal
35
-3-
R-41
Reserve banks in the open market, this change would also prevent the
purchase of bankers' acceptances drawn to finance the shipment of
goods between foreign countries. However, the change would not prevent the financing through bankers' acceptances of the sale and distribution into the channels of trade abroad of goods exported from
this country, in accordance with the ruling published at page 860 of
the Federal Reserve Bulletin for 1927. Footnote 9 is intended to
conform substantially to the recommendation contained in the report
of the Federal Reserve Committee on Acceptance Practice.
It will be appreciated if you will review the inclosed documents and furnish to the Board your comments and suggestions thereon
before September 1, .1957. While the Board will, of course, be glad
to have your views on any provision of the regulation to which you
wish to call attention, the provisions contained in the draft of the
regulation inclosed with the Board's letter of August 28, 1935, have
already been the subject of careful consideration by the Federal Reserve banks, and it is hoped that in making suggestions to the Board
regarding the revised draft you will give particular attention to the
provisions which are mentioned in the second paragraph of this letter.
It is requested that the regulation and the proposed letter
be considered by the appropriate officers of your bank, but that they
be not submitted to or discussed with anyone outside of the bank.
Please have it clearly understood that the regulation and proposed
letter are not for publication and that the entire matter is to be
dealt with in strict confidence.
Very truly yours,
Chester Morrill,
Secretary*
Inclosures.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
CONFIDENTIAL - MOT FOR PUBLICATION OR DISTRIBUTION
PROPOSED LETTER TO BE SENT TO FEDERAL RESERVE BANKS
AFTER ISSUANCE OF REGULATION A.
SUBJECT:
Amount of Marginal Collateral Required in
Connection with Advances or Discounts.
Dear Sir:
In connection with the revision of Regulation A which has
Just been issued, the Board of Governors wishes to invite your attention to the provisions contained in subsection (d) of section
5 relating to marginal collateral required by a Federal Reserve
bank from a member bank in connection with a discount or an advance.
In determining the amount of marginal collateral to be required it is expected that a Federal Reserve bank shall give primary consideration to the public welfare and the general effects
that its action may have on the position of the member bank, on
its depositors, and in the community, and in general s Federal Reserve bank should limit the amount of collateral it requires to
the minimum consistent with prudence.
Although the regulation itself contains no specific limitation on the amount of additional or marginal collateral that a Federal Reserve bank may require from a member bank in connection with
37
-2-
a discount or an advance, it is the view of the Board of Governors
that in no case should the amount of all the assets of a member bank,
at their market value or their reasonably appraised value, required
by a Federal Reserve bank as collateral security in connection with
any advance or discount under the provisions of Regulation A exceed
per cent of the amount of the advance or
per cent of the
amount of the paper discounted, as the case may be, unless a prompt
and full report of all the circumstances of the case is made by the
Federal Reserve bank to the Board of Governors of the Federal Reserve
System.
It is requested that you arrange to have all future transactions of the kind described reported to the Board of Governors in
accordance with the views expressed above.
Very truly yours,
Chester Morrill,
Secretary.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
38
L~499
CONFIDENTIAL - NOT FOR PUBLICATION OR DISTRIBUTION
Draft of regulation prepared at direction of Board of
Governors of the Federal Reserve System but not
yet acted upon by the Board of Governors.
BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
ADVANCES TO AND DISCOUNTS FOR MEMBER BANKS
BY FEDERAL RESERVE BANKS
REGULATION A
This regulation as printed herewith is
in the form as revised effective
(Reverse side of cover page)
INQUIRIES REGARDING THIS REGULATION
Any inquiry relating to this regulation should
be addressed to the Federal Reserve bank of the district in which the inquiry arises.
L-499
C O N T E N T S
4 0
Page
General Principles - - - - Introduction - - - - —
—
- - - -
_ _ _ _ _ _ _ _ _ _ _
—
_ _ _ _ _
Sec. 1. Advances to Member Banks - _ _ _ _ _ _
- - - - - (a) Advances on Government obligations
(b) Advances on eligible paper— — — — — — — — — — — — — — —
(c) Advances on other security under section 10(b) of
the Federal Reserve Act - - - - - - - - - - - (d) Kinds of collateral which may be used as security
for advances under section 10(b) of the Federal
Hsssrvs jw*
ACt
~
«* — — — —
•
*
— — « — — — — —
* — —
Sec. 2. Discount of Notes. Drafts and Bills for Member Banks
(a) Commercial, agricultural and industrial paper (b) Bills of exchange payable at sight or on demand
(c) Construction loans — — — — — — — — — — — — — —
(d) Agricultural paper — — — — — — — - — — — — — —
r
(e) Paper of cooperative marketing associations - (f) Collateral securing discounted paper - - - - (g) Determination of eligibility - - - - - (h) Limitations -
—
—
-
- - - - — — —
— — —
-
- - - - -
i
2
2
2
3
^
5
5
7
q
0
9
10
10
10
Sec. 3. General Requirements as to Advances and Discounts - - - - (a) Applications for advances or discounts - - - - - - - (b) Financial statements — — — — — — — — — — — — — — — — —
(c) Speculative use of credit by a member bank - (d) Additional or marginal security - - - - - - - - - - - (e) Amount of credit extended on security of obligations
of the United States — — — — — — — — — — — — — — — — —
u
%%
^.2
12
15
Sec. 4. Paper Acquired from Honmember Banks - - - - - - - - - - - (a) Prohibition upon acceptance of nonmember bank paper - Vb) Applications for permission — — — — — — — — — — — — — —
(c) Paper acquired from Federal Intermediate Credit banks -
15
15
14
14
Sec. 5. Discounts for Federal Intermediate Credit Banks - - - (a) Kinds and maturity of paper
(b) Limitations
_ _ _ _ _ _ _ _ _ _
14
14
15
Sec. 6. Bankers' Acceptances _ _ _ _ _ _ _ _ _ _ _
(a) Definition (b) Eligibility
(c) Maturities - - - - - - - - - - - - - - - - - - - - - (d) Dollar exchange acceptances —
_ _ _ _ _
(e) Evidence of eligibility
-
15
15
16
]g
_
]g
_
19
Appendix
20
- - —
-
Recommendations of the Board of Governors of the Federal Reserve System as to the minimum standards which should be observed by member banks in making loans upon real estate -
13
20
41
L-499
C 0 U T E I T S (Cont'd)
Page
Recommendations of the
eral Reserve System as
installment paper used
vances to member banks
Board of Governors of the Fedto the minimum standards for
as collateral security for ad- - - - - - - - - - - - - - - -
Statutory Provisions - - - - - - - - - - - - -
- -
23
25
L-499
GENERAL PRINCIPLES
The guiding principle underlying the extension of credit
by Federal Reserve banks is public service.
Accordingly, the ef-
fect that the granting or withholding of credit accommodation by a
Federal Reserve bank may have on a member bank, on its depositors
and on the community is of primary importance.
The fundamental
objective to be sought in the application of the provisions of
this regulation is the advancement of the public interest.
In extending accommodation to any member bank, the Federal •
Reserve banks are required to have due regard to the demands of
other member banks, as well as to the maintenance of sound credit
conditions and the accommodation of commerce, industry, and agriculture, and to consider not only the nature of the paper offered,
but also the general character and amount of the loans and investments of the member bank, and whether the bank has been extending
an undue amount of credit for speculative purposes in securities,
real estate, or commodities, or in any other way has conducted its
operations in a manner inconsistent with the maintenance of sound
credit conditions.
43
L-499
Draft of regulation prepared at direction of Board of Governors of the
Federal Reserve System but not yet
acted upon by the Board of Governors.
""
X
"* ft
A
REGULATION A
Revised effective
1937
(Superseding Regulation A, Series of 1950)
ADVANCES TO AND DISCOUNTS FOR MEMBER BANKS .BY FEDERAL
RESERVE BANKS
INTRODUCTION
This regulation is based upon and issued pursuant to
various provisions of the Federal Reserve Act, the most important
of which, together with related provisions of law, are published
in the Appendix hereto.
The regulation is applicable to the fol-
lowing forms of borrowing from a Federal Reserve bank;
(1) ad-
vances to member banks on their own notes secured by paper eligible
for discount or purchase by Federal Reserve banks, by obligations
of the United States or certain corporations owned by the United
States, or by other security which is satisfactory to the Federal
Reserve bank;
(2) discounts of commercial, agricultural and in-
dustrial paper and bankers' acceptances; and
Federal Intermediate Credit banks.
(5)
discounts for
-2-
SECTION 1.
(a)
L-499
ADVANCES TO MEMBER BANKS
Advances on Government obligations. - Any Federal Re-
serve bank may make advances, under authority of section 13 of the
Federal Reserve Act, to any of its member banks for periods not exceeding fifteen days'*- on the promissory note of such member bank
secured (l) by the deposit or pledge of bonds, notes, certificates
of indebtedness, or Treasury bills of the United States, or (2) by
the deposit or pledge of debentures or other such obligations of
Federal Intermediate Credit banks having maturities of not exceeding six months from the date of the advance, or (3) by the deposit
or pledge of Federal Farm Mortgage Corporation bonds issued under the
Federal Farm Mortgage Corporation Act and guaranteed both as to principal and interest by the United States, or (4) by the deposit or
pledge of Home Owners1 Loan Corporation bonds issued under the provisions of subsection (c) of section 4 of the Home Owners1 Loan Act
of 1933, as amended, and guaranteed both as to principal and interest by the United States.
(b)
Advances on eligible paper. - Any Federal Reserve bank
may make advances, under authority of section 13 of the Federal
"'"However, under the provisions of the last paragraph of section 13 of the Federal Reserve Act, any Federal Reserve bank may
make advances for periods not exceeding ninety days to individuals,
partnerships or corporations (including banks) on their promissory
notes secured by direct obligations of the United States at rates
fixed for the purpose.
45
-3-
L-439
Reserve Act, to any of its member banks for periods not exceeding
ninety days on the promissory note of such member bank secured by
such notes, drafts, bills of exchange or bankers' acceptances as
arc eligible for discount by Federal Reserve banks under the provisions of this regulation or for purchase by such banks under the
provisions of Regulation B.
(c)
Advances on other security under section 10(b) of the
Federal Reserve Act. - Subject to the provisions of subsection (d)
of this section, any Federal Reserve bank may make advances, under
authority of section 10(b) of the Federal Reserve Act, to any of its
member banks upon the latter's promissory note secured to the satisfaction of such Federal Reserve bank.
The rate charged on advances
made under the provisions of this subsection shall in no event be
loss than one-half of 1 per cent per annum higher than the highest
rate applicable to discounts for member banks under the provisions
of sections 13 and 13a of the Federal Reserve Act in effect at such
Federal Reserve bank on the date of the note evidencing such advance.
Such an advance must be evidenced by the promissory note of such member bank payable either (l) on a definite date not more than four
months after the date of such advance, or (2) at the option of the
holder on or before a definite date not more than four months after
the date of such advance.
(d)
Kinds of collateral which may be used as security for
advances under section 10(b) of the Federal Reserve Act. - A Federal
Reserve bank may accept as security for an advance made under the
46
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1-499
provisions of subsection (c) of this section assets of any of the
classes enumerated below which are satisfactory to the Federal Reserve
bank, or paper secured by assets of such classes:
(1)
Assets which nay be used as collateral security for
advances under subsection (a) of this section, entitled "Advances on Government Obligations", or subsection (b) of this
section, entitled "Advances on Eligible Paper";
(2)
Paper which would be eligible for discount or for
purchagn by Federal Reserve banks except by reason of the
fact that the period of its maturity is greater than that
permitted for paper eligible for discount or purchase;
(3)
Obligations evidencing loans upon the security of
stock which are made in conformity with the provisions of
Regulation U of the Board of Governors of the Federal Reserve System;
(4)
Investment securities as defined by the Comptrol-
ler of the Currency pursuant to section 5136 of the Revised
Statutes of the United States;
(5)
Obligations insured under the provisions of Title
I or Title II of the National Housing Act;
(G)
Debentures, bonds, or other such obligations is-
sued by Federal Home Loan banks or issued under authority
of the Federal Farm Loan Act, without regard to the maturity
of any such obligations;
(7)
Bills, notes, revenue bonds, and warrants which
L-499
constitute general obligations of any State or of any political
subdivision thereof;
(8)
Obligations which are issued or drawn for the purpose
of financing, refinancing, or carrying real estate and which comply substantially with the standards set forth in the recommendations relating to real estate loans in the appendix to this regulation;
(9)
Obligations which are issued or drawn for the purpose
of financing or refinancing the sale of goods upon an installment
basis and which comply substantially with the standards set forth
in the recommendations relating to loans upon an installment basis
in the appendix to this regulation, and obligations of businesses
principally engaged in extending credit on such basis and in substantial accordance with such standards.
In addition, when in the judgment of the Federal Reserve bank circumstances make it advisable to do so, the Federal Reserve bank may accept as
security for an advance under subsection (c) of this section any assets other
than those set forth above which are satisfactory to the Federal Reserve bank.
SECTION 2.
(a)
DISCOUNT OF NOTES, DRAFTS AND BILLS
FOR MEMBER BANKS. 2
Commercial, agricultural and industrial paper. - Any Federal
Even though paper is not eligible for discount Ty a Federal Reserve
bank for a member bank under the provisions of this regulation, it may be
used as security for an advance by a Federal Reserve bank to a member bank
under the terms and conditions of subsection (c) and subsection (d) of section 1 of this regulation if it constitutes security satisfactory to the
Federal Reserve bank. In addition to the classes of paper mentioned in
section 2 of this regulation a Federal Reserve bank may discount bankers'
acceptances in accordance with the provisions of section 6 of this regulation.
48
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L—499
Reserve bank may discount for any of its member banks, under
authority of sections 13 and 13a of the Federal Reserve Act,
any note, draft or bill of exchange which meets the following
requirements:
(1)
It must be a negotiable note, draft, or
bill of exchange, bearing the indorsement of a
member bank, which has been issued or drawn, or
the proceeds of which have been used or are to be
used, in producing, purchasing, carrying or marketing goods
2
in one or more of the steps of the
proccss of production, manufacture, or distribution, or in meeting current operating expenses of
a commercial, agricultural or industrial business,
or for the purpose of carrying or trading in direct
obligations of the United States (i.e. bonds, notes,
Treasury bills or certificates of indebtedness of
the United States)j
(2)
It must not be a note, draft, or bill of
exchange the proceeds of which have been used or are
to be used for permanent or fixed investments of any
kind, such as land, buildings or machinery, or for
any other capital purpose;
®As used in this regulation the word "goods" shall be construed to include goods, wares, merchandise, or agricultural
products, including livestock.
-7(5)
L-499
It must not be a note, draft, or bill of
exchange the proceeds of which have been used or are
to be used for transactions of a purely speculative
character or issued or drawn for the purpose of carrying or trading in stocks, bonds or other investment securities except direct obligations of the
United States (i.e. bonds, notes, Treasury bills or
certificates of indebtedness of the United States);
(4)
It must have a definite maturity at the
time of discount of not exceeding ninety days, exclusive of days of grace, except that agricultural
paper as defined below in this section of this regulation may have a maturity of not exceeding nine
months, exclusive of days of grace; but this requirement is not applicable with respect to bills of exchange payable at sight or on demand of the kind described in subsection (b) of this section.
(b)
Bills of exchange payable at sight or on demand. -
Any Federal Reserve bank may discount for any of its member banks,
under authority of section 13 of the Federal Reserve Act, negotiable
bills of exchange payable at sight or on demand which (l) bear the
indorsement of a member bank, (2) grow out of the domestic shipment
4
or the exportation of nonperishable, readily marketable staples
4A readily marketable staple within the meaning of this regulation means an article of commerce, agriculture, or industry of such
uses as to make it the subject of constant dealings in ready markets
with such frequent quotations of price as to make (a) the price easily
and definitely ascertainable and (b) the staple itself easy to realize
upon by sale at any time.
50
—S
•
1-499
and (5) are secured by bills of lading or other shipping documents conveying or securing title to such staples.
All such
bills of exchange shall be forwarded promptly for collection,
and demand for payment shall be made promptly, unless the
drawer instructs that they be held until arrival of such staples
at their destination, in which event they must be presented
for payment within a reasonable time after notice of such
arrival has been received.
In no event shall any such bill
be held by or for the account of a Federal Reserve bank for
a period in excess of ninety days.
(c)
Construction loans. - In addition to paper of
the kinds specified above, any Federal Reserve bank may discount for any of its member banks, under authority of section
24 of the Federal Reserve Act, a negotiable note which (l)
represents a loan made to finance the construction of a residential or a farm building whether or not secured by lien upon
real estate, (2) is indorsed by such member bank, (3) is accompanied ty a valid and binding agreement, entered into by a
person® acceptable to the discounting Federal Reserve bank,
requiring such person to advance the full amount of the loan
upon the completion of the construction of such residential
or farm building, and (4) matures not more than six months
5Such person may be the member bank offering the note for
discount or any other individual, partnership, association or
corporation.
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L-439
from the date such loan was made and not more than ninety
days from the date of such discount by such Federal Reserve
bank, exclusive of days of grace.
(d)
Agricultural paper. - Agricultural paper,
within the meaning of this regulation, is a negotiable note,
draft, or bill of exchange issued or drawn, or the proceeds
of which have been or are to be used, for agricultural purposes, including the production of agricultural products,
the marketing of agricultural products t y the growers thereof,
r
or the carrying of agricultural products by the growers thereof
pending orderly marketing, and the breeding, raising, fatten-.
ing, or marketing of livestock.
(e)
Paper of cooperative marketing associations. - Notes,
drafts, bills of exchange, or acceptances issued or drawn by cooperative marketing associations composed of producers of agricultural
products are deemed to have been issued or drawn for an agricultural
purpose within the meaning of the foregoing definition of "agricultural paper", if the proceeds thereof have been or are to be used by
such association in making advances to any members thereof for an
agricultural purpose, in making payments to any members thereof on
account of agricultural products delivered by such members to the
association, or to meet expenditures incurred or to be incurred by
the association in connection with the grading, processing, packing,
preparation f or market, or marketing of any agricultural product
52
L-499
-10-
handled by such association for any of its members.
In addition,
any other paper of such associations which complies with the applicable requirements of this regulation may be discounted.
Paper of
cooperative marketing associations the proceeds of which have been
or are to bo used (1) to defray the expenses of organizing such
associations, or (2) for the acquisition of warehouses, for the purchase or improvement of real dstate, or for any other permanent or
fixed investment of any kind, are not eligible for discount, even
though such warehouses or other property are to be used exclusively
in connection with the ordinary operations of the association.
(f)
Collateral securing discounted paper. ~ A note, draft
or bill of exchange discounted by a Federal Reserve bank may be
secured by the pledge of goods or collateral of any nature, including
paper which is ineligible for discount, provided such note, draft or
M i l of exchange is otherwise eligible for discount.
(g)
Determination of eligibility. - A Federal Reserve bank
shall take such steps as may be necessary to satisfy itself as to the
eligibility of any paper offered for discount.
Compliance of paper
with the provisions of paragraph (5) of subsection (a) of this section may be evidenced by a financial statement of the borrower showing a reasonable excess of quick assets over current liabilities, or
such compliance may be evidenced in any other manner satisfactory to
the Federal Reserve bank.
(h)
Limitations. - The aggregate of notes, drafts, and
bills upon which any person, copartnership, association, or corporation
53
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L-499
is liable as maker, acceptor, indorser, drawer, or guarantor, discounted for any member bank shall at no time exceed the amount for
which such person, copartnership, association, or corporation may lawfully become liable to a national banking association under the terms
of section 5200 of the Revised Statutes of the United States, as
6
amended.
A Federal Reserve bank may not discount for any State mem-
ber bank any note, draft, or bill of exchange of any one borrower whose
total liability for borrowed money to such State member bank is greater
than could be borrowed lawfully from such State bank were it a national bank.
SECTION 5.
(a)
GENERAL REQUIREMENTS AS TO ADVANCES
AND DISCOUNTS
Applications for advances or discounts. - Every ap-
plication by a member bank for an advance to such bank or for the discount of paper must contain a certificate of such bank, in form to be
prescribed by the Federal Reserve bank, that the security offered for
the advance or the paper offered for discount, as the case may be,
has not been acquired from a nonmember bank (otherwise than in accordance with section 4 of this regulation) or, if so acquired, that
the applying member bank has received permission from the Board of
Governors of the Federal Reserve System to obtain advances from the
Federal Reserve bank on security acquired from nonmember banks or to
discount with the Federal Reserve bank paper so acquired.
6
Every such
Section 5200 of the Revised Statubes of the United States is
printed in the Appendix to this regulation (page 52) together with
a tabular analysis of the section prepared in the office of the
Comptroller of the Currency (page 56).
•
-IS-
L-499
application shall also contain a notation by the member bank as to whether
it
has on file a current financial statement of a party primarily
liable on the paper offered for discount or as security for an advance
or of the person from whom the member bank acquired such paper.
Every
application of a State member bank for the discount of paper must contain a certificate or guaranty to the effect that the borrower is not
liable and will not be permitted to become liable to such bank for borrowed money during the time his paper is under discount with the Federal
Reserve bank in an amount greater than that which could be borrowed lawfully from such State bank were it a national bank.
(b)
Financial statements. - In order to determine whether
security offered for an advance or paper offered for discount is eligible
and acceptable, any Federal Reserve bank may require that there be filed
with it recent financial statements, or certified copies thereof, (l) of
one or more parties to any obligation offered as security for an advance
or to any note, draft, or bill of exchange offered for discount and (2)
of any corporations or firms affiliated with or subsidiary to such party
or parties.
A Federal Reserve bank may in any case require such other
information as it deems necessary.
(c)
Speculative use of credit by a member bank. - Each Federal
Reserve bank is required by law to keep itself informed at all times of
the general character and amount of the loans and investments of its member banks with a view to ascertaining whether undue use is being made of
bank credit for the speculative carrying of or trading in securities, real
estate, or commodities, or for any other purpose inconsistent with the
maintenance of sound credit conditions; and, in determining whether to
grant or refuse advances or discounts, the Federal Reserve bank is required
55
-13to give consideration to such information.
L--499
Each Federal Reserve bank may
require such information from its member banks as it may deem necessary in
order to determine whether such undue use of bank credit is being made.
(d)
Additional or marginal security. - In connection with any
advance or discount under this regulation, a Federal Reserve bank may require such additional or marginal security as it may deem necessary for
its protection over and above security, if any, required in such case by
the provisions of this regulation; and the requirements of this regulation with respect to the kinds of security shall not be applicable to such
additional or marginal security.
(e)
Amount of credit extended on security of obligations of the
United States. - In any case in which an advance is made by a Federal Reserve bank in accordance with the provisions of this regulation on a member bank's promissory note which is secured ty direct obligations of the
United States or obligations which are guaranteed both as to principal and
interest by the United States, the member bank may obtain credit in an
amount equal to the face amount of such obligations.
However, if the mem-
ber bank has paid for such obligations less than the face amount thereof
and the market value of the obligations is less than par, the amount of
such credit may not exceed the amount which it has paid for the obligations
or the market value, whichever is the higher.
The amount of any discount
charged by the Federal Reserve bank at the rate established for the purpose
may be deducted from the amount of the crtidit.
SECTION 4.
(a)
PAPER ACQUIRED FROM NONMEMBER BANKS
Prohibition upon acceptance of nonmember bank paper. -
Except with the
permission of the Board of Governors of the Federal Reserve
56
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L-499
System, no Federal Reserve bank shall discount or accept as security for
an advance any paper or assets acquired by a member bank from, or bearing
the signature or indorsement of, a nonmember bank, except assets or paper
otherwise eligible which was purchased by the offering bank in good faith
on the open-market from some party other than a nonmember bank or which
was acquired through a merger or consolidation with, or purchase of a majority of the assets of, a nonmember bank.
(b)
Applications for permission. - An application for permission
to use as security for advances assets acquired from nonmember banks or to
discount paper acquired from nonmember banks shall be made by the member
bank which desires to offer such assets as security or such paper for discount and shall state fully the facts which give rise to such application
and the reasons why the applying member bank desires such permission.
Such
application shall be addressed to the Board of Governors of the Federal Reserve System but shall be submitted by the member bank to the Federal Reserve bank of the district, which will forward it promptly to the Board of
Governors of the Federal Reserve System with its recommendation.
(c)
Paper acquired from Federal Intermediate Credit banks. - The
Board of Governors of the Federal Reserve System hereby grants permission
to Federal Reserve banks to make advances to member banks upon the security
of paper or assets bearing the signature or indorsement of, or acquired
from, Federal Intermediate Credit banks, or to discount such paper for member banks, if such paper is otherwise eligible under the law and this regulation.
SECTION 5.
(a)
DISCOUNTS FOR FEDERAL INTERMEDIATE CREDIT BANKS
Kinds and maturity of paper. - Any Federal Reserve bank,
-15
L-499
5 7
under authority of section 15a of the Federal. Reserve Act, may discount for
any Federal Intermediate Credit bank (1) agricultural paper as defined in
section 2 of this regulation, or (2) notes payable to such Federal Intermediate Credit bank covering loans or advances made by it pursuant to the
provisions of section 202(a) of Title II of the Federal Farm Loan Act, which
are secured by notes, drafts or bills of exchange eligible for discount t y
r
Federal Reserve banks.
Any paper discounted for a Federal Intermediate
Credit bank must bear the indorsement of such bank and must have u maturity
at the time of discount of not more than nine months exclusive of days of
grace.
(b)
Limitations. - No federal Reserve bank shall discount for any
Federal Intermediate Credit bank any paper which bears the indorsement of
any nonmember State bank or trust company which is eligible for membership
in the Federal Reserve System under the terms of section 9 of the Federal
Reserve Act.
In discounting paper for Federal Intermediate Credit banks,
each Federal Reserve bank shall give preference to the demands of its own
member banks and shall have due regard to the probable future needs of its
own member banks.
Except with the permission of the Board of Governors of
the Federal Reserve System, no Federal Reserve bank shall discount paper for
any Federal Intermediate Credit bank when its own reserves amount to less
than 50 per cent of its own aggregate liabilities for deposits and Federal
Reserve notes in actual circulation,
SECTION 6.
(a)
BANKERS1 ACCEPTANCES7
Definition. - A banker's acceptance within the meaning of
this regulation is a draft or bill of exchange, whether payable in the
7•
For regulations governing the acceptance by member banks of drafts
and bills of exchange drawn on them, see Regulation C.
58
-16-
L-499
United States or abroad and whether payable in dollars or some other money,
accepted by a bank or trust company or a firm, person, company or corporation engaged generally in the business of granting bankers1 acceptance
credits.
(t>) Eligibility« - Any Federal Reserve bank may discount for
any of its member banks any such bankers' acceptance bearing the indorsement of a member bank and having a maturity at the time of discount not
greater than that prescribed by subsection (c) of this section, which has
been drawn under a credit opened for the purpose of conducting or settling
accounts resulting from a transaction or transactions involving any one of
the following:
(1)
The shipment of goods between the United States and
any foreign country, or between the United States and any of its
dependencies or insular possessions, or between dependencies or
insular possessions and foreign countries;
(2)
The shipment of goods within the United States, pro-
vided shipping documents conveying security title are attached
at the time of acceptance; or
(5)
The storage in the United States or in any foreign
country of readily marketable staples,8 provided that the bill
is secured at the time of acceptance by a warehouse, terminal,
8
A readily marketable staple within the meaning of this regulation
means an article of commerce, agriculture, or industry of such uses as to
make it the subject of constant dealings in ready markets with such frequent quotations of price as to make (a) the price easily and definitely
ascertainable and (b) the staple itself easy to realize upon ty sale at
any time.
-17-
L-499
or other similar receipt, conveying security title to such
staples, issued ty a party independent of the customerj and
provided further that the acceptor remains secured throughout
the life of the acceptance.
In the event that the goods must
be withdrawn from storage prior to the maturity of the acceptance or the retirement of the credit, a trust receipt or other
similar document covering the goods may be substituted in lieu
of the original document, provided that such substitution is
conditioned upon a reasonably prompt liquidation of the credit.
In order to insure compliance with this condition it should be
required, when the original document is released, either (A)
that the proceeds of the goods will be applied within a specified time toward a liquidation of the acceptance credit or (B)
that a new document, similar to the original one, will be resubstituted within a specified time.
Provided. That acceptances for any one customer in excess of 10 per cent
of the capital and surplus of the accepting bank mist remain actually
secured throughout the life of the acceptance, and in the case of the acceptances of member banks this security must consist of shipping documents,
warehouse receipts, or other such documents, or some other actual security
growing out of the same transaction as the acceptance, such as documentary
drafts, trade acceptances, terminal receipts, or trust receipts which
have been issued under such circumstances, and which cover goods of such
a character, as to insure at all times a continuance of an effective and
lawful lien in favor of the accepting bank, other trust receipts not being
-18-
L—499
considered such actual security if they permit the customer to have access to or control over the goods#
(c)
Maturities* - No such acceptance is eligible for discount
which has a maturity at the time of discount in excess of ninety days'
sight, exclusive of days*of grace, except that acceptances drawn for agricultural purposes and secured at the time of acceptance by warehouse receipts or other such documents conveying or securing title covering readily
marketable staples may be discounted with maturities at the time of discount of not more than six months' sight, exclusive of days of grace.
Although a federal Reserve bank may legally discount an acceptance having
a maturity at the time of discount not greater than that prescribed above
in this subsection, an acceptance should not have a maturity which is in
excess of the usual or customary period of credit required to finance the
underlying transaction or whi,ch is in excess of the period reasonably necessary to finance such transaction.
Since the purpose of permitting the ac-
ceptance of drafts secured by warehouse receipts or other such documents
is to permit the temporary holding of readily marketable staples in storage
pending a reasonably prompt S£le, shipment, or distribution, no such acceptance should have a maturity in excess of the time ordinarily necessary to
effect a reasonably prompt sale, shipment, or distribution into the process
of manufacture or consumption*
(d)
Dollar exchange acceptances. - A Federal Reserve bank may
also discount any bill drawn ty a bank or banker in a foreign country or
dependency or insular possession of the United States for the purpose of
furnishing dollar exchange as provided in Regulation C, provided that it
61
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L-4S9
has a maturity at the time of discount of not more than three months, exclusive of days of grace.
(e)
Evidence of eligibility* - A Federal Reserve bank must be
satisfied, either by reference to the acceptance itself or otherwise, that
the acceptance is eligible for discount under the terms of the law and the
provisions of this regulation.
The bill itself should be drawn so as to
evidence the character of the underlying transaction, but if it is not so
drawn evidence of eligibility may consist of a stamp or certificate affixed
by the acceptor in form satisfactory to the Federal Reserve bank.**
®In accepting any draft or bill of exchange arising out of a shipment
of the kind referred to in clause 1 of suisection (b) of section 6 of this
regulation, the accepting bank should obtain at the time of acceptance
satisfactory evidence as to the nature of the transaction underlying such
draft or bill of exchange.
62
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L-499
APPENDIX
Recommendations of the Board of Governors of the Federal
Reserve System as to the Minimum Standards
Which Should Be Observed by Member Banks
in Making Loans upon Real Estate
While recognizing that requirements of individual banks in making
loans for the purpose of financing or carrying real estate will vary according to the circumstances of particular transactions, the Board of Governors of the Federal Reserve System, believes that certain standards should
be observed.
Some of these standards are specifically required by law with
respect to loans of national banks.
sound banking practice.
Others are advisable as a matter of
The examiners for the Federal Reserve banks should
take such standards into consideration in reviewing loans of State member
banks, and Federal Reserve banks in passing upon applications of member banks
for credit accomodations supported by real estate loans should give preference to the acceptance as collateral of such loans as meet these standards.
With these considerations in mind the Board recommends that member banks in
making teal estate loans, other than those insured under Title II of the
National Housing Act, apply the standards set forth below as minimum requirements:
(1)
Obligations issued or drawn for the purpose of fi-
nancing, refinancing or carrying real estate should be secured
by first lien; evidenced fcy mortgage, trust deed or other such
instrument, upon improved real estate, which may consist of
improved farm land or improved business or residential properties;
-21(2)
L-499
The amount of the loan or loans evidenced by such obli-
gations should not exceed 50 per cent of the appraised value of
the real estate securing such loan or loans and no such loan should
be for a longer term than five years, except that any such loan may
be in an amount not exceeding 60 per cent of the appraised value of
the real estate securing such loan and for a term not longer than
ten years if the loan is secured ty an amortized mortgage, deed of
trust or other such instrument under the terms of which 40 per cent
or more of the principal of the loan will be amortized within a period of not more than ten years ty means of substantially equal
monthly, quarterly, semiannual or annual payments on principal with
interest added or on principal and interest combined;
(S)
There should be on file with the member bank with respect
to such obligations the following documents or properly certified
or photostatic copies thereof:
(a)
an appraisal of the value of the real estate
which has been made within a reasonable time before the
obligation was acquired by the member bank (i) ty one
or more competent and experienced appraisers independent
of the member bank and having no interest, direct or indirect, in the real estate, or (ii) if the member bank
maintains a separate real estate department, by one or
more officers or employees who are regularly assigned to
such department and who specialize in real estate appraisals, or (iii) by a committee of not less than two
members appointed by the board of directors, and which
••• - -64L
••
—2<-~
L—499
contains, in addition to such other data as may be required t r
g
the member bank, statements as to the purpose for which the
real estate is used or is proposed to be used and the nature
and amount of the income received therefrom;
(b)
an adequate description of the real estate, includ-
ing the improvements;
(c)
evidence of the title to the real estate in the form
of a certificate of a title company, a title insurance policy,
an opinion of a competent attorney or other form satisfactory
to the member bank;
(d)
satisfactory evidence that no taxes or assessments
thereon are delinquent and that adequate insurance is carried;
and
(e)
such other information and documents as the circum-
stances of the case may render advisable.
65
-23-
L-499
Recommendations of the Board of Governors of the Federal Reserve System
as to the Minimum Standards for Installment Paper Used as
Collateral Security for Advances to Member Banks
'
While recognizing that requirements of individual banks in making
loans for the purpose of financing or refinancing the sale of goods upon
an installment basis will vary according to the circumstances of particular transactions, the Board of Governors of the Federal Reserve System
believes that certain standards should be observed as a matter of sound
banking practice.
The examiners for the Federal Reserve banks should take
such standards into consideration in reviewing loans of State member banks,
and Federal Reserve banks in passing upon applications of member banks for
credit accommodations supported ty obligations issued or drawn for the
purpose of financing or refinancing the sale of goods upon an installment
basis should give preference to the acceptance as collateral of such loans
as meet these standards*
With these considerations in mind, the Board rec-
ommends that the standards set forth below be applied ty all member banks
as minimum requirements in making such loans:
(l)
Obligations which are issued or drawn for the pur-
pose of financing or refinancing the sale of goods upon an
installment basis should be secured by first lien upon or
retention of title to such goods through a chattel mortgage,
conditional sales contract, bailment lease, or other similar
instrument, insuring at all times the continuance of an effective anS lawful lien or retention of title in favor of
the holder of such obligations;
-24(2)
L-493
The goods should bo of such nature and the terras of
the obligations should be such that in the event of the resale of the goods at any time during the life of the obligations it may reasonably be expected that the sum realized
will be substantially greater than that necessary to liquidate
the amount of the obligations then unpaid, including interest
and all charges.
*
-25-
L-499
STATUTORY PROVISIONS
Section 4 of the Federal Reserve Act reads In part as follows:
" Said board of directors shall administer the affairs of said
bank fairly and impartially and without discrimination in favor of
or against any member bank or banks and may, subject to the provisions of law and the orders of the Board of Governors of the Federal Reserve System, extend to each member bank such discounts,
advancements, and accommodations as may be safely and reasonably
made with due regard for the claims and demands of other member
banks, the maintenance of sound credit conditions, and the accommodation of commerce, industry, and agriculture. The Board of
Governors of the Federal Reserve System may prescribe regulations
further defining within the limitations of this Act the conditions
under which discounts, advancements, and the accommodations may be
extended to member banks. Each Federal reserve bank shall keep
itself informed of the general character and amount of the loans
and investments of its member banks with a view to ascertaining
whether undue use is being made of bank credit for the speculative
carrying of or trading in securities, real estate, or commodities,
or for any other purpose inconsistent with the maintenance of
sound credit conditions; and, in determining whether to grant or
refuse advances, rediscounts or other credit accommodations, the
Federal reserve bank shall give consideration to such information.
The chairman of the Federal reserve bank shall report to the Board
of Governors of the Federal Reserve System any such undue use of
bank credit by any member bank, together with his recommendation.
Whenever, in the judgment of the Board of Governors of the Federal
Reserve System, any member bank is making such undue use of bank
credit, the Board may, in its discretion, after reasonable notice
and an opportunity for a hearing, suspend such bank from the uce of
the credit facilities of the Federal Reserve System and may terminate such suspension or may renew it from time to time."
Section 9 of the Federal Reserve Act reads in part as follows:
"Provided, however. That no Federal reserve bank shall be permitted
to discount for any State bank or trust company notes, drafts, or
bills of exchange of any one borrower who is liable for borrowed
money to such State bank~or trust~compai^In anamount"greater"than"
that which could be borrowed lawfully from such State bank or trust
company were it a national banking association. The Federal reserve
bank, as a condition of the discount of notes, drafts, and bills of
exchange for such State bank or trust company, shall require
a certificate or guaranty to the effect that the borrower is
not liable to such bank in excess of the amount provided ty
L-499
-26-
thls section, and *1X1 not be permitted to become liable
in excess of this amount while such notes, drafts, or
bills of exchange are under discount with the Federal
reserve bank."
Section 10(b) of the Federal Reserve Act reads as follows:
"Sec. 10(b). Any Federal Reserve bank, under rules
and regulations prescribed by the Board of Governors of
the Federal Reserve System, may make advances to any member bank on its time or demand notes having maturities
of not more than four months and which are secured to
the satisfaction of such Federal Reserve bank. Each such
note shall bear interest at a rate not less than one-half
~ of 1 per centum per annum higher than the highest discount
rate in effect at such Federal Reserve bank on the date
of such note."
Section 15 of the Federal Reserve Act reads in part as follows:
"Upon the indorsement of any of its member banks, which
shall be deemed a waiver of demand, notice and protest
by such bank as to its own indorsement exclusively, any
Federal reserve bank may discount notes, drafts, and bills
of exchange arising out of actual commercial transactions;
that is, notes, drafts, and bills of exchange issued or
drawn for agricultural, industrial, or commercial purposes,
or the proceeds of which have been used, or are to be used,
for such purposes, the Board of Governors of the Federal
Reserve System to have the right to determine or define
the character of the paper thus eligible for discount,
within the meaning of this Act. Nothing in this Act contained shall be construed to prohibit such notes, drafts,
and bills of exchange, secured by staple agricultural
products, or other goods, wares, or merchandise from being eligible for such discount, and the notes, drafts,
and bills of exchange of factors issued as such making
advances exclusively to producers of staple agricultural
products in their raw state shall be eligible for such «
discountf tut such definition shall not include notes,
drafts, or bills covering merely investments or issued or
drawn for the purpose of carrying or trading in stocks;
bonds, or other investment securities, except bonds and
L+499
-27-
notes of the Government of the United States.* Notes,
drafts, and bills admitted to discount under the terms
of this paragraph oust have a maturity at the time of
discount of not more than 90 days, exclusive of grace.
*
*
*
*
*
"Upon the indorsement of any of its member banks,
which shall be deemed a waiver of demand, notice, and
protest by such bank ae to its own indorsement exclusively, and subject to regulations and limitations to
be prescribed by the Board of Governors of the Federal
Reserve System, any Federal reserve bank may discount
or purchase bills of exchange payable at sight or on demand which grow out of the domestic shipment or the exportation of nonperlshable, readily marketable agricultural and other staples and are secured by bills of
lading or other shipping document* conveying or securing
title to such staples: Provided. That all such M i l s of
exchange shall be forwarded promptly for collection, and
demand for payment shall be made with reasonable promptness after the arrival of such staples at their destination: Provided furtherT That no such bill shall in any
event be held by or for the account of a Federal reserve
bank for a period in excess of ninety days. In discounting such bills Federal reserve banks may compute the
interest to be deducted on the basis of the estimated
life of each bill and adjust the discount after payment
of such bills to conform to the actual life thereof.
"The aggregate of notes, drafts, and bills upon
which any person, copartnership, association, or corporation is liable as maker, acceptor, indorser, drawer, or
guarantor, rediacounted for any member bank, shall at no
time exceed the amount for which such person, copartnership, association, or corporation may lawfully become,
liable to a national banking association under the terms
of section 5200 of the Revised Statutes, as amended:
Provided« however» That nothing In thia paragraph shall
be Construed to change the character or class of paper
Or Treasury bills or certificates of indebtedness* See act
approved June 17, 1929 (40 Stat., 19), amending sec. S of Second
Liberty Bond Act, approved Sept. 24, iai7_(40-titat., 290)
L-499
-28-
now eligible for rediscount by Federal reserve banks.
> "Any Federal reserve bank may discount acceptances
of the kinds hereinafter described, which have a maturity
at the time of discount of not more than 90 days' sight,
exclusive of days of grace, and which are indorsed by at
least one member bank: Provided. That such acceptances
if drawn for an agricultural purpose and secured at the
time of acceptance by warehouse receipts or other such
documents conveying or securing title covering readily
marketable staples may be discounted with a maturity
at the time of discount of not more than six months*
sight exclusive of days of grace.
"Any member bank may accept drafts or bills of exchange drawn upon it having not more than six months'
sight to run, exclusive of day# of grace, which grow
out of transactions involving the importation or exportation of goodsj or which grow out of transactions involving the domestic shipment of goods provided shipping documents conveying or securing title are attached at the time
of acceptance; or which are secured at the time of acceptance by a warehouse receipt or other such document conveying or securing title covering readily marketable
staples. # * # # *
"Any Federal Reserve bank may make advances for periods not exceeding fifteen days to its member banks on
their promissory notes secured by the deposit or pledge
of bonds, notes, certificates of indebtedness, or treasury
bills of the United States, or by the deposit or pledge of
debentures or other such obligations of Federal intermediate
credit banks which are eligible fot purchase by Federal reserve banks under section 13(a) of this Act, or by the deposit or pledge of Federal farm Mortgage Corporation bonds
issued under the Federal Farm Mortgage Corporation Act, or
by the deposit or pledge of bonds issued under the provisions of subsection (c) of Section 4 of the Home Owners'
Loan Act of 1938, as amended; and toy federal reserve bank
may make advances for periods not exceeding ninety days to
its member banks on their promissory notes secured by such
notes* drafts, bills of exchange, or barkers1 acceptances
as are eligible for rediscount or for purchase by Federal
reserve banks under the provisions of this Act. All such
L-499
-29advances shall be made at rates to be established by such
Federal reserve banks, such rates to be subject to the
review and determination of the Board of Governors of the
Federal Reserve System. If any member bank to which such
advance has been made shall, during the life or continuance
of such advance, and despite an official warning of the
reserve bank of the district or of the Board of Governors
of the Federal Reserve System to the contrary, increase
its outstanding loans secured by collateral in the form of
stocks, bonds, debentures, or other such obligations, or
loans made to members of any organized stock exchange, investment house, or dealer In securities, upon any obligation, note, or bill, secured or unsecured, for the purpose
of purchasing and/or carrying stocks, bonds, or other investment securities (except obligations of the United
States) such advance shall be deemed immediately due and
payable, and such member bank shall be ineligible as a
borrower at the reserve bank of the district under the
provisions of this paragraph for such period as the Board
of Governors of the Federal Reserve System shall determine: Provided. That no temporary carrying or clearance
loans made solely for the purpose of facilitating the
purchase or delivery of securities offered for public
subscription shall be included in the loans referred to
in this paragraph.
*
*
*
*
*
"The discount and rediscount and the purchase and
sale by any Federal reserve bank of any bills receivable
and of domestic and foreign bills of exchange, and of acceptances authorized by this Act, shall be subject to such
restrictions, limitations, and regulations as may be imposed by the Board of Governors of the Federal Reserve
System.
*
*
*
*
*
"Any member bank may accept drafts or bills of exchange drawn upon it having not more than three months1
sight to run, exclusive of days of grace, drawn under regulations to be prescribed by the Board of Governors of the j
Federal Reserve System by banks or bankers in foreign countries of dependencies or insular possessions of the United
States for the purpose of furnishing dollar exchange as
I
required by the usages of trade in the respective countries,
dependencies, or insular possessions. Such drafts or bills
may be acquired by Federal reserve banks in such amounts
L-499
-SO-.
and subject to such regulations, restrictions, ant5 limitations as may be prescribed by the Board of Governors of the
Federal Reserve System: * * * *«»
Section 13a of the Federal BeServe Act as amended reads in
part as follows*
"Upon the indorsement of any of i # member banks,
which shall be deemed a waiver of demW, notice, and
protest by such bank as to ite om Indorsement exclusively,
a«y Federal reserve be# my,' subject to regulations
and limitation# to be prescribed by the Board of Governors
Of the Federal Reserve Sy«t«B> diatom# totes, drafts,
and Mils of exchange isms# or **sn # r an agricultural
purpose, or based upon live stock, and having a maturity,
at the time of discount, exclusive of days of grace, not
exceeding nine months, * * # #.
i
;
"
. . .
.
*
#
"That any Federal reserve be# my, subject to regulaUces and llaltatiflBs to b* prescribed by the Board of
Qopasnors of the Federal Besenre System, rediscount such
noffces, drafts, and Mils for any Bedsral intermediate Credit
except that no Federal reserve bank shell rediscount
far a Federal Intermediate Credit Bank any such note or
obligation # 1 bears the Wmssmeet' of a nomoember State
bank or trust company which is tiigibl# for maadkershin in
the Federal reserve gr#tem, in accordance with section 9
of tills Act* Any Federal reserve bank may also* subject to
relations end limitations to be prescribed by the Boatd of
Governors of the federal Reserve System, dlsoeWt notes
W&ta.e to and bearing the indorsement of any federal intermediate credit bank, covering loans or advances made tjy
such batik pursuant to the provisions of section 202(a) of
Title H of the Federal Farm Loan Act, as amended (U.S.C.,
title 12, ch.8, see*10SL># *Mch have maturities at the
time of discount of not more than nine months, e l u s i v e
#
of grace, and #ich are securedtoynotes, drafts,
oar bills of exchange eligible for rediscounttoyFederal
Reserve baaks.
*
*
*
73
L-499
-51"Notes, drafts, bills of exchange or acceptances issued or drawn by cooperative marketing associations composed of producers of agricultural products shall be
deemed to have been issued or drawn for an agricultural
purpose, within the meaning of this section, if the proceeds thereof have been or are to be advanced by such
association to any members thereof for an agricultural
purpose, or have been or w e to be used by such association in making payments to any members thereof on account of agricultural products delivered by such members
to the association, or if such proceeds have been or are
to be used by such association to meet expenditures incurred or to be*.incurred by the association in connection
with the grading, processing, packing, preparation for
market, or marketing of any agricultural product handled
by such association for aqy of its members; Provided* That
the express enumeration in this paragraph of certain classes
of paper of cooperative marketing associations as eligible
for rediscount shall not be construed as rendering ineligible any other class of paper of such associations which
is now eligible for rediscount.
"The Board of Governors of the Federal Reserve System
may, by regulation, Halt, t o a percentage of the assets of
i
. a Federal reserve brnk the amount of notes, drafts, acceptances,
or bills having a maturity In excess of three months, but not
exceeding six months, exclusive of days of grace, which may
be discounted by such bank, and the amount of notes, drafts,
bills, or acceptances having a maturity in excess of six
months, but not exceeding nine months, which may be rediscount ad by such bank#"
Section 19 of the Federal Reserve Act reads in part as
follows t
m em ber bank shall act as the medium or agent of a
nonmember bank in applying for or receiving discounts
from a Federal reserve bank under the provisions of this
Act, uxcept by permission of the Board of Governors of the
Federal Rusorve System."
74
-32-
L-499
Section 24 of the Federal Reserve Act reads in part as
follows:
"Loans made to finance the construction of residential or farm buildings and having maturities of not
to exceed six months, whether or not secured by a mortgage or similar lien on the real estate upon which the
residential or farm building is being constructed, shall
not be considered as loans secured by real estate within
the meaning of this section but shall be classed as
ordinary commercial loans: Provided. That no national
banking association shall invest in, or be liable on,
any such loans in an aggregate amount in excess of 50
per centum of its actually paid-in and unimpaired capital.
flotes representing such loans shall be eligible for discount as commercial paper within the terms of the second
• paragraph of section 13 of the Federal Reserve Act, as
amended, If accompanied by a valid and binding agreement
to advance the full amount of the loan upon the completion
of the building entered into by an individual, partnership,
association, or corporation acceptable to the discounting
bank."
Section 5200 of the Revised Statutes of the United States reads
as follows:
"Sec. 5200. Tho total obligations to any national
banking association of any person, copartnership, association, or corporation shall at no time exceed 10
per centum of the amount of the capital stock of such association actually paid in and unimpaired and 10 per centum
of its unimpaired surplus fund* The term 'obligations'
shall mean the direct liability of the maker or acceptor
of paper discounted with or sold to such association and
the liability of the indorser, drawer# or guarantor who
obtains a loan from or discounts paper with or sells paper
under his guaranty to such association and shall include
in the case of obligations of a copartnership or association
the obligations of the several members thereof and shall
include in the case of obligations of a corporation all obligations of all subsidiaries thereof in which such
corporation onus or controls a majority interest* Such
• limitation of 10 per centum shall be subject to the following exceptions:
-33-
L-499
"(1) Obligations in the form of drafts or bills of
exchange drawn in good faith against actually existing
values shall not be subject under this section to any
limitation based upon such capital and surplus.
"(2) Obligations arising out of the discount of commercial or business paper actually owned by the person, copartnership, association, or corporation negotiating the
same shall not be subject under this section tp any limitation based upon such capital and surplus.
"(3) Obligations drawn in good faith against actually
existing values and secured by goods or commodities in
process of shipment shall not be subject under this section
to any limitation based upon such capital and surplus.
"(4) Obligations as indorser or guarantor of notes, other
than commercial or business paper excepted under (2) hereof,
having a maturity of not more than six months, and owned by
the person, corporation, association, or copartnership indorsing and negotiating the same, shall be subject under this
section to a limitation of 15 per centum of such capital and
surplus in addition to such 10 per centum of such capital
and surplus.
"(5) Obligations in the form of banker's acceptances of
other banks of the kind described in section 13 of the Federal
Reserve Act shall not be subject under this section to any
limitation based upon such capital and surplus.
"(6) Obligations of any person, copartnership, association or corporation, in the form of notes or drafts secured
by shipping documents, warehouse receipts or other such documents transferring or securing title covering readily marketable nonpar!shable staples when such property is fully.covered
by insurance, if it is customary to insure such staples, shall
be subject under this section to a limitation of 15 per centum of such capital and surplus in addition to such 10 per centum of such capital and surplus when the market value of such
staples securing such obligations is not at any time ja#s- than
115 per centum of the face amount of such obligation, and to
an additional increase of limitation of 5 per centum of such
76
-34-
L-499
1
smmsm
-35-
L-499
"(9) Obligations ef any person, copartnership,
association, or corporation in the form of notes secured
by not less than a like amount df bonds or notes of the
United States issued since April 24, 1917, or certificates
Of indebtedness of the United States, Treasury bills of
the United States, or obligations fully guaranteed both
as to principal and interest by the United States, shall
(except to the extent permitted by rules and regulations
prescribed by the Comptroller of the Currency, with the
approval of the Secretary of the Treasury) be subject
under this section to a limitation of 15 per centum of
such capital and surplus in addition to such 10 per centum of such capital and surplus#
"(9) Obligations representing loans to any national
banking association or to any banking institution organized under the laws of any State, or to any receiver,
conservator, or superintendent qf banks, or to any other
agent, in charge of the business and property of any such
association or banking institution, when such loans are
approved by the Comptroller of the Currency, shall not be
subject under this section to any limitation based upon
such capital and surplus* *
TABULAR ANALYSIS OF SBCTIO* 6200
THE REVISED STATUTES OF THE
UNITED STATES PREPARED IN W
OFFICE OF THE COMPTROLLER
OF THE CtiRRENCT
OBLIGATIONS
(See definition in section 5200 above)
L-499
78
AMOUNTS LOANABLE
(A) Accommodation or straight loans, whether
or not single name, including liability as endorser or guarantor (where
endorser or guarantor receives the
proceeds from bank) of paper not coming within exceptions 2 and 4,
Loans secured by stocks, bonds, and
authorized real estate mortgages.
Maximum limit, 10 percent of
bank's paid up and unimpaired
capital and. surplus.
(l) Drafts or "bills of exchange drawn in
good faith against actually existing
values."
No limit imposed by law.
(£) Commercial or business paper (of other
makers) actually owned by the person,
copartnership, association, or corporation negotiating the same.
No limit imposed by law.
(3) Obligations secured by goods or commodities in process of shipment.
No limit imposed by law.
(4) Obligations as endorser or guarantor of
notes (other than commercial or business paper) maturing within six months,
owned by endorser.
15 percent in addition to
10 percent (A).
(5) Bankers' acceptances of the kinds described in section IS of the Federal
Reserve Act.
No limit Imposed by law.
(6) Obligations secured by shipping docu15 percent, secured by
ments, warehouse receipts, or other
115 percent*
such documents, transferring or secur5 percent, secured by
ing title covering readily marketable
120 percent*'
nonperishable staples—
5 percent, secured by
125 percent.
(a) When the actual market value of
the property is not at any time less -5- percent, Sectored -by
130 percent.
than shown in table herewith.
(b) When the property is fully covered 5 percent, secured by
135 percont.
by insurance (if customaiy to insure
5 percent, secured by
such commodity), and in no event
140 percent.
shall this exception apply to obligations of any one customer arising
40 percent in addition to
from the same transactions and/or regular 10 percent loan (A),
secured upon the identical staples
for more than 10 months.
L-499
-87u
(7)
Obligations s c c d # ; # : m # i % ^ d o & i _
ments or i n ^ n M e W # # # ' - livestock or giving a lien thoreon having
a market value of not Iqssv tSh&n 1%5
percent of tho amduht of *he" loan.
(8) Notes
secured by not less than, a life
face amount of bonds of # % e a of the
United States issued
April 24,
1917, or by certificates of
ness of the United Stat$$, treasury
bills of tfce United Stated dp
tionf fuller guaranteed by the % i W
States as to principal tiad interest.
15 percent in addition to
regular 10 purcint loan (A).
15 percent of bunk's capital
and surplus, in addition to
tho amount allowed under
(A), or if toe full amount
allowed ueder (A) is not
loaned, then the amount
which may be loaned in the
manner described under (8)
is Increased by the loanable
amount not used under (A).
In other words, the amount
loaned under (A) must never
be more than 10 percent,
but the aggregate of (A) and
(8) may equal, but not exceed
25 percent.
•
-64-
(9) Loans to aqy bsmk of representative in
charge of its business* whsn approved
ty tha Comptroller (Act NJay 520, 1935) .
No limit*
8 0
BOARD OF G O V E R N O R S
£-42
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
a d d r e s s
o f f i c i a l c o r r e s p o n d e n c e
t o t h e b o a r d
July SI, 1937
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:
'
"NOZFUS" - Treasury Bills to be dated
August 4, 1957, and to
mature December 17, 1937.
"NOZFYN" - Treasury Bills to be dated
August 4, 1957, and to
mature May 4 , 1958.
.
These words should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental
code word "NOZFOB" on page 172.
iiy truly yours
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
81
BOARD OF G O V E R N O R S
+***•**»*,>
DF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
a d d r e s s
o f f i c i a l c o r r e s p o n d e n c e
t o t h e b o a r d
R-43
August 3, 1937
Dear Sir:
Referring to the Board's letter B-1186 of January 5, 1937,
following is a statement of changes during July in the list of
nonmember banks that have filed agreements with the Board pursuant to the provisions of Section 8(a) of the Securities Exchange Act of 1934:
Additions
Indiana
Jeffersonville
Citizens Trust Company
Other changes
Delete the J'Monongahela Trust Company", Homestead,
Pennsylvania, from page 4 of the list and add it to page 5
under the heading relating to banks no longer in operation
as nonmember banks with the following note:
"(Admitted to membership in the Federal Reserve
System on July 10, 1937.)"
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations.
TO ALL FEDERAL RESERVE AGENTS.
R-44
BOARD OF G O V E R N O R S
82
DFTHE
FEDERAL RESERVE SYSTEM
WASHINGTON
a d d r e s s
o f f i c i a l c o r r e s p o n d e n c e
t o t h e b o a r d
August 3, 1937.
********
Dear Sir:
The following is an excerpt from the minutes of the meeting
of the Conference of Presidents held in Washington on Monday, June
7, 1937:
"DEVELOPING A METHOD OF INDEXING AND OTHERWISE MAKING READILY AVAILABLE THE RULINGS, INTERPRETATIONS, INSTRUCTIONS, ETC., OF THE BOARD
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.
"The Chairman of the Conference appointed an interim committee
consisting of Thomas H. Hodgson, Chairman, C. E. Earhart and Herbert
H. Kimball, to study this whole matter and to prepare a report after
consultation with the staff of the Board of Governors of the Federal
Reserve System. This report was presented and considered and after
discussion it was
"VOTED to accept the report and to approve the recommendations."
The Interim Committee recommended in its report of May 28,
1937, that there bo established and maintained by the Board of Governors of the Federal Reserve System a loose-leaf service for use by
the Board, its staff and the Federal reserve banks, embracing the
following material:
1.
2.
3.
4.
The Board's regulations;
The Board's proposed Digest of Rulings;
Board communications containing such of its rulings
and interpretations of law or regulations as are
still effective and are not contained in the new
Digest of Rulings;
One consolidated, detailed index of the foregoing
material and of those instructions of the Board
which are still effective and are contained in communications which were distributed to all of the
Federal reserve banks.
83
-2-
R-44
It is understood that Mr. Hodgson furnished you with a copy of such
report which contains the Committee1s findings and conclusions in detail. If additional copies of the report are desired, they may be
obtained from this office upon request.
On July 50, 1937, the Board of Governors approved the recommendations contained in the Interim Committee's report, and authorized
its staff to undertake the work incident to the establishment and maintenance of the proposed service. In this connection, it is anticipated
that the task of establishing the service will require a considerable
amount of time on the part of the members of the Board's staff -over a
period of months. However, the work will be performed as rapidly as
may bo consistent with demands made upon the time of the staff in connection with more pressing matters and for the handling of the current
work of the Board.
Very truly yours,
L. P. Bethea,
Assistant Secretary
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
84
R-45
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Statement for the Press
For release in morning newspapers of
Saturday, August 7, 1937.
-
August 5, 1937.
•Attached is a brief description of the
new building of the Board of Governors which will be
occupied -on Monday, August 9.
*
85
2-58
FEDERAL RESERVE BUILDING
Location
Facing south on Constitution Avenue, the building of thti Board
of Governors of the Federal Reserve System occupies the square extending north between Twentieth and Twenty-first Streets to C Street. When
the present temporary structures known as the Navy and Munitions Buildings on the south side of Constitution Avenue are removed, the Board's
building will command an unobstructed view of the Mall and % s t Potomac
Park with the Reflecting Pool and the Lincoln Memorial in the immediate
foreground and with the Potomac River, the Memorial Bridge and the Virginia shore just beyond.
The building forms a part of a group along the north side of
Constitution Avenue composed of the buildings of the Pan-American Union,
the Public Health Service, the Federal Reserve, the National Academy of
Sciences and the American Pharmaceutical Association.
Selection of Site
Since its organization in 1914 the Federal Reserve Board has
occupied quarters provided for it in the Treasury Building and rented
space in various privately owned office buildings. On June 19, 1954,
Congress authorized the Federal Reserve Board to acquire a building
site in the District of Columbia and to construct a building suitable
and adequate in its judgment for its purposes. A careful survey resulted in the selection of the present site which was approved by the
National Capital park and Planning Commission, by the Secretary of the
Interior, who recommended it to the President, and by the President.
Title was transferred to the Board by the Secretary of the Treasury on
January 22, 1955, the purchase price paid by the Board being §754,585.
Included in this acquisition is the vacant block lying immediately
north of the building between Twentieth and Twenty-first Streets on C
Street and a passageway under C Street has been constructed to connect the two properties.
Competition for Selection of Architect
The Board engaged Everett V. Meeks, Dean of the School of Fine
Arts in Yale University, as its professional adviser in preparing a
program for a competition to enable the Board to select an architect
for the building, under the supervision of the Chairman of the Board's
Building Committee, Adolph C. Miller. The program was approved by the
Commission of Fine Arts, the National Capital Park and Planning Commission and the American Institute of Architects. During formulation of
the program the Board had the benefit of the advice and assistance of
the National Park Service of the Department of the Interior. Invitations to participate in the competition were sent to nine of the leading
86
7
-2-
Z-38
architects of the United States, after consultation with the Chairman
of the Commission of Fine Arts, and a jury to pass upon the designs
submitted was selected, composed of three prominent architects, John
W. Cross of New York City, William Emerson of Boston, and John Mead
Howells of New York City, together with Frederic A. Delano, Chairman
of the National Capital Park and Planning Commission, and Mr. Miller.
Upon submission of the competitive designs the drawings of Paul P.
Cret, of Philadelphia, were given first place by unanimous choice of
the jury and this decision was approved by the Federal Reserve Board.
Dr. Cret also had been the designer of the buildings of the PanAmerican Union and the Folgor Shakespeare Library.
Character of Building
The conditions under which the site on Constitution Avenue
was acquired provided that the design and material of the exterior of
the building should be subject to the approval of the Commission of
Fine Arts and that the location of the building in relation to the adjoining streets should be as determined by the National Capital Park
and Planning Commission.
The Commission of Fine Arts proscribed that "the material of
the exterior of the building is to be of white marble to conform to
the other buildings along this portion of Constitution Avenue", and
gave its views as to the general architectural character of the building. "The nature of the functions performed by the Federal Reserve
Board" in the opinion of the Commission "dictates an architectural
concept of dignity and permanence".
The program for the competition of the architects also declared
the following general principles:
"The proximity of the building to the Lincoln Memorial
and other nearby permanent structures already erected on
Constitution Avenue or to be erected by the Government in
the West Rectangle suggests that the exterior design of the
building for the Federal Reserve Board should be in harmony
with its environment.
"It is, however, thought desirable that the aesthetic
appeal of the exterior design should be made through dignity
of conception, purity of line, proportion an$ scale rather
than through stressing of merely decorative tir monumental
. features. For this reason it is further suggested that the
use of columns, pediments and other similar forms may be
omitted and should be restricted tofi.minimum consistent
with the character of the building as described.
87
-3-
Z-38
"It is the Commission's view that 'the Federal Reserve
Board building must be in general accord with the governmental buildings in Washington—it must seem at home in the
city.'"
The studies prepared by Dr. Cret, following his selection as
architect, were approved by the National Capital Park and Planning Commission and by the Commission of Fine Arts.
Construction of Building
Plans and specifications drawn as a basis for letting a contract for the construction of the building were approved by the Federal Reserve Board on Januaiy 8, 1936. Invitations to bid were issued
immediately to contracting firms experienced in the field of construction of Governmental buildings and, following the submission of bids,
the contract was awarded to the lowest bidder, the George A. Fuller
Company, for #3,484,000. A separate contract had been awarded for
the demolition of the existing temporary building on the property,
for which the Board received 5jl>18,358.
The relation of the net useable area to cubic contents of the
building is unusually high. The cost per cubic foot, exclusive of
landscaping, was about 89#.
Construction was begun in February, 1936. In the preparation
for construction the Board had the assistance and cooperation not only
of the Commission of Fine Arts and of the National Capital Park and
Planning Commission, but also of the National Park Service of the Interior Department, of the Procurement Division of the Treasury Department, and of the Architect of the Capitol.
A member of Dr. Cret 1 s firm, William H. Livingston, was his
principal collaborator in the design and construction of the building.
Associated with them were Moody and Hutchison, mechanical engineers,
and William H. Gravell, structural engineer. The Board engaged Fred M.
Kramer as its Superintendent of Construction.
Exterior of Building
The mass of the building was designed with a view of harmonizing in a general way with the building of the Academy of Sciences to
the west and that of the Public Health Service to the east. Through
the use of a similar cornice line the three buildings form a single
composition dominated by the central portico of the Federal Reserve
Building. The dimensions of the building proper are 344 feet eastwest and 242 feet north-south. The plan is H-shaped, with its principal architectural facade on Constitution Avenue and the entrance for
general use on C Street.
88
-4-
Z-38
The facades have the simplicity of treatment of American architecture contemporary with the creation of the City of Washington, which
has been called the Architecture of the Republic or Federal Architecture.
Both exteriors and interiors rely on harmony of proportion rather than
on ornamentation.
The entrance on Constitution Avenue is marked by a simple architectural motif of piers surmounted by an American eagle in white marble,
of which Sidney Waugh was the sculptor.
The entrance on C Street is marked by two pylons, which support
figures in bas relief, symbolizing the United States on one side and
the Federal Reserve System on the other. These figures were designed
by John Gregory.
The exterior of the building is of Georgia white marble. In
contrast with the simple white marble wall surface is the design of
the bronze windows, with spandrels of polished Swedish granite, on
which bronze plaques are mounted. In the courts the spandrels are
Alberene stone. The bronze balconies on Twentieth and Twenty-first
Streets are especially interesting as they reproduce the railing of an
old Philadelphia residence of the early part of the nineteenth century.
Landscape
A special treatment of the approach from Constitution Avenue
was made possible by the fact that the building is set back approximately two hundred feet from Constitution Avenue. This permitted an
interesting composition of terraces and steps leading to the main entrance. These terraces are flanked on each side by a formal garden,
the central motif of which is a fountain of black Coopersburg granite
surrounded by pebble mosaic and marble borders.
The courts on the east and west sides, which give access to
the ground floor of the building, are formal in character with planting designed to focus attention on wall fountains which face the bronze
entrance gates. The mask forming part of the decorative composition
for the fountain in the west courtyard was designed ty Walker Hancock.
More than twenty varieties of plant materials have been placed in the
Constitution Avenue gardens and courtyards.
The landscaping was designed ty Dr. Cret and approved by the
National Capital Park and Planning Commission and by the Commission of
Fine Arts. The planting materials were selected by William H. Frederick,
of the office of the Architect of the Capitol.
Interior Design
The Constitution Avenue entrance opens into a lobby, tho east
wall of which contains a portrait relief of President Wilson, modeled
-5-
Z--38
by Herbert Adams. The inscription refers to President Wilson as the
"Founder of the Federal Reserve System" and contains the following
quotation from his first inaugural address:
"We shall deal with our economic system as it is and
as it may be modified, not as it might be if we had a clean
sheet of paper to write upon; and step by step we shall
make it what it should be."
The lobby walls are faced with Kansas Lesina stone and the
plaster ceiling is decorated with motifs of Greek coins and a relief
of Cybele. In the center of the marble floor is a bronze plaque reproducing the seal of the Board of Governors.
While the building faces on Constitution Avenue, it is expected that the C Street entrance will bo used more generally. A corridor extends from the Constitution Avenue entrance through the central portion of the building to the C Street entrance. A group of
passenger elevators is located near the C Street entrance, while
single elevators are located near the Constitution Avenue lobby.
A monumental staircase in the central portion of the building
leads from the first to the second floor. The steps, walls and architectural treatment of the stairs in this portion of the building are
of travertine, while the floors are of American marbles, with mosaic
borders on the second floor. The ceiling is composed of glass, with
the coat-of-arms of the United States in bronze and molded glass as
the focal point of interest above the monumental stairs. The ceilings
of the surrounding corridors on the second floor are decorated with emblems of the twelve Federal reserve banks. Over each of twelve
doorways opening from these corridors—six on the west side and six
on the east side—are the named of the cities in which the Federal reserve banks are located and the designations of their districts. One
of the interesting features of this portion of the building is the
wrought iron work of Samuel Yellin.
From the upper landing of these stairs the section set apart
for the members of the Board of Governors and their immediate staffs
on the second floor of the Constitution Avenue wing is entered through
an elliptical anteroom, adjoining which is a reception room. This
portion of the building, entirely separate from other sections of the
building, accommodates the private offices of the Chairman and other
members of the Board, the Board room, the Board's conference room and
the Board's library. In the floor of the corridor at the main entrance
to the Board room is a bronze seal of the Board of Governors.
The Board room, 56 x 52 feet, the main entrance to which is
in front of the elliptical anteroom, has a monumental fireplace, of
Z-58
90
Tar'?rnelle Fleuri marble, at the west end. A bronze relief, set into
the marble, symbolises stability and productivity. In the wall above
the mantel is a reproduction of the coat-of-arms of the United States.
On the east wall of the room is a Federal Reserve map of the United
States, painted by Ezra Winter. The floor is Fontainebleu pattern parquet, with border of Belgian St. Anne Petit Melange marble. The bases
of the walls and the doorways ara of Tavernelle Fleuri marble. The
walls and ceilings are of painted plaster. Bronze frames hung upon
the walls contain statistical charts.
The furniture, furnishings and lighting fixtures of this section of the building were selected by the Board's architect with a view
to maintaining a harmonious relation with the character and period of
the architectural design. In this and other parts of the building marbles of various colors and textures, of which there are twenty-eight in
the interior portions, have been used with an eye to harmony of color
scheme between painted plaster work, woods used in doors and walls, and
furnishings of rooms.
Staff offices
The Secretary's offices, the Legal Division, with its library,
the Board's Fiscal Agent, and the Building Manager are located on the
first floor. A central filing system in the north central portions of
the first and second floors serves all parts of the Board's organization. In the C Street wing of the second floor are the offices of the
Board's Division of Examinations and Division of Security Loans.
The third floor is occupied t y the Board's Division of Bank
r
Operations and the Division of Research and Statistics, with its library.
The fourth floor covers only the middle branch of the H form
of the building and includes a cafeteria, dining rooms, first aid and
rest rooms. A flagstone terrace over the west wing of the third floor
is reached from the cafeteria.
The ground floor contains service facilities, including a garage,
mechanical equipment, mail and telegraph offices, telephone exchange,
duplicating sections and repair shops, together with spaces for various
storage purposes.
Mechanical Equipment
The building is airconditioned throughout with an automatic
thermostatic control system designed to permit flexible operation.
Steam is obtained from the central power plant of the Government, no
power being manufactured within the building.
Well-lighted offices, acoustic treatment of the ceilings, convenient locations of stairs, elevators of the latest automatic type,
and careful planning combine to make the building efficient for administrative purposes.
91
BOARD OF G O V E R N O R S
OF THE
FEDERAL RESERVE SYSTEM
fi-46
WASHINGTON
a d d r e s s
August 4, 1937
****»»*'
SUBJECT I
o f f i c i a l c o r r e s p o n d e n c e
t o t h e b o a r d
Audit of Incomplete Federal Reserve notes.
Dear Sir*
For your information there is inclosed a recapitulation of an audit
submitted to the Secretary of the Treasury by Mr. H. M. Pearson, Acting
Chief, Division of Public Debt Accounts and Audit, showing the stock of
incomplete face printed Federal Reserve notes , Series of 1928 and Series
of 1934 combined, and of uniform backs allocated to Federal Reserve
notes, on hand at the Bureau of Engraving and Printing at Washington,, as
at the close of business June 30, 1937.
In his letter transmitting the report to the Secretary of the Treasury, Mr. Pearson stated that*
"The audit extended from June 29 to July
1, 1937, inclusive and consisted of a piece count of the entire stock of
faces, Series of 1934, and a package count of the uniform backs, allocated
to Federal Reserve notes.
All stocks of Federal Reserve notes, Series of
1928, with the exception of those retained by the Bureau for specimen
purposes, were piece counted and placed under the Auditor's seal prior to
the audit.
An inspection was made of the seals on the various bins con-
taining these stocks and the seals were found to be intact.
In view of
the fact that a recent piece count has been made by this office of the
92
R-A6
- 2
entire stock of each denomination of uniform backs on hand in the Bureau,
a package count and an inspection for denominations of the uniform backs
allocated to Federal Reserve notes was deemed sufficient at this time.
The total sheets of Federal Reserve notes, faces and backs, were found
to be in excess of the required reserve of 4,250,000 sheets, as authorized
in the letter of the Governor of the Federal Reserve Board to the Under
Secretary of the Treasury dated December 2, 1929,"
Of the total of 2,816,892 sheets of faces covered by the audit,
682,551 sheets are of the Series of 1928. There has been no change in
the number of sheets of faces of the various denominations of the Series
of 1928 notes since the audit of June 30, 1936.
Very truly yours
E. L. Smead, Chief,
Division of Bank Operations
Inclosure
TO ALL FEDERAL RESERVE AGENTS
c
§
R 1 C A P
»
XT UL AT I 0N
FEDERAL RESERVE NOTES. SERIES OF 1928 AND SERIES OF 1934. AM) UNIFORM
BAHKS ALLOCATED TO FEDERAL RESERVE NOTES. SHEETS OF 12 SUBJECTS EACH
R-46—a
AS AT THE CLOSE OF BUSINESS JUNE 30. 1937
Federal Reserve Bank
Facesl
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total Faces
35
$50
$100
$500
102,393-2/3
176,926-3/3
158,424
62,400
41,100
37,300
144,248-2/3
29,006-^/3
23,400
26,166-2/3
42,m
111,466-2/3
40,000
8,150
156,328-2/3 42,735-1/3
43,333-3/3 32,772-2/3
41,914-2/3 26,572-2/3
41,966-2/3 16,609-2/3
5,501-1/3
29,43>V3
131,591-2/3 37,357-^3
31,666-2/3
6,495-3/3
5,321
22,233-1/3
18,200
5,498-1/3
26,433
3,700
113,864-2/3 10,641
775,578
955,203-2/3
696,966
201,355
172,946-3/3
656,500
630,500
149,000
1,327,466
350,355
293,446-3/3 7,881
$1,000
$5,000 $10,000
44
31
40
52
120,500
1,344,078
BOARD OF GOVERNORS
O F T H E FEDERAL RESERVE SYSTEM
DIVISION OF BANK OPERATIONS
#20
81,602
145,066-2/3
76,733-1/3
84,678
42,505-3/3
31,775
128,867-2/3
57,442-2/3
26,133-1/3
36,507-1/3
28,166-2/3
36,100
Badest
tt&foam Backs allocated
to the various denominations
of Federal Reserve
Notes
568,500
Total Faces and
Backs
Ho
1,611,703-2/3
14,686-1/3 1,576
42,102
497
11,887-1/3
479
130
13,139-3/3
9,082
570
600
6,989-3/3
1,098
32,261
874
5,727^-2/3
6,628-1/3
445
9,086-1/3
552
460
3,695rl/3
600
17,661-1/3
7,881
493
695
200
317
436
402
852
500
168
202
450
526
5,231
—' —
75
122
124
169
90
—
—
50
127
80
122
49
•*
110
99
l4o
61
1,021
710
52
94
TOTAL
248,985
564,434
323,829-2/3
229,276-2/3
152,508-2/3
112,205
476,567-2/3
131,852
84,329
96,383-2/3
105,427
293*093-2/3
2,816,892
2,125,000
5,231
1,021
710
4,941,892
94
BOARD OF G O V E R N O R S
R--47
OF THE
FEDERAL RESERVE SYSTEM
%
IA
9»
WASHINGTON
a d d r e s s
August 5, 1957
o f f i c i a l c o r r e s p o n d e n c e
t o t h e b o a r d
Dear Sir;
In response to a request for an expression of its views with
reference to S.1990, a bill introduced by Senator Thomas of Oklahoma
on March 25, 1957, for the regulation and stabilization of agricultural and commodity prices through the regulation and stabilization
of the value of the dollar, and for other purposes, the Board of Governors has adopted a statement setting forth what it believes should
be the objectives of monetary policy.
As the statement was subse-
quently made public by being introduced into the record of its hearings on S.1990, by the subcommittee of the Senate Committee on Agriculture and Forestry, copies are being sent to the Federal reserve
banks for the information of the officers and directors who may be
interested in seeing the complete text.
Twenty-five copies of the statement are going forward to you
under separate cover.
If additional copies are desired, they may be
obtained from the Board on request.
TO PRESIDENTS
Very truly yours,
Chester Morrill
Secretary.
OF ALL FEDERAL RESERVE BANKS
95
BOARD OF G O V E R N O R S
OF THE
R-48
FEDERAL RESERVE SYSTEM
WASHINGTON
a d d r e s s
o f f i c i a l c o r r e s p o n d e n c e
t o t h e b o a r d
August 6, 1937
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:
"NOZGAP" - Treasury Bills to be dated
August 11, 1957, and to
mature December 13, 1957.
"NOZGEL" - Treasury Bills to be dated
August 11, 1957, and to
mature May 11, 1958«
These words should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental
code word "NOZFYN" on page 172.
Very truly yours
J. C. K o & T ? - —
Assistant Secretary
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
96
BOARD OF G O V E R N O R S
R-49
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
a d d r e s s
August 15, 1937.
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 July, 1937.
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 FEDERAL RESERVE BANKS
o f f i c i a l c o r r e s p o n d e n c e
t o t h e b o a r d
R-49-a
REPORT OF EXPENSES OF MAIN LINES OF FEDERAL RESERVE
LEASED WIRE SYSTEM FOR THE MONTH OF JULY, 1937
Number
of
words
sent
38,
,271
,785
138 j
33j,236
46,
,584
,588
60,
,145
63,
84,
,195
,444
74,
,803
27,
64,
,402
59,
,000
85,
,956
Federal
Reserve
Bank
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Board of
Governors
Total
Words sent
by N. Y.
chargeable
to other
F.R. Banks
,603
1,
477,,608
1,254,,017
— —
1,
,632
1,
,665
1,
,685
1,
,564
,884
1)
1,
,567
1,
,557
,659
1,
,558
lj
,664
1,
—
18,
,038
Total
words
chargeable
39,874
138,785
34,868
48,249
62,273
64,709
86,079
76,Oil
29, 360
66,061
60, 558
87, 620
Personal
services(l)
I
251 .78
994 .67
236 .61
259 .82
195 .70
276 .07
1,247 .30
188 .13
184 .82
259 .18
267 .55
473 .04
477, 608
2,261 .80
1,272,055
#7,096 .47
Wire
rental
$
—
$
— —
—
—
—
'•
1
— —
— —
— —
— —
•
Total
expenses
"
—
14,338.47
251.78
994. 67
236. 61
259. 82
195.70
276.07
1,247. 30
188. 13
184.82
259.18
267. 55
473.04
Pro rata
share of
total expenses (2)
#
671 .90
2, 338 .62
587 .55
813 .03
1,049 .34
1,090 .39
1,450 .49
1,280 .83
494 .73
1,113 .17
1,020 .44
1,476 .45
Credits
$
251 .78
994 .67
236 .61
259 .82
195 .70
276 .07
1,247 .30
188 .13
184 .82
259 .18
267 .55
473 .04
16,600.27
8,048 .00
16,600 .27
#14,338.47 #21,434.94
$21, 434 .94
$21,434 .94
Payable
to
Board
of Gov—
ernors
$
420 .12
1,343 .95
350 .94
553 .21
853 .64
814 .32
203 .19
1,092 .70
309 .91
853 .99
752 .89
1,003 .41
—
#8,552 .27
(1) 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 ($.016850639) for business handled during the month.
$
R-50
BOARD OF G O V E R N O R S
OF THE
FEDERAL RESERVE SYSTEM
98
WASHINGTON
a d d r e s s
official c o r r e s p o n d e n c e
to t h e board
August 14, .1957,
*******
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:
"MOZGIN" - Treasury Bills to be dated
August 18, 1937, and to
mature December 18, 1957.
"NOZGOB" - Treasury Bills to be dated
August 18, 1957, and to
mature May J.8, 1958.
These words should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental
code word "NOZGEL" on page 172.
Very truly yours,
S. R. Carpenter,
Assistant Secretary.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
R 5
1
"
BOARD OF G O V E R N O R S
99
OF THE
FEDERAL RESERVE SYSTEM
* ASHINGTON
W
a d d r e s s
August 16, 1937.
Dear Sir:
There are inclosed herewith copies
of statement rendered by the Bureau of Engraving and Printing, covering the cost of
preparing Federal reserve notes for the
month of July, 1957.
Very truly yours,
0. E. Foullc,
Fiscal Agent.
Inclosure.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
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
b o a r d
R-51-a 1 0 0
Statement of Bureau of Engraving and Printing
for furnishing Federal Reserve Notes,
July 1 to 50, 1957.
i
Federal Reserve Notes, Series 1954
Amount
|10
s?20
Total Sheets
Boston
105,000
25,000
150,000
$12,480.00
New York
175,000
40,000
215,000
20,640.00
Philadelphia
204,000
25,000
229,000
21,984.00
Cleveland
70,000
25,000
95,000
9,120.00
Richmond
45,000
20,000
65,000
6,240.00
Atlanta
45,000
45,000
4,520.00
Chicago
100,000
50,000
150,000
14,400.00
St. Louis
40,000
20,000
60,000
5,760.00
Minneapolis
50,000
-
50,000
2,880.00
Kansas City-
55,000
—
55,000
5,560.00
Dallas
15,000
—
15,000
1,440.00
204,000
55,000
259,000
22,944.00
1,068,000
San Francisco
-
240,000
1,508,000
£•125,568.00
1,508,000 sheets, @
35.00 per S ....... .$125,568.00
101
BOARD OF G O V E R N O R S
OF THE
R-52
FEDERAL RESERVE SYSTEM
WASHINGTON
a d d r e s s
o f f i c i a l
t o t h e
August 17, 1937.
SUBJECT:
Monthly Report of Bank and
Public Relations Activities.
Dear Sir:
There is inclosed for your information a summary of the bank relations reports
submitted by the Federal reserve banks for
the month of July in response to the Board's
letter of August 25, 1956 (X-9680).
Very truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO PRESIDENTS OF ALL F. R. BANKS
c o r r e s p o n d e n c e
b o a r d
103
R— 5.2—a
August 12, 1937.
TO:
The Board
SUBJECT;
FROM:
Summary of Bank
Relations Reports.
Mr. Hammond,
Division of Bank Operations.
Reports of bank relations as requested in the Board's letter of
August 25, 1936 (X-9680) have been received for the month of July and excerpts therefrom will be found on the following pages. A table showing
for all twelve banks the number of visits made, meetings attended, and
addresses delivered has also been prepared and follows the quotations.
The attitude toward the Federal Reserve System
The reports reflect the usual' attitude of friendliness toward the
Federal Reserve System, but with nonmembers generally indifferent toward
membership. Opposition to public ownership of the Federal Reserve banks
appears to be frequently expressed. Exchange charges are the most frequently mentioned feature tending to keep banks out of the System, and
there continues to be considerable complaint by small member banks of
the increased reserve requirements.
Banking conditions
There continues to be mention of the difficulty which banks experience in investing their funds profitably. The reports indicate that
some communities have too many banks and others none at all. At the same
time there is mention of the difficulty of effecting mergers and of the
opposition to the establishment of branches.
General economic conditions
The reports from agricultural regions both south and west again
indicate strikingly improved conditions on the whole; though there are
certain sections - for example, northern Montana - where crop prospects
are bad. In the west there appears to be considerable optimism as to
prices for farm products. Reports from industrial regions on the whole
indicate less activity and optimism than reports from rural regions.
Excerpts :Dx>m the reports follow:
attached to the original hereof).
(The reports themselves are
Boston
Fifty-nine member banks and two nonmember banks were visited during July (45 in New Hampshire, 14 in Vermont, 5 in Rhode Island, and 1 in
Massachusetts).
103
—2—
P-5P — .
.— . g
Boston continued
In practically every comrmmity bankers, business men, and others
interviewed referred to the condition of business as being good. Payrolls are said to be at or above the levels of a year ago, and local merchants in most lines are experiencing a marked increase in sales.
While still far from satisfactory to the bankers, the earning
position of their institutions is noticeably stronger. The percentage
of deposits absorbed by commercial loans has increased in the case of almost every bank, and except for a few well-secured collateral loans, the
lending rate is 6 percent. Rates on mortgage loans run from 5 percent to
6 percent and loans to towns, made in anticipation of taxes, run from
3|- percent to 4 g percent. The bond portfolios of most of the banks are
-said to be yielding around 3 percent.
Complaint against the System centers almost entirely around the
increased reserve requirement, and the complaint comes almost entirely
from the smaller banks. Several of the bankers stated that in so far as
the increased reserve requirement is a part of the Government's monetary
policy designed to prevent recurrence of conditions which brought about
the bank holiday, they are wholeheartedly for it. At the same time they
feel that the increase works a decided hardship on the small country
bank. On the part of one or two bankers, the feeling exists, and was
expressed, that the increase was made for no other reason than to enable
the Federal reserve banks to support the Government bond market.
A few bankers indicated their intention to increase their holdings of Government bonds and inquiry was made as to what would be the reserve bank policy of lending on government issues, should they at any tine
be quoted under par - would Reserve bank loan at par?
Several of the towns visited are apparently over-banked, and the
matter is one that has been, and is, of growing concern to the bankers
therein. For one reason or another, principally, it is believed, because
consolidations might eliminate certain individuals, there is hesitancy
on the part of the banks to come out in the open and discuss possible
mergers. In one or two cases bankers involved have stated that they believe adoption by supervisory authorities of a vigorous policy designed
to create one or more strong, profitable banking institutions in a community through the merger of banks of mediocre strength, would be effective.
New York
Fairfield County. Connecticut (principal city Bridgeport)
The rats charged on commercial loans ranges from
to 6 percent,
depending on the type of loan and risk involved. The rate maintained on
104
—3—
R—52—a
New York continued
collateral loans varies from 5§ to 6 percent, most loans bearing a rate
of 5 percent. Mortgage loan rates run from 5 to 6 percent, and one bank
has an arrangement with a life insurance company to take mortgage loans
at 4f percent.
Most of the banks have experienced a better demand for loans during the first six months of this year. The expansion while quite general,
is largely due to increased demand for mortgage, personal, and installment
loans. Eight banks have made Federal Housing mortgage loans and of this
group three have granted the major portion, one loaning about $1,000,000,
another $756,000 of which amount $610,000 were sold to savings banks and
insurance companies, and the third bank (a savings bank) about $550,000.
A considerable number of mortgage loans on new homes built in the county
during the last few years have been placed with life insurance companies;
many of these loans have been handled through a bank in Greenwich.
Of the sixteen nonmember commercial banks only one indicated that
it is still considering the subject of membership but no early action is
expected. Two banks have insufficient capital to qualify for membership
and one other institution decided against qualifying for permanent deposit
insurance.
Union County (Northwestern New Jersey; principal city. Elizabeth)
Several bankers commented that the general decline in bond prices
has reduced security profits which were a considerable factor in their net
earnings during the past two or three years, and that there has been no
appreciable increase in income from loans to offset the shrinkage in
profits.
The executive officer of one of the Savings banks of Elizabeth
says that of the twenty-three savings banks in the State, twelve are members of the Federal Deposit Insurance Corporation and eleven are not members of that corporation and, accordingly, carry no form of insurance
for depositors.
Clinton. Essex, and Franklin Counties (Extreme northeastern Now York)
This territory is served by nineteen banking institutions - sixteen member banks, two nonmember state banks, and one private bank. None
of the banks in this area have any branches and the officers of these
institutions appear to be opposed to the development of branch banking
within the territory. Champlain and Rouses Point, two communities situated over twenty miles north of Plattsburg, their nearest banking center,
each formerly had a bank but have been without banking facilities since
1951. Brushton and Fort Covington, two communities in Franklin County,
which formerly had banks, are also now without banking facilities. There
are no nearby banks with capital sufficient to permit establishing branch
*
105
-4-
R-52-a
New York continued
banks in those villages, and since both places are small there is doubt
as to the real need for a bank or branch.
In this territory farming and summer resort business are the
principal sources of income. Farmers are said to be in a mora comfortable position than in several years, and in the areas along Lake Champlain and in the Adirondack State Park the volume of business derived
from summer residents, vacationists, and tourists has shown an improvement.
Orange, Putnam, and Rockland Counties (Southeastern New York)
Several bank officers in Orange County discussed the activities
of the Production Credit Association. The feeling of the majority is
that this agency serves a distinct need by lending to farmers who are
unable to qualify for bank loans. Three officers, however, expressed •
strong disapproval of its activities, one saying that, in his opinion,
there are too many governmental agencies lending money to farmers with
little or no prospect of its being repaid at any future date. Another
objected because two good loans had been taken away from his bank and
refinanced through the Production Credit Association; and the third disapproved because he had similarly lost a loan, which he considered good,
due to having been compelled by the examiners to press for payments.
Philadelphia
Four counties in Eastern Pennsylvania and one in New Jersey
The banks in the sections covered by this report in which good
industrial conditions exist report an increase in deposits with good
loan liquidation, but generally poor credit demand. Because of the declining demand for credit and the low yield on securities, many institutions have established personal loan departments or are making a practice of extending loans of this type without the formality of regularly
established departments in an effort to bolster income. Nearly all of
the banks visited have a maximum rate of £ percent or less on time and
savings deposits, and, while every effort is made to maintain the 6 percent loaning rate, good risks have little difficulty in getting money
for less.
Several of the larger banks visited had, in the past been heavy
purchasers of prime commercial paper and the executive officers of these
banks commented upon the scarcity of this type of investment today. In
each instance thoy contrasted their experience with this investment with
their less fortunate experience in the purchase of securities. While
some of these banks are able to obtain a limited amount of prime commercial paper today, they cannot, by any means, purchase as much as they
would like to have.
106
-5-
R-52-a '
New York continued
Information obtained would indicate that there has been a definite
recession of business in many lines of industry, some of which is not seasonal. For example, in the slate and dement industries this decline is
contrary to what might be expected at this season of the year. However,
these industries fared well during the past winter. The silk and textile
industries fool the effects of southern competition which, because of its
low labor costs, is able to undersell the northern manufacturers. The
sections visited do not show any appreciable amount of distress due to
labor conditions but there have been enough strikes and threats of strikes
to cause concern and, too, the local businesses have felt the effect of
major strikes in other parts of the country.
As indicated in the several county reports, residential building
is slack. This is said to be due to the high cost of labor and materials.
Generally speaking the real estate situation is improved due to the better
rents which are obtainable. In some communities rents are believed to be
nearing that point at which tenants feel it is more advantageous to buy
than to rent. The general public, however, was reported to have become
more tax-conscious. Furthermore, it was said they have not forgotten
losses incurred through the decline, several years ago, in real estate
values.
Agricultural conditions are highly satisfactory. In every community where agriculture is an important producer of income, it was reported
that crops were good and that the prices now being obtained were high
enough to yield a profit for the farmers.
Some of the bankers in this section profess to have lost faith in
the F.H.A., due to the class of mortgages being guaranteed, and say they
have discontinued presenting applications for the guarantee. Several say
they feel that there will be a reckoning later and that if statements are
re-checked many will be found to be false in which event they say the insurance will be cancelled by the F.H.A. leaving the holders with very undesirable mortgages on their hands.
Cleveland
V.'ith the exception of courtesy calls on a few member and nonmember banks in Cincinnati and its immediate vicinity, no visits were made
during the month.
Richmond
In our current visits and talks with nonmember bankers the same
objections to membership were voiced as heretofore; that is to say, the
loss of revenue from exchange and the numerous regulations which in many
cases it is believed would add to a complicated method of operation
107
-6-
R—52—a
Richmond continued
involving many reports and statistical figures. We also find many nonmember bankers who tell us that for various reasons, such as certain criticized assets which must be removed or adjusted, their banks are not yet
ready to make formal application.
Our representatives report that in sections visited by them in
July business men and bankers arc more optimistic about the general business situation than in the month previous. The agricultural outlook seems
to be excellent, but our representatives have not yet obtained the reaction of bankers in the Carolinas to the drastic decline in cotton prices
recently experienced and now under way. It is reported to us that the
tobacco crop has suffered some damage from blue mold.
Our representatives report a disposition on the part of member
banks, in agricultural sections particularly, to entertain the idea that
they would be subjected to severe criticism if they borrowed money for
their seasonal needs or otherwise. In correspondence with our member banks
we have also encountered this feelings that some other means of financing must be found, at least at present, to prevent showing money borrowed
from the Federal Reserve Bank or elsewhere. There are various explanations
of this attitude, principally a recollection of the criticism directed at
banks heavily in debt before and after the banking moratorium. Our position in such cases has been that it is perfectly normal and natural for a
member bank to borrow, for its seasonal needs and emergencies, in reasonable amounts, and that the criticism directed to borrowed money was because
of its continuous and excessive degree in many cases. In sections of the
district not essentially agricultural, it has been pointed out to us that
a seasonal demand has entirely disappeared as far as the banks are concerned, since this function is now being performed largely by manufacturers and jobbers. Our representatives report frequent comments by member
banks that if the occasion to borrow should arise and could not be avoided
they would apply to their commercial bank correspondents since they can
obtain a more favorable rate from them as compared to our discount rate
and, as they express it, arrange the transaction with, greater facility.
Our representatives are told and report to us that improved communication
and transportation facilities have made smaller inventories practical, and
if small merchants require credit of consequence they are likely to be
able to arrange it without difficulty through the manufacturer or wholesaler on favorable terms.
One member bank reported that it had borrowed money from a correspondent rather than from us, at a rate of one and one-half percent.
Atlanta
The months of July and August being the vacation period for a
large number of the bankers in this district, the only visits made were
t
108
-7-
Pi—5 £—a
Atlanta continued
to two member banks and eight nonmem^er. banks located in the northeastern portion of the State. In this section cotton and corn are the principal crops grown. The bankers visited reported that the farmers have
the best crop prospects for several years. Weather conditions in the
main have been excellent. Cotton stalks are exceptionally large but on
some farms it is claimed they do not have as many bolls per stalk as the
size of the weed would indicate they should have. It was also reported
that the boll weevil is very active and unless the hot weather that prevailed during the month of July continues well into August the cotton
crop will be substantially curtailed. All crops along the highway appear to have been well cultivated and are advanced for the season.
The bankers reported a satisfactory volume of loans to farmers,
although some claim that the Production Credit Associations have been
very active and obtained loans that the local banks would have been glad
to make. They claim that the Federal Land Banks, the Home Owners Loan
Corporation and the Seed Loan Agency are of material benefit to their
communities, but that in their opinion there is now no need for the
Production Credit Associations.
None of the eight nonmember banks visited are on the par list
and the statement was made that exchange charges on incoming cash letters
amount to substantial earnings and that because of this revenue they are
not interested in membership at this time. However, the bankers were
very cordial and indicated that they would seriously consider applying
for membership were it not for the exchange feature.
Chicago
Very little change in banking conditions has occurred since the
last report. There is still the usual lack of demand for local loans.
Member banks express themselves as being satisfied with membership in the System and usually refer to the benefits derived from the
currency and safekeeping facilities. No complaints were heard, although
one small bank referred to the increased reserve requirements and stated
that in order to get certain services from their correspondent bank to
which they had been accustomed, it is now necessary for them to keep a
total reserve of about 20 percent. However, this bank felt that the advantages of membership outweighed this disadvantage.
A few of the nonmember banks called upon are considered good
prospects for membership. Of those banks which are not likely to make
application in the near future, a few give as their reasons - condition
of the bank, the fact that they have or expect to establish offices, reserve requirements, and too many regulations. The majority, however,
seem to lack interest or feel that there is no necessity for joining at
109
R-52-a
Atlanta continued
this time. One banker stated.frankly that while he had a great deal of
respect for the accomplishments of the Federal Reserve System and would
like his bank to be a member, it would cost them in exchange charges approximately $1,800 per year, as the bank is not now on the par list.
Agricultural prospects continue good, although in some sections
rain is needed.
Business conditions generally are reported as satisfactory.
St. Louis
General conditions in the communities visited (in Illinois and
Missouri) are considered the best in recent years.
down the
bringing
they did
is being
In spite of too much moisture early in the season, which cut
yield and lowered the quality, the wheat crop is good and is
prices which assure growers of receiving as much or more than
last year with a larger crop. Cash received from wheat sales
used to purchase farm equipment and long-needed supplies.
Corn is in wonderful condition and there is every indication of
a large harvest. No damage is as yet evident from lack of moisture.
Oats will be plentiful and there is indication of a fine hay crop, especially alfalfa. Roughage crops are reported to be in good condition.
Farming communities visited during the month are still suffering from the effects of the short feed crop in 1936. Most farmers wore
compelled to purchase feed for live stock, and many were forced to sell
stock because they had no feed and could not obtain advances on account
of lack of collateral. Milk production declined and hog feeding was
largely suspended. Feeding of cattle and hogs is now being resumed
in view of the splendid outlook for this year's harvest.
Stores report business has held up well, for which considerable
credit is given to the increased purchasing power of the farmers.
Coal mines in communities visited in Southern Illinois operated
at capacity during the winter, and employment was steady and satisfactory.
The customary summer lull is now taking place, and mines are operating
only two or three days a week, but after October 1 they will p#obably
resume full-time production.
Minneapolis
Northern Montana
v
With but few exceptions the local demand for money is light and
the bankers do not expect much pickup during the remainder of the year.
110
-9-
R—52—a
Minneapolis continued
Rates on character and chattel mortgage loans range from 6 to 10 percent,
averaging about 9 percent. One banker with a number of loans at 10 percent, said that he considered many of them very speculative. Quite generally the bankers are extremely conservative in making farm loans and a
state moratorium law which expires January 1, 1939, undoubtedly inhibits
them from doing so more freely. Several banks have had very satisfactory
experiences in handling automobile contracts. At Great Falls, one of the
banks had just received detailed information from an Oklahoma bank with
respect to making "oil loans" and is giving this matter careful study.
Many of the banks are paying a rate of 2 or 2% percent on time
deposits, although in several of the larger cities the rate is only 1
percent. In Glasgow, where there is a national and a state member bank,
neither bank pays any interest on such deposits.
Due to poor crop prospects for this year and unsatisfactory local
conditions, two nonmember banks indicated that they contemplate liquidation.
Many of the banks visited serve an extremely large area which is
thinly populated. In many of these banks the volume of business handled
at the present time is comparatively light but the banks expect, in most
instances, " o experience an increased demand for their services under
t
normal conditions. At Libby, in the extreme western part of Montana,
attention was called to the fact that the distance from Minneapolis to
Libby was about the same as the distance from Minneapolis to Boston. The
state member bank at this point, however, seemed pleased with the services
they receive from the Minneapolis office and the Helena Branch.
Heavy rains in some sections about the end of the first week in
June revived hopes for the grain crop and for feed. In the northeastern
corner and in the north central part of the state, the moisture was insufficient and many discouraging reports were received hero from the
bankers. Prospects for the winter wheat crop were poor in this territory. In some sections where they had shipped out an almost unbelievable
amount of grain under ordinary conditions, it was estimated that the
grain crop this year would range from 15 to 25 percent of normal.
Southwestern Minnesota
In the territory visited, there was every evidence of sufficient
moisture for all crop production. Rye had been fully harvested. Oats
and barley were being harvested. The condition of these crops was excellent. Corn is not "made" but a better or more promising crop is
seldom seen. Present market prices have produced an optimism which was
apparent in all business. Mot only are the markets for crops on a profit basis to the farmer, but the markets for live stock and poultry are
Ill
-10-
n-
-a
Minneapolis continued
extremely good. Beef, pork, and mutton are at very high levels, and
poultry, including turkeys, can be now contracted for sale at a profit.
All the banks visited showed considerable gains in deposits over
a year ago. Every one of them disclosed greater earnings than in any year
since 1950. Many of these banks had distributed dividends at the close of
last year's business. Interest paid on deposits varies from 1 to 2|- percent; interest received, from loans 4 percent and 4§- percent on real
estate security to generally 7 percent and 8 percent on secured chattel
loans. Banks in the county seat towns are liberal purchasers of installment paper, - principally automobile and farm machinery. Their experience
in the collection of this paper has been good. With but one or two exceptions, there have been no repossessions. Farm machinery is now sold
on the basis of not less than one-third cash, one-third in one year, and
the last third payable in two years.
Bankers and feeders of live stock appeared to be in a quandary.
The remarkable corn crop if it "makes" will produce in sx*ch quantities
that if corn production in other states is normal, the market price will
be low, but th-i price for feeder cattle is so high, there now appears to
be a disposition to limit the purchase of feeders.
Some of the nonmember state banks appeared to be very nervous
about the activities of the National Credit Men's Association regarding
exchange charges. Many of them realize that excessive charges have apparently set in motion an agitation which they fear will eventually deprive them of this source of income.
Officers of some of the smaller banks appear to be concerned
about the Patmzm and McAdoo Bills, - particularly the latter. They are
fearful if they lose their income from exchange and the Branch Banking
Bill is enacted into law, they will be subjected to branch competition
which would cause them more worry.
Kansas City
The continued improvement in the farm outlook is again the outstanding development in the banking situation. A large wheat crop has
been harvested and good rains in July, virtually throughout the district,
give promise of some corn. With the rains have come more moderate temperatures, which are equally important to corn. A fair corn crop in certain
sections of Kansas is nearly assured but Nebraska, where the season is
later, will require favorable weather in August. On the whole, the situation is good, for a combination of a wheat and a corn crop in this
district is unusual, and the combination of good crops and good prices is
even more unusual.
112
-11-
R-52-a
Kansas City continued
Special significance attaches to the corn prospect this year.
Successive years of drought have caused farmers recently to concentrate
on crops that mature before the hot, dry weather of mid-summer becomes
serious. Another corn crop failure this year would only have accentuated this tendency. Such a situation threatens an undue concentration
in wheat production, the end of which may easily be another round of surpluses and low prices. By the same token corn would become even scarcer,
hogs fewer, and meat prices higher. A corn crop this year would help to
restore the confidence of the farmer in corn and hence do much to maintain a healthy balance in agricultural production. Bankers who have long
preached diversification look upon this as one of the most important longrun effects of a corn crop.
Of great importance also is the feed situation. The ranges are
in the best shape in years and live stock are in good flesh. Farmers
are again raising their own feed for the production of dairy and poultry
products.
The movement of new wheat to terminal markets has caused an almost phenomenal increase in deposits at some banks. The harvest season
was warm and dry, with the result that wheat matured almost simultaneously over a large part of the Tenth District. This fact, in conjunction
with the extensive use of the combine, resulted in large quantities of
new wheat that moved at once to elevators where it could bo kept in
motion while it dried. High prices brought a considerable part of this
wheat to the market and this so-called wheat money rapidly expanded the
deposits of many banks.
Contacts with banks in recent months indicate that the most im-_
portant factors working against state bank membership at the present time
are such things as the increase in and the uncertainty regarding reserve
requirements, the lack of appeal of membership to banks in a strong cash
position, and general indifference. But the following excerpt from a
letter of a Colorado banker is significant in that it shows the reaction
of the small bank in particular to certain phases of bank supervision:
"We are still giving the matter of membership in the Federal
Reserve System our consideration and are still reluctant to
make a favorable decision on account of the possibility of
having to publish six statements a year. I talked just recently with a state banker whose bank is a member and he
said that between trying to digest all of the regulations
promulgated from time to time and preparing statements for
publication he was keptpretty busy."
113
-12-
R-52-a
Dallas
South Texas
Inability to find profitable outlets on a short-time basis for
idle funds continues to be the chief theme of complaints among both
member banks and nonmerabers. Most of them view long-term securities with
distrust because of the hazard of market fluctuations, and at the same
time consider the yield on short-term issues unsatisfactory. The urge to
augment earnings appears in many instances to have influenced many bankers
to judge investment securities almost wholly on th'i basis of the rate they
bear and the possibility of loss or gain to be anticipated in case of sale.
No new reasons were advanced by nonmember institutions for remaining aloof from the Federal Reserve System.
Crop conditions in the visited area, as in the State of Texas
generally, are the best they have been in many years, presaging a prosperity wave of mighty proportions for the approaching autumn unless
halted by some unexpected setback.
San Francisco
Oregon - Lower Columbia River Area
Business conditions were found to be very satisfactory. The
early fishing season was good, with salmon canneries active and fishermen prospering with good prices for their catch. Dairymen are also
getting what appear to be good prices, with butter fat bringing 380 per
pound. Logging and lumber operations are active, although the lumber
market has recently softened considerably, with prices declining $2 to
$4 per thousand. Some mills are declining new orders at the current
price. Most operators expect the market to strengthen by September and
have hopes of active fall trade.
Washington - Snohomish County (Puget Sound basin)
The lumber industry is in a more active condition than for some
time past and this applies particularly to the pulp and paper industries.
Labor is fully employed and in the city of Everett there is a shortage
of homes, causing the mill workers to reside in the adjacent towns, in
some instances driving long distances to work. In the eastern end of the
county it was reported to us that there are at the present time sixteen
logging camps in full operation with substantial pay-rolls.
The various agricultural industries of the county are also in
a prosperous condition and vegetable and small fruit canning is under way.
PUBLIC RELATIONS ACTIVITIES OF FEDERAL RESERVE BANKS
JULY, 1937
Federal
Reserve
Bank
Member
Boston
New York
Philadelphia
Cleveland
59
100
65
13
2
39
25
2
61
139
88
15
Richmond
Atlanta
Chicago
St. Louis
49
2
20
33
71
3
37
11
120
10
57
44
3
None
None
done
425
Minneapolis
Kansas City
Dallas
San Francisco
41
5
12
34
77
2
6
14
118
7
18
48
2
1
2
6
109
30
175
132
Visits to banks
Nonmember
^Attendance at 1 not reported.
Meetings attended
Total
Number
•
None
None
done
2
Attendance
—- ~
— —
320
Addresses made
Number
Att.firiuanne
None
None
None
1
30
4
None
None
None
1
None
None
None
425*
i
•.
29
— —
R-55
115
BOARD OF G O V E R N O R S
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
August 20, 1957.
SUBJECT:
a d d r e s s
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
b o a r d
Holidays during September, 1957.
Dear Sir:
On Monday, September 6, Labor Day, the offices of the
Board of Governors of the Federal Reserve System and all Federal
reserve banks and branches will be closed.
The Board is advised that the following holidays also
will be observed during September:
Thursday, September 9
San Francisco
Los Angeles
Monday, September 13
Baltimore
Friday, September 17
Philadelphia
Admission Day
in California
In observance of
Defenders' Day
in Maryland which
falls on Sunday
Constitution Day
in Pennsylvania
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 offices mentioned on each of the
holidays with your credits for the following business day. No
debits covering shipments of Federal reserve notes for account
of the Federal Reserve Bank of San Francisco on September 9 or
for the Federal Reserve Bank of Philadelphia on September 17
should be included in your note clearings of those days.
Please notify branches.
TO
http://fraser.stlouisfed.org/ PRESIDENTS
Federal Reserve Bank of St. Louis
'ery truly yours,
J. C. Noell,
Assistant Secretary.
OF ALL FEDERAL RESERVE BANKS
R-54
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For immediate release
August 20, 1957.
The Board of Governors of the Federal Reserve System today
announced the following appointments:
FEDERAL RESERVE BANK OF ATLANTA
Birmingham branch of the Federal Reserve Bank of Atlanta
BRANCH DIRECTOR:
For unexpired portion of term ending December 31, 1957
Mi*. Edward L. Norton of Birmingham, Alabama
Nashville branch of the Federal Reserve Bank of Atlanta
BRANCH DIRECTOR:
For unexpired portion of term ending December 51, 1959
Mr. W. E. McEwen of Williarnsport, Tennessee
For unexpired portion of term ending December 51, 1958
Mr. Clyde Austin of Greeneville, Tennessee
FEDERAL RESERVE BANK OF KANSAS CITY
Oklahoma City branch of the Federal Reserve Bank of Kansas City
BRANCH DIRECTOR:
For unexpired portion of term ending December 51, 1958
Mr. Clarence Roberts of Oklahoma City, Oklahoma.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Statement for the Press
For release in morning newspapers of
Saturday, August 21, 1937.
August 20, 1937.
The Board of Governors today approved the action of the directors of
the federal Reserve Banks at Atlanta and Chicago in reducing the discount rate
from 2 b to lj>%, effective in the 6th and 7th Federal Reserve Districts, re)
spectively, on August 21, 1957.
The Board's approval was based upon the view that the reduction of discount rates at this time would assist in carrying out the System 1 s policy of
monetary ease and make Federal Reserve bank credit readily available to member
banks for the accommodation of commerce, business and agriculture, without encouraging member banks to borrow outside of their districts or to liquidate their
portfolios in order to be in a position to meet the needs of present or prospective
borrowers.
The reduction in discount rates, which have had little or no practical
effect during the period when excess reserves were abnormally large and widely
distributed throughout the System, brings the rates into closer relation with
the interest rate structure generally prevailing, and affords to member banks the
benefit of rates, on advances made by the Federal Reserve bank, which are in line
with those available in the money market.
During the extended period when ex-
cess reserves of the banking system were between two and three billions of dollars,
the occasion did not arise except in rare instances for member banks to borrow
R-55
-
2
-
from the Federal Reserve banks, end the discount rates were accordingly inoperative as a practical matter.
As a result of the continued progress of the recovery movement,, demands of agriculture, industry and commerce for bank accommodation have steadily
increased and at the present time are augmented by seasonal requirements,
particularly with relation to crop movements.
While excess reserves, follow-
ing the action of the Board in increasing reserve requirements, remain at an
unusually high level of approximately $750,000,000 at present for the System as
a whole, they are distributed preponderantly among the country banks and not in
the money centers.
The reduction of the discount rates in the two large agri-
cultural districts of Atlanta and Chicago should serve to assist the member
banks to utilise credit directly available in these districts in order to meet
banking requirements in connection with crop movements and business needs.
It is the Board's view, therefore, that at this time the Federal Reserve System can best discharge its public responsibility and promote the continuance of recovery by making it possible for member banks to obtain accommodation from Federal Reserve banks at rates which will encourage them to employ
their funds to meet the needs of agriculture, industry and commerce.
119
BOARD OF G O V E R N O R S
R-5S
OF THE
FEDERAL RESERVE SYSTEM
£
I
WASHINGTON
a d d r e s s
o f f i c i a l
t o t h e
August 21, 1957
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:
"NOZGUF" - Treasury Bills to be dated
August 25, 1957, and to
mature December 20, 1937.
"NOZGYZ" - Treasury Bills to be dated
August 25, 1957, and to
mature May 25, 1958.
These words should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental
code word "NOZGOB" on page 172.
Very truly yours,
S. K. Carpenter,
Assistant Secretary
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
c o r r e s p o n d e n c e
b o a r d
120
R-57
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For release in morning newspapers
of Tuesday, August 24, 1937.
August 23, 1937.
The Board of Governors of the Federal Reserve System today approved the action of the directors of the Federal Reserve Bank of Minneapolis in reducing the discount rate from
2% to
effective August 24, 1957.
R-58
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Statement for the press
For release in morning newspapers
of August 25, 1957.
August 24, 1937.
The Board of Governors of the Federal Reserve System today announced the following appointment:
FEDERAL RESERVE BANK OF PHILADELPHIA
CLASS "C" DIRECTOR:
For unexpired portion of term ending December 31. 1959:
Mr. Thomas B. McCabe of Swarthmore, Pennsylvania
R-59
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For release in morning papers,
Friday, August 27, 1957.
The following summary of general buslness and financial conditions in the
United States, based upon statistics
for July and the first three weeks of
August, will appear in the September
issue of the Federal Reserve Bulletin
and in the monthly reviews of the Federal Reserve banks.
Total volume of industrial production and distribution of commodities
to consumers showed little change from June to July, when allowance is made
for the usual summer declines.
Production and employment
The Board's seasonally adjusted index of industrial production was
114 percent of the 1923-1925 average in July, the same as in June and 4
points lower than in March, April, and May.
At steel mills, where output
in June had been curtailed by strikes, activity increased considerably in
the early part of July and was maintained at the higher level between the
middle of July and the third week of August.
Lumber production also in-
creased in July, while output of plate glass showed a substantial decrease.
Automobile assemblies declined seasonally.
Output of non-durable manufac-
tures decreased considerably, owing largely to a marked decline in activity
at cotton and woolen textile mills.
Meat packing also declined, while
flour milling and sugar refining increased.
At mines, output of anthracite
was reduced in July, while output of most other minerals showed little change.
Construction contracts awarded, as reported by the F. ¥». Dodge Corporation, were maintained in July at the level reached in June.
Non-residential
123
R-69
construction expanded further, reflecting principally a large volume of
awcrtis for iron and steel plants and for railroad projects.
Residential
building shewed a seasonal decline.
factory employment increased somewhat from the middle of June to the
middle of July, when a decline is usual, and factory payrolls decreased
less than seasonally.
The largest increases in employment were in the
steel industry and in the food industries, particularly at canning factories.
Other manufacturing industries as a group showed somewhat less than the
usual seasonal decline.
Agriculture
A cotton crop of 15,595,000 bales, representing an increase of
3,200,000 bales over last season, was forecast by the Department of Agriculture on the basis of August 1'conditions.
Official estimates indicate
that other major crops will be considerably larger than last season and
about equal to the average for 1928-1932.
Preliminary estimates by the
Department of Agriculture indicate that cash farm income, including Government payments, will total $9,000,000,000 for the calendar year 1957, an
increase of 14 percent over 1936.
Distribution
Distribution of commodities to consumers in July continued at the level
of other recent months, when allowance is made for the usual summer decline.
Sales at department stores and variety stores showed slightly less than the
seasonal decrease in July, while mail order sales declined somewhat more
than seasonally.
Freight-car loadings increased, reflecting in part larger
124
-3-
R-59
shipments of grains and forest products.
Commodity prices
From the middle of July to the third week of August prices of grains
and cotton declined substantially, while livestock and meats showed a
further increase.
Automobile prices were raised by most producers, carpet
prices advanced, and there were increases in several industrial raw materials, including hides, zinc, lead, and steel scrap.
Cotton goods and rubber
declined somewhat.
Bank credit
From the middle of July to August 4, excess reserves of member banks
were sharply reduced from $960,000,000 to $700,000,000, but subsequently
they increased to #780,000,000 on August 18.
These changes in member bank
reserves reflected principally fluctuations in the volume of Treasury deposits at Federal Reserve banks, together with a seasonal increase in money
in circulation.
Excess reserves at New York City banks declined from
$250,000,000 to about $40,000,000 and subsequently increased to $150,000,000.
Total loans and investments of reporting member banks increased somewhat during the four weeks ending August 18, reflecting principally an
increase of $150,000,000 in commercial loans offset in part ty a further
decline in holdings of United States Government obligations, principally
at Mew York City banks.
The growth in commercial loans occurred both in
New York City and in other cities and included the purchase by banks of
a large portion of the $60,000,000 of 9-month notes sold by the Commodity
Credit Corporation on August 2.
125
R-59
-4-
United States Government deposits at reporting banks increased during
the period, reflecting purchases by banks of Treasury bills on a book-credit
basis.
Bankers' balances and other demand deposits showed further declines
at New York City banks.
Money rates
Rates on Treasury bills declined slightly after the middle of July,
and open-market yields on Treasury notes and bonds also declined until early
in August, but later there was a rise in yields.
In the latter part of
August discount rates were reduced from 2 percent to 1 l/2 percent at the
Federal Reserve banks of Atlanta, Chicago, and Minneapolis.
rates had been in effect since early in 1955.
The 2 percent
R-60
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR TEE PRESS
For release in morning newspapers
of Friday, August 27, 1957.
August 26, 1957.
The Board of Governors of the Federal Reserve System today
approved the action of the directors of the Federal Reserve Bank
of Richmond in reducing the discount rate from 2% to lg%, effective August 27, 1937.
127
R-61
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For immediate release.
August 26, 1957.
The Board of Governors of the Federal Reserve System
today approved the action of the directors of the Federal Reserve Bank of New York . n reducing the discount rate from l-g%
i
to 1%, effective August 27, 1957.
128
BOARD OF G O V E R N O R S
R-62
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
August 28, 1937.
SUBJECT:
DIVISION
O F EXAMINATIONS
Reports of Criminal Violations to
The Federal Bureau of Investigation.
Dear Sir:
This refers to the Board's letter of July 16, 1957, (S-14)
relating to reports of criminal violations to the Federal Bureau
of Investigation.
The Board has been advised that several new field offices
of the Federal Bureau of Investigation have been recently opened
and there are inclosed herewith a copy of a letter from the Assistant Attorney General and a copy of a complete list of the present
field offices of the Federal Bureau of Investigation.
It will be
appreciated if your bank will send a copy of the attached list of
field offices of the Bureau to each member bank in your district in
order that member banks may have an up-to-date list of such offices
for use in making reports to the Federal Bureau of Investigation
of bank robberies as requested in the Board's letter of March 15,
1955 (X-9147).
Very truly yours,
L. P. Bethea,
Assistant Secretary.
Inclosures
http://fraser.stlouisfed.org/
TO PRESIDENTS
Federal Reserve Bank of St. Louis
OF ALL FEDERAL RESERVE BANKS
129
Copy
R-62-a
MHH/vn
DEPARTMENT OF JUSTICE
Washington, D. C.
29-05-1
August 10, 1957
Board of Governors,
Federal Reserve System,
Washington, D. C.
Attention:
Mr. L. P. Bethea,
. Assistant Secretary.
Sirs:
Reference . s made to the letters addressed to
i
you under dates of June 18 and August 5, 1957, relative
to your examiners or other officials in the field furnishing the local Officer.: of the Federal Bureau, of Investigation a copy of each report of apparent violations
of the criminal provisions of the Banking laws of the
United States.
Several new Field Offices have been opened recently by the Bureau, and for your information, the Department is enclosing herewith, a photostatic copy of a complete list of the present Field Offices of the Bureau.
Respectfully,
For the Attorney General,
(Signed)
Brien McMahcn
BRIEN McMAHON
Assistant Attorney General.
Enc. #147801.
130
g°py
DIVISION
OFFICE PHONE
R-62-b
BUILDING
P. 0. BOX
Aberdeen, South
Dakota
Alaska, Juneau
Atlanta, Georgia
Birmingham, Alabama
Boston, Massachusetts
4652
75
Walnut 5698
7-1755
Liberty 8470
Buffalo, New York
Cleveland 2030
Butte, Montana
Charlotte, North
Carolina
Chicago, Illinois
2-4754
306
Alonzo Ward Hotel
Federal Building
Healey
Federal
Post Office Square,
Room 950
400 United States
Court House
302 Federal
3-4127
Randolph 6226
812
914 Johnston
1900 Bankers'
Cincinnati, Ohio
Cleveland, Ohio
Dallas, Texas
Denver, Colorado
Des Moines, Iowa
Detroit, Michigan
El Paso, Texas
Cherry 7127
Prospect 2456
2-9066
Main 6241
5-8998
Cadillac 2.855
Main 501
Hartford, Conn.
^Hawaii, Honolulu
Huntington, West
Virginia
Indianapolis, Ind.
Kansas City, Missouri
Knoxville, Tennessee
Little Rock, Ark.
Los Angeles, Cal.
Louisville, Ky.
Memphis, Tenn.
Miami, Florida
Milwaukee, Wis.
Newark, N. J.
New Orleans, La.
New York, N. Y.
Oklahoma City,
Oklahoma
Omaha, Nebraska
Peoria, Illinois
2778
514
2344
2118
7-9222
8928
Riley 5416
Victor 5115
5-7928
6754
Mutual 2201
Jackson 5159
8-1850
5-5558
Daly 5451
Market 2-5511
Raymond 1965
Rector 2-3520
2-8186
Atlantic 8644
4-5800
2150
1469
2889
1276
610
507
501
520
10
1150
1448
1206
722
759
911
202
Enquirer
Standard
Tower Petroleum
Midland Savings
Insurance Exchange
Federal
United States
Court House
907 American Industrial
700
506
1616
407
500
903
775
240.1
1500
1021
956
1308
607
West Virginia
Fletcher Trust
Federal Reserve Bank
Hamilton National Bank
Rector
Pacific Commerce
Starks
Sterick
Biscayne
Bankers'
Raymond-Commerce
Masonic Temple
United States
Court House, Foley Square
224 Federal
629 First National Bank
500 Commercial Merchants
National Bank and Trust
Company
131
R-62-b
-2-
DIVISION
OFFICE PHONE
Philadelphia, Penna.
Phoenix, Arizona
Pittsburgh, Penna.
Portland, Oregon
Puerto Rico, San Juan
Richmond, Virginia
Salt Lake City, Utah
Locust 0880
5-4870
Grant 0800
Atwater 6171
1311
2-6464
Wasatch 1797
San Antonio, Texas
San Francisco, Calif.
Seattle, Washington
St. Louis, Missouri
Fannin 8052
Exbrook 2679
Main 0460
Garfield 0360
St. Paul, Minnesota
Washington, D. C.
Garfield 7509
National 5305
(2120)**
P. 0. BOX
BUILDING
1500
316
620
411
204
601
501
Liberty; Trust
Security
New Federal
United States Court House
Federal
Richmond Trust
Continental Bank
1216
1105
1881
800
Drawer V.
425
Plaza Station
404
2266
Smith-Young Tower
Mills Tower
Joseph Vance
United States Court House
and Custom House
New York
United States Department
of Justice
1525
709
*Not yet opened
^Telephone number to be used for calls after 5 P.M., on Saturday
afternoons and holidays.
132
BOARD OF G O V E R N O R S
OF THE
FEDERAL RESERVE SYSTE- m
R-63
WASHINGTON
a d d r e s s
o f f i c i a l
t o t h e
August 50, 1957.
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:
"NOZHAM" - Treasury Bills to be dated
September 1, 1957, and to
mature December 20, 1957.
"NOZHEK" - Treasury Bills to be dated
September 1, 1957, and to
mature June 1, 1938.
These words should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental
code word "NOZGYZ" on page 172.
Very truly yours,
L. P. Bethea,
Assistant Secretary.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
c o r r e s p o n d e n c e
b o a r d
* 133
R-64
BOARD Of GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For release to press today at
5:00 p.m. Eastern Standard Time.
August 50, 1957.
The Board of Governors of the Federal Reserve System today
approved the action of the directors of the Federal Reserve Bank
of Dallas in reducing the discount rate from 2% to lg$>, effective
August 31, 1937.
e
R-65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT
For release at 2 p.m.
FOR THE PRESS
September 1, 1937.
The Board of Governors of the Federal Reserve
System today approved the action of the directors of the
Federal Reserve Banks of Boston and St. Louis in reducing
their respective discount rates from 2% to 1^%, effective
September 2, 1957,
R-66
±
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For immediate release.
September 2, 1937.
The Board of Governors of the Federal Reserve System today
apprpved the action of the directors of the Federal Reserve Bank
of Kansas City in reducing the discount rate from 2% to lg#, effective September 5, 1937.
3
5
136
BOARD OF G O V E R N O R S
OF T H E
FEDERAL RESERVE SYSTEM
R-67
WASHINGTON
a d d r e s s
*********
official c o r r e s p o n d e n c e
t o t h e b o a r d
September 2, 1937.
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:
"NOZHID" - Treasury Bills to be dated
September 8, 1937, Fund to
mature December 21, 1937.
"NOZHON" - Treasury Bills to be dated
September 8, 1937, and to
mature June 8, 1938.
These words should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental
code word "NOZHEK" on page 172.
Very truly yours
S. R. Carpenter,
Assistant Secretary.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
137
R-68
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For release at 4:00 p.m.
September 2, 1937.
The Board of Governors of the Federal Reserve System today approved the action of the directors of the Federal Reserve
Bank of San Francisco in reducing the discount rate from ?.% to
1§56, effective September S, 1937.
R-69
138
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For release at 2:00 p. m.
September S, 1957.
The Bo^rd of Governors of the Federal Reserve System todayapproved the action of the directors of the Federal Reserve
Bank of Philadelphia in reducing the discount rate from 1% to
1-|$, effective September 4, 1937.
139
BOARD OF G O V E R N O R S
OF THE
FEDERAL RESERVE SYSTEM
R-70
WASHINGTON
a d d r e s s
o f f i c i a l
t o t h e
September 5, 1937
Dear Sir:
Referring to the Board's letter of July 26, 1935
(X-9271), with respect to the audit of the accounts of
the Fiscal Agent of the Board of Governors 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 July 31,
1937, inclusive.
Very truly yours,
L. P. Bethea,
Assistant Secretary
Inclosure.
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
c o r r e s p o n d e n c e
b o a r d
R-70-a
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 System - Special
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 July 51,
1937, inclusive.
(b)
That all cash receipts received by the Board as shown by 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 System - Special Fund" except several schedules totaling $272.42 which were forwarded too late to be
credited in July, but were credited in August, 1957.
(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 others in compliance with the Board's
instructions have been properly credited to the accounts, "Board of
Governors of the Federal Reserve System - Special Fund" and "Board
of Governors of the'Federal Reserve System - Building Account."
(d)
That each expenditure made by the Fiscal Agent was properly
authorized by an administrative officer of the Board.
(e)
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.
(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 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.
(g)
That all "Transfers of Funds" have been properly authorized by
the Secretary of the Board or a member of the Board.
Respectfully submitted,
(Signed)
F. V. Grayson
Auditor
August 24, 1937
^ 4 0
141
BOARD OF G O V E R N O R S
OF THE
FEDERAL RESERVE SYSTEM
R-71
WASHINGTON
a d d r e s s
September 3, 1937.
SUBJECT:
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
b o a r d
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 seven 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 105g, Alternate Schedule E, Loans and Discounts.
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, 220a, and 220b being
forwarded to you is based on the requirements therefor as reported in
response to the Board's telegram of August 25, 1957.
The only change made in the forms since the last call for reports is the. elimination of two memorandum items at the bottom of page 4
R.-7.1
1 4 2
of Form 105, calling for the amounts of agricultural loans and farm .
real estate owned, respectively. This information is called for only
as of the June and December calls.
An alternative loan schedule (Form 105g) has again been provided for the use of State bank members that submit weekly condition
reports, Form B-21. Please advise each weekly reporting State bank
member that it may, at its option, fill out either the alternative loan
schedule (Form 105g) or Schedule E appearing on page 3 of Form 105.
The same procedure should be followed as on the last call for
condition reports in mailing blank forms to State bank members, examining the reports, and forwarding copies thereof to the Board.
Please have compiled from the next call reports and mailed
(by air mail, if necessary, with an extra copy by ordinary mail) in
time to reach the Board,within 3 weeks after the date on which the fall
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 ahown
against Items 1(a) to 2(c) of Schedule F, and (3) total other bends,
stocks and securities, as shown against Asset Item 4 (total of Schedule u). A separate summary statement should be furnished in accordance
with Form 105g giving the classification of losns of the weekly reporting member banks that use the alternate loan schedule. The loan figures
covering such banks should not be, but the investment figures should be,
combined with the corresponding figures of other member banks in the
district.
Very truly yours,
#91—
L. P. Bethea,
Assistant Secretary.
Inclosures.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
143
BOARD OF G O V E R N O R S
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
a d d r e s s
o f f i c i a l
t o
September 5, 1957.
Dear Sir:
Letter S-28, released under date of September 2, 1937, should have shown the designation
"Sec. 5136 R.S.-9" in the upper right hand corner,
but the numeral "-9" was inadvertently omitted.
Please, therefore, have the copies of letter S-28
received by your bank corrected to show the omitted
numeral
Very truly yours
r
L. P. Bethea,
Assistant Secretary
TO PRESIDENTS TO ALL FEDERAL RESERVE BANKS.
t h e
c o r r e s p o n d e n c e
b o a r d
144
BOARD OF G O V E R N O R S
OF T H E
R-73
FEDERAL RESERVE SYSTEM
WASHINGTON
a d d r e s s
September 9, 1957.
SUBJECT:
o f f i c i a l
t o t h e
Code Words Covering New
Issues of Treasury Notes.
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;
"NOWLIST" - 1-1/4% Treasury Notes, Series
E-1938, to be dated September
15, 1937, and to mature December 15, 1938.
"NOVilLODGE"- Z% Treasury Notes, Series B-1942,
to be dated September 15, 1937,
and to mature September 15, 1942.
These code words should be inserted in the Federal
Reserve Telegraph Code book, on page 172.
Very truly yours,
S. R. Carpenter,
Assistant Secretary.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
c o r r e s p o n d e n c e
b o a r d
145
BOARD OF G O V E R N O R S
OF THE
K-/4
FEDERAL RESERVE SYSTEM
WASHINGTON
a d d r e s s
o f f i c i a l c o r r e s p o n d e n c e
t o t h e b o a r d
September 15, 1937.
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:
"NOZHUE" - Treasury Bills to be dated
September 15, 1957, and to
mature June 15, 1938.
This word should be inserted in the Federal Reserve Telegraph Code book, following the
supplemental code word "NOZHON" on page 172.
Very truly yours
J. C. Noell,
Assistant Secretary.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
146
R 75
BOARD OF G O V E R N O R S
*******
-
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
a d d r e s s
,
«
September 15, 1937.
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 August, 1937.
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,
Fiscal Agent.
Inclosure.
>
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
official c o r r e s p o n d e n c e
t o t h e b o a r d
R—75—a
REPORT OF EXPENSES OF i i I LIEES OF FEDERAL RESERVE
vAa
LEASED WIRE SYSTEM FOR THE MONTH OF AUGUST, 1937
Number
of
words
sent
Words sent
by in. Y.
chargeable
to other
F.R. Banks
34,977
125,152
50,782
49,575
50,544
55,125
1,511
Federal
Reserve
Bank
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Board of
Governors
Total
82,898
68,205
28,530
62,835
53,918
85,711
— —
1,527
1,556
1,505
1,472
1,807
1,474
1,467
1,499
1,470
1,540
477,804
1,206,052
Total
words
chargeable
56,488
125,152
32,309
51,129
52,049
56,597
84,705
63,679
29,997
64,552
55,388
87,251
Personal
services (1)
S
514.73
994.67
256.61
259.82
195.70
276.07
1,258.63
188.15
135.55
259.05
267.55
473.04
477,804
16,828
1,704.24
1 ,222,380
$6,565.77
Wire
rental
$
1
Total
expenses
Credits
514.75
994.67
256.61
259.82
195.70
276.07
1,258.65
188.15
155.55
259.03
267.55
475.04
616.33
2,113.97
545.74
865.65
879.17
955.99
1,450.77
1,176.96
506.69
1,086.65
955.57
1,473.78
15,796.41
8,070.69
$14,092.17 $20,655.94
$20,655.94
$20,655.94
Payable
to
Board
of Governors
15,796.41
>
— —
— —
— —
— —
14,092.17
1
Pro rata
share of
total expenses (2)
$
514.75
994.67
236.61
259.82
195.70
276.07
1,258.63
138.15
155.55
259.05
267.55
475.04
|
501.60
1,119.50
509.15
603.81
685.47
679.92
172.14
988.85
371.14
827.62
668.02.
1,000.74
#7,725.72
(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 ($.016891224) for business handled during the month.
148
BOARD OF G O V E R N O R S
OF THE
R-76
FEDERAL RESERVE SYSTEM
WASHINGTON
a d d r e s s
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
b o a r d
September 18, 1937.
Subject;
Holidays during October, 1937.
Dear Sir:
The Board of Governors
tem is advised that on Monday,
of the Federal Reserve Bank of
servance of the anniversary of
falls on Sunday.
of the Federal Reserve SysOctober 11, the Havana Agency
Atlanta will be closed in obthe Revolution of Yara,„ which
On Tuesday, October 12, Columbus Day, 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 the following Federal
Reserve banks and branches will be open for business as
usual!
TO
Charlotte
Nashville
St. Louis
Little Rock
Memphis
Detroit
Minneapolis
Kansas City
Oklahoma City
Please notify branches.
Very truly yours
J• C• Noell,
Assistant Secretary.
PRESIDENTS OF ALL FEDERAL RESERVE BANKS
149
BOARD OF G O V E R N O R S
S-77
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
a d d r e s s
September 17, 1937.
Dear Sir:
There are inclosed herewith copies
of statement rendered by the Bureau of Engraving and Printing, covering the cost of
preparing Federal reserve notes for the
month of August, 1937.
Veiy truly yours,
0. E. Foulk,
Fiscal Agent.
Inclosure.
TO PRESIDENTS OF ALB, FEDERAL RESERVE BANKS.
o f f i c i a l c o r r e s p o n d e n c e
t o t h e b o a r d
s
R-77-a
Statement of Bureau of Engraving and Printing
for furnishing Federal Reserve Notes,
August 2 to 31, 1937.
Federal Reserve Notes. Series 1954
SlO
#20
S50
SlOO
S500
£1000
610000
Total
Sheets
Amount
Boston
101,000
28,000
32,000
25,000
50
550
50
186,650
$17,918.40
New York
175,000
44,000
36,000
51,000
1,300
1,400
50
508,750
29,640.00
41,000
26,000
11,000
Philadelphia
-
-
350
-
78,350
7,521.60
300
200
-
144,500
15,872.00
50
-
104,050
9,988.80
Cleveland
73,000
38,000
33,000
Richmond
60,000
22,000
16,000
6,000
-
Atlanta
56,000
22,300
4,000
5,000
-
-
-
87,000
8,352.00
Chicago
95,000
50,000
9,000
800
-
-
154,800
14,860.80
St. Louis
54,000
21,000
5,000
-
200
-
85,200
8,179.20
Minneapolis
23,000
15,000
2,000
-
—
-
40,000
3,840.00
Kansas City
20,000
21,000
8,000
-
750
-
52,750
5,064.00
Dallas
15,000
5,000
3,000
-
-
-
23,000
2,208.00
61,150
5,870.40
1,526,200
$127,315.20
San Francisco
Total
-
5,000
-
3,000
-
-
36,000
672,000
13,000
12,000
345,000
168,000
137,000
1,326,200 sheets, 6 $96.00 per M,
150
2,450
3,650
100
^127,315.20
151
BOARD OF G O V E R N O R S
OF T H E
R 78
FEDERAL RESERVE SYSTEM
~
WASHINGTON
a d d r e s s
o f f i c i a l c o r r e s p o n d e n c e
t o t h e b o a r d
September 17, 1937.
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:
"NOZHYR" - Treasury Bills to be dated
September 22, 1957, and to
mature June 22, 1938.
This word should be inserted in the Federal Reserve Telegraph Code book, following the
supplemental code word "NOZHUE" on page 172.
Very truly yours
J. C. Noell,
Assistant Secretary.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
1c»2
BOARD OF G O V E R N O R S
OF THE
FEDERAL RESERVE SYSTEM
R-79
WASHINGTON
a d d r e s s
'
o f f i c i a l
c o r r e s p o n d e n c e
September 18, 1957.
SUBJECT:
Proposed amendments to Regulation F
relating to administration of Common
Trust Funds and other matters.
Dear Sir:
There are inclosed herewith twelve copies of a tentative draft (L-501) of an amendment to the Board's Regulation F
which would permit the operation of Common Trust Funds by national banks.
It is requested that the tentative draft of amendment
be considered by the appropriate officers of your bank, including the counsel for the bank, and that you forward to the Board
your comments and suggestions thereon at the earliest practicable
date and not later than thirty days from the date of this letter.
Under the provisions of section 169 of the Revenue Act
of 1936 not only national banks but any bank operating a Common
Trust Fund in conformity with the Board's regulation applicable
to national banks would be entitled to certain tax exemptions.
Accordingly, it is requested that you furnish copies of the
tentative draft of amendment to the State banking authorities
in each of the States in your district for their information
and comments and forward any comments received from the State
banking authorities to the Board at the same time you forward
your own comments.
It has been suggested that the provisions of subsection
(b) of section 6 of Regulation F relating to a committee which
may, among other things, approve the acceptance of trust accounts
should be construed to the effect that such committee may be composed of officers or directors of the bank and not merely of directors. It is requested that this suggestion be considered by
the appropriate officers of your bank, including the counsel for
tho bank, and that the Board be furnished with your comments as
to whether or not subsection (b) should be amended so as clearly
to provide that the committee referred to therein may be composed
of capable and experienced officers as well as directors.
The provisions of subsection (c) of section 6 of Regulation F relating to a trust investment committee contemplate that
there shall be only one such committee for each bank. It has
been represented to the Board that in some instances the provisions of the regulation in this respect are impractical unless
alternates may serve in place of regular members of the committee when the regular members are unable to serve on account
of illness, vacations, or other duties. It has been suggested
that it might be appropriate for the Board to amend the regulation by adding the following footnote to subsection (c) of section 6:
"It is contemplated that there shall be a committee
the members of which shall have a continuity of responsibility for the discharge of the duties of the
committee. However, alternates appointed by the
board of directors may serve in place of regular
members of the committee who are unable to serve
on account of vacations, illness, or other good
and sufficient reasons if the service is under such
circumstances that it does not destroy continuity
of responsibility of the members of the committee
and if, whenever an alternate serves in the place
of a regular member of the committee, the minutes
of the committee show the reason for such service
in place of the regular member,"
It may be stated that this suggested amendment would
represent an extension of a previous ruling of the Board permitting service by alternates when regular members of the committee
are absent from the bank and that the suggested amendment would
apply not only to cases where regular members are absent from the
bank but also to cases where they are present in the bank* but are
unable to serve.
It is requested that the appropriate officers of your
bank, including the counsel for the bank, consider this suggested
amendment to subsection (c) and that you forward to the Board
your comments and suggestions thereon.
yours,
L. P. Bethea,
Assistant Secretary.
Inclosures
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
154
BOARD OF G O V E R N O R S
OF T H E
R-80
FEDERAL RESERVE SYSTEM
WASHINGTON
a d d r e s s
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
b o a r d
**##*#*
September 21, 1937
Dear Sir:
There is inclosed a copy of the Board*s functional expense
exhibit for the first half, 1937* which has been compiled from the
semi-annual functional expense reports (Form E) received from all
Federal Reserve banks and branches. Additional copies of the exhibit
are being forwarded to your bank under separate cover.
In our letter of March 27; 1937# the Federal Reserve banks
were asked for their comments with respect to the suggestion that the
functional expense exhibit prepared by the Board show approximately
the same detail for each function and expense unit as is contained in
the functional expense reports. While a majority of the banks indicated that the exhibit would be more helpful to them if it wore
prepared in greater detail, the thought was expressed that if the
exhibit were prepared in exactly the same detail as the reports, the
extra work might not be justified by the results obtained. For the
present it has been decided to show separately in the exhibit "salaries"
and certain other principal items of expense, but not all items. It
is hoped that the exhibit as thus revised and expanded will prove more
helpful to the banks in making comparisons than did former exhibits.
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations#
Inclosure
TO THE PRESIDENTS OF ALL F. R. BANKS
155
BOARD OF G O V E R N O R S
OF THE
FEDERAL RESERVE SYSTEM
r-81
WASHINGTON
a d d r e s s
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
b o a r d
*******
September 22, 1957.
Dear Sir;
The Board of Governors has considered the comments and
suggestions made by the Federal reserve banks in response to
its letter of July 30, 1937 (R-41) with respect to Regulation
A, Discounts for and Advances to Member Banks by Federal Reserve Banks, and has adopted a revision of the Regulation to
become effective October 1, 1957. Ten copies of the revised
Regulation are inclosed and additional copies are being sent
to you under separate cover.
A statement for the press with respect to the revised
Regulation will be released by the Board for publication in the
morning papers of September 27, 1957. A copy of the press
statement will be telegraphed to you prior to the release date.
It is requested that any statement given to the press by your
bank with respect to the Regulation be released for publication at the same time.
Copies of the Regulation and press release will be
sent directly to all member banks.
Very truly yours,
V
/
L/A_X'A—^
L. P. Bethea,
Assistant Secretary.
Inclosures.
http://fraser.stlouisfed.org/ TO PRESIDENTS
Federal Reserve Bank of St. Louis
OF ALL FEDERAL RESERVE BANKS.
• 156
BOARD OF G O V E R N O R S
OF THE
FEDERAL RESERVE SYSTEM
R-82
WASHINGTON
a d d r e s s
September 25, 1957.
SUBJECT:
Monthly Report of Bank and
Public Relations Activities.
Dear Sir:
There is inclosed for your information a summary of the bank relations reports submitted by the Federal Reserve
banks for the month of August in response
to the Board's letter of August 25, 1936
(X-9680).
Very truly yours,
L. P. Bethea,
Assistant Secretary.
Inclosure.
TO PRESIDENTS OF ALL F. R. BANKS
o f f i c i a l c o r r e s p o n d e n c e
t o t h e b o a r d
157
R-82-a
September 20, 1937.
TO
The Board
FROM
SUBJECT;
Summary of Bank
Relations Reports.
Mr. Van Fossen,
Division of Bank Operations.
Reports of bank relations as requested, in the Board's letter of
August 25, 1936 (X-9680) have been received for the month of August
and excerpts therefrom will be found on the following pages. A table
showing for all twelve banks the number of visits made, meetings attended, and addresses delivered has also been prepared and follows the
quotations.
The attitude toward the Federal Reserve System
The attitude of banks toward the Federal Reserve System continues
to be cordial but there is little interest in membership by non-members
for reasons that have long been familiar, but there also appears to be
a tendency to await developments along legislative lines.
Banking conditions
Demand for accommodation in general appears to be light. In a
number of instances mention is made of a decline in the demand for
loans under the provisions of the National Housing Act, although the-experience of banks with such loans seems to have been favorable. In
the case of some banks that sold preferred stock or secured waivers
of deposits in connection with reorganization during the depression,
it is said that there is little prospect that earnings will be sufficient to eliminate such liabilities in the near future if at all.
The investment problem continues to be the cause of considerable
concern.
General economic conditions
Industrial activity is commonly reported as being at a higher
rate than in 1936, although a seasonal falling off is now in evidence.
The market for real estate appears to have improved generally, but
building operations are said tc be restricted because of increased
labor and material costs. Crops in general appear to compare very
favorably with those of recent years, but prices of some farm products
show a tendency toward lower levels.
Excerpts from the reports follows
attached to the original hereof).
(The reports themselves are
-2
R-82-a
158
Boston
Thirty-seven member banks, two nonmember banks and several branch
banks, all located in the State of Maine, were visited during August.
Bankers and others interviewed reported business throughout the
State generally as being good, except in the extreme northeastern section (Aroostook County) which is devoted almost entirely to the growing of potatoes. It is estimated that the potato crop will be an exceptionally large one, which must be marketed in competition with the
large crops grown in other sections of the country. Early August
shipments to market were bringing around $1 a barrel but it was more
or less the general belief that the price for the crop would settle
around 60 cents. Good crops and prices are expected in sections devoted to the growing of the so-called canning crops.
>
The lumber industry is said to be thriving and in the manufacturing sections various mills making shoes, paper, and textiles are all
operating full time and in many cases with two and three shifts. Employment and payrolls are said to be at or above the level of a year
ago.
The seasonal tourist business has been exceptionally good, particularly along the seaboard, many estimating that it has been the
best the State has enjoyed in ten years, in spite of the fact that
this trade continues a demand for the cheaper grades of merchandise
and accommodations.
With few exceptions, loans have increased at most of the banks
and their earning position is stronger than it was a year ago. Many
of the smaller banks are obtaining a Q% rate on all loans. At the
larger banks the regular rates are from
to 6% with lower rates obtainable according to the type of loan and collateral. Bond portfolios
are said to be yielding between 5% and 4%.
No criticism of the administration and policies of the System was
heard at any of the banks visited - in several instances bank officials
expressed the high regard in which they held membership in the System.
The mechanics incident to the use of our various routine services are
well understood at the member banks and the benefits derived from these
services are frequently mentioned.
„
New York
Hunterdon County. New Jersey
The trend of deposits in the majority of cases during the past six
months has been moderately upward, although two banks report decreases.
One of the latter pays 1% percent on savings deposits while its competitor in the same village pays 2 percent. The executive officer,
however, does not attribute the loss of deposits to this lower rate,
-3-
R-82-a
159
Hew York continued
and his opinion appears to be confirmed 1yj the fact that deposits of the
competitor bank remain practically unchanged. Savings accounts make up
approximately 75 percent of the total bank deposits of all banks in the
county.
Total investment in bonds is generally higher or unchanged as compared to the figures of six months ago and almost all banks have increased
their holdings of United States government bonds to some extent. The
latter now comprise approximately 58 percent of total portfolios of all
banks in the county, as compared with 53 percent last February.
In general, the demand for accommodation continues light but three
banks report a fair to good demand, and loan and discount lists in the
majority of cases are increasing or at least holding their own. A rate
of 6 percent generally applies, although one bank cuts this to 5 percent
on loans made to its depositors, and other banks make 5 porccnt loans if
secured by prime collateral. One bank, however, has a maximum rate of 5
percent for all borrowers.
Passaic County (northeastern part of Mew Jersey)
All banks in the county pay a flat rate of 2 percent on savings or
thrift deposits.
Officers of some institutions visited emphasized that there has been
practically a complete falling off in the demand for Federal Housing Administration mortgages during the- last three months, and stated that
builders having houses on hand are unable to dispose of them. It is
said that this lack of demand for mortgage money is probably due to some
extent to the usual summer lull in the demand for houses but more particularly to the increasing costs of materials and labor which is acting
as an obstacle to new building. Bankers generally believe, however, that
there will be considerable pick-up in the demand for new houses after
Labor Day.
Dutchess County (New York State)
Total investment in bonds shows no material change, approximately
one-half of the banks reporting larger portfolios and one-half, smaller.
Holdings of United States government obligations, however, have increased
quite generally throughout all of the banks of the county, and now average almost 50 percent of the total.
Demand for accommodation on the whole continues light although eight
institutions report it as being fairly good or improving, and only five
banks show a material decrease in loan and discount totals since the
first of the year. A rate of 6 percent is generally maintained and very
few banks make any exception to this except in the case of loans to
municipalities or school districts.
160
—4—
R—82—a
New York continued
Herkimer and Oneida Counties (central New York State)
Loans Jiave continued to decline in a majority of the banks and only
three report any appreciable increase during the past year. The latter
institutions have obtained part of their new loans through opening personal loan departments and two have accepted substantial amounts of loans
insured under the National Housing Act. In most of the banks, interestrates on loans and mortgages have been maintained at 6 percent excepting
on municipal obligations.
Jefferson. Lewis, and St. Lawrence Counties (northern New York State)
On January 1 last, a state member bank reduced its rate from 2 to 1
percent, resulting in a loss of about $550,000 in time deposits. Some
consideration is now being given by a commercial bank to a reduction in
the interest rate paid on large balances but no definite decision has
been reached.
Since 1955, many of the banks have endeavored to improve their security portfolios through purchase of United States government issues and
other high grade bonds. In several banks government bonds compose nearly
50 percent of the total portfolio. In most of the small banks, however,
pressure for earnings has resulted in security accounts composed chiefly
of long term maturities, and, in some banks it is evident that the desire
for security profits plays a too important role in their investment policies, particularly in institutions which can least afford to risk any of
their principal.
Suffolk County (New York State)
Only three officers of member banks offered any criticisms of the Federal Reserve System, all referring to the fact that our safekeeping department will not handle their escrow accounts established for the county and
local municipalities. They point out that their correspondent banks are
complaining because of the unsatisfactory balances maintained, and they
think the Federal Reserve bank, which now holds most of their cash funds,
should offer every service rendered by correspondent banks including the
handling of escrow accounts of this type.
Philadelphia
Industrial activities reflect little more than the seasonal decline
and there has not been any great amount of labor trouble. There have been
some strikes but in most instances they have not been in the very large
industries located in this section.
The condition of the banks in general continues to improve but the
investment problem is still acute. It is probably due to the low earnings
obtainable through security investments that some of the banks have started
—5—
161
R-82-a
Philadelphia continued
to extend consumers' Credit and it would appear that this type of credit
will in the future assume a fairly important position in the loan portfolios of these institutions.
The real estate situation is improving but in many communities there
is little opportunity to dispose of any but i>ew properties, even though in
many localities the housing supply is not sufficient to meet the demand,
and rents are increasing.
Interest rates on time and savings deposits vary, with some institutions, particularly those in rural sections paying the maximum allowable
rate. One bank has a maximum rate of 1 percent and among the larger institutions lj percent seems to be the preferred rate on the lower balances
with graduated rates for larger balances. The loaning rate varies from 5
percent on collateral loans to 6 percent on unsecured loans.
The President of a National bank, which had about 60 percent of its
investment portfolio in government obligations, stated that he was changing his policy of investing as he was dissatisfied with the fact that the
Government was going further and further into the "red". This same bank
reduced the rate on savings accounts, to 1 percent. It is this officer's
contention that these accounts are for specific purposes and as the owners are not interested in yields, the funds may be withdrawn at any time.
This is the only bank in the Third Federal Reserve District, to our
knowledge, which pays so low a rate.
The officers of National banks in rural sections frequently comment
upon the difficulty of compliance with the Comptroller's insistence upon
statements in support of lines of credit exceeding $500. The President
of one bank said that he gets many unfavorable reactions from customers
who have loans affected by this policy. He quoted one customer whose note,
he says, is safe and who is the Borough Treasurer, as having stated that
he did not understand why the Comptroller left this President in charge of
the bank, if he felt he could not grant a $1,500 loan to people with whose
affairs he was well acquainted. This officer stated that before they will
give statements many of the customers having loans of one, two or three
thousand dollars will pay off the loans, often with funds borrowed elsewhere. This, he says, loses a customer for the bank and reduces its income.
Cleveland
The primary interest of bankers in this district, based on conversations with them in this bank and elsewhere, appears to be in the status of
their bond accounts. Some bankers, in anticipation of higher money rates,
are selling long term issues and investing in comparatively short maturities
of Governments and other obligations.
R—8 2—8.
162
Cleveland continued
We continue to receive complaints from member banks based upon differences in regulations issued by the Board of Governors and those of
other supervising agencies. This is particularly true of Regulation Q of
the Board of Governors of the Federal Reserve System and Regulation IV of
the Federal Deposit Insurance Corporation in so far as it relates to the
payment of time deposits before maturity.
Richmond
One of the reasons most frequently advanced by the officers of small
nonmember banks concerning their objections to membership is the fact that
the loss of exchange derived from an exchange charge for paying their own
customers' checks would be most substantial. One of our representatives
reports a nonpar nonmember bank in North Carolina which, through its cashier,
said that in considering membership the question of exchange was not taken
into account, since this officer felt that the services offered through
membership and the prestige which membership would entail would be more
desirable in the long run than the revenue now derived from exchange.
One of our representatives reports that in the State of Maryland
there arc a number of small State banks which were subjected to drastic
plans of reorganization following the moratorium in 1953. Many of these
plans include a substantial waiver by depositors. Some of these plans
provide further that the waiving depositors are to be reimbursed in full
before dividends can be paid to the stockholders of the banks. Cases have
arisen in which the trusteed assets will be insufficient to pay the waiving depositors in full. Therefore, in days when earnings are small, the
process of finally paying out these waiving depositors in full is likely
to be a long-drawn-out affair. The officers of one nonmember bank which
is going through a process of reorganization similar to that described
told our representative that, barring extraordinary losses, twenty-five
years of normal operations would be required to restore the amount due
the waiving depositors.
Atlanta
(Atlanta submitted only statistical information as to the number of
banks visited.)
Chicago
Most of the activity in the Bank Relations Department during the month
of August centered around the distribution of a booklet describing the operations of the Federal Reserve Bank of Chicago, copies of which were sent to
the members of the Board of Governors of the Federal Reserve System and to
each Federal Reserve bank.
R-8 2—a
163
-7Chicago continued
The booklet was distributed largely through our member banks. On
August 4 we addressed each of the 759 member banks in the district, enclosing a copy of the booklet and stating that a specified number, ranging from 100 to 500 booklets, had been allotted to each bank for distribution to its customers; that in case the bank wished to participate
in the program, the booklet would bear an imprint showing that the bank
was a member of the Federal Reserve System; that if it would provide us
with a list of its customers we would mail the booklets direct from this
office with no cost to the member bank, and that additional copies over
the original allotment could be obtained at a cost of five cents each
plus cost of mailing or transportation charges. To date we have received requests from 685 banks (approximately 90% of membership) for
172,500 booklets. Of these banks, 155 ordered more than their quota.
On the whole, the response has been gratifying. Some of the banks
simply indicated a wish to participate, but many others took occasion
to express complimentary views on the idea, or the booklet, or both.
When the booklets were mailed to the customers, the member bank was advised to that effect and a statement for newspapers was enclosed with
the suggestion that it be handed to the local newspaper in the thought
that it might bring some favorable comment on the bank's membership in
the System. The results from this were also satisfactory.
In addition to the distribution through member banks, booklets
were sent to all non-member banks, banking associations, banking departments, bank examiners, in the district, as well as to some trade
and financial, journals, special lists which our Statistical Department
maintains, newspapers in larger cities, etc. Numerous individual requests for the booklets have been received both by letter and in person.
A number of our member banks have asked for additional copies for counter
distribution, stating that they have had inquiries as a result of the
general distribution or of newspaper publicity. We expect to distribute
from 180,000 to 200,000 copies.
St. Louis
Throughout the portion of Illinois and Missouri visited in August,
conditions continue to improve as compared with the same period in 1936.
Though in some sections the condition of growing corn became less satisfactory, owing to the lack of rainfall during the first twenty days of
the month, the outlook for large corn yields is considered excellent.
In both States the average yield from oats was above normal and there
is every indication that hay, soy beans, and other roughage crops will
also be satisfactory. Wheat harvest was fairly successful in the Illinois
territory visited, but the crop was below normal in northwestern Missouri,
where rust caused heavy damage.
164
R-8 2—&
-8-
St, Louis continued
Industrial activities show no appreciable change in the smaller communities visited as compared with last summer. With a few exceptions
where temporary labor disputes prevail, industrial employment maintains
approximately the same satisfactory levels which existed a year ago.
As the result of generally satisfactory employment conditions and
increased purchasing power of persons engaged in agricultural pursuits,
especially in Illinois, retail trade maintains the increase shown in
July and indications point to a continuance of this trend.
Almost without exception the bankers visited report increased deposits resulting from sales of various farm commodities, especially wheat.
This has caused renewed study to be given the perplexing problem of investments, with a trend toward securities having an early maturity, owing to the possibility of a change in money rates. Few country banks
can find sufficient local outlet for their surplus funds, and the ratio
of cash and exchange remains abnormally high.
The attitude of bankers toward the System was generally friendly,
practically no adverse comment being made except in connection with increased reserve requirements. One bank complained that it had to sell
a block of securities to meet the increase, and another said it was compelled to terminate its account with its St. Louis correspondent in
order to obtain the necessary funds.
Several bankers commented on the benefits of membership, specially
in connection with the use of custody and currency facilities, and the
willingness of Reserve Bank officers to be of assistance. One or two
remarked that they are well pleased with the arrangement by which a
member bank can authorize the Reserve Bank to accept and pay for bonds
delivered for its account by brokerage houses.
In connection with the petition of certain banks in western Missouri
to be transferred to the Tenth Federal Reserve District, three national
banks and one nonmember in that section commented on improvement in the
service to and from St. Louis. Three of them stated that currency shipments are received as quickly from St. Louis as they could be from
Kansas City. All indicated that no benefit can be achieved by the proposed change, in spite of the fact that they are closer to Kansas City.
One made the statement that the movement is inadvisable and inopportune.
On the other hand, another nonmember in the area is definitely in favor
of the transfer, and will await developments before giving further consideration to membership in the System.
165
R-82-a
-9Minneapolis
Most country bankers have had only a limited amount of experience
with bonds. Realizing their "inexpertness", many of them subscribe to
one of the recognized bond advisory services and/or the University of
Minnesota's Financial and Investment Review. From the position in which
some of these bankers found themselves during a recent week, during
which second-grade bonds were steadily declining, it was evident that
while they are quite willing to purchase recommended bonds, they are not
so ready to dispose of them. One banker definitely stated that he did
not believe bond services were "worth the price" to country bankers because they won't follow their advice! A nonmember banker boasted that
the average yield on his bond account was 5 percent. (His chief rorry
at the moment was that the market price of his bonds was declining but
was consoling himself with the hope that the market would rise again
as soon as funds realized from the 1957 crop were deposited.) One member banker was "playing with good second-grade bonds" in order to step
up his earnings. He too thought the decline in those issues was only
temporary. . "The collateral behind them is just as good now as when I
bought them two months ago, so why should I sell them and take a loss"
expresses his viewpoint. About one-third of the bankers confine their
purchases to the shorter term direct and Indirect government obligations and local municipal and state issues (a few of these accounts
showed an appreciation); about one-third had had sufficient local loan
demand to utilize most of their available funds and consequently their
bend accounts were very small (U. S. Savings Bonds and a few others)
but nearly one-third of the bankers were buying bonds for "profit" instead of "investment", i.e., were buying bonds that they did not expect
to hold to maturity.
A few of the bankers in the larger towns, especially those in the
larger institutions, had quite definite opinions regarding the Patman
Bill. Generally, they did not see that the passage of the bill would
make any fundamental change in the operations of the Federal Reserve
banks. However, they all expressed concern regarding what might happen.
The presidents of the two largest banks both said they would hate to
see the present executives of the Minneapolis bank, who have had commercial banking and business experience, replaced by "idealistic bureaucrats " or by men imbued with the government's present "anti-private industry attitude", but if such changes were not made, they did not see
that it would make much difference. In general, the bankers were inclined to look beyond the actual bill for its real purpose. If the
ultimate objective was to convert the Federal Reserve banks into "political plum trees", they were definitely opposed to it, but if not, they
saw no reason for objecting to it. None of them mentioned "stockholders
rights" although one or two said they would like to "retain the last
good 6 percent investment" they had.
—10—
R-8 2—a
Minneapolis continued
Montana
The increase in reserve requirements was not a hardship at any member bank except in the wool country. At a few banks it was stated that
the reserve increase came at tax paying time and before the marketing
cf wool so that loans were at their seasonal peak and cash reserves
were low. Even these banks appeared to have suffered no serious discomfort from this action.
One nonmember banker stated that he was not interested in Federal
Reserve membership because of the unsettled state of Federal banking and
monetary legislation. On the other hand, he stated that a number of disturbing bills had been presented to the Montana legislature at the last
session, and that if any legislation of this sort was enacted he would
liquidate his bank rather then join the System or nationalize his institution.
Another nonmember banker stated that he would not join the Federal
Reserve Ejystem because in .1917 his membership was solicited with the argument that by joining the System he could borrow at a low rate of interest and lend the funds at home at f high rate. He did not think that
i
this was a sound principle for a central bank to state. While our representative feels sure that his recollection is faulty in this matter,
he was very firm in his conviction.
Red River Valley and northeastern North Dakota
Interest paid on time deposits reported to be 1-1/2 percent in the
larger towns and 2 to 2-1/2 percent in the smaller and more remote villages .
None of the State banks appear to be interested in membership.
Many of them said thtgr could not exist without the revenue from exchange
charges on items received in cash letters. Some of the bankers deplored
the excessive exchange charges being made by certain banks. A "grievance
committee" of the North Dakota-Bankers Association is working on the
problem of excessive exchange rates with a view of establishing uniform
and reasonable charges .
Demand deposits predominate and most bankers said their banks were
in very liquid condition, with large cash reserves.
Kansas City
Since the raising of reserve requirements and the flurry in the government bond market last spring, the recent reductions in the rediscount
rate in several reserve districts is probably attracting more attention
R-82-a
—11—
167
Kansas City continued
among bankers than any other strictly banking question. The event is
too recent and reports too fragmentary for anything more than a preliminary report, but a variety of opinion has already been expressed. For
some time there has been widespread dissatisfaction with the return on
earning assets and some bankers have expressed the opinion that the rate
reductions are evidence of the desire of the Treasury to prolong favorable borrowing conditions.
The tendency appears to be to associate the rate reductions with
the government bond market and with the Treasury's and the Reserve
banks' responsibility for the price of these securities. The question
is raised what the attitude would be of these same agencies in the event
of a radical drop in the price of government issues. Banks are interested
in the question how supervising authorities would look upon losses in government bond accounts and what base lending agencies would use in making
advances on depreciated securities.
Dallas
Central Texas
Increase in reserve requirements was not a matter of concern to the
member banks visited, since they had adequate available cash to meet the
increased requirements without borrowing or in any manner hampering
their operations.
There is no noticeable increase in demand for credit at any of the
banks visited and no prospect for need of our rediscount facilities.
The principal complaint was lack of demand for credit. The one nonmember visited was of the opinion membership would not be of any value
and that too many regulations and restrictions are imposed upon state
members.
Banking, business and agricultural conditions are favorable, with
prospects for cotton production better than for several years.
San Francisco
Yakima Valley, Washington
The Yakima Valley is looking forward to low prices for apples and
hops. The prospective apple crop in the United States is so much larger
than last year's that there appears to be no possibility of prices as
high as were received for the 1956 crop. The hop prospects are so poor
that bankers are making no loans to pick hops unless the borrower has
ample other assets from which he can pay.
R-82~a
168
—
San Francisco continued
The price for lambs and cattle continues to be good end, due to
the demand for dairy stock from California, it appears that dairy cows
will move at pretty good prices all winter.
The diversity of production in the Yakima Valley is such that the
banks expect business conditions to continue on about the present base
even though some of the crops will not be sold at a profit.
Eastern Washington
The wheat yield per acre is much larger than normal as the season
has been very favorable for wheat growing in this particular section of
the Big Bend near Spokane. While the total bushels for the district
may not be much more than last year, bankers are pleased with the acreage production. The only wheat moving is that which was contracted for
early in the season. The price having dropped, the farmers who had not
contracted their wheat are holding. Bankers look for more loans on
warehouse tickets this year than for several years past.
The Palouse wheat crop is thought by most bankers to be a very good
one and the early season estimate by the County Agent of 12 million bushels is still expected. Harvesting will be very late this year and, in
the higher sections, may run beyond the middle of September. There is
some indication of rust in wheat which is being cut now, which, if it
persists throughout the later cutting, will materially affect the
growers' crops.
Peas have been a very good crop this year, but the price, while
nominally 1-1/2 cents a pound, is usually 1 or 1-1/4 cents if anyone is
forced to sell. The peas contracted for early were 1-1/2 and 1-3/4 cents.
There are some other peas moving, but the larger bulk of the peas sold
thus far have been the contracted crops.
>
PUBLIC RELATIONS ACTIVITIES OF FEDERAL RESERVE E k M S
AUGUST, 1937
Federal
Reserve
Bank
Boston
New York
Philadelphia
Cleveland
s
Visit, to banks
rion.lumber
Total
member
37
124
73
2
46
16
Meetings attended
dumber
39
170
89
12*'*
hone
ivone
1
Bono
Richmond
Atlanta
Chicago
St. Louis
25
S
13
57
75
3
20
7
100
11
33
44
None
Hono
Bone
None
Minneapolis
Kansas City
Dallas
San Francisco
3
16
3
29
11
9
1
10
19
25
4
39
1
2
None
4
* Attendance b 1 not reported
it
' Courtesy calls
~
;
H
Attendance
—
Addresses made
Number
None
None
None
1
None
None
None
None
,
100
•30
— —
15^
None
#one
rione
None
Attendance
—
— —
—
40
— —
— —
170
R-83
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For release in morning newspapers
of Monday, September 27, 1957.
September 25, 1937.
The Board of Governors of the Federal Reserve System
has issued, effective October 1, 1937, a general revision of Regulation A, governing discounts and advances for member banks by
Federal Reserve banks.
The revision formally incorporates into
the Board's regulation various legislative provisions enacted by
Congress since the previous revision was issued in 1930.
Revision of Regulation A has been considered by the
Board since the passage of the Banking Act of 1935 which liberalized and made permanent the emergency provisions of the law permitting advances to member banks on any sound assets.
Under these pro-
visions of the law, Federal Reserve banks are given authority to
make advances upon any sound assets of member banks for the purpose of enabling them to meet seasonal or other requirements of
commerce, industry and agriculture which are consistent with the
171
R-83
maintenance of sound credit conditions.
The issuance of the revised regulation at this time is an
appropriate sequence of the System's recent reduction of discount
rates.
The Regulation further implements the Eastern's policy of
monetary ease by liberalizing and consolidating the rules and methods
affecting the lending function of the Federal Reserve System.
In a preface to the regulation, the Board states that the
guiding principle underlying the discount policy of the Federal Reserve banks is the advancement of the public interest and recognizes
that the lending function of the Federal Reserve banks is hot automatic
but is an instrumentality of the System's general credit policy.
The regulation makes few changes in the technical rules for
eligibility which have prevailed since the System was established.
It
does, however, make eligible for discount a large amount of paper of commission merchants and finance companies, including paper drawn to finance
installment sales of a commercial character.
The regulation lists specifically the following classes of assets which may be accepted as collateral for advances by Federal Reserve
banksi
Securities defined by the Comptroller of the Currency as eligible
for investment by national banks, loans on stocks made in compliance with
172
-3-
R-83
the Board's Regulation U, mortgages and loans Insured under Titles
I or II of the National Housing Act, debentures and bonds issued
by Federal Home Loan banks or under authority of the Federal Farm
Loan Act, bills, notes, and revenue bonds and warrants issued by
States or other political subdivisions, obligations issued or drawn
for the purpose of financing real estate, and obligations issued
for the purpose of financing the sale of goods on an installment
basis.
In addition to the specified classes of assets, the regulation provides further that, when in the judgment of a Federal Reserve bank circumstances make it advisable to do so, the banks may
accept as security for an advance any assets satisfactory to the Federal Reserve bank.
The regulation, therefore, bars no class of paper
from use as collateral fof advances but merely inditiatss a preferred
list of paper which covers all the principal fields of financing.
In order to encourage member banks to have their real estate
loans and installment paper acceptably as a basis for advances at the
Reserve banks, the Board in an appendix to the regulation recommends
certain minimum standards for observance in making such loans.
In
establishing rule* which in effect make all sound assets of member
banks eligible as a basis for advances by the Federal Reserve beaks
the Board had in mind the fact recognized by Congress in the Banking
Act of 1955, that under our banking system member banks carry time
deposits as weljl as demand deposits, and since those banks are custodians of the funds representing the savings or capital accumulation
of the people, they properly invest a part of their funds in longtime paper.
Consequently, provision should be made whereby such paper
may be used in case df need as a basis for advances from the Federal
Reserve banks.
The principles underlying the new regulation are the same
as those underlying recent modification of the Federal Reserve Act.
Experience
demonstrated that the solvency of banks is better safe-
guarded by careful regard to the quality of the paper which, they acquire than by strict observance of the form that this paper takes, and
that greater ampjiasis on soundness and less emphasis on form is a
sound banking principle.
The Board was also guided in its determina-
tion of eligibility requirements by the recognition of the fact that
at a time of a deflationary development it is important for the Federal Reserve System to lend with the greatest freedom consistent with
safety.
At such times technical limitations on the character of eli-
gible paper endanger rather than protect,..the safety of the banking
structure.
By describing in the regulation the character of paper that
will have first claim for ndvancqp the Board hopes to encourage better
and safer banking practices.
At the same time the Board believes
that the assurance of support in case of need given to member banks
whose lending and investment practices comply with the minimum standards laid down by the Board -will encourage the banks to give their
communities the financial services that they require.
174
R-84
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For release in morning papers,
Tuesday, September 28, 1937.
The following summary of general
business and financial conditions
in the United States, based upon
statistics for August and the
first three weeks of September,
will appear in the October issue
of the Federal Reserve Bulletin
and in the monthly reviews of the
Federal Reserve banks.
In August industrial activity advanced from the level of the
two preceding months and on a seasonally adjusted basis was close to
the volume of last spring.
Early reports for September indicate a de-
cline in steel output and a seasonal decrease in the production of automobiles.
Production and employment
Volume of industrial production, as measured by the Board's
seasonally adjusted index, was 117 percent of the 1923-1925 average in
August as compared with a level of 114 percent in June and July and 118
percent during the spring.
Steel production rose slightly further and
was close to the high level prevailing before strikes curtailed output
in June.
Automobile production was maintained in considerably larger
volume than is usual in the month preceding the shift to new model production.
Lumber output declined, following a period of increase.
In
the nondurable goods industries output increased in August, reflecting
—2—
R—84 m l*. —
175
chiefly increases at cotton and woolen textile mills, following considerable declines in the preceding month.
Activity at meat packing establish-
ments increased somewhat from an extremely low level.
showed less than the usual seasonal rise.
Shoe production
At mines, output of coal in-
creased less than seasonally, while crude petroleum production continued
to expand.
Value of construction contracts awarded, as reported by the
F. W. Dodge Corporation, declined somewhat in August and the first half
of September.
Awards for private residential building showed little
change and were in about the same volume as in the corresponding period
of 1936, while publicly-financed residential building declined and was
in considerably smaller volume than last year.
Factory employment, which had increased in July, showed less
than a seasonal rise in August.
the usual seasonal amount.
Factory payrolls increased by about
The number employed at steel mills increased
somewhat further, while at automobile factories, railroad repair shops,
and sawmills employment declined.
In the textile industries employment
in the production of fabrics decreased somewhat, while employment in the
production of wearing apparel increased.
Changes in employment in most
other manufacturing industries were small.
Agriculture
Department of Agriculture crop estimates based on September 1
conditions were about the same as the estimates a month earlier, except
for an increase in cotton and a decrease in corn.
crops is substantially larger than last season.
Output of leading
Supplies of livestock
and meats are expected by the Department of Agriculture to continue
smaller than last year.
-5-
R-84
Distribution
1 7 6
Mail order sales and sales at department stores showed somewhat less than the usual seasonal increase from July to August.
Freight-
car loadings continued at the level of the previous month.
Commodity prices
Cotton prices declined considerably further from the middle of
August to the third week of September and there were smaller decreases in
cotton goods, silk, hides, steel scrap, copper scrap, and lumber.
Prices
of livestock and livestock products, after some decline in the latter part
of August and the first week of September, advanced sharply in the middle
of September.
Bank credit
Excess reserves of member banks increased in the five-week period ending September 22 from $800,000,000 to $1,000,000,000 as the result
of a release of gold by the Treasury from its inactive account.
The bulk
of the increase in excess reserves went to New York City banks and on September 22 these banks had excess reserves of $350,000,000, Chicago banks
had $50,000,000, and banks elsewhere $600,000,000.
Commercial loans at reporting member banks in 101 leading cities,
reflecting in part seasonal demands, continued to increase substantially
during the four weeks ending September 15, both in New York City and outside.
j
Holdings of United States Government obligations and of other se-
curities showed a further decrease, with the result that total loans and
investments declined somewhat.
Money rates
Rates on 9-month Treasury bills declined from 0.71 percent early
in September to 0.44 percent later in the month, and average yields on long-
1
term Treasury notes declined from about 1 5/8 percent to below 1 l/2 percent.
177
BOARD OF G O V E R N O R S
OF THE
R-85
FEDERAL RESERVE SYSTEM
WASHINGTON
a d d r e s s
o f f i c i a l
t o t h e
September 27, 1957.
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:
"M0Z1AN" - Treasury Bills to be dated
September 29, 1937, and to
mature June 29, 1958.
This word should be inserted in the Federal Reserve Telegraph Code book, following the
supplemental code word "NOZHIR" on page 172.
Very truly yours
J. C. Noell,
Assistant Secretary.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
c o r r e s p o n d e n c e
b o a r d
178
BOARD OF GOVERNORS
OF" THE
R-86
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 2, 1937.
SUBJECT:
Code Word Covering New
Issue of Treasu~ 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
NOZIRE 11
-
Treasury Bills to be dated
October 6, 1937, and to
mature July 6, 1958.
This word should be inserted in the Federal Reserve Telegraph Code book, following the
supplemental code word "NOZIAN" on page 172.
Very truly yours,
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
179
BOARD OF' GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS DFF'ICIAL CORRESPONDENCE
TD THE SDARD
R-87
October 5, 1937
Dear Sir:
Referring to the Board's letter B-1186 of January 5, 1937,
following is a statement of chan[ses during September in the list of
nonmember banks that have filed agreements with the Board pursuant
to the provisions of Section 8(a) of the Securities Exchange Act
of 1934:
Delete the "Stoneham Trust Company 11 , Stoneham, Massachusetts,
from page 2 of tho list and add it to page 5 under tho heading relating
to banks no longer in operation us nonmember bunks with tho following;
note:
11
{:Merged into Middlesex County Natj.6na.l Bo.nk of Everett,.
Everett, Massachusetts, as of September 13, 1937.) 11
Very truly yot,rs,
E. L.Smead, Chiof,
Division of Bank Operations •
.
TO
ALL FEDERAL
RESERVE AGENTS
1.80
BOARD OF GOVERNORS
R-88
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE
TO THE SOARD
October 6, 1937.
SUBJECT:
Change in Interdistrict
Timo Schedule.
Dear Sir:
Upon request of the J!'ederal Reserve Bank
of St. Louls t.he Board of Governors of the Federal Reserve S,ystem has approved the following
change in the Inte:rdistrict Time Schedule for
cash items:
St. Louis to Nashville
2 days
1 day
Very truly yours,
~'?)--
r7~<··'-~_,__.
L. P. Bethea,
Assistant Secreta~J.
TO i,RESIDENTS
Q]'
ALL FEDERAL RESERVE
Bfu.~KS
18:1
R-89
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F'ICIAL CORRESPONDENCE
TC THE BCARD
October 9, 1937.
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
de signa ted to cover a nevJ issue of Treasury Bills:
"NOZIST" - Treasury Bills to be dated
October 13, 1957, and to
mature July 13, 1958.
This word should be inserted in the Federal Reserve Telegraph Code book, following the
supplemental eode word "NOZIRE" on page 172.
t
J. C.
l~ooll,
Assistant SecretarJ.
TO PllliSIDENTS OF ALL FEDERAL HESERVE BANKS.
182
BOARD OF GOVERNORS
R-90
. OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE SOARD
October 12, 1957.
Dear Sir:
There is attached a copy of the report of expenses of the main lines of the
l'ederal Reserve Leased Wire System for the
month of September, 1957.
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 L~rough the Inter-District
Settlement Fund for the account of tbe Board
of Governors of the Federal Reserve System,
and advise the Federal Reserve Bank of Rich-.
mond qy· wire the amount and purpose of the
crcdi t.
Very truly yours,
0. E. Foulk,
Fiscal Agent.
Inclosure.
TO PRESIDENTS OF ALI. FE:DERAL RESERVE
BAi~KS
.R-90-a
REPORT OF' EXPENSES OF' iv1AIN LINES OF FEDERAL RESERVE
LEASED WIRE SYSTEM FOR THE MOi~TH OF SEPTENiBER, 1957.
Number
of
words
sent
Yi"ords sent
by l~. Y.
chargeable
to other
F.R. Banks
56,564
158,862
29,278
52,084
54,299
56,158
85,902
67,805
29,086
'66,224
56,821
90,814
1,257
Federal
Reserve
Bank
Boston
Nei'l York
Philadelphia
Cleveland
Ricr.illlond
Atlanta
Chicago
St. Louis
Mi1ltlef!polis
Kansas City
Dallas
San Francisco
Board o:f
Governors
Total
1,251
1,277
1,223
1,212
1,576
1,254
1,206
1,556
1,212
1,201
37,601
158,862
30,529
55,361
55,522
57,550
87,478
69,057
30,292
67,560
58,033
92,015
Personal
services(l)
Total
expenses
lf~ire
rental
$ 251.78 $
$
994.67
256.61
261.93
194.11
276.07
1,156.07
188.15
155.55
259.03
267.75
473.04
Pro rata
share of
total expenses(2)
251.78 $
624.17
994.67
2,505.09
256.61
506.78
261.93
885.78
194.11
921.66
952.00
276.07
1,156.07
1,452.12
188.15
1,146.34
135.55
502.84
259.05
1,121.49
267.75
963.54
473.04
l,t•27.44
Credits
$
251.73
994.67
256.61
261.95
194.11
276.07
1,156.07
188.15
135.55
259.05
267.7 5
473.04
444,022
444,822
1,208,497
Total
VTords
chargeable
13,985
1,704.24
15.894.06
15,598.30
7' 583.99
6,398.98
15,894.06
20,293.04
20,295.04
20,295.04
$ 572.39
1,310.42
270.17
623.85
727.55
675.93
296.05
958.21
567.29
862.46
695.59
1,054.40
15,598.30
1,222,482
Payable
to
Board
of Governors
8,214.31
(l) Includes salaries of main line operators and of clerical help engaged in vmrk 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 ($.016599868) for business handled during the month.
184
BOA~D
OF GOVERNORS
R-91
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
October 16, 1957.
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 1ssue of
Trcasu~r
Bills:
"NOZJ"AB" - Tr.)a.sury Bills to be dated
October 20, 1937, and to
mature July 20, 1958.
This word should be inserted in the Federa1 Rcsorve Tolograph Code book, following the
s:1.pplomental code word 11 NOZif1T 11 on page 172.
J. C. Noell,
Secretary.
As~istant
TO PRESIDENTS OF ALL FEDERAL RESERV:S BANKS
185
BOARD OF" GOVERNORS
R-92
CF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
AOORE5151 CF"F"ICIAL CCRRESPCNOENCE
TO THE BCARO
October 16, 1957.
Dear Sir:
There are inclosed herewith copies
of statement rendered b,y the Bureau of Engraving and Printing, covering ·the cost of
_preparing Federal reserve notes for the
month of September, 1937.
Very
tru~
yours,
0. E. Foulk,
Fiscal Agent.
Inclosure.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
186
R-92-a
Statement of Bureau of Engraving and Printing
for furnishing Federal Reserve Notes,
September 1 to 50, 1957.
Federal Reserve Notes, Series 1954
$10
$20
Total
Sheets
Amount
Boston
105,000
20,000
125,000
$ 12,000.00
New York
125,000
25,000
150,000
14,400.00
90,000
25,000
115,000
11,040.00
Cleveland
100,000
25,000
125,000
12,000.00
Richmond
45,000
25,000
70,000
6,720.00
Atlanta
45,000
25,000
70,000
6,720.00
Chicago
100,000
50,000
150,000
14,400.00
40,000
5,840.00
55,000
5,280.00
55,000
5,560.00
Philadelphia
St. Louis
40,000
Minneapolis
50,000
Kansas City
55,000
Dallas
90,000
50,000
140,000
15,440.00
San Francisco
75.000
40,000
115,000
11,040.00
880 1 ooo
510.000
1 1 190 1 000
$114.240.00
25,000
1,190,000 sheets@ $96.00 perM, •••••••• $114,240.00
187
BOARD OF GOVERNORS
R-93
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
AOORESS OFFICIAL CORRESPONDENCE
TC THE BCARO
October 22, 1937.
SUBJECT:
Monthly Report of Bank and
Public Relations Activities.
Dear Sir:
There is inclosed for your information a summary of the bank relations reports
submitted by the Federal Reserve banks for
the month of September in response to the
Board's letter of August 25, 1956 (X-9680).
Very truly yours,
Chester Morrill,
Secret.::try.
Inclosure.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
R-93-a
188
October 15, 1937.
TO
The Board
FROM
Mr. Hammond,
Division of Bank Operations
SUBJECT:
Summary of Bank Relations
Reports.
Reports of bank relations as requested in the Board's letter of August 25, 1936 (X-9680) have been received for the month of September and
excerpts therefrom will be found on the following pages. A table showing
for all twelve banks the number of vistts made, meetings attended, and addresses delivered has also been prepared and follows the quotations.
The attitude toward the Federal Reserve System
Among western bankers there continue to be frequent complaints about
the higher reserve requirements now in effect, on the ground that they make
it necessary - or may make it necessary - for member banks either to borrow
or to sell investment securities. Also in the west and in the south tho
necessity of charging exchange is a barrier to membership. At the same
time bankers appear conscious of a strong and possibly increasing resistance from the public to exchange charges. The opposition of bankers to
the McAdoo and Patman bills is frequently expressed, both personally and
in resolutions.
Banking conditions
New York, Philadelphia, and Richmond comment upon the fact that numerous banks are making no progress toward retirement of their preferred
stock or other contingent liabilities resulting from reorganization.
Cleveland reports that the Ohio banking authorities are about to issue
regulations, analoeous to the Board's Regulation U, governing the margin to
be required on collateral loans.
General economic conditions
In the east, summer travel and industrial activity have made business
good in many places, and in others - particularly in the coal regions of
Pmmsylvania - conditions have continued to bo discouraging. In the west,
the early promise of an exceptionally go0d farming year was in many places
frustrated by drouth, heat, and &r~sshoppors, though in general crops wero
abtmdant, and livu stock is in good condition but scarce. In the south,
conditions appear generally favorable, except for tho fall in the price
of cotton.
Excerpts from the reports follow:
tached to the original hereof.)
(The reports themselves are at-
1_89
R-95-a
-2-
Boston
Throughout the several sections of the district visited during the
period of this report bankers and others interviewed referred to general
business conditions in their respective communities as being good. In
those sections catering principally to the summer tourist and resident
trade this season's business has been the best experienced in several
years. This is notably true in northwestern Connecticut where there has
been
constantly increasing demruld for residential country and village
property, the demand coming largely from Now York. It is reported that
ti1is demand is gradually extending into the state, having been particularly noticeable this past spring and summer.
a
..
In tbe various manufacturing towns, mills and·factories arc operating most departments full time with employment and payrolls at or above
the levels of a year ago. No indica.tions of probable labor disturbances
are apparent at the present time, according to those interviewed. In some
of these towns there is a marked shortage of housing facilities, with
little or no residential building underway or in contemplation.
Lending rates at
collateraled loans are
lower rates obtainable
collatern.l. Mortgages
the banks range from six per cent downward - well
readily made at from four to five per cont, with
according to the size of the loan and character of
aro made at five and five and one-half percent.
Only a fow banks in the larger cities reported any marked incroase
in the demand for loans at this season over the demand of a year ago,
~1ough on tho whole the portfolios of the bunks visited ~r0 somewhat
larger. A good many of tho banks in the manufacturing towns, particularly in Connecticut, are operating small loan departments and individual
banks report this business to have grown substantially over the past year.
The interest of banks located in non-payroll towns is being attracted to
this operation, and the na.ture of the inquiries made at some of these
banks would seem to indicate that they are giving consideration to the
advisabili "t?J of setting up personal loan departments.
The present reserve requir~ment wns tho only matter complained of
at any of the banks visited, and at only two or three of the smaller banks
was the subject referred to. Routine operations between the Federal Reserve Bank of Boston and the member banks visited are being conducted in
a manner satisfactory to the latter nnd no suggestions were offered us to
how our various services might be improved.
New York
Monmouth County, New Jerse;y
Banks located in summer resort sections along the coast had a considerable increase in deposits as a result of the good summer season but
-5-
R-95-a
:190
New York continued
many were unable to use these temporary funds to any great advantage and
consequently held them as idle cash. A few banks, however, employed some
of their funds in such short term investments as commercial paper purchased in the open market, bonds called for payment during the fall ~onths,
and United States Treasury bills and notes. The officer of one member bank
remarked that he had purchased $200,000 commercial paper having six months'
maturit,r and yielding 1 per cent, and commented that if his summer money
is withdrawn faster than he anticipates, he will probably obtain funds
through rediscounting as much of this paper as necessary at the Federal
Reserve bank, taking advantage of the recent reduction in the discount
rato to 1 per cent.
Several bar~ers mentioned t~~t income obtained from service charges
is a material help to earnings, some giving varying amounts ranging from
10 to 20 per cent of net earnings as being· deriv~d from this source.
Delaware and Sullivan Counties, New York
Ten of the twenty-four banks in these counties report a small appreciation remaining in their bond portfolios. Officers of a £ew other institutions were non-committal, while nine definitely stated that the market value of their securities was now less than book. Practically all
bankers introduced the subject of the recent decline in the stock and bond
markets and expressed considerable apprehension and discouragement as to
the future trend. United States government obligations, direct or fully
guaranteed, co~pose approximately 42 per cant of the securities held by
the banks in this territory. ·
Only three banks reported any material increase in their loan portfolios, and a number of executives remarked upon the difficulty in a~ding
to their loan lists in view of the constant pressure being exerted by ex~
aminers for substantial reduction in some of the existing loans.
A number of bank officers discussed the activities of tho Production
Credit Association. For the most part, they feel that this agency is not
competitive because of the high rate charged, the stock ownership feature,
and the greater risk involved. One, however, voiced a very emphatic protest and stated that in his territory the Production Credit Association
has been making many loans which should be made by the banks.
The subject of reserve requirements was nowhere mentioned and it would
appear that none of these institutions are suffering any real hardship as
a result of the increases. Several banks, however, have found it necessa~J
to borrow during recent months, this borrowing being due in most cases to
s¥asonal requirements or to the withdrawal of public funds.
191
-4-
R-93-a
New York continued
Nassau County, New York
Forty-three of the commercial banks in this county have issued preferred stock, capital notes, or debentures, the total amount being
$6,887,000. One bank has retired its entire issue of t-75,000 and twentyfive have paid off an aggregate of $648,780 of the original amount. One
state member bank has completed plans to retire its capital notes by sale
of preferred stoch: and two nonmember state banks are working on recapitalization plans whereby their debentures are to be converted into preferred
stock. Of the seventeen institutions which have not retired any of their
capital issues, twelve have an impairment in their common capital as a
result of previous chargeoffs. One national bank which has its deposits
insured 100 per cont by the Federal Deposit Insurance Corporation has been
unable to sell preferred stock to the Reconstruction Finance Corporation
and expects to work out of its difficulties by merging with a nearby
institution.
Ten of the eleven banks which have established pay-as-you-go checking
accounts in their communities report that the venture into this field is
proving profitable from an income-producing standpoint, and has resulted
in the opening of an aggregate of over 5,000 new accounts.
Onondaga County, New York
.At the present time there appears to be little likelihood of any
immedlate extension of branch banking within the county although the management of one small independent bank is seeking a purchaser who will continue
its operation as a branch.
Philadelphia
The banks visited generally show an improvement in condition during
the past year. There was a rather general complaint as to low earnings
but most of the institutions have boen able to add to their undivided
profits accounts during the year. This was due in many instances to profit
taking in the investment account, but there were very few institutions
whose operating incomes were not sufficient to pay their expenses and
dividends. The cashier of one bank, however, advised our representative
that thE:; president, who is the dominant factor in its management, had discussed with the board on several occasions the desirability of liquidating
the institution if it could not make a better profit. This particular
institution is one of the str0ngest small b3.nkS in our district and could
pay its depositors in full and retire its capital stock from the funds which
could be realized from the sale of its investment securities and from cash
on deposit with otht~r banks.
The two outstanding factors from an industrial standpoint are the
recent slackening of activities at the Bethlehem Steel Company and the
192
-5-
R-95-a
Philadelphia continued
inactivity of many of the coal mines. While most of the banks visited
continue to pay the maximum allowable rate of interest on deposits, it was
found tha.t many of them ar8 giving consideration to reducing the rate to
at least 2 per cent. On the other hand, instances were fotmd where banks
had reduced the rate to 1-1/2 per cent without regard to whether or not
competing banks in the same to-vvn would adopt G similar rate. In one city a
graduated scale is paid with $10,000 being fixed as the maximum amount on
which interest will be paid.
In another c:i. ty thb bankers report that they are discoure.ging savings
accounts other thc..n those of small amounts and suggesting the depositing
of larger ammmts in the postal s<wings system.
At two institutions it w~::~.s reported that increased resorv:;; requirement::; were interfering l'dth et,rnings of the banks. At cne of these our
representative was advised thr1t due to the good demand for credit which
this institution had been experiencing the increase in reserve requirements
resulted in the ina hili ty of this bank to mcot ull of the demands r:1ade upon
it without resorting to the use of borrowed money.
Cleveland
Member bank int0rest is centered at the present time largely in the
of invGstment accounts. Many bankers feel trw.t thGir present holdings of Governments are ainple, and in some instances there is a tendency
to shift from long-term to short-term Federal issues. In some sections,
notably in the rural districts of Kentucky, banks are indicating a d,::sire
to increase holdings of Governments "for purposes of safety". There is
a great deal of uneasiness evidrmced concerning bond prices, and while the
thought is expressed that the action of the Reserve banks in lowering discount rates may prove effective in checking the decline in the price of
Governments there appears to be a lack of confidence that the action taken
will produce the desired result. A prominent Ohio banker attributes
fluctuations in thu bond market to nervousness among bankers as a. result
of I'eccnt ch;:mges in banking laws and reguL:.,tions and the possible effects
thereof.
~1tatus
In the industrial sections covered by representatives of this bank
dur1.ng tho month thert: was noted a b.ck of the usur.. l dem:-:nd for seasonal
extensions of credit. Several banks expressed the:: thought -Lhat the practice
of mercanti l.o and manufacturj_ng seasonal borrowing wr1.s beeoming a thing of
the past. The reverse of thi.s ~1ituaUon is true in the St<ite of Kentucky,
where a strong seasonal dc·mand has developed.
Criticism was henrd of re;~ul?,tions recently issued by the Superintendent of Banks of the State of Ohio, with the approval of the banking
&dvisory board, pruscribing marginal requirements on collaterD.l loans.
-6-
R.-95-a
193
Cleveland continued
These regulations were much moro restrictive than Regulation U. They provide maximum loan values of 50 per centum on "listed" obligations, "unless
well diversified", in which event a loan value of 70 per centum was authorized. In respect of "unlisted" obligations, the maximum lo~m value was
fixed at 50 per centum, except that when "well diversified" loan values
should not exceed 50 per centum of market value. All other collateral,
including stocks, and commodities, etc., had a maximum loan value of 50
per centum of market or estimated value. These loan values applied without reference to the purpose for which the proceeds of the loan were to be
used. The effective date of the regulation was later suspended and the
regulation is now in process of revision. An examination of a rough draft
of the proposed new regulo.tion indicates that if it be acceptable to the
State Superintendent and the banking advisory board, it will be reissued in
a form rather closely conforming to the provisions of Regulation U.
Richmond
Our representative in the State of Maryland again calls attention to
the small nonmember banks in his territory, many of which were reorganized
a.fter the banking holiday on more-or-less drastic terms. Many of these
banks have found the possibility remote of improving or overcoming the
condition leading to their reorganizat-ion. Lack of earnings and a feeling that they have been discredited in the eyes of the community aggravates
the situation.
Certain member banks show an inclination to criticize their membership
in the System. One national bank in North Carolina complained of the cost
of membership occasioned by the loss of exchange revenue. This bank is
surrounded by a group of nonpar nonmember banks in nearby towns. Another
national bank in North Carolina was critical of the increase in reserve
requirements and wondered why it was thought necessary to increase the requirements the full amount permitted by the Act. Its attitude seemed to
be that this action reduced the ability of member barucs to invest profit-·
ably and nt the same time increased the purchasing power in tho hands of
the Reserve banks. This bank also complained of the policy which, as they
expressed it, "makes it practically impossible for small country banks to
participate in the short-term financial operations of the Government, thus
forcing them to invest in longer-term obligations at a gr~ater risk." Still
another national bank in North Carolina told our representative that tho
Federal Reserve Bank has lost its function of being a bunkers 1 bank and i,s
now merely a Governmental bureau to facilitate Government financin~.
Further, in its opinion, there are too man,y overlapping agencies and superV2S2on of all banks should be centered in one authority. This last bank
quoted is a substantial institution which has an excellent local reputation.
One large nonmember bank, in discussL1g the question of membership,
was quite critical of recent trends in the financial world as related to
-7-
Bichmond
R-93-a
194
~ontinued
our country and expressed his belief that efforts are being made to bring
about a centralization of all essential activities - steps which he believes
will destroy private initiative and enterprise.
Generally speaking, the banks in the larger cities in our district
feel that the reduction in discount rates was.a mistake. They tell us that
banks already poss0ssed sufficient excess f1mds to meet any reasonable and
legitimate need this fall, and that once a rate is reduced for a borrower
the rate for the other borrowers in the same class must almost inevitably
be reduced likewise. There is some keen competition between large banks
in larger cities in our district for the loan accounts of well established
potential borrowers and this competition is manifested in a competition of
low rates. In the medium-size: cities and larger towns this rate competition
is not so clearly mnnifested. In the banks in smaller towns and small
communities the reduction in rates apparently gives them no concern whatever as far as they are affected, for they charge their local customers the
maximum rate allowed anyhow, which is usually 6 per cent.
Atlanta
Georgia
It is the consensus of oplnlon of the bankers interviewed in northern
Georgia that the farmers will elect to sell their cotton rather than obtain
funds through the Governmental loan provision inasmuch as they are reluctant
to participate in an agreement to curtail production which has not as yet
been definitely formulated. It is our information that the farmers in this
section are enjoying better living conditions than for a number of years.
In Savannah the banks reported increased demands for legitimate commercial loans.
Louisiana
'The saw mills in the section near Alexandria are operating on full time
and it is estimated they have a supply of virgin timber that will furnish
approximately 15 years' cut. The management of the two banks in Alexandria
advised that local conditions are considered good even in the face of sor:1e
concern on the part of the farmers because of the recent decline in the price
of cotton. It was stated that had the price of cotton remained at 12 cents
or better this particular section would have 8njoyed a revival of business
conditions greater than for several years past.
The bankers in Lake Charles advised that the ricE; growers are exceptionally well pleased with the yield per acre but that some concern is felt, due
to the price being approximately 25 per cent less than that expected. In
this immediate section there is quite a bit of optimism over the number of
oil wells that are being brought in.
195
-8-
R---93--11.
Atlanta contl.nued
---------The New Orleans bankers reported a revival of trade with South
American Countries, and also considerable interest in oil developments in southern Louisiana. It is predicted by some that New Orle£ms
may within the next few years become one of the larger oil Cf;nters of
the United States.
The m.aj ori ty of the bankers are of the op1.n10n that Governmen t[~.l
loan agencie:::' have been r.t distinct bonefi t to their local communi tiGs.
One banker GxprE.;ssed the opinion that the Production Credit Association had done more in his immediate section to teach farmers to respect
their obligations a.nd better methods of cultivating thoir crops than
he had been ablr:; to do in all of his banking experience.
Some of the b:::.nkcrs viGi ted appuared disturbed about reserve re-quirements having been increased to the maximum provi<isd under the Fcderr.;l Reserve !'ct. They state that it is no turcien to them now to maintain their re;;;erves but they aro wondering rdwther, when the time comes
when they can employ the maximum n.rnount of loan~:.ble funds profitably,
the reserve requircJments wi2.l be low•.;rcd in orcier th;J. t they can usc
their own funds in making loans rather thc.n be forced to borrow whilr.
maintaining maximum reserve requirements.
Chicago
A number of calls were made on nonmember banks by our representatives v:hen they happened to be in adjacent territory ::end some nonmember
banks were interviewed s.t group ma(::tings. A majority of them expres<>E":d
some interE,st in membership nnci in our serviceD. A few we consider
good immediate prospects. One bank would make application for membership except for its low capital deposit ratio; another ·,Jishes to join
but prefers to convert into a National bank; one has r.lreadyapplied,
and another stated that its directors had agreed to file application
;J.nd asked us to forward blanks. One hs.nk stot(~d that it would like
me::nbcrship, bllt that it i::: preparing to open a brD.nch in a small nearby
village, which of course would preclude its joining the System.
One of our repre sen ta ti ves relJOrted thn t at a group meeting in
Michig::,n, tho B1mking Coi-:unissioncr of th:lt State stressed the idee. of
eliminating meny small Skte banks locateci in -!:.he ::;m~:~.ller town::., and
th0 establishr.•ent of branches. Sever[c:l brmkers &lso informed our representative that ccn attempt was being m~.tde to convert me.ny of the smal.L
b&.nks into branches and that the Feder[:l D0posi t Insurnnce Corpon:.tion
was sanctioning such a plan. A similar policy hs.s alrer,dy been rcportea.
in connection with one of the other Stc..tes in this district.
:196
-9-
R-93-a
Chicago continued
Very little change is reported by our member banks with respect
to local lonns. One of the larger banks in the district advises that
it has covered a rather large territory seeking receivers' loans and
has obtained a considerable number of these.
Cutting of corn is proceeding rapidly and both Illinois and
Missouri will enjoy a very satisfactory harvest. All forage crops
are-exceedingly plentiful, and because of a shortage of feeding cattle,
a good many bankers are advising customers to store corn and await
results of the 1958 harvest before disposing of any surplus grain.
Energetic efforts to secure live stock continue to be made.
The Delta is raising one of the biggest cotton crops on record,
and Mexican labor is being imported from Southern Texas to help in the
picking. However, the price, even with the premium for length of staple,
is disappointing. The lo•'; price for cotton seed (from tlB to $>22 per
ton) does not pay picking and ginning charges. On the other hand, the
large crop wtll put a lot of money into circulation, which will help
retail trade and increase rE~venue of the gins and railroads.
The opinion WhS expressed that not more than l/3 of the cotton
crop will be placed in this year's 9 cent Commodity Credit Corporation
loan, one reason for lack of interest being that the cotton is bc::ing
sold as it is ginned. Also, the present price is from 1 to 1-l/2 cents
above the 9 cent limit. If the price breaks, a good many planters
will take advantage of the CCC loan, but they do not like to sign the
bl.snket contract to agree to any acreage reduction scheme the Government may put in next year, which they must do in order to get the subsidy.
Throughout Illinois and Missouri production and employment in manufacturing plants continue at a good level. Some improvement is noted
in Goal mining in view of the agreement reached by operctors and the
miners' union, which has caused a resumption of work in a number of
cases and paved the way for a full producticn schedule about October l.
The discovery of oil
able financial benefit to
than a hundred wells have
$10,000 per unit, with no
in various parts of Illinoi6 is of considera number of communities. Considerably more
been drilled at an aver[lge coet of over
indication of lessening of activity.
With the assurance of adequate harvests of for!l.ge crops, country
banks in Illinois and Missouri are experiencing an incre!tsed demnnd
for loans, particularly by persons who contemplate an increase in their
live stock feeding operations. Most banks are eager to find an outlet
for surplus funds, but are carefully analyzing the applications. As
-10-
R-93-a.
197
the g(·meral uptrend .in local loans 'Nill result in added eilrnings, the
prospect is grs.tifying to all concerned.
The bankers visited in the South criticise the Administrb.tion more
freely than f\ year ago. They are uneasy about the possibility CJf inflation, the effect of the Patman Bill un the Systeu1, and tho huge
deficit in the national budget. One nonmember bank is gettinp; rid of
its long-term Governments and now holds only maturities between now
r.nd 1941. The opinion was expressed that deposits will not go as high
LS they did a year ago, that planters will be able to pay their loans,
but thG.t there v:ill not be enough left over to pay interest on mortgages or taxes or to leave a reserV(-J for next year's operations.
r~inneapolis
Northwestern Wisconsin
-··
.
It is encouraging to learn from many of the bankers visited that
there is a marked increase for.local loans and it appears there is considerable liquida-tion of their securities portfolio. Many of the live
ctock loans formerly held by the Regional Agricultural Credit Corporation and also the Production Credit Associations have been taken over
by the local institutions. They stated that the Regional Agricultural
Credit Corporation had taught the borrowing public the nece~sity for
not only the borrower but the: lender as ·Nell placing his loan on an
;:;.mortiz,ed basis. In the case of the dairy farmer, assignmcmts of his
dairy income are received b~r the bank so that there are weekly or
monthly reductions of hi;3 indebtedness to the bank.
Ecst central Dakota::
It is generally commented that up to June 25, and later in some
sections, prospects for good crops were never better. There had been
intermittent rains through the early summer f.md the temperature: not too
hot. With cessation of rain the subsoil moisture was insufficient to
withstand the hot winds. Cut worms were bad and, in add.ition to demaging the small grain, also went after the corn. The rust came very
suddenly n.nd what was left furnished food for the grc:,sshoppers.
The farmers are much slov:er in being convinced of the desirability
of sticking to cattle, horses, hogs and sheep, than the bonkers. Many
bank officers sto.te that during the war period farmers were told they
would be unpatriotic if they did not grow wheat. The light soil turned
at that time has not been of much use since. Through urging of bnnkc->rs,
many farms now have small flocks of sheep. One banker so.id his brmk
could not have carried on but for the profits made from sheep raislng
in his vicinity. 'rhe hog population is about 50 per cent of normal,
but ca.n be brought bach: more rapidly than other kinds of live stock.
198
-ll-
I-\.-95-a
~d.nnca.Q.£1is continu~.~d
Btmks are not lending readily for the purchase of better grade feeders,
because of the shortage of grain feed. They are encouraging the purchase of cheaper cattle at 5 and 6 cents, feeling that the chance of
loss is sm~ll8r than in the better grades.
Service Float a.nd Exche.nge Charges are in effF3Ct and in the state
banks vie:ited it was quite apparent most of them could not exist without subst,:..ntial profits from exchange. Several of the n&tional b~mks
said thnt tf conditions did not improve, they would have to seriously
consider giving up the national charter. As a mat1,er of fact, they have
considered taking out state charters but are 8.fraid of the sts. to administration. They ar<J giving up $2,500 to $6,000 in exchange by remu.ining
members.
The following petition (quoted in part) was addressed to Governor
Langer by citizens of Mcintosh County, Noi·th Dakota. Another petition
we.s being preparod for pressntation to the Farm Credit Administration
and the Federal Lend Bank requ\..sting that nothing be done for anoth€r
year to deprive the farmers of tht.:ir land. SeveraL ba.nkers s~:id that
tho Federal Land Bank would ovm plenty of North t.akota before long 8Jld
that they might better put some .live stock on the fa.rms and help the
fn.rmer than take thG lu.nd and suffer big losses in disposing of it.
"Whereu.s an economic crisis is now confronting the people
of our Sktte in that a large number of farmers and their families from our area are now moving out of our State, turning
their che,ttels over to their creditors and leaving nothj_ng but
their unpaid real eE.tate taxes for the remaining oneE, to mal~e
good, tl.nd
"Vlhereas, It is impossible for the rema~n~ng ones to assume this extrr1. burden <md. pr.cy taxes when those now levied ere
confiscatory, o.nd consequently, others must soon follow those
already departed c.nd .leave their homes in this Stn.te, and that
when this occurs, the mechanic, co.rpenter·, mason, bbcksmith,
doctor, lawyer, teacher,· preacher, bnnker, a.nd politic ian must
ulso move on lec.ving an unoccupied dome:.in to be again inhabited
by the gophers and coyotes. A million ~1cres alrea.dy forfeited
to th0; Stat<3 prove that this is no exoggr~ration.
"That a moratorium on state interest pt,yments would al.lov;
the use for running expense of half of our now thrE•e million
dollar income from sales tax, rmd that the other hc.lf could
then be used to tako care of old age pensions and othE;r incidente.ls. That 6Ufficient additional revenue could. be; dE;ri ved
from all. our diff:-;rent license taxns such as snuff, cige~rette,
soft drink, beoer and booze taxes, most of them recently added
to the tax burden.
1_99
-12-
R-93-a
"That as an inducement to all farmers now so sorely
pressed a~d through no fault of their own, all delinquent
and due taxes now of record against their property should be
stricken off and cancelled in total and that an assurance
that these cancelled taxes will not be added to the burden
0f those who can pay or to those to be paid in the future,
and a fair and just tax measure based on the one proposed
at our last legislature whereby the total tax to be levied
on real estate would be limited to 10% of its fair rental
value.
"Be It Further Resolved that the undersigned respectfully petition your excellency, Hen. William Langer of the
State of North Dakota, and demand that you immediately call
a special session of the legislative Assembly for the purpose and the purpose alone of CANCELLING ALL TAXES now of
record in our State and that all taxes against real property
in the future be limited to 10% of its fair rental value.
"That such call be made immediately before more families
leave and the State become depopulated."
Kansas City
Bankers are taking considerable interest in legislation that affects their business. In particular there is opposition to any tampering with the present law prohibiting the payment of interest on demand
deposits. There is also~outspoken opposition to any legislation looking to Government ownership of the Federal Reserve Banks. A third
kind of legislation that is opposed is pending bills that would permit
branch banking on certain conditions to cross state lines in the Federal Reserve District where the parent bank is located.
Bank visits during September brought to light the fact that there
is still considerable opposition to the increased reserve requirements.
In a number of cases country bankers very frankly stated that they are
unable to see a.ny j.ustification for the raising of the reserve requirement of country banks. To them the problem with which the increased
reserve requirement has to do is one confined to large cities of the
East and they fail to see why country banks should be penalized. Calls
on a number of non-member banks that are eligible for membership reveal
that the increased reserve requirement is the thing that is keeping
them from becoming members; they seemed quite enthusiastic about member-ship but reserve requirements are a stumbling block.
For instance, a banker seemed greatly interested in membership but
stated that virtually a.ll of his deposits were demand obligations and a
-15-
R-95-a
Kansas City continued
14 per cent reserve requirement would require a deposit with the Federal
Reserve Bank of $75,000 or $80,000, and that this would leave an amount
remaining insufficient to justify reasonable balances with correspondent
bank::;. Some banks that borrow also make the observation tnat the cost
to them of the funds impounded ·by higher rese:rve requirements :i.s measured
by the co3t of the borrowed funds.
One state banker, who hcs borro;1ed rather irregularly the pnst
few months from the Federal RE:serve Bunk on Government bonds, stated
that the 1~ per cent rediscount rate was very satisfactory u.nd that
he could see no reason for selling bonds that were yielding 2~· per
cent when he could borrow at this low rate.
Reports received from over the District indic~:.:,.te that there has
been a noticeable let-down both in sentiment and businesr.: volume in
the last thirty days. But the District is dGcid.edly spotted. Be.nkers
in Cheyenne, Wyom:lnr;, report no rt3ccssion there, the high price of
cettle being a boon to th[ct stE;to. Crop::; in OkJ.uhoma were good and
the cil industry is active at prices higher than a yeo.r ::J.go. Lines
of activity that have slumped badly in recent weeks in other pr:~rts of
the District are reported still active in that st~tte.
The northeastern pa:ct of the ~istrict .is in relatively the pooref;t
condition. The e.veragc temperature in August in ~~ebraske. was the
highest on record and rainfn.ll was only about 60 per cent of mmmtl.
Great damage wns done to a corn prospect that looked ver:/ promising
:"Ln E:arly July. Gr8£ct darnagG w:1s also C.one ·to oats. In c,.ddi tion to
this the ·1•heat crop was some-:r1hat below nvrmal. The number of hogs on
farms is only a third of what it formerly 'MlS ·."nd the short corn crop
this yer:..r will further del£(1 the building up of <.. nvrmal live st.Jck
pcpulation. These fun<iamont:,l adju;,;;tments profc;undly affect th€ lxmkers 1
f)I'Oblem in these communitif;s anct bank visits sht-w theJ' c.re the chief
topic of interest .~mel di::;cussion.
{Dallas submitted only statisticcl information as to vi.sit,e to
banks. The few visits mnde were routine in character and developed
no information of general int~:r~~st, according to D.:::1Lt::!..s 1 report.)
'
Salt Lake City_ Brru1ch
Yields from f.:~.rm crops harvested so far this yec.r '.~<ere £tbove normal.
Yield 8Stimates of late potatoes and sug.:::.r bet~ts yet to be hu·vested
indicate 1m abovE: average condition. Hm.cvor, prices of farm products
200
201
-14s:~n
H-93-a
Fre.ncisco continued
gener<:.lly, with· some fe'ii exceptions, ;:~re ·beJ.ovl those of last ;year,
but becnus.:~ of the above .-:tvArage yields the tobJ f· .rm income in this
:.:.one this yoP,r ·rill be equal to or ~;ligt.tly ezcecd thct of l'J36. In
Southern Lw.ho tb-.:;re is a teridenc;y· on the p<::rt of f:.~rmc,rs to hold the
bor:n, potato, and viheat crops for better p1·iccs, t.hus ret:\rd:l..rlf!: to <,
cortain extent nm:·ma~ b:mk liquidation. Ordinarily, <.ct th:~s t.irac; of
thE.; year live stock feeder opGra tor~> an" Sf:> eking b<.~nk cre:di t, tY1t 3o
f,:r to dat,:c. there cppE:;·<.rs to b€' little interest by fJUCb ope:rn.tors
beccc'.H;e of the high price of f c~odc r li v,;, stock. iVlo;:;t of the b~nks
w~1icil would be affectod by this !)r·ob{..Lb1G retarded liquidatiou of bn.nk
loans to f[.lrmt:;rs have: muintuir1E~d throughouT, the yt:ar o. f;;.vorul)l<; C<h>h
poGition, and e,s ;;;, r0su.lt they vi:Ll1 be n.blto to r1ccomrnoa: tt~ no:l·mal
bu::dness without rr:.,sorting to 'borrowing from the hesurvc; bunk.
Brc;eding ew,~s have beer• corning from tilE; higher re::nges in exccll.ent
condition e.nd r;;.re non moving f1·om the lovJcr rL,ng.:~s to the winter rungo
whsre conditions r:.re clr.:,imGd to be quite S<J.Jc,i(?f:lctor:~. In Southern
and Western Ido.ho, whore considerable suppJ.E..:nenk,_l wint<.:r f\:~cc:ing is
done becaus;:; of ectrly lambing, there is wnple tay e.nd othc:r· f;xd. ~::,vail
eblE! at reJ.sonable prices. The sume conditions p1·evuil with re~:pect
t,, range cattl,.:::, 1.nd, on thu whole, conditions are l_)romising to tho
livestock industry going into the winter.
It is report,::d that a ers,atcr munber of bt_;;ef cnttll: than usual aro
now moving to nwr~~c,t 1 and that many 0ld ewes hs.ve been solei at g0od
prices cmd rnovc!d tr; the Eastern section of the United Stctes, v•·hich
places tht: general livestock and range situaticn, particularly in
S01;thern ldc;ho, in a very satid'-:o.ctory condition.
•
PUBLIC RELATIONS ACTIVITIES OF FEDERAL RESERVE BANKS
SEPTErviBER, 1957
Federal
Reserve
Bank
Boston
New York
Philadelphia
Cleveland
Visits to oonk"
Member Non- Total
member
l
I
64
160
97
19
None
9
5
11
87
11
17
28
175
51
29
1
None
24
14
67
15
1
21.
126
55
64
122
65
9
58
54
10
Richmond
Atlantc.
Chicago
St. Louis
86
20
12
51
Minneapolis
Kn.nsas City
Dallc::.s
s~n Francisco
I
Meetiruzs attended
Nwnber
At tend.:mce
59
20
Addresses !IlLde
Nwnber
Attendc.:.nce
None
None
2
1
110
25
5,285*
2,700
None
None
5
1
680
40
1,885
946
4
None
755
None
1,750
510
3,540
Ll)
rl
I
3
67
*Attendance at 2 not reported.
59
4
88
. 10
5
None
15
250
!~one
152
BOARD OF GOVERNORS
R-94
203
CJF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL. CORRESPONDENCE
October 22, 1957.
SUBJECT:
TO THE BOARD
Holidays during November, 1957.
Dear Sir:
The Board of Governors of the Federal Reserve System is advised that the following holidays will be observed by Federal Resei·ve banks and branches during the month of November:
November 1 (Monday), All Saints Day:
New Orleans Branch
Novomber 2 (Tuesday), Election Day:
New York
Buffalo
Philadelphia
Cleveland (at 1:00 P.M. Will participate in clearings)
Cincinnctti (at 1:00 P.M.)
Pittsburgh
Ricl:unond
November 11 (Thursday), Armistice Day, and
November 25 (Thursday), Thanksgiving Day:
All Federal Reserve banks and branches.
On November 11 and November 25 there will be neither a
transit nor a Federal Reserve note clearing through the Interdistrict
S10ttlement Fund. On NovEJmber 1 and 2 the Federal ReserYe bank offices affected will not pa::-ticipate in either the transit or the
Federal Resorvo note clc:aring through the Fund. Please include
transit clearing credits for suc:1 offices on November 1 and 2, respectively, with your credits for the following business day. No
dobits covering shipments of Federal Reserve notes for the account
of the head offices concerned should be included in your note clearing of i~ovember 2.
The Board's offices will be closed on November 25 (Thursday),
Thanksgiving Da;>r. The statements of condition of Federal Reserve
204
-2-
R-94
banks and of reporting member banks in New York City and Chicago as
of November 10 and 24 will be issued on the following Friday, November 12 and 26, respectively, instead of on Thursday as usual.
Please notify branches.
C. Noell,
Assistant Secretary.
'1'0 PRESIDENTS OF ALL :F'EDERAL RESERVE BANKS.
"
BOARD OF GOVERNORS
205
OF' THE
R-95
FEDERAL RESERVE SYSTEM
WASHINGTON
AOORESS OFFICIAL. CORRESPONDENCE
TO THE BOARD
October 22, 1957.
Code Word Covering New
Issue of Treasur,y Bills.
SUBJECT:
Dear Sir:
In connection vd th telegraphic transactions in Government securities between Federal reserve banks, the
followir~
code word has been
desiguatod to cover a new issue of Treasur,y Bills:
11
NOZJET 11
-
Treasury Bills to be dated
October 27 1 1957, and to
mature March 16, 1958.
This word should be inserted in the Federal Reserve Telegraph Code book, following
supplemental code word "NOZJAB" on page 172.
J:
C. Noell,
Assistant Socretary.
TO PRESIDENTS OF AIJL ItEDERAL RESERVE BANKS
t.~e
206
BOARD OF GOVERNORS
CIF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS
CF'F'ICIAL CORRESPONDENCE
TO THE BOARD
October 25, 1937.
Jt-96.
SUBJEOT• Forms for use during 19.38.
Dear Sirt
It Will be appreciated if you will advise the Board the
number of copies of the forms listed below that will be required
at your bank (including branches, if any) during the calendar
year 19.38a
Title
F.R.A.
5
Federal Reserve notes - Daily statement
of Federal Reserve Agent.
Monthly report of Federal Reserve notes
shoWing the number of each denomination and aggregate amount received,
issued to bank, and returned to the
Comptroller of the Currency.
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations
TO ALL FEDERAL RESERVE AGENTS
207
BOARD OF' GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS DF"F"ICIAL. CORRESPONDENCE
TC THE BOARD
October 26, 1937.
R-97.
SUBJECT 1
Data for 1937 Annual Report of the Board
of Governors of the Federal Reserve System.
Dear Sirl
It will be appreciated if you will kindly furnish us, not later
than January
a),
1938, with the following data for use in the Board's
forthcoming annual report 1
1.
Statement showing the number of member banks in each
State (or part of State in the district) accommodated
through the discount of paper during each month of
the calendar year 1937 and during the year as a whole.
2.
Statement showing the following information as of December
31, 19371
Number of member banks in operation
National banks
State bank members
Number of nonmember banks on the par list
Nonmember State banks (exclusive of mutual savings
banks)
Private banks
Number of nonmember banks not on the par list
Nonmember State banks (exclusive of mutual savings
banks)
Private banks
This statement should show separate figures for each State or
part of State in the territory assigned to the head office and to each
branch, if any.
The figures of banks on the par list and not on the
208
- 2-
par list should include all banks on which checks are drawn.
They should
be reconciled with the latest State banking department abstracts and the
Board advised of the names and locations of the banks which account for
any differences between the number of banks shown in your statement and
in the State banking department abstracts of condition reports.
A copy
of the reconcilement should accompany the statement showing the number
of nonmember banks on par list and not on par list, unless the reconcilement would delay the furnishing of the st.atement beyond January 20,
in which case the statement should be forwarded before the reconcilement is effected and the Board advised of any necessary changes in the
statement at the time the reconcilement is furnished.
Very truly yours,
E, L. Smead, Chief,
Division of Bank Operations.
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
209
BOARD OF GOVERNORS
R-98
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 26, 1937.
Dear Sir:
It has been suggested that you might wish
to have for the convenient reference of the directors and other officers of your bank copies of the
address which President Roosevelt made at the formal opening of the Board's new building on October
20, 1957.
Therefore, I am sendlng you at this time
twelve copies.
It is expected that it will be re-
produced in the forthcoming issue of the Federal
Reserve Bulletin.
Vory truly yom·s,
Chester Morrill,
Secretary.
TO THE PRESIDENTS OF ALL FEDERAL P.ESERVE BANKS
210
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS DF"F"ICIAL CORRESPONDENCE:
TO THE: BOARD
October 26, 1937.
R-99.
SUBJEOI' :- Forms for use during 1938.
Dear Sirs
It will be appreciated if you will advise the Board the number
of copies of the forms listed below that will be req'Jired by your bank
(including brru1ches, if any) during the calendar year 1938:
Form
Title
Daily balru1ce sheet. (Please state the number required for the head office and each branch separately,
and indicate any special punching that may be desired.)
38
Classification of discounted and purchased bills held
at the end of the month.
95
Monthly report of earnings.
96
Monthly report of current expenses.
96a.
Reimbursable expenditures.
160
E
Monthly report of receipts and payments of paper currency.
Semiannual functional expense report.
Please show· separately the nunber of copies of each form, except
form 34, required if revised and the number if not revised. Beginning with
January, 1938, separate reports on forn 34 for head office and each branch
need be submitted as of the last business day of each calendar month only.
Very truly yours,
~~
E. L. Smead, Chief,
Division of Bank Operations.
TO
THE PRESIDENTS
OF ALL FEDERAL RESERVE BANKS
R-100
211
BOARD OF GOVEfu~ORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For release in morning papers,
Frtday, October 29, 1957
The following summary of general business and financial condi t.ions in tho
United States, based upon statlsUcs
for September and the first three weeks
of October, will appear in the November
issue of the Federal Reserve Bulletin
and in the monthly reviews of the Federal Reserve b<mks.
Declines in industrial production in September and the first
part of October reduced output to the level of a year ago, and commodity prices continued to decline.
Thu volume of distribution to
consumers was maintained at the level of previous months.
Production and employment
Volume of industrial production, as measured by the Board's
seasonally adjusted index, declined in September to 111 percent of the
1925-1925 average as compared with 114 in June and July and 117 in
August.
At steel mills, where output in August had been at a high level,
partly on the basis of orders placed ()arlier in the year, activity was
reduced to an average rate of 75 percent of capacity in September.
This
decline continued in October, as new orders were in limited volume, and
the rate of steel output in the fourth week of the month is estimated at
about 52 percent of capacity.
There were also declines in Septemb€r in
activity at woolen mills, shoe factories, and at sugar refineries, and
activity at cotton mills showed little change, although an increase is
usual at this season.
Increases in output were reported at silk mills
212
R-100
-2-
und meat packing establishments where activity recently has been at a
low level.
Automobile production showed a decline from the high level
of August, but in the first three weeks of October advanced shnrply
as most manufacturers began assembling 1958 models.
Mineral output increased in September, reflecting an expansion
in coal production.
Output of crude petroleum declined somewhat but
contlnued in large volume.
Value of construction contracts awarded, us reported by the
F. W. Dodge Corporation, was smaller in September and the first half
of October than in the preceding six weeks,
private residential building and sharp
~~th
decline~
private work and for publicly-financed work.
a modercte decline in
in awards for other
Currently the dollar
volu.me of private work is about the same us a year ago, vrhile awards
for public work are in smaller volume.
Factory employment showed little change from August to September, although an increase is usual at this season.
There were de-
clines in the number employed at textile mills, shoe factories, railroad repair shops, and lumber mills.
ployment increased seasonally.
At canning establishments em-
Factory payrolls, which usually expand
in September, declined substantially, reflecting principally a reduction in the average number
levels of
emplo~ent
o~
hours worked by those
e~ployed.
The
and payrolls continued to be considerably above
last year.
Distribution
Distribution of commodities to consumers by department stores
R-loo213
-3-
and mail order houses increased more than seasonally in September, and
variety store sales showed about the usual seasonal expansion.
Freight-
car loadings increased by the usual seasonal amount from August to
September.
Commodity prices
The general level of wholesale commodity prices, according to
the Bureau of Labor Statistics' index, declined from 87.5 percent of
the 1926 average in the latter part of September to 85.2 in the middle
of October.
During that period price declines occurred in most com-
modi ties traded in on orgc_niz.ed exchanges and in some manufactured
products.
In the ten days endi.ng October 25 commodity markets were
steadier.
New models of automobiles are currently being introduced
at higher prices.
Bank credit
Excess reserves of member banks, after increasing in September
from $750,000,000 to over $l,OOO,OOO,OOO, showed little further change
in October.
Total loans and invest:nonts of reporting member banks in 101
leading cities declined sc,mewhat in the four weeks ending October 20,
reflecting chiefly a steady reduction throughout the period in loans
to security brokers and dealers.
Commercial loans increased further.
Money rates and security prices
Rates on 9-m-::-.nth Treasury bills in October declined to about
5/8 of one percent, the lovvest since last Jnnunry.
bonds showed little change in September
~nd
Prices of high-grade
October, while prices of
lower-grade bonds and of ccmmon stocks declined sharply to the lowest
levels since the middle of 1935.
R-101
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS
October 27, 1937
For release in morning newspapers
of Thursday, October 28, 1937.
The Board of Governors of the Federal Reserve System today
adopted the follov:ing resolution:
BE IT RESOLVED, That, effective November 1, 1957, the
supplement to Regulation U is amended by changing the maxirnum loan value figure
of said supplemc;nt to
lmum loan value figure
per cent" in the first paragraph
11 45
11 60
per cent", and by cblmging the max-
11 60
graph of said supplement to
per cent" in the second para11
75 per cent", so that as thus
amended the supplement will read as follows:
"SUPPLEMENT TO REGULATION U
ISSUED BY THE BOAPJ) OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Effective November 1, 1957
For the purpose of section l of Regulation U, the rnaxim1lm loan value of any stock, whether or not registered on
a national securities exchange, shall be 60 per cent of its
current, market value, as determined by any reasonable
method.
I,oans to hrokers and d.ealers. Notwithstanding the foregcing, a stock, if registered on a national securities exchunge shall hJ.ve a special maximum loan value of 75 per cent
of its current market value, as determined by any reasonable
method, in the case of a lo::-.n to n. broker or dealer from whom
the bauk ucct)pts in good faith a signed statement to the effect (1) that he is subject to the provisions of Regulation T
(or t:1at }le does not extend or rnair.tain credit to or for custom~rs ext~ept in accordance therewith as if he were subject
thereto), and (2) that the securities hypothecated to seC"clre
the loan are securities carried for the account of his custo:ners other than his partners."
214
R-102
215
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE 'SYST&~
STA'I'EMENT FOR THE PRESS
For release in morning papers
Thursday, October 28, 1937.
October 27, 1937
The Board of Governors of the Federal Reserve System today
adopted the following an1endment No. 10 to Regulation T, effective
November 1, 1937:
Amendment No. 10 of Hegulation T - Effective November 1, 1937
BE IT RESOLVED, That, effective November l, 1937, Regulation T, as amended, is further amended in the following respects:
1.. Section 2( d) of said regulation is amended to re~ad as follows:
"(d) The term 'combined account' means the combination of all accounts (except '~pecial accounts')
betwuen any creditor and any customer, or any group
of customers acting jointly."
2.
Section 2(m) of said rsgulation is amended to read as follows:
~(m)
The term 1 customor 1 means any person (including any partner of a creditor firm in his relations
with the firm) to or for whom, or any group of persons
to or for whose joint account, a creditor is carrying
any short position in securities or extending or maintaining any credit; Provided, however, That a partner
shall not be deemed to be a customer of his firm
within the meaning of this regulation with reference
to his financial relations to the firm as reflected
in his capi ta.l and ordinary drawing accounts. 11
3.
Clause (2) of section 3(b) of said regulation is amended to read
as follows:
" ( 2) in such account trEmsactions are permitted and
credit is extended or maintained solel;'l for the purpose
of enabling such member, broker, or deuJer to carry
accounts for his customers other than his partners, and"
216
-·2-
4.
H-10~:
Clause (5) of section 5(f) of said regulation is amended to
read as follows:
"(5) The current market value of any securities sold short in the account (other than unissued securities) plus, for each such security
(other than an unissued or exempted security),
such amount as the Board shall prescribe from
time to time in the supplement to this regulation as the amount to be included as the margin
required for such short sales, except that such
amount so prescribed need not be included when
there are held in the account securities exchangeable or convertible into such securities
sold short;"
5.
The first sentence of the last paragraph of section 5(f) of
said regulation is amended to read as follows:
"For the purposes of this regulation, the adjusted debit balance of every account in which
any short position in securities (other than ~
issued or exempted securities) is carried or any
credit is extended or maintained for the purpose
of purchasing or carrying securities shall be
computed in accordance with the above rules, regardless of whether it be a conibined account or
a special account."
The Board also adopted the following supplement to Regulation T,
effective November 1, 1957:
BE IT RESOLVED, That, effective November 1, 1957, the supplement
to Regulation T is amended to read as follows:
"BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
SUPPLEMENT TO REGULATION T
Effective November 1, 1937
Maximum Loan Values. - Pursuant to the provisions of section
7 of the Securities Exchange Act of 1954 and section 5 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 exempted securities) for the purposes
of Regulation T:
217
-·3-
R-102
( 1) General rule. - Except as provided in paragraphs ( 2) e.nd
(3) of this supplement, the maximum loan value of a reglstared security (other than an exempted security) shall be 60 per cent of
the current market value of the security.
(2) Extension of credit to other members, brokers and dealers.The maximum lo:=m 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 5 of Regulation T, as amended, shall be 75 per cent of the
current market value of the security.
(3) Extension of credit to distributors, syndicr:,tes, etc.The maximum loan VF.t.lue of a registered security (other than an exempted security) in a special account with a distributor, syndicate,
etc., ~<hich special account complies with subsection (c) of section
3 of Regulation':', as amended,shall be 80 per cent of the current
market value of the security.
Margin Required On Short Sales.- Pursuant to the provlsJ.ons of
section 7 of the Securities Exchange Act of 1954 and section 3 of
Regulation T, as amended, the Board of Governors of the Federal Reserve System hereby prescribes that the amount to be included in
the ad,justed debit balance of ~m account, pursuant to section 3(f) (3)
of Regulation T, as amended, as margin required on short salos of
securities (other than unissued or exempted securities) shall be 50
per cent of the current market VL~lue of each such security except
that in the case of a special account with another member, broker or
dealEJr, which special account complies with subsection (b) of section 3 of Regulation T, as amended, such amount shall be 35 per cent
of such current market value."
218
BOARD OF GOVERNORS
R-103
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS CF'F'ICIAL CCRRESPCNDENCE
TC THE BCARD
October 28, 1957.
Dear Sir:
For your information there are inclosed copies
of our replies to letters received from the Federal Reserve Bank of Kansas City and Mr. E. N. Dekker, Assistant Vice President of the National City Bank of Cleveland, Ohio, with respect to a questionnaire on induetrial
loans which Mr. Dekker has asked the Federal Reserve Banks
to fill out.
It is understood that Mr. Dekker has written
to all Federal Reserve banks, end it will be appreciated
if you will furnish the Board with a copy of your reply to
him.
Very truly yours,
Chester Morrill,
Secretary.
Inclosures.
TO THE PRESIDENTS OF ALL FEDERAL F£SERVE BANKS EXCEPT KANSAS CITY
R-103·-a
October 28, 1937.
Mr. C. A. Worthington,
First Vice President,
Federal Reserve Bank of Kansas City,
Kansas City, Missouri.
Dear Mr. · Worthington:
Referring to your letter of October 21, since Mr.
Dekker asks for ccrt::..in information which cannot be compiled
from information at the Board's offices, it is suggested that
you transmit such of the desired information as is available
direct to Mr. Dekker and furnish the Board with a copy of
your reply.
With respect to questions A7
~nd
B4, it might be
well to tell Mr. Dekker that since most of the loans made
by the Federal Reserve b[!.nks are for long period:::; and many
of them &re payable in installments, it is not possible to
give him detailed figures with respect to th.; repayment
record at this time.
A general sta tcment [;,s to repayment
records, how::;vcr, might be given i f you think it advisable.
V.:n:y truly yours,
(Signed)
Chester Morrill
Chestor Morrill,
Secretary.
219
R-103-b.
October 28, 1937.
220
Mr. E. N. Dekker,
Assistant Vice President,
The National City Bunk of Cleveland,
Clevelc,nd, Ohio.
Doar Mr. Dekker:
Reference is modo to your letter of October 19 inclosing
u questi.onnairc in regard to the
oper.~::.. tions
of' the twol ve Foderal
Reserve banks under Section 15b of the Faderal Reserve Act,
~:,nd
requesting that the desired information for each Federal Reserve
District ba- furnished by the Board if available.
The Board has not hz:td compilc:d da t.:J. in reg&rd to opera·tions under Section 13b in the detail called for by y'Jur qw.3stionnair1~.
Thore is inclosed, howevGr, a mimeographed sti..ltement. show-
ing informati:m by Federal Reserve districts us tJ
fur
industri~ll
applicc~ticms
advances and commltmcmts r,:3ceived 'biJ each Federal
Reserve bank tCJ September 29, 1907, the araount of s':lch applicati.)ns f:.t.J:lproved by tho Federal Reserve b&nko, and the amount of
industrial t:dvances and C·)nunitments outst:lnding, t)gether with
certnin other infornativn regarr:l..l.ng epplicntirJns for industrial
auvancen and commitments.
Very tru:Ly yuurs,
(Signed)
Ciwster Morrill
Chester Morrill,
Secret[.try.
Inclosure.
221
R-104
BOARD OF GOVERNORS
Or THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS
OF'F'ICIAL CORRESPONDENCE
TO THE BOARD
October 28, 1957.
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
NOZJIL 11
-
Treasury Bills to be dated
November 3, 193?, and to
mature March 16, 1938.
This word should be inserted in the Foderal Reserve Telegraph Code book, following the
supplemental code word
11
NOZJET 11 on page 172.
Very truly yours,
TO PRESIDENTS OF JILL FEDERAL RESERVE BANKS
222
BOARD OF GOVERNORS
R-105
CF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
November 5, 1957.
SUBJECT:
Recent Ruling of the Board of Governors Regarding Savings Deposits.
Dear Sir:
For your information there is inclosed
herewith a copy of a telegram addressed to the
Board by the First Vice President of the Federal
ResGrve Bank of Dallas and a copy of our reply
thereto with regr:rd to the incorporation in a
general circular to member banks of the ruling
attached to the Board's letter of October 50,
1937, S-41.
Very truly yours,
L. P. Bethea,
Acsistnnt Secretary.
'£0 PRESIDENTS OF ALL FEDERAL P.ESER.VE B.ANKS
223
R-105-a.
TELgGRAM
Le&sed Wire Service
Received at Washington, D. C.
1957 NOV 5 PM 12 25
DALLAS NOV 5-57
MOHRILL
WASHINGTON
As ruling of Board e.ttuchod to letter S·-41 is in effect
footnote or supplement to Regu.lation Q and therefore of
particul11.r interest to many membE:r banks please advise
whether Board has ar:y obj cc tion to our incorporating entire ruling in general circular.
Ev.Jn though ruling will
be published ln November Bulletin think lt may receive
attentiun more promptly if tran:::;mitted in circular form.
GILBERT
224
R-105-b
TELEGRAM
BOARD OF GOVERlJOR3
OF 'IHE
FEDERAL RE3ERVE SYSTN~
Washington
November 3, 1937.
GILBERT - DALLAS
Referring to your wire this dat8, thoro is no
objection to incorporating entire ruling attached to
Board's letter of October 30, 1937, S-41, in general
circul~r
to yomq mumbcr banks.
(Signed)
Cheater Morrill
MORRILL
225
BOARD OF GOVERNORS
i
CF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS DP"F"ICIAL CORRESPONDENCE
TO THE BOARD
R-106
November 5, 1937
Dear Sir:
Referring to the Board's letter B-1186 of Januar,y 5, 1937,
following is a statement of changes during October in the list of
nonmember banks that have filed agreements with the Board pursuant
to the provisions of Section S(a) of the Securities Exchange Act
of 1934:
Delete "Ba.nk of America", San Francisco, California,
and add "Central Bank", Oakland, California, with the following note:
"(Name and location changed as of October 22, 1937, from
'Bank of America', San Francisco, California, in which
name the agreement was executed.)"
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations.
TO ALL FEDERAL RESERVE AGENTS.
226
I
-~
R-107
BOARD OF GOVERNORS
OF THE
FEDEFJ\1 RE- ERVJ: ~-l'STEM
Statement for the Press
For immediate release.
November
G, 1937·
Chairman Eccles issued the follo111ing:
"An article which appears in a widely circulated
banking publication today states that a bill 'which
would make the Federal Reserve Board the supreme policymaking,
~bartering
and supervising authority for all
banks in the country is now 'reing written at the behest
of Marriner ·"'. Eccles, Chairman of the Federal ResArve
Board'.
This etatement is unqualifiedly untrue."
227
BOARD OF GOVERNORS
E-108
OF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
November B, 1937.
SUBJECT:
Code Word Covering New
Issue of Treasury Bills.
Dear Sir:
In connection witJ. telegraphic transactions :i.L Government securitien between Federal
reserve banks, the following code word has been
designated to coYer
Ec
new is;me of Treasury Bills:
"NOZJOY" - 'Treasury Bills to be: drcted
November 10, 1937, and to
mature March 17, 1938.
Thj s word should be
insert·'~d
in ths Fed-
t
eral Reserve
Telc~~aph
supplemt.mtaJ code word
Codo book,
11 NOZJIL 11
follo~ing
the
on pBg..: 172.
truly yours 5
Noell,
Assistant
S~crctary.
TO PHESIDENTS OF ALi, FEDERAL HESEEVE BANKS
/
228
BOARD OF GOVERNORS
l
R-109
CF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS CF"FICIAL CORRESPCNOENCE
TO THE BOARD
November 9, 1957.
)
Dear Sir:
There are being sent you under separate cover
today
copies of an address made by Mr. Szymczak on
November 5, 1957, before the Eighth New England Bank
Management Conference at Boston, Massachusetts, on the
subject:
"The Teclmiy_ue of Credit Regulation u.
Copies of the address are being forwarded to
you for the purpose of making them available to tho
officers and directors of your bank and branches, if
any, and to r.J.rry member br.J.nks which may desire them.
Additional copies will be furnished upon request.
Very truly yours,
-----··
L. P. Bethe.:1.,
Assistant Secrutary.
TO TIIE PRESIDENTS OF ALL FEDERAl, RESERVE
B~~KS
229
Z-55
THE TECHNIQUE OF CREDIT REGULATION
ADDRESS BY
M. S. SZ"YMCZAK, MEMBER,
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTroA,
AT
EIGHTH NEW ENGLAND BANK MANAGEMENT OONFERENCE,
H01'EL STATLER, BOSTON, MASSACHUSETTS,
FRIDAY, NOVEMBER 5, 1937.
(Not to be released until
5:00p.m. Friday, November 5, 1937.)
Z-55
THE TECHNIQUE OF CREDIT REGULATION
During the past year, the Federal Reserve System has adopted
measures of unusual slgnificance and interest.
iar measures of credit regulatlon.
Some were the famil-
Others were quite new, and in-
volved th.e exercise of powers only recently granted by Congress to
the 1ederal Reserve System and never before exercised.
These measures serve to illustrate the tec.tmique of credit regulation and I should like to review them with you as examples of technique rather tru:m from the standpoint of policy.
Let me first restate
the purposes and scope of credit regulation and also the general long
range policy that has been pursued by Federal Reserve authorities in
the recent past.
'!'he basic purpose of what ooy be described broadly as central
banking powers, such as those vested in the Federal Reserve System,
is aid in stabilizing and equalizing monetary conditions so that the
supplr of credit is neither inadequate for sound business activity
nor so excessive in amount that it invites speculative abuse.
tn.e
~chievement
Fer
of this purpose, the Federal Reserve banks depend
largely upon open market operations.
That is, they may purchase in-
vestment securities in the open market at times when the supply of
funds in
th~
mone,y market needs to be increased, or they may sell in-
vestment securities at times when an excess of funds overhangs the
money market and needs to be absorbed lest it stimulate speculation.
In addition there are other means of influencing credit, particularly by raising or lowering the discount rate and by e.dvPncing funds
230
Z-55
231
-2to such individual member banks as apply for
acco~~odation
to replenish
their reserves.
These means of credit technique are exercised by the banking authorities to implement policies which they believe the economic situation requires.
At one time, they may feel that the Situation requires
a restraining policy, and to carry out that policy they may sell securities from their portfolio, or they may raise rediscount rates, or do
both.
At another time, they may believe that the situation requires a
policy of ease, and to carry out that policy they may purchase securities in the open market- thereby supplying banks with additional reserves - and they may lower the rediscount rates.
Open market opera-
tions and changes in the discount rate are the two principal means of
credit technique.
They are flexible
in their application.
That
is~
instru~ents
and
th~
are general
they affect the credit picture as a
whole, rather than individual banks.
As you know, the Federal Reserve c.uthorities have felt e.nd frequently stated that an easy mcney policy is essential to help ptaD0te eoonanic mmver,y.· Rather than speak of the considerations upon which this pol-
icy is based, I wish to invite your attention to the various technical
steps which have been taken and the several means employed in carrying
out this broad general policy during the
~ast
year or so.
A knowledge
of the technique employed to implement a particular policy seems to me
of practical importance and of interest irrespective of what that policy
may be.
,
.~
In other words, I wish to discuss how a given policy was ef-
fected rather than
~·
Z-55
232
-3-
The measures I wish to review began with the increase in reserve
requirements a year ago last August.
sure of credit technique.
This was not what I call a mea-
It was instead intended as a basic readjust-
ment which placed the 8,ystem once again in a position to use its traditional and flexible credit instruments and to make them effective.
It
was adopted because a situation had developed in which the ordinary means
of credit technique - namely, open market operations and rediscount rates >
had lost their efficacy.
This situation arose primarily, as you know,
from the flow of gold into this cotmtry from abroad, as a result of
~:·hich
the excess reserves of domestic banks swelled to such an extraordinary
degree that the customary instruments of credit policy were wholly ineffective.
If the Federal Reserve System had desired to have easy money
conditions regardless of the consequences that might ensue in case unsound and inflationary conditions developed, i·t could have adopted a
policy of doing nothing at all.
But it sought instead to reestablish
the position it was intended by law to occupy - a position in which it
could act promptly an4 effectively either in the direction of easing
the credit situation further, or in the direction of restraint - whichever appeared to be in the public interest.
T
.•
Theoretically and historically, the technique of credit regulation
has been considered most efficient when member banks have had a minimum
or excess reserves and could eXpa.nd the amount of credit outstanding
when and as steps are taken
to
increase their reserves.
This can be
most readily effected by open market purchases, which have the effect
of making funds available to the money market and of making it unnecessary
233
Z-55
..
-4for most member banks to apply to the Federal Reserve banks for advances.
However, should individual banks still require funds, they
may borrow from the Federal Reserve bank and when they do so its discount rates can be reduced in conformity with a policy of ea.se, or
conversely can be rnised if an opposite policy is adopted.
But, of
course, when the banks are superabundantly supplied with reserve
funds from an outside source and therefore have little, if any, occasion
to seek additional funds from the Federal Reserve banks, the discount
rate, like open market operations, ceases to be applicable.
Under such
circumstances, even if the Federal Reserve System were to sell off its
entire portfolio of government securities, the action would fail to absorb the excess reserves.
Moreover, by such action the S,ystem would
be flinging away the possibility of conducting further open market
opers.tions to tmy purpose, because subsequent purchases of securities
that it might make would merely increase the excess of reserves again.
r
The
Syste~
would be exhausting its principal means of influencing
credit conditions.
In other words, the situation would
contin~e
to
be out of control.
The Board, in explaining its action a_t the time, said:
"For current adjustments of the reserve position of member bFmks
to cl".anges in the credit situation the Reserve System should continue
to rely on the traditional methods of credit control through discount
policy nnd particularly througf1 open-market operations.
By the present
action excess reserves will be reduced to within the amount that could
be absorbed through open-market operations,,should such a.ction become
Z-55
...
-5desirable.
Conversely, should conditions develop requiring expansion
of reserves, they could be increased through open-market operations."
Subsequently, the Secretary of the Treasury announced that the
Treasury "proposes, whenever it is deemed advisable and in the public
interest to do so, to t".ke appropriate action with respect to net ad-
•
ditional acquisitions or releases of gold by the Treasury Department.
This will be accomplished by the sale af additional public-debt ob;
ligations, the proceeds of wh1ch will be used for the
gold, and by the
p~chase
p~chnse
of
or redemption of outstanding obligations
in the case of movements in the reverse direction."
.
The Treasury's purchases of gold pursuant to this policy had the
effect of keeping the gold from getting into bank reserves and swelling them to greater volume.
On January 50 tho Board announced finnl increases in reserve requirements and pointed out in its statement made at the time that by
this action the System would be restored to "a position where such reduotion or expansion of member bank reserves as may be deemed in the
public interest may be effected through open-market operations, a
more
fle~ible
instrument, better adapted for keeping the reserve posi-
tion of member banks currently in close adjustment to credit needs."
~hese
measures - the increase in reserve requirements by the Fed-
eral Reserve System and the sterilization of gold by the Treasury were unusual measures taken to offset an unusual condition, namely,
the enormous lnflow of capital and gold from abroad.
r
They were outside
234
Z-55
235
-6-
the category of normal measures of credit regulation.
They were re-
lated to normal measures of credit regulation in somewhat the same way
that reballasting a ship is related to its regular operation.
They
were measures intended to neutralize theeffect of major financial disturbances originating abroad, and to keep the domestic credit situation
amenable to the established teclmique of regulation.
As the Board emphasized at the time, these measures involved no
abandonment of the; policy of monetary ease which the Board has consistently pursued, by using, as it announced that it would, the customary and flexible instruments of open market e.nd rate policy.
At this point perhaps I should briefly restate the process by which
open-mnrket operP.tions achieve their purpose.
In the first place, as
you know, when a bank enlarges the amount of credit it has outstanding,
either
by
additional loans to its customers or
by
additionr:tl purchases
of investment securities, its reserves tend to be reduced.
t
Consequently
it cannot enlarge the amOlmt of credit it hns outstanding rmless it has
re:serves in excess of what it is required to have.
On their own ini-
tiative banks may procure additional reserve funds either by borrowing
or by selllng securities.
Or the Federal Reserve System on its initiative
may supply banks in general with addi tiorml reserve funds by open-market
purchases of investment securities; for as the Federal Reserve banks pay
for the securities they buy, either by check or by credit, the reserves
of
me~ber
banks are increased.
In April, the Federal Reserve banks pur-
chased about $100,000,000 of securities end this amount immediately
flowed into member bank reserve accounts.
It eased their position so
236
Z-55
-7·-
that the¥ would have no lack of funds for cohtlriu!hg to extend credit,
whether in the form of loans or in the form of investments.
Contrari-
wise, if the Federal Reserve System had sold securities, the process
of paying for them, whether purchased by member banks or by the customers of member banks, would have reduced the reserves of member
banks.
Purchases by the System tend to ease the money market, sales
by the System tend to tighten it.
f
The ease produced by the System's purchases in April, therefore,
was deliberately brought about.
If need had arisen that condition of
ease could have been us deliberately ended by a reversal of policy
and the sale of investments.
The situation, in other words, was one
that had been made amenable to the normal measures for influencing
credit.
In August and September a further step in pursuance of the System's established policy was taken when the Federal Reserve bank rediscount rates were lowered.
In approving the first of these changes
the Board stated that its "approval was based upon the view that the
reduction of discount rates at th:i.s time would assist in carrying out
the System's policy of monetary ease and make Federal Reserve bank
credit readily available to member banks for the accommodation of commerce, business and agriculture, vdthout encouraging member banks to
borrow outside of their districts or to liquidate their portfolios in
order to be
borrowers."
(
~n
a position to meet the needs of present or prospective
237
..
Z-55
-8-
The Board went on to so.y "The reduction .in discount rates, which
have had little or no practical effect during the period when excess
reserves vcrere abnormally large and widely distribt:.ted throughout tho
System, brings the rates into closer relation with the interest rn. te
structure generally prevailing, and affords to member banks the benefit of rates, on advanceG made by the Federal Reserve bank, whi.ch lire
in line with those available in the :non&y market.
During the extended
period when excess reserves of the banking system were between two
and three billions of dollars, the occasion did not arise except in
rare instances for member banks to borrow from the Federal Reserve
banks, and the discom1t rates were accordingly inoperative as a practical matter.
"As a result of the continued progress of the recovery movement,
demands of agriculture, industry and
co~merce
for bank accommodation
have steadily increased and at the present time are augmented by
seasonal requirements,
particular~y
Hi th relation to crop movements.
"It is the Board 1 s view, therefore, thnt nt this time the Federal
Reserve System can best discharge its public responsibility and promote
the continuance of recovery by making it possiblE. for member banks to
obtain accommodation from Federal Reserve banks at rutes which will
encourage them to employ their funds to meet the needs of agriculture,
industry and commerce. 11
Later in September,
thE~
Federal Open
''.·~rket
Cor:ll'!li ttee announced
that it had authorized purchase in the open market from time to time
..
Z-55
-9-
238
of "sufficient amounts of short-term United States Government obligations to provide funds to meet seasonal wi thdrawcds of currency from
the banks and other seasonal requirements. 11
It said further:
"Reduction of the additional holdings in the open market portfolio
is contemplated when the seasonal influences are reversed or other circumstances make their retention unnecessary.
"The purpose of this r..ction is to maintain at member banks an
aggregate volume of excess reserves adequate for the continuation of
the System's policy of monetary ease for tu."le furtherance of econoTiliC
recovery."
At the same tlme, the ComTili ttee announced that at the request of
the Board of Governors the Secretary of the Treasury had agreed to
release - that is, to desterilize - approximately $300,000,000 of gold
from the Treasury 1 s inactive account.
Accordi.ngly, the TrE::nsury was
credited with that amolmt on the books of the Federal Reserve banks
which in the course of regular TreD.sury disbursements fou.rul its way
into the reserve accounts of membc'>r banks end increased their available
funds correspondingly.
This was en effecti \re means of utilizing our
monete..ry meEtsures to maintain the policy of
e~se.
The Corrunittee' s
statement made at the time pointed out that:
"'l'his action is in conforrtrl. ty with the usual policy of the
Sys~
tern to facilitate the financing of orderly marketing of crops and of
autumn trade.
Together with the recent reductions of discount rates
at the several Federal Reserve banks, it will enable the banks to meet
readily any increased seasonal demands for credit and currency and
(
239
•
Z-55
-10contribute to the continuation of eusy credit conditions."
As stated in the October Federal Reserve Bulletin, this action
toward augmentation of member bank reserves was taken to anticipate
the usual seasonal needs of member banks for currency and credit.
The action of the System in bringing about an incrcGse of available
funds put banks in a stlll easier position to meet seasonal needs as
well as increasing demands for bank credit.
credit technique under normal
~md
It was an exercise of
typicE.!l condition:;.;.
Before passing on to the latest measure of credit technique
taken by the System, I want to mention o. recent change in the
tions governing discounts by the Federal Reserve banks.
regula~
This change
was effected by the issuance of Regulation A in revised form effective
October l.
Its significance lies in the fact
thc,~t
in determining the
eligibility o:f paper for discount, the form of the obligntions to be
discounted is considered of loss importance than it used to be.
Orig-
inally the privilege of rediscount at the li'edcral Reserve banks had
been restricted to relatively short-term paper _arising from certain
commercial
~nd
agricultural activities.
As you know, the amount of
such paper has tended in recent years to constitute a S'naller e-nd
smaller proportion of the totql amount of paper available to banks.
..~
To the extent that bunks were dependent on such paper for discounts,
the decrease in 1 ts amount meant in effect a curt:1ilment of the pov.rer -of
the Federal Reserve bunks tr' extend credit.
The B<.mking Act of 1933
and the Banking Act of 1935 both enlarged the ch1ssification of pcper
upon which individual
(
~ember
banks might pr0cure funds frcm the Federal
240
Z-55
-11-
Reserve banks for the
replenisl·L~ont
r:.f their reserves, ond Regulation
A c:s rE:Cently tssued by the Board carries )Ut the purpose C'f these
changes in the law •
. The new Regulation had be on in prepare. tio:;.n for a long period 'lnd
the time of its issuance had no specic.l bearing with respect to the
current situation.
It wns rather a longer range
me~tsure.
Moreover,
its issuance was nr:t cf course a measure of credit :regulation, like
open market operations or changes in the discount rate, but a liberc:l:i.zation of the conditions under which the regular means of credit regulation are t:xercised.
Let me emphnsize that the term "credit regu-
lation" is not <<1 together satlsfactory.
I have taken cnre to avoid
using the phrase "credit control", for that is fnr too strong.
The
technique which I have been describing "influences" rather than
11
con-
trols11.
·rhe latest measure of credit regt.lla tion taln:m by the System was
the change in margin requirements announced a little over a week ago
and effective lc:. st Mondny.
The power to fix margin requirc:nents is,
as you know, a new and special responsibility imposc..>d upon the Board
by the Securities Exchange Act which Cfntlgress adopted in 1934.
Its
effect is not general upon the whole field of credit.
r\~
In this
spect, it differs from other moans of credit regulation, numely, open
m&rket opcrattons and chunges in the discount r.<<te.
It is directed
exclusively at the use of credit advanced by brokers, dm:tlers and by
banks for the purpose of carrying
(
regi~Jtered
secu:ri ties.
TheoreticRlly,
241
Z-55
-12margin requirements can be raised when it appears advisable to restrain
speculuti ve use of credit and they cnn be lowered when it appe&.rs advisable to relax the restraints.
Because of the special n,:;ture of this particular po•rer of credit
regulation, it can be exercised
in~E'pendently
which the credit situation is influenced.
sue a restraining policy
~dth
of other measures by
Thus it is possible to pur-
respect to the use of credit for
secur-
ities' speculation at the same time that an easy money policy is being
pursued with respect to tl1e use of credit for corrmerce, industry and
~griculture.
By its most recent action the Board reduced margin re-
quirements from 55 percent to 40 percent.
so far as securities' trading is concerned.
This e.<J.sed credit conditions
It happens that this pol-
icy of ease :tn the special field of stock market trading coincided with
the policy of ease which the Board has all along pursued in the genero.l
field of credit, but since I am discussing the technique of credit regulation I wish to emphasize the fe.ct thr;t conditions do not always call
for a parallel policy by any means.
The pf:Culiar character of tho
power to fix margin requirements is that lt mekes it possible to influence credit conditions in a particular field independently, if neces-
•
sery, of what is done in other fields.
It is evident that the exercise of Federal Reserve functions, like
those of any other organization, involves sometimes merely the use of
certain toc,ls according to accepted prc,cedure, and sometimes a change
in the tools themselves or in the conditions under· which they are to
be used.
(
Open market operations and changes in di;:count rates are the
242
Z-55
-13customary tools regularly employed in performance of Federal Reserve
System functions.
They are practicable, flexible and tested tools,
"hich .can be used to ease money conditions at one time and to tighten
them at another.
They can be made to accomplish their purposes with-
out shock - without violent and painful adjustments.
They cnn be np-
plied gr&dually so that their effect is barely perceptible.
If neces-
sary, they can be applied vigorously and sweepingly.
It is true of any technique that its effectiveness is dependent
upon the conditions under which it is used.
The inflow of gold into
this country from abroad created a. condition under which the normal,
flexible credit tools had lost their effectiveness.
Raising or lower-
ing the discount rate would meun nothing when btLnks had such a superabundance of :D.mds that they had no occasion to look to Federal Reserve banks for accommodation.
Selling government securities when t.he
excess reserves to be absorbed were greater tha."l the volume of securities available for sale, would amount to throwing away tools which are
necessary if there is to be any effective supervision to influence genercl credit policies in the broad public interest.
There has been no change meanwhile in the basic
ease.
poli~
of monetary
Open market purchases of securities and lowering of the redis-
count rates have been undertaken in pursuance of this same fundamental
policy.
And it is important to note thc.t o situc.tion has berm re-
stored where the normal technique of credit regulation once more applies.
The functions and responsibilities I
r~ve
been discussing
~re
not
243
Z-55
-14-
peculiar to the Federal Reserve System, of course.
They are the func-
tions and responsibilities of the central banking organization of virtually every country.
And as such they
~iffer
essentially £rom the
functions and responsibilities of privately managed banks operated for
profit.
A central banking organization makes loans and purch"lses se-
curities not for the purpose of making a profit, but for the purpose
..
of increasing the supply of credit available through privately managed
banks.
At the present time, for example, the twelve Federal Reser·ve
banks have cash and reserves of nearly nine and a half billion and
earning assets of only two and a half billi0n.
Such a position, which
is quite different from what an enterprise operated for profit would
choose to maintain, is entirely normal for u central banking organiza-
"
tion.
It appears, therefore, that during the period I have reviewed,
the·system has consistently pursued a policy of
to regulation.
monetary~
amenable
The increase in reserve requirements and the steriliza-
tion of gold had amenability to regulation as their objectives.
·rhe
open market purchases, the reduction of discount rates, and the desterilization of a small portion of the gold had further
~
as their objectives.
Each of these measures has been effective in its own way in helping to
achieve the combined objective.
This series of measures is informative
and illuminaUng to th0se who are interested in the technique of central
banking, and I appreciate your kindness in giving me this opportunity
to review that technique with you.
244
BOARD OF GOVERNORS
CJF" THE
FEDERAL RESERVE SYSTEM
R-110
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
November 12, 1937
Dear Sir:
There are inclosed herewith copies
of statement rendered by the Bureau of En-graving and Printing, covering the cost of
preparing Federal reserve notes for the
month of October, 1937.
Very truly yours,
~~
0. E. Foulk,
Fiscal Agent.
Inclosure.
TO PHESIDENTS OF ALL FEDERAL RESEHVE BP.NKE)
TC THE SCARC
245
R-110-a
Statement of Bureau of Engraving and Printing
for furnishing Federal Reserve Notes,
October l to 29, 1957.
federal Reserve Notes, Series 1954
•
~10
.
$20
Total
Sheets
Amount
105,000
25,000
150,000
12,480.00
New York
175,000
45,000
220,000
21,120.00
Philadelphia
90,000
25,000
115,000
11,040.00
Cleveland
90,000
90,000
8,C40.00
Richmond
65,000
65,000
6,240.00
Atlanta
45,000
45,000
4,520.00
Chicago
50,000
55,000
105,000
10,080.00
St. Louis
40,000
25,000
65,000
6,240.00
Minneapolis
30,000
50,000
2,880.00
Kansas City
60,000
60,000
5,760.00
Dallas
25,000
25,000
50,000
4,800.00
100,000
25,000
125,000
12,000.00
8'15,000
,.
Boston
225,000
1 1 100 2 000
i:los,Boo.oo
Sun Francisco
1,100,000 sheets@
~96.00
per M, ••••••• ~l05,600.00
246
BOARD OF' GOVERNORS
R-111
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
November 15, 1957.
SUBJECT:
Code Word Covering New
Issue of Treasury Bills.
Dear Sir:
In connection with telegraphic transactions in Goverrment securities between Federal
reserve banks, the
fo~lowing
code word has been
designated to cover a new issue of Treasury Bills:
"NOZJUG" - Treasury Bills to be dated
November 17, 1937, a.nd to
mature March 1'1, 1938.
'I'his word should be inserted in the Federal Reserve Telegraph Code book, following the
supplemental code word "NOZJOY" on page 172.
Very truly yours,
.
__
___,._. . . ·.' 71_-te?--e-P ......_
. __
.
J. C. Nuo:-Ll.,
Assistant Secretary.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
R-112
BOARD OF GOVERNORS
247
OF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
AOOREEIEI OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
November 15, 1957 •
..
Dear Sir:
There is attached a copy of the report of expenses of the main lines or the
Federal Reserve Leased Wire System for the
month of October, 1937.
Please credit the amount payable by
your bank to the Board, as shown in the last
column or 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 or the
credit.
Very truly yours,
0. E. Foulk,
Fiscal Agent.
Inclosure.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
\
R-112-a
REPORT OF EXPENSES OF lviAIJJ LINES OF FEDERAL RESERVE
LEASED ~viRE SYSTEM FOR THE MONTH OF OCTOBER, 1957.
Nu1nber
of
words
sent
Words sent
by N. Y.
chargeable
to other
F.R. Banks
35,156
121,409
29,659
46,280
50,655
SL1,089
79,947
66,468
26,895
62,100
57,494
74,615
1,053
Federal
Reserve
Bank
Boston
New York
Philadelphia
ClevolEmd
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
DE'.llas
Sun Francisco
Board of
Governors
Total
1,044
1,059
1,013
1,010
1,273
1,007
999
1,005
975
1,076
451,704
1,156,449
Tot[cl
words
chargeable
56,189
121,409
50,703
47,539
51,648
55,099
81,2iW
67,475
27,894
63,105
58,467
75,683
Personal
services(l)
Wire
rental
$ 253.78 $
996.67
256.61
236.21
195.50
276.07
1,11.)4,15
189.63
234.72
259.18
267.75
453.33
Total
expenses
$
Pro rntu
share of
total oxpenses(2)
253.78 $
561.21
1,882.78
996.67
256.61
476.14
256.21
754.12
195.50
800.95
854.46
276.07
1,259.54
11104.13
189.63
1,0,16. 59
234.72
432.57
259.18
978.62
267.75
906.C9
455.33
1,175.77
Credits
$
255.78 $
996.67
256.61
256.21
195.30
276.07
1,104.13
189.63
2:34.72
259.18
267.75
455.33
·131, 704
11,492
Paynble
to
Board
of Govcrnors
1.472.80
11,627.85
15,100.63
6.604.77
15.100.63
1,147,941
$6,174.18
$11,627.83
$17,802.01
17,802.01
17,802.01
307.43
886.11
239.53
497.91
607.65
578.39
155.41
856.76
197.85
719.44
638.94
720.44
$6,,105.86
(1). Includes salaries of main line operators and of clerical help engaged in work on m[Lin line business, such as
counting tho number of words in mossc...ges; t'.1so, overtime c.nd supper monoy Gnd Rotirorr..ont System contributions
at the current service rQte.
(2)
Bn.sod on cost per ':mrd ($.015507774) for b:1siness hn.ndled durir.g tho month.
249
BOARD OF GOVERNORS
CF THE
FEDERAL RESERVE SYSTEM
R-113
WASHINGTON
ADDRESS OF'F'ICIAL CORRESPONDENCE
TO THE SOARD
November 1?, 193?.
..
Dear Sir:
There are being sent you under separate
cover today
copies of an address made by Mr.
Szymczak on this date at the meeting of the
Municipal Bond Club of New York on the subject:
"Federal Reserve Responsibilities".
Copies of the address are being forwarded
to you for the purpose of making them available to
the officers and directors of your bank and branches,
if any, and to any member banks vrhich may desire
them.
Additional copies will be furnished upon re-
quest.
Very truly yours,
L. P. Bethea,
Assistant Secretary.
TO THE PRESIDEN'l'S OF ALL FEDERAL RESERVE BANKS
1·
250
Z-58
FEDERAL RESERVE RESPONSIBILITIES
ADDRESS BY
.
M. S.
BOARD
S7.!1~CZAK,
MEMBER,
OF GOVERNORS OF '.r:HE FEDERAL RESERVE SYSTEM,
A'r :MEETING OF
r.ri!E MUNICIPAL
BOND CLUB OF NEW YORK
HELD AT THE
BANKERS CLUB - 120 BROADWAY
NEW YORK, Nl!,IN YORK
WED.t-lESDAY, NOVEMBER l? , 193?.
(Not to be released until 1.:00 P.M.
Wednesday, November 17, 193?)
.
'
Z-58
FEDERAL RESERVE RESPONSIBILITIES
As you know, there has long been a tendency to over-emphasize
the effect of monetary and credit factors on busl.ness.
The.more one
surveys monetary history the clearer H becomes that what can be accomplished through monetary and credit measures by themselves is
strictly limited.
.
In stressing this point, however, I do not'mean to minimize the
influence of such measures.
In their way they are highly important
and by the samo token the Federal Reserve System is a highly important instrumentality.
What is the Federal Reserve System?
'l'he question·meybe fl.llswered from the legal point of view by saying that it is e system comprising about 6,400 member banks in all
parts of the country, twelve Federal Reserve banks so situated as to
serve the twelve regions into which the country is divided, the
Bonrd of Governors, which is the coor·d.inating body si tuatod in Washington, the Federal Ad:visory Council, which represents the bankers
of the twelve li'ederal Reserve districts, and the Federal Open Market
Committee, which comprises members of the Board jn Washington and
representatlves of the twelve Federal Heserve Banks.
The same question - VJhat is the Federal Reser'Ve System? -·may be
answered from the funct'ional point of view by saying that it possesses
certain supervisory powers and exercises regulatory influence over the
supply and cost of credit in the United States.
It is an institution
251
•
•
252
Z-58
-2-
created for public service, not for private profit.
In its regional form of organization the Federal Reserve System
is peculiar·ly an American institution, having central ·banking functions which it performs substantially as do the central banl:s of
other countries.
not be confused
rrhe term central banking, as I use it
.
or misunderstood.
her~:1,
should
I am speaking of tho functions of
central banking rather than the form of the organization which performs those functions, however owned or controlled.
Practically
every civilized country has a central banking institution.
In
Canada, it is the Bank of Canada; in England, the Bank of England;
in France, the Bank of li'rance; in Germany, the Reichsbank.
The en-
tire list would cover the American, European, African, and Asiatic
continents.
In every case the central bank by its very nature stands
in a unique relatj,onship both to the Government of its country and
to the other be.nks and financial institutions of its country.
Its
function in every case is that of inf'luencing credit conditions in
the public interest by the exercise of' i.ts financial and admiuistrative powP-rs.
The most prominent of these powers are:
'l'o make loans
to banks and other financial institutions, to fix the rediscount
rate, and to buy and sell. securities in the open market.
.
The exer-
cise of nny one or all three of these powers has certain direct and
to a large extent predictable effects upon the supply and cost of
credit.
In addition the central bank is usually a bank of issue.
Its notes circulate as money.
Formerly this was one of the most im-
portant powers of .a central bank but now that de-posit credit transforable by check hLs become the principal means of -payment used in
•
•
253
Z-58
-3-
civilized countries, the power of issuing notes has come to be incidental rather than essential to central banking.
A more im:portant
function at present is that of holding the basic reserves of the banking systAm - a practice which nearly all central banks perform ,Ji ther
as a matter of lav: or of established custom.
It is through the func-
tions of holdine reserves and issuing notes that central ban'ks ar·e
ena.bled to £jxercise control over the credit supply, because tho need
for currency or for additional reserve balances is wh3.t imp:clls commercial banks to borrow from the central bank.
A further incidental eharacteristic is that the central bank
usually acts as fiscal :::.gent of the Government.
In this capacity it
serves as a bridge between the financial o.ctivitles of the Government and the financial activities of private business.
Ordinarily
the Government's bank account is the largest single bank account in
the country.
The Government's receipts, its expenditures, and its
ba.lances are so large that they require specinl adjustment to the
credit activities of privc.te interests.
Otherwise ths accumulation,
transfer and disbursement of Government funds would seriously disturb
the money market, and hence business at large.
Since the central banking organization ordinarily carries the
reserves of commercial banking institutions as well as the checking
accounts of the Government, it is natural that it should play an important part in the collection and clenrance of chocks ond in the
transfer of bank i'unds.
In tM.s respec-t::, as in furnishing currr:mcy
for circulation, the monetary nature of central bank functions
•
254
•
Z-58
-4-
becomes most apparent.
From country to country the nature of central bank operations
and the character of central banking powers will vary :i 't'l accordance
with national institutions and business customs.
Fundcment~lly,
how-
ever, the processes of central banking are much thc; same in all
countries.
Perb.aps the most striking feature of the central brmU.ng organization of this country is that it comprises not a single institution
but 3everal regional institutions coordinated by a public
Wa2hington.
boc~y
:in
The Bank of Englqnd, for instance, is n single institu-
tton with about nine branches which are merely deto.ched offices of
one corporate entity.
'I'he central bcnks of mcst other coun t·~·ies like-
wise ere single instj_ tutions.
There are several reasons why the
central banking system of the United Stntes comprises
federated institutions instead of one.
thct the country is
ext:~·emr:;ly
l't
nuntb8r of
Perhaps the most ,)bviou.s is
large and the number of independent
local banks which cover it is also large.
Most other countries have
a relatively smaller area to serve and c. far smaller number of separe.te banks and financial i..nsti tutions.
The Federal Reserve System,
through the twelve regional Federal Reserve Banl-::s, effects a <lec(.ntralizatio::l of bs.nking reserves and gives to each region
degree of credit autono.!1JY.
3
large
As its name indi.cat0s, it is & federal
system, basod upon the federal pattern which is distinctive oi' our
American institutions.
The term "centrel bankinG" is not as familiar in the United States
•
•
Z-58
-5-
as it might be.
The conception of what central banking is and of
what e.re the essential functions of the FederCJ.l Reserve Banks is
not widely understood.
This is partly because the word "banl<ing"
suggests to most people the dealings they have with their
banks.
OIA'Tl
local
Consequently whon the Federal Reservn Banks are thought of,
the tendency is to consider their operations as merely differing in
magnitude or degree from those of commercial banks.
is apt to generate serious misconceptions.
Yet this view
'T.'he point of view of
central banking differs profoundly from the point of view of commercial banking.
It is the purpose of a Government to serve the
public interest and the purpose of a central tank as a quasi-governmental institution is the same.
Although the central banking
mechanism, as, for example, in the case of our Federal Reserve Banks,
has much the same form of corporate organization as a business Cf)rporation operated for profit and has a balance sheet showing assets
and liabilities, including the item of paid-up capital and the item
of gain or loss from operations, the purposes and objectives of its
operations differ essentially from those of private business corporations.
At the present time, for example, the twelve Federal Reserve
Banks have cash and reserves of nearly nina and a half billion and
earning assets of only two and a half billion.
Such a position,
which is quite different from what an enterprise operated for profit
would choose to maintain, is entirely normal for a cE•ntral banking
organization.
When a Federal Reserve Bank makes n loan or nurchases securities
255
•
•
256
Z-58
··6-
it is not doing so for the sake of profit as a commercial bank would
be doing.
The purpose of the loan or of the purchase of securities
is to supply the money market with the additional funds which it appears to require.
If the transaction is an individual loan, tho
additional funds are supplied by the transaction to some one individual bank which may or may not be experiencing thEJ
that other banks are exgeriencing.
SF.1me
demand
If the transaction is an open
market purchast:l of securities by the Federal Reserve Banks, the result is that the market as a who.lo is supplied with funds and no
particular institution is singled out as experiencing the effect of
the transaction any more than e.nothsr.
In the same way, when, for example, the rediscount rate is advanced, the Federal Reservo Bank is not seeking an increase in its
income as a cozmnercial bank might under similar circumstances.
Its
purpose in raising the rediscount rate is to raise the cost of bank
credit in general and thereby dh;courage tendenci<>S to excessive usc
of' credit.
.
It is significant of the i.mnortance of central banking functions that the Bank of England evolved into its posHior. as a cer:trnl
bank in reRyonoe to the requiremE-mts of the London money :·1arket
out specific
ler;isl~tiTle
action to that end.
l;iri th-·
A f'ew generntions ago
the Bank of Encland was primarily a private institution cnjoytng certnin privileges but operated by its mann.gElment us e.ny other nusiness
enterprise might be in the pursuit o1' profit i'or its
stocl~holders.
The process by which it gradually changed i.ts purpose, end subord.i:anted the role of profits in its opGr!?ctions to th'?!.t of' serving the
•
•
Z-58
-7-
25?
broad public purpose of stabilizing the money market was a long and gradual one.
The assumption of its responsibilities was not so much the re-
sult of specific legislation as of voluntary action.
The exrunple I have
just mentioned demonstrates how central banking functions came to be required b,y a business community and accordingly came to be performed even
witho11t provision by the legislature.
Similarly, the need arose for our
own Federal Reserve System and its functions have undergone evolution in
gradual adaptation to the changing requirements imposed upon th.'3m by the
economic world.
In addition to the essential central banking functions that I have
been describing, the Federal Reserve System has a number of regulatory
powers entrusted to it by Congress which arc of more or less special nature.
These include powers to fix reserve requirements within certain
statutory limits, to fix margin requirements, and to examine banks and
require of their management an abandonment of unsound banking practices
on pain of dismissal.
These administrative and regulatory powers of the
Federal Reserve S,ystem are for the most part lodgea in the Board of Governors in Washington.
In performing them the Board is called upon to
issue .regulations, administrative rules, and orders.
does not function as a remote and detached body.
However,
the~
Board
In the case of open
market operations, which are among the most important of Reserve Bank
activities, the law provides that such operations must be
c~mducted
ac-
cording to a uniform policy by all twelve Federal Reserve Banks in accordance with the directions of tho
Fede~l
Open Market Committee.
The
Federal Open Market Committee comprises twelve members, seven of whom
'
258
-8-
Z-58
are the members of the Board of Governors, and five of whom are elected
by the twelve Federal Reserve Banks.
ipate
Thus the Federal Reserve Banks partie-
directly and responsibly in measures which are among the most im-
portant that can be taken qy the Federal Reserve System.
There is also
the example of discount rates, which, as you know, are established by the
Federal ReservG Banks subjGct to approval by the Board.
In connection
with various other matters also the Federal Reserve Bank·s are consulted.
Tho Presidents of thJ Reserve Banks meet frequently in Washington and confor with the Board on questions having to do with thG operation of the
Federal Reserve System.
When the Board is amGnding its regulations or
issuing new ones, the drafts it prepares are submitted to the Federal
Reserve Banks for their consideration, and their suggestions contribute
substanti&lly to the final form which the regulations take.
In addition,
drt.J.fts of rogulations are usually submitted to responsible groups through
the agency of banking or business associatlons.
For example, the drafts
of Regulations "T" and "U", which govern margin requirements, were submi tted to exchanges for their considerntion, tend the Board feels that the
many ver-J' practical comments roceived from the exchanges have been most
helpful.
The same holds true of othor regulations, in th.; preparation
of which bankers 1 groups and organizations nre consulted.
Furth:.::rmore,
the Board is always accessible to those who wish to offer their suggestions, to criticize credit measures, or to ask for information.
The Board itself is an organization whose decisions are formulated
by the vote of its members.
In the interest of good administration, and
as contemplated by the law, the Board is a unit.
259
Z-58
-9-
In order to assist i.n the determination of its policies, the Board
maintains what is
probab]~
the most comprehensive organization for the
compilation and analysis of economic and financial information maintained
by :::..ny central banking organization in the world.
The Board has this in-
formation and the export opinion of a staff of analysts
disposal.
constr-:.r~tly
at its
The result is that aey decision of' the Board or• of the Federal
Open Market Committee has behind it not only the judgment of Board members and Federal Reserve Bank officers, but of an e xpericmced staff o.f
specialists in economic and monetary fields who bring a trained critical
ability to the consideration of proposed measures.
In this c·Jnnectiori I wish also to remind you that the Federal Reserve
System publishes mora detailud and important info:rrnati,:m about its C:Jnditions and its action than any other central banking organization in the
world.
Much of this information appears in occasional and periodic press
releases, and is
c~nte.ined
in the Federal Reserve Bulletin and the annual
report of the Board of Governors.
Having reviewed with you the general
purpose~
and characteristics
of central banking, or as some prefer t') call it, reserve banking, and
having also pointed out how in this country the central banking system
is org'='!,nized on distinctly American principles and formulates its policy
in aCC)rd.n.nce with thc)Se principles, I wish now to review,
Boston
tht~
~~s
I did in
other day before the Bankers' Committee of the Now I:.:ngland
Council in their Executive Session, the C::Jurse o.f policy f.Jllowod by reGerve authorities during the past year or so.
260
Z-58
-10-
As you know that policy has for several years been one of monetary
ease.
Statements to that effect have been frequently made by the Board,
and I neod not go into the considerations upon whlch tho policy is basod.
I wish instead to point out briefly how the various measures which have
been taken fit together as applications of central banking policy in given
circumst[c:.nces.
The various steps which havo boen taken should be viewed
not as isolated events, but as elements in a connected story.
To begin with, there was the increase in reserve requiremEJnts a year
ago last August.
I wish to emphasize the fact that the pov:er to fix re-
serve requirements is not a customary means by which the centrGl banking
system effects current adjustments of the supply of credit to demand.
It
is in the first place a limited power - the Board cannot raise or lower
requirements at will, but only within certain limits.
Moreover it hus not
th.3 flexible applicDtion that. open market operations or discount powers
have.
It wo.s exercised by the Board for the first time last August, and
again last spring.
The occasion of the ex8rcise of this power was, as
you know, the flow of gold into this country from abroad, and the resulting expansion of bank reserves to proportions quite beyond the possibilities of use as a basis for the legitimate expansion of credit.
The cir-
cumstances were such that if the Federal Reserve System had desired to
have eG.sy money conditions regnrdless of the consequences that might
ensue in case unsound and inflationary conditions developed, it could
have adopted a policy of doing nothing at all.
But it sJught instead
to reestablish the position it was intended by law to occupy - a position
in which it could act promptly and effectively either in the direction of
261
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easing the credit situation further, or in the direction of restraint whichever appeared to be in the public interest.
Accordingly, when the
Board raised reserve requirements, its purpose was not to abandon its
policy of monetary ease but to continue that policy under conditions
amenable to control.
Theoretically and historically, the technique of credit regulation
has been considered most efficient when member banks have had a minimum
of excess reserves and could expand the amount of credit outstanding
when and as steps are taken to increasG their reserves.
This can be
most readily effected b,y open market puchases, which have the effect
of making funds available to the money market and of making it unnecessary
for member banks in general to apply to the Federal Reserve Banks for advances.
However, should individual banks still require funds, they may
borrow from the Federal Reserve Bank and when tbey do so its discount
ra to s can be reduced in conformity with '"- policy of ease, or conversely
can be raised if an opposite policy is adopted.
But, of course, when
the banks are superabundantly supplied with reserve funds from an outside
source and therefore have little, if any, occasion to seek additional
funds from the Federal Reserve Banks, the discount rate and open market
operations, as moans of credit regulation, eease to be effective.
The
purpose of the increase in reserve requirements was, therefore, to offset the effect of gold imports and restore the base upon which normal
measures of credit regulation would be effective.
Sterilization of incoming gold was a logical accompaniment of the
increase in resorvc requirements.
As announced by the Secretary of the
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262
Treasury, accordingly, it became the Treasury's policy, "whenever it is
deemed advisable and in the public interest to d:"J so, to take appropriate
action with respect to net additional acquisitions or releases of gold by
the Treasury Department.
This will be accomplished b,y the sale of addi-
tional public-debt obligations, the proceeds of which will be used for
tho purchase of gold, and by the purchase or redemption of
outst~nding
obligations in the case of movements in the reverBe direction."
The Treasury's purchases of gold pursuant to this policy had the
effect of keeping the gold from getting into bnnk reserves and swelling
them to grsater volume.
These measures, I repeat - the increase in rescrv;;) requirOJnents by
tho Federo.l Reserve System and the sterilization of gold by the Treasury
... were unusual measures taken to offset an unusual condition, namely, the
enormous inflow of capital and gold from abroad.
They were outside the
category of normal measures of credit regulation.
They were related to
normal measures of credit regulation ].n somewh:tt the same way that reballasting a ship is related to its regular operation.
Thoy were measures
intended to neutralize the effect of major financial disturbances originating' abroad, and to keep the domestic credit situation G.mtnabJ.e to the
established technique of regulation.
As the Board explained, when it announced the final incree.s0s in
reserve rGquirements, the System would be restored by this action to "a
position where such reduction or e}:pansion of member bank rescrvGs as
may be deomed in the public inturest may be offectod through open-market
operations, a more flexible instrument, better adapted for
l~eeping
the
reserve position of member banks currently in clo:-Je adjustm<:Jnt to credit
needs .• •,
263
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At this point perhaps I should briefly restate the process qy which
open-market operations achieve thoir purpose.
In tho first place, as you
know, when a bank enlarges the amount of credit it has outstanding, either
b.Y additional loans to its customers or by additional purchas0s of invest-
mont securities, its res,3rves tend to be roduced.
Consequently it cannot
enlarge the amount of credit it has outstanding unless it has reserves in
excess of what it is required to have.
On their own initiative banks may
procure additional reserve funds either by borrowing or by selling sccurities.
Or the Federal Reserve System on its initiative may supply banks in
general withOOditional reserve funds by open-markut purchases of investment securities; for as the Federal Reserve Banks pay for the Gecurities
they buy, ei thor
increased.
~J
check or by crodi t, the reserves of member banks are
Contrariwise, if tho
Feder~:l
Reserve System sells sec1.1ri ties,
the process of paying for them, whether they are purchased by member banks
or by the customers of member banks, will reduce the reserves of member
banks.
Purchases by the System tend to oaso the money market, sales by
tho Syste1:1 tond to tighten it.
In August and September of t!1is year a further step in pursuance of
the System 1 s established policy was tuY..en when the Federo.l Reserve Bank
rediscount rates were lowGred.
In approving the first of these clk'lnges
tho Board stated that its "approval was basod upon tho view that the reduction of discount r01.tes at this time would assist in carrying out the
System 1 s policy of monetary case and rnako Fr;;deral Eeservo Bank credit
readily available to member btmks for the accommo<lation of commerce,
business and agriculture, without encouraging member banks to borrow
•
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264
outside of their districts or to liquidate their portfolios in order to
be in a position to meet tho needs of present or prJspective borrowers."
The Board went on to say "The reduction in discount rates, which
have had little or no practical effect during the period when excess reserves were abnormally large and widely distributed throughout the System, brings the rates into closer relation with the interest rate structure generally prevailing, and affords to member banks the benefit of
rates, on advances made by the Federul Reserve Bank, which are in line
with those available in the money market.
During the extended period
when excess reserves of the banking system were between two and three
billions of dollars, the occasion did not arise except in rare instances
for member banks to borrow from tho Federal Reserve Banks, and the discount rates were accordingly inoperative as a practical matter.
"As a rosult of the continued progress of the recovery
move~ent,
demands of agriculture, industry and commerce for baruc accommodation
have steadily increased and at the present time arc augmented by seasonal requirements, particularly with relation to crop movements.
"It is the Board's view, therefore, that at this time the Federal
Reserve System can best discharge its public responsibility and promote
the continuance of recovery by making it po8sible for member banlcs to
obtain accornmodation from Federal Reserve Banks at rates which will encourage them to employ their funds to meet the needs of agriculture,
industry and commerce."
Later in September, the Federal Open Market Committee announced
that it had authorized purchase in the open market from time t0 time
265
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of "sufficient amounts of short-term Ur:itcd States Government ol:,ligations to provide funds to meet seasonal wl thdra.,,:aL~ of currnncy from
the
banl~s
and other ser:tsonal requirements."
It said further:
"Reduction of the additionn) holdings in the oven market nortf'olio
is contemplated when the sca8onn.l influences aro rovcrsed or other clrcumst-:mces make their retention unnccess<n•y.
"The purpose of this action is to maintain at meT'l.ber banks an
aggrRg:1tE1 volume of oxccss re.'3erves adequ::tte for the continuation of
the System's policy of monetary
ear;(;
for the furtherance of economic
recovery."
At the same time, the Committee announced tha"!; at the request of
the Board of Governors the Secr<:;tary of the
'l'reasur~r
had ('greed to
relense - that is, to desterilize - approxim11tely ~~300,000,000 of gold
from the Treesury' s inactive occount.
AcclorC.ingly, the Treasury was
credited wi.th thn.t nmount on the books of the Federal Reservr: Bnnks
which j_n the course of regul'.lr Treasury disbursements found its way
into the reserve nccounts of member banks and incr<:,asod their .wailable
funds correspondingly.
monetary
ffi(~asures
This wns an e::ffccti vo
me~ms
to maintain the:: policy of ease.
of utilizi.n!; our
The Committ':le' s
statement made at the time pointod out that:
"This action is in conformity with the usual
~olicy
of the Sys-
tem to facilitate the nnanc:ing of orderly marketing of crous and of
autumn trade.
Together with the recent roductions of di3count rates
at the several Federal Reserve Banks, it will enable the b::mks to meet
readily any increasc.-ld seasonal
dom~',nds
for credit :md currency &nd
\./
266
Z-58
-16-
contribute to th8 continuation
~f •3&1:.1:/
cr·?dit conditions."
As rtateii in the Oetober Federal Hesorve Bull8tin, this action
toward augmentation of member bank resurvos wa.<J taken in order to
anticipate the usual seasonal needs of mombor banks for currr:ncy and
credit.
The action of the System in bringing about an increase of
available funds put banl(S in a stDl easior position to meet sc•tsonal
noeds as woll as increasing dem:mds for bank credit.
It was an exer-
cise of credit techni.que under normal and typical conditions.
Before passing on to the latest m,;nsure of credit technique
taken by the System, I want to mention
r~
recent change in the r<:;gula-
t.i.ons governing discounts by the :B'oderal Reserve Bnnks.
'rhis change
was effected by the issuance of Hegulation A in r0vi.sed form effective Octob•3r l.
Its significance lies :Ln the fact that in determin-
ing the eligibility of' paper f'or discount, the form of the obligations to be discounted is considered of less importe.nce than it used
to be.
Originally the privilege of rediscount at the Federal Re-
serve Bar.ks had been restricteC. to r·:::lnti vcly short-terr.l paper arising from certain commercial and agricultural activities.
As you know,
the amount of such paper has tended :i.n :recent years to constitute a
smaller and sme.ller proportion of the tot'1l amount of paper available
to banks.
To the extent the.t banks wer•e depe"!'ldent on such paper for
discounts, the decrease in its amount meant in effect r.: curt1.ilment
of tho povwr of the Federal Reserve Banks to extend credit.
'Iho
Bflnking Act of 1933 and tho Banking Act of 19:55 both enlarged the
classif:.cation of popor upon which individual membsr banks m:i.ght procure funds from the Fedr:.,ral Reserve Banks for the repleniahment of
-1?-
Z-tiS
267
their reserves, and Regulation A as recently issued by the Board. carries out the ::mrrJose of these changes in the law.
The new Regulation had been in preparation for a long period and
the time of its issuance had n.o special bearing with respect to the
current situation.
It was rather a longer ro.nge measure.
Moroov·3l',
its issuance was not of course a measure of credit regulation, like
open market operations or chnngos in tho discount rate, but .a lib,::ralization of th8 conditions under which tho regulG.r means of credit
regulation are exercised.
The latest measure of credit regulation taken by the System was
the change in margin requirements effective the first of this month.
The power to fix margin requirements iE;, as you know, a new and
special responsibility im0osod upon the Board by the Securities Exchange Act wh:Lch Congress adopted in 1934.
upon the whol,;: field of crodi t.
other central banking powers.
Its effect is not general
In this respect, it differs from
It is directed exclusively at the use
of credit advanced by brokers, dealors and by banks for the purpose
of purchasing or carrying registsred s,-,cur:i.. ties.
Theoretically,
margin requirements can be raised when it eppears advisable) to restrain speculative use of credit and they can bo lowered when it appears advisable to relax the restraints.
Because of the special nature of this particular power of credit
regulation, it can be exercis8d independently of other measures by
which the c!·edi t situation is influenced.
Thus it i.s possible to :pur-
sue a restraining policy with rsspect to the use of credit for securities' speculation at the same tj_me that an easy money policy is being
268
Z-58
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pursued with r8spect to the use of' credit for commerce, industry and
agriculture.
13y its most recent action the Board eased credit condi-
tions so far as securities' trading is concerned.
It hap-pens that
this policy of ease in the special field of stock market trading
coincided with tho policy of easG which the Board has all along pursued in the general field of credit, but conditions do not always
call for a parRllol policy by any means.
'l'he peculiar character of
the power to fix marein requirements is that it me.kes it possible to
influence credit conditions in a particular f1eld independently, if
necessary, of' what is done in other fields.
It is evident that the exercise of Federal Reserve functions,
like those of any other orgnniz.r:.rtion, invoJves
use of certain tools
ac~ording
sometim(~s
merely the
to acce:rn,ed procedure, and s.ometimes
a change in thu tools themselves or in tho conditions under which
they are to be used.
Open market operations and chenges :i.n discount
rates are the customary tools regularly employed i.n performance of
Federal Reserve System functions.
'rhey are practicable, flexible·
and tested tools, which can be used to ease money conditions at one
time and to tighten them at another.
They can be made to accomplish
their purposes without shock -without violent and painful adjustmer.ts.
'
Thoy can be appUed gradually so that 1hoir effect is barely
percentiblo.
If necessary, thoy can be applied vigorously and
sweepingly.
It almost goes without saying that the powe·rs which I have been
describing can only be exercised with the highest sense of public
responsibility.
The central banking aut:tDri tt6:J must formulate and
•
Z-58
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269
execute their policies with a well-informed sense of the effect upon
the country as a whole.
hand.
Conflicting interests are present on every
Every action taken is certaj.n to be approved by some and dis-
approved by others.
Every step taken is sure to be subjectHd to the
scrutiny of acute and well-informed critics.
That is as it should be.
It is the normal condition under which governmental institutions
function in a democracy, and most of us believe it is on the whole
the best condition.
Naturally enough the better you as specialists in the field of
credit understand the responsibilities of the Federal Reserve System
and tho manner in which we try to meet them - and on the other hand,
the bette.t' we of the Federal Reserve System understand your problems
;· ...
and the conditions under which you try to meet them- the more effectively will our credit machinery function for the
the country.
conu~on
welfare of
270
BOARD OF" GOVERNORS
R-114
CF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ACCRESS OFFICIAL. CORRESPONDENCE
TO THE BOARD
November 20, 1937.
SUBJECT:
Monthly Report of Bank and
Public Relations Activities.
Dear Sir:
There is inclosed for your information a summary of the bank relations reports
submitted by the Federal Reserve banks for
the month of October in response to the Boe1.rd 1 s
letter of August 25, 1936 (X-9680).
Very truly yours,
Chester Morrill,
Secretary.
Inclosure,
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
271
R-114-a
November 16,
TO
FP.O';!
]r. He.'1'!mond, Division of
SUBJECT:
The Board
B~nk
Operations.
U~l57.
SU:'!lmary of Bank
Relations Reports.
Reports of bank relations as requested in the Bon.rd's letter of
August 25, 1956 (X-9680) have been received for the month of October and
excerpts therefrom will be found on the following.pnges. A table showing for ell twelve bcnks the number of visits made, meetings attrnded,
and addresses delivered has also been prepured and follows the quote.tions.
The attitude toward the Federal Reserve System
Banks, especially in the west, continue to express dissatisfaction
with the present reserve requirements, which hrvt:- eith<.:r made borrowing
necessary or at least have interfered with ID-'lintens.nce of the customary br::l&nces with correspondents. At the same time there is evidence of some feeling that membership in the Feder<::.l Reserve System will become more desirable
if there is a. prolonged busint1SS recession.
Banking conditions
Despite the feeling about reserve requirE:ments, there is also continued complaint about idle funds and inadequat..:: earnings. Service charges
and special types of loans are being developed. The pressure to charge excha.nge seems to be as strong as ever or eve:n to be increasing. Banks express concern over the prospects for their bond portfolios.
Gener~l
economic conditions
With the exception of certain regions in the west and in the south,
concern as to business trends seems to preveil. In the excepted regions
the abundance of the crops is apparently felt to mitigate the effect of price
declines. In manufacturing regions tr~re are reports of cancelled orders,
shut-downs, and increased unemployment. Both New York and Chicago report
mention by bankers of continued or increased hoarding.
Excerpts from the reports follow:
attached to the original hereof).
(The reports themsEJlves u.re
272
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R.-114-a
Boston
Eight country banks located in Massachusetts and within a radius
of fifty miles of Boston, and five member banks, one non-member bank and
the Receiver for five closed State bcnks in southern Connecticut, were
visited during the month of October.
In several of these communities mEmufc.cturing concerns making shoes,
furniture and textiles are locatr:;d, and bankers interviewed stated that
plant op(~rations ere being curtailed and poyrolls reduced in line with a
rapid decline in the volume of new orders for the commodities mcnufactured
at these pltmts. The outlook of those who offered any expressions as to the
future of business in their communities was decidedly pessimistic.
With one exception the banks reported a recent decline in the demc.nds made upon them for credit. At two or three of the b'~nks comment was
mr,de upon the increase in the number of trnnsactions conducted for customers
involving the purchase of listed stocks immediately following the recent
market decline. In a fev. instances new loans were made to customers for
this purpose, <-~nd in other instc.nces the customers drew down their Sc<vings
accounts. While the tot2l withdrawn from sc:.vings accounts was negligible
insof~cr as concerns the member banks visited and was not regarded as being
subst&ntial as to 2.11 banks in the communities, the movement was being
closely watched and speculated on at the time by the bankr.)rs. Such stock
transactions as the member b<mks handled for their customGrs were said to
be mostly in high-grade, n~n-speculativ8 issues.
No unfavorable comments were hoe.rd with respect to the policies of
the administration of the System or of the operntions of the Fedore.l Reserve
Bank of Boston, with the exception of an objecti')n voiced at one cf the
smaller banks tJ the present reserve requirements.
New York
Greene, Madison, Otsego, and Schoharie Counties, New York
Demand for accommodation generally continues light although officers of nine banks characterized i t as being fair to good. Loan ond discount totals are for the most part lower, one bank reporting its list to
be at the lowest level reached during the past ten to twelve years. The
interest rate charged is customarily 6 percent, although a few banks grant
a lower rate to borrowers on prime collateral, and the majority make concessions in the cnse of loans to municipal:ities. Only one bsnk reported
~:m average loan rate as low as 5 percent.
Bank executives with only two
exceptions, stated that they found no objectionable competition in the
lending activities of the Production Credit Association. Some are referring prospective borrowers to this agency - borrowers to whom they do
not feel justified in extending credit bec:lUS<-~ of the risk involvf~d.
273
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R-114-a
New York continued
Oswego and Wayne Counties, New Yorls_
Only six benk officers stated thc..t their bond portf.::-lios show D.
material appreciation, and &.11 expressed a great deal of olarm ~;ver the
recent action of the stock and bond markets. This subject appecred to be
uppermost in their minds .::.nd sev8ral remarked that, even tb:mgh few of
their customers wc..re e<ctively interested in tht.: purchase or sale )f secur-i tie(~, these markets nevertheless heve a very profound effect on business
lccnlly. One officer added thct he had alrendy noted instances of hon.rding for the first time since 1933.
Dem~md for accommodation continues to bt:; r~~irly good, only four
b.snks reporting s.ny substantircl decrease in lo~:.n and discount t()tnlt=J. The
rr:.te is usuully 6 percent, although two or three of the lr·rger brnks grant
lo~ms s2cured by prime c.:;li.E·teral at 5~, 5, und oven as low r·s tt percent.
The me j:;ri ty, however, mukc nn excspticm ,:Jnly in tho cc;:.se 'Jf br.ms to municipalities and school dintricts.
The lending activities ~f the Producti.m Credit Association were
discussed v:i th pr[Lctically all of the bcnk -~Jfficers interviewed und nnne
of them voiced any great :Jbjection tr; its r·ctivities; in fo.ct, n number expressed their &pprovr!l, foe ling thut the fl:JS·)Cinti·-:ln is o.ssisting farmers
who wculd not be able to secure acc::Jmmodatic'n fr:_;m the ::>rdinory sourcos.
Middlesex Ccunty, New Jers-3y
The majority of b[.nkers interviewed, including thc)se in tbe industrial centers of Nevi Brunsvdck and Perth Amboy, report a light demcnd for
commercial credit. Earnings ccmtinu8 t) be a problum with !n·.JSt ,,f the banks
in the county, loans and discounts being only a portion of' the total of a
few years ago, a substantic.l pert of their bond accounts consisting of
United Sthtes government issues c.t low yields and e. fairly sizable umount
of cc.sh being Ctlrried :J.S 1111invested funds. However, an officer of one bE:.nk
(deposits ~1,600,000) pointed out that e<Jrnings for the current six months
will be the best for [:ny like period since the bank wes org~;mized in 1923.
This institution hn.s made consid·:,rable effort to obt~:oin mortgeges insured
under provisions of Title II of the Notional Housing Act rc.nd h[;S m;;.tde contacts with two mortg<' ge finencing compL:.nies, to secure npplicctions, the
b~.nk puying these concerns c moderB.te commission for their s~:'rvices.
The
totnl of such mortgc.ges already grcnted plus commitments received from the
FLder&l Housing Administrution is $412,000. This totr.l covers about 95
sepnrc..te properties, c.pproxim<·.tely h<:lf of which rcpre::ents new construction.
An officer of one N<::. tionDl b.':lnk hc:ving trust powers (deposits of
about $1,000,000) rcmorked thc..t he is not cccepting cny more trust business
end that he pl&ns to retire from this field cs soon as possible ts he
thinks trust business C[ nnot be hc.ndled properly or profi tc:bly by :1 bank
of this size.
274
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R-114-a
New York continued
(New York reports that in the area covered by its October visita79 banks had issued preferred stock or debentures, t:.nd that of
these 7. had subsea_uently retired their entire issues and 3:3 had so far
effected no retirement.)
tions
Philadelphia
Information obtc.ined by our representatives indicD.tes thvt there
is c:.. noticeable decline in business activity within the arec. covered by
this report. The reasons given are: excess inventories, sec.sonc~l dem2.nds
of the various businesses, strikes in other industries, and an uncertrd.nty
DS to tho future resulting in the adoption of e "go slow" ~:ttitude on the
pr. rt of some manufacturers and business men.
Agricultural conditions c.re considered fair, al thoUf;h the tobacco
crop was poor this yeo.r due to hec.vy dcmage caused by rust. The tom<lto
crop wus ruined by rain and thE: prices pcid for })Otc.toos were sr..:.id to be
insufficient to cover the cost of production. Grcdn ::end other stock feeds
yielded well 'J.nd provided about the only money crops produced in this
section this ye[r.
Some complrd.nt V1HS mnde bec~~use the priczes of food and other
necessities are advc.ncing more rapidly then wages. In severo.l communi ties
there have been building programs t2nding to relieve housing short<:cgcs but
it W':'.S stc. ted tho.t recently there hE'.S been L: noticec,ble diminution in the
willingness of people to purchase homes. This hrcs been :tttributed to the
m;,tural conservatism of the residents of this aroa r:.nd their unwillingnE)ss
to invest while uncertainty created by the recent decline in the securities
market exists. Nc[~rly all of the communi ties report tlw.t rvE'.ilable houses
f',re few and that rents are incres.sing. 'I'he fact that in some communities
there is still some closed b;mk reel csto.te 3.Vailablt at low prices, is
soid to have o. bad influence upon the regular market and t.o restrain a more
arabi tious building progr1:~m.
Several bankers stated that they had not experienced much difficulty with collateral loans during the recent decline in the securities
market because they did not permit margins to shrink too much before making ~i call upon the borrower. The executive officer of one institution
with deposits of about £.11,000,000 stated that the margin requirements of
the Board of Governors Wf::S one of the best things ever promulgated and
something which should have beEm in existence years ngo. (This statement
was made before the recent changes in mc:crgin requirements.) He inUm.::.ted
thc.t he did not f<lvor reducing thE: requiremE.nts and stated that none of
the loans made under this rcgub.tion caused his bank any concern during
this recent decline.
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R-114-a
275
C:l:eveland
The attention of bonks in this district centers largely in the
securities markets. Portfolios of banks generally v:ero acquired at higher levels, and existing paper lol'!ses arc contemplate<~ vdth misgivings.
There is continued evidence of a gradual shifting from long-term to shortterm investments. Many banks which have not yet mud.e this shift are merely
awaiting a favorable market opportunity to do so.
Notwithstanding a substanti[;.l recession in me jar lines of business
in this district, the total volume of loans extended by member bnnks shows
no decline. ·rhis is explained pr..rtly by the fact the.t banks r:.re increr:.singly active in the field of installment finance pr;per, u.nd of mortgr..ge
lo::ms, particularly in farming areas.
The current business recession hao affected the basic industries
of this district more than it has the smaller miscellaneous manufacturing
lines. In some instances, such as the practiced suspension of operHtions
of·a large steel unit at Lorain, Ohio, a large nmount of unemployment has
been created, but has not yet lasted long enough to cause noticeable distress or to result .in substnntic.l savings withdrc.wo.ls.
Kentucky bankers D.re regarding v:i th some apprehension the p::cyment
of lo[:.ns which will occur 'lhen the tobacco markets open in December, since
it will swell the present volume of unemployed funds. Banks find it difficult to loan funds locally and presE;nt conditions in the securities markets
are ::: serious d.rawbcck to the investment of depo:..1its.
Kentucky bc.nkers continuf~ to compl<::in of the actl vi ty of Government lending a.gencieo, which they r:eprE:sent nre t:.king from the banks
desirable locns which the bonks would glfldly mcke.
During the lv.st fer; clo.ys of Octob<=.r two nonmember br:.nkn in our
Kentucky territory, by volunt'lry action of the bo.?..rds of directors, were
placed in the h~mds of the Stete Depe.rtment for liquidr...tion.
A few sco.ttered complaints have been received from me:mber bc..nks
in sections where certificntes of deposit nrG preferred by depositors to
sr.vings r.ccouniE, thf.i t subsh.ntial deposit c:ccounts are being lost to nonmember insured bonks by renson of the less restrictive provisions of Regulation IV of the Federal Deposit Insurance Corporation as compared with
the provisions of Regul£~tion Q respecting payment before maturity.
Richmond
In the Fifth Federal Reserve District the total district production
of cotton is 1,610,000 bE~les, which is .11.5 percent above the 1956 crop,
compared with the national increase of 41.7 percent. With the larger cotton
crop c,nd the low price, it is estimated th1:..t the income of our district from
the production and sale of cotton this yeur will be less than in 1956; but
this loss in purchasing power will we bcliE':Ve be fully made up by the increased income over 1956 of the ·production and sr..le of tobacco.
276
-6-
R-114-a
H.ichmond continued
The tobacco crop i.s a better
slightly higher as a generc·.l :rule.
quc.~l:i.ty
th::..n lest year-, ;vi th prices
The Aituation in the cotton textile field is very blue. Tbe inform<:ction from best avnil:.:ble sources is thnt textile plcnts in our district
are opereting slightly um1er 60 percent of ct·.1JDci ty, but thi::; D.pplie s to
the larger c.nd more efficient units. The smaller units not so cffici.antly
mfnw.ged probably average operrctions of ~'pproximrltely SO percent c:~poci ty.
An outstanding feat1rrc uf the recent developments in textiles hrs b0en the
freedom with V"hich b.rgt; r~nd respons·i blc rwtion~J. concerns, o s well r.s
others, hnve cencelled orders. Textile people ara bewildorod and report
little evidence of c. convincing m:turo r::.t hs.nd to support a contention
thot immediate improvemr-:nt may be expected.
It is reported thc.t furniture mr..nuf~1cturing nnd tho furniture busigenerc.lly E.re suffering on <.:.ccount of the slowing down of i.nst&llment
buying. l\1nnufacturing concerns he-eve large inventories on hand. The ~·hole
SL:.le deale:cs are in somewl1r:tt the s:~mt: st<..tc. Some furniture factories have
completely closed dovm, v.itL onl;;r shipping rooms opcr:: ting, completing old
ordGrs. Otherr., manufe::.cturing spccir l types of furnitur,;, are opern.ting on
short. Ume. There is also the thrr::at of lc-.bor difficulties.
m~ss
Newport News, v<'w~re the Newport No,:s Sh:i.pbuilding and Dry Dock
Compcny is locc::tGd, is a bright spot in our district. The comp<~ny is working full tin-:e c,.nd h<>.s contr~<.cts on k:nd, not including repair ',Y.Jr 1<, :::mcunting to approxir:wtely 35 :nillicn c~ollDr;:;;. It cm·plo;rs 6,100 people, vvi th an
annur:.l pr:.yroll of Ecppr•:xx:i'!!L.te1y 10 milli:m d::.:·lL.rs. The cc·npc:ny hes rGcently secured o. ccntrn.ct t.:J builc ::. hx;t f·')r thr~ United StDtes Lin<JS Company to tal-::e the place of the Leviathan, and as thir. contract :orogres;::es
the compeny will take on from l, 500 to 2, 000 &ddi tione.l employees.
Generully S}JeuLing, it h::cd been hoped that the increase in unemployment following the m~:rketing of e.gricultural products, or their prepc.rntion for m::crket, would be in le.rge measure offset by an incroase in
employment in stores end manufccturing concerns in prep;~.r<:tion for the
coming holic'ay serson; but with tho textile mills working port time am~ the
general state of affairs in business, including industry ~nd cgri.culture
in the term, it is likely that there will be en increo.;:;e in unemployment.
AtlontEl
New Orleens
Visits wEre made to the four member bo.nks in New Orle!lTIS and the
officers of these banks reported the.t business in New Orlecns and its rcdjccent territory is considered good, there being some increased demLnd
for funds from customers. The crops of cotton, rice o.nd :.mgar cc:no in
277
-7-
R-114-a
Atlanta continued
this territory are bountiful and, while prices are low, the general impression is that aggreg!l.te returns from these crops will probc~bly equal
those received for the yec·-r 1956.
Southeast Alabama
This is the crop moving season in this section and the officers
and 8mployees of the eleven banks visited were found to be very busy.
Southeast Alabama has produced lc:..rge crops of cotton and per..nuts this year,
although rains just prior to the harvesting season reduced the grade of
cotton considerably and, as a consequence, a substantial portion-of this
crop will be below "middling". It is reported thut staple length is excellent. Practically all of the bankers in this particuh·.r section feel
tht,t due to the recent reduction in the price of cotton a large portion of
the crop will be held in the form of collateral to Commodity Credit Corporation notes, particularly since the Corporation has agreed to accept
lower grades than heretofore. It wqs reported th~t this section of the
St~tte has produced an unusuolly large pec.nut crop and thBt the local
bankers are of the opinion that this will be a "life saver" during the
months following this seoson of low priced cotton. Only one bonker interviewed voiced a desire to see reserve requirements reduced at this
time.
Northeast Georgia
Practically all farmers in this section are selling cotton at the
current price. However, the mc.jority of the fnrmers, according to information received, will undoubtedly agree to reduce ncreagEO and comply with
the requirements of the Department of Agriculture in order to obtnin the
maximum returns from this year's crop.
Interest rates on t:imt:o and savings deposits are not uniform. Some
of the smaller bankers in this rural section are not accepting interest
bearing deposits while other banks are pr.~ying the maximum permit ted by the
regulation. In practically every instance the banker interviewed advised
that he had enjoyed a good demand for locns during the current year and
registered no complaint regErding the Governmental loan e.gt:oncies.
East Tennessee
The bonks in this section are in· better condition th(~n for severnl
years pust. The princip~.l sources of revenue are tobacco, live stock rt::ising e.nd truck fa.rming. Weather conditions have been exceedingly favorable
for the growing of tobacco and grain crops. The live stock market, while
not z~.t its peak, held up well <:md prices obtained have, in the main, been
satisfactory. The tob&cco crop for this section will not be ~s good in
278
-8-
R-114-a
Atlanta continued
value us last year on account of a wet curing season, but the poundage will
be approximately 20 percent more than for 1936. It is the opinion of tho
bankers that the price will be somcwh:.lt less than last year but it is believed tJ::le increased yield will offset the reduction in price.
The attitude of the bankers in this section in regard to business
conditions in general is exceedingly optimistic. Most of them have "cleaned
house" and current earnings are as good as, or bettar than, last year. A
substa..TJ.tial portion of the 1956 earnings consisted of bond profits but this
year's earnings are of a type that th.:: bankers may reasonably expect to be
recurring.
Chicago
Calls on member banks during the month of October wore made principally in the State of Wisconsin. Throe of the banks visited were recently
admitted to the System.
Practically every bank reported an increase in deposits, while two
reported a slight increase in loans. Three banks (not located in the larger
cities) told us that they were lending to some of their smaller correspondent country banks. One bank loca.t~d in a small resort town indicated tht:.t
it might be necessary, due to expected seasonal decline in deposits, for it
to borrow from the Federal Reserve bank between now and the first of the
year, at which time deposits would increase because of tax collections.
One bank in a manufacturing town stated that their loans had decreased from a point several years ago of $5,000,000 to approximately
$1,000,000. A thorough canvass of former borrowers resulted in obtaining
one temporary loan. Deposits in this bank are growing steadily, notwithstanding which the banker interviewed stated that he was quite sure that
considerable amounts of currency were being placed in safety deposit boxes.
He further stated that his bank had not sold a Government Bond to a customer
in several months, while in the past such sales were not infrequent.
The bankers reported in some instances that their local merchants '
had rather heavy inventories, but seemed to think there were no distressed
situations; that while the present inventor,y cmlld probably be replaced at
lower prices, the merchants would be able to clear their shelvos in time.
In two or three places it was reported that the chain stores had reduced
their prices on several hundred items. Generally, business was reported
to have slowed down during the last thirty or sixty days. In one town a
large manufacturing concern that until recently had been operating seven
days a week has within tae last two weeks reduced its working time to four
days a week due to lack of orders.
-9-
R-114-a
279
Chice.go continued
Several nonmember banks were visitad. Two of these were considering the possibility of converting into National banks. Two indicated that
they wanted to reduce certain lines now extended to their customers, &nd
another advised that it would be necessary to further re<luce the amount invested in building before applying for membership.
One member banker stated that he had not become reconciled to the
increased reserve requirements, saying that the amount of reserve now carried at the Federal Reserve bank made it difficult to maintain a comfortable
worldr.g balance with his corruspondent banks.
St. Louis
Throughout Missouri there continues to be a pronounced scarcity of
livo stock for feeding, which will force considerable corn on the market as
many farmers are financially unable to hold their grain for higher prices.
Should a reasonable Government loe.n on corn be made available, considerable
b(;mefi t would result. In all parts of the Stnte there is an ample supply of
roughage of all kinds for the winter. The abundance of vegetables and other
edibles raised on the farm has resultod in the storing and canning of supplies to such an extent that living costs will be materially reduce~ for farm
residents.
Sowing of fall wheat has been completed and the acreage will compare
favorably with that devoted to wheat in the fall of 1956. The cotton crop
in Missouri will be late, picking having been retarded by much rain.
Interest in the oil boom in Illinois contirruos u.nabated and during
the month several additional wells were brought in over a comparatively wide·
area, indicating that thu field is not a restricted one;. Promising drilling
operations now in progress have given a decided impetus to leasing of additional oil rights on the part of severr.tl major oil companies.
B.'lnks throughout Missouri are enjoying n slightly better local demand for loans created largoly b<Jcause farmers desire to purchase pigs and
yearling calves for feeding purposes. Such advances, however, are not being mado to .an extent which would nocessi kte borrowing b;y· the banks from
either the'ir correspondents or the Federal Reserve Bank. During tho p~:cst
year the number of banks that have inaugurated service charges has greatly
increased. A number of smaller banks have derived enough income from this
source to show an operating profit that is very oncour~tging. There is some
uneasiness concerning the do cline in Government securities, but so f:.tr as
could be determined no bank is inclined to actu.:~lly dispose of any holdings.
On the other hand, some hesit~tion is manifested regarding possible further
purchases.
It appears that the Government cotton loan will be use<l rather extensively in the strictly cotton sections of Tennessee. Several banks are
taking all such available loans to hold as investments.
280
-10-
R-114-a
St. ·Louis continued
A number of Missouri bankers commented upon the impairment of the
par collection system. They are disturbed by the increasing number of nonpar points, pnrt:i.cularly in western and northwestern State>s. While a number
of banks reported increasod use of chuck collection facilities, because of
service charges by correspondents, it was stated that tho sorvice would be
used morG fr!Jely except for the difficulty of romembering which are and.
which aro not par points. In this connection, our officers visit any bank
which notifi'3s us of its inkntion to withdraw from the par list. Sometimes
thv bank decides to continue to romi t at pai·. Such a visit \.;as made during
tho month, with favorable results. We understand that ono of the roa:;;om::
why & certain National bank convertt:Jd into a State non-memb·~r bank was in
ardor to obtain revenue from exchange charges.
Increased use of custody, currency shipments, wire transfer, and
purchaso and sale of Governmont bonds services were noted, "and a number of
inquiries wer8 mad:J about thi~Se services with the idea of possible use in
the future.
Several banks inquired about the discount facility. The feeling
was expressed that thG br·~;adened lending powers of the Reserve bank will
have a tendency to maku t~1e System more popular.
Minneapolis
Between October 25 and 29 inclusive five group meetings of South
Dakota bankers were attended. The meetings worG wall attended by bankers
from pru.ctically every section of South Dakota and by reprcs8ntatives of
banks in the larger out-of-state cities of Chic·1go, Mirmeapoli:3, St. Paul,
and Sioux City. With some variations th0 progr<'ms followed the same general form. Much of the time at oach meeting was spent in discussion of
the now uniform schedule of service cha.rges D.nd the agricul tura.l program
in tho State of South Dakota. (In this connection it is noted thri.t only
two bonks of th:Jse represent:Jd at the meetings do not collect service
charges for the reason that they believe many of their cust•)mers cannot
aff~rd to pay them.)
The Reserve Bank representatives were very kindly received at all
of the meetings and at the banks visited. Few criticisms of the Federal
Reserve System in general or of the Federal Resorv:~ Bank of Minneapolis in
particular were notod oxcept on the question of exchange.
One banker exprGSSed tho boliof that a small Stab bank has the
right to operate even though excr..ange chargos consti tut•.:; the rev:mue that
really keeps the bank open. Private discussion ino.icc,ttJd that many nonmembur
banks have not actually rudiscounted with their correspond~:mts at th] moment,
but ar0 contomplating doing so in the vGry near future. An officer of a bank
in Sioux City, Iowa, said that his institution has had discounts recently
which were large in dollars and in number of banks maldng thorn.
281
-11-
R-114-a
Kansas City
Under present conditions th8re is no great urge for eligible state
banks to become members, but, even so, visits at such banks reveal that there
is interest in membership and that in a number of cases dir;~ctors of banks
have authorized negotiations to be opened to this end. It is s1.gnificant
that some eligible state banks are thinking of membership in connection with
the possibility of a surious business depression. They roalizJ that memb3r. ship gives a certain amount of protection in tha.t credit accommodation would
b0 as~urcd. A number of state banks, however, that have decided on membership, fed that it is more desirable to give up thair state charters and becomo national banks.
There is still considerablu discussion <:cS to rosorv! requirements.
Country bankers, .::specially, feGl that 14 percent is too high to permit the
maintenance of satisfactory r0lations with their city correspondents. A decrease of 12 percent since a year ago in intorbank deposits of reporting
member banks is due, no doubt, in part D.t least to higher reserves. Small
banks value these connections with city correspondents in order th<.;.t loans
for largo borrowers or loans they do not wish to handle may be taken care of.
Visits with barlkers in Nebraska, in sections of that state where a
fair amount of corn is being raised, disclose the fact that banks are making
a rather satisfactory amount of loans for feeding purposes. Some of these
banks are also expecting to borrow in modest 2..mounts. In sections of Nebraska where there is corn, bankers report that property statements show a
good increase in the number of hogs. In other sections of that state, whore
the corn crop was a failuru this year, bankers inform us that very little
feeding is being done in their communities.
Bankers report that the let-down experienced in other parts of the
country has not as yet made itself felt in Wyoming. Cattle prices are the
highest they have been since 1929. Following a number of years of drouth,
the ranges in wyoming are generally in excellent condition. As a result,
live stock is also in good condition, lambs carrying the best W8ight in
years. Sheep prices are up moderately and wool is bringing the best price
in years. Favorable prices, and the desire on the part of ranchers to pay
tho debts contracted in other years, are causing all classes of cattle to
be sold. It is reported that banks and other lending agencies are encouraging this liquidation.
The subject most commonly discussed at the present tim0 by Oklahoma bankers is that of cotton loans. This state has nearly a normal cotton crop, one that is three times as large as the poor crop of last year.
Th~ low price of cotton is creating much interest in cotton loans, but
judging from conversations with bankers there are many technical questions
in connection with these loans that are far from being understood.
282
-12-
R-114-a
Dallas
West Texas
One of the large~:;t cotton crops in thA history of West Texat> was in
process of being harvested in October. Increased acrea;;e and idr~al weath3r
conditions during the growing season EtCCGunt for a bumper crop that has literally swamped ginning, compr,;ss Etnd storage fa.c:U.i ties.
Local bankers and business men report t~1at, notwi thst~.;.nding the severo c:utumn decline which Cttrried the price of cotton sharply below thr-) Llvcl
of earlier expectations, r-3turns from tho crop, including funds recnivoci under
th\J govornmant 1 s financing orogram, aro producing a marked stimulation of g(mcral business activity and t:t distinct f8ol:Lng of optimism and SA.tisfr,ction
ttmong the producer~;. Although this situation is surprising :i.n vL w of th3
drrwtic decline in th~ pricG of tho product as comparod to the previous year 1 s
price level, it m::1y be accounted for in part by the relatively low costs of
cotton production pr,wailing in West T-.Jxns, whoru, in contrast with other
cotton prod·u.cing areaB of the Eleventh District, the tru.ctor rws largely displaced man-power as a means of cultivation, and production costs are correspondingly lor1cr.
Tho extraordi mry volume and rapid gath:;ring of the erop h::tVe created an acute situation that has reached distress proportions at many points.
Ginning :.:;.nO. co:npross facili.ties aro so hoG.vily over-taxed that gins and
pross0s are running night c:md day, with but l i ttlo :;::>respects for reliaving
tlw congestion in the near future. New warehouses· are being hc.stily constructed. Rcpr0sent.:; ti ves <-'f th::J Cornmodi ty Crodi t Gnrp0r.-:. tion have found
it necessary t,J arran}~e for the reconccntr.-J.tion •,)f fr'.)m 400,000 to 500,000
bales at Houst.)n !.:;.nd Galvoston.
The needs of trw producers have placed a heaV'J strain upon the banks
of West Texas. In view of the price situation producers arc taking heavy recourse to the relief offerod by the government's cotton financing program.
Tho sudden and voluminous demand for its corrunodi ty loans have made it difficult to commmmato the loans without considorabl,~ dclayo in connection with
the process of warohou.sing D.nd grading the stapL) a::1d sending the lo&n applications through trw noceDsary channels of analysis and approval. In this
cmorgoncy the local bc..r..ks are according th0 producers thc: full,.;st moasure
of fimmcial rmd clerical assistance. Many of tho commodity loans are being
made by the banks themsJlvos.
The FeC.ernl Resorvo Bank of Dall& s, in addition to stssisting the
movement of th0 crop through its regular loan faci.liti:Js, has offered to make
advances to member banks under Section lOB of tho Act, secured by the not:.;s
of producers in favor of the Commodity Crodi t Corporc;tion pending completion
of papers involved in the c~ c. c. loans.
283
-15-
R-114-a
San Francisco
Seattle Branch
Information received during visits to the Wenatchee-Okanogan District, October 5 to 7, inclusive, was that the price of apples was not entirely satisfactory to the growers and that there was a tendency for tho
producers to withhold sales. Last year a heavy fro3t visited this section
during tho picking season and caused a great deal of damage. The producers
were thoruforo picking the apples a little earlier than usual and e::x:pocted
to be through shortly aftar the first of November.
Thero was a largo crop of whoat in this district this year, but
again thu reduction of price since tho oarly contracts were made at ~; dollo.r r..;;.s c~~us0d farmers to withhold salos.
Livestock was roportod to be in excellent condition d th tfl.-e usual
amount of sales expected for thu se&son.
Condi tiom; in Aberdoen and aoquiam, vi si td. on Octo b.;r 27, with respect to lumber and lumb.:::r products, cr.;; vury uns1tisfactory. The Orientn.l
demand for lumb,Jr, except for n few small shipments to Jap~,_n, is negligible,
and wo were informed thut tho California mn.rket is V<3ry poor. On account of
lack of 0rders, most of -:,he mills aro down, the exceptions being one lurge
mill in Hoquit-tm and two smaller mills in Aberdeen.
The plywood plants and rmc iJulp mill are in oporE.ttion. Unless conditions improvo thl;ro will undoubtodly bu considerable uneraploym,mt and local
businoss housus will feel the effects.
Condi ticms agriculturally in Grays HarbrJr County hu.vo boon satisfactory this year. Therv has been a considerabL; increc:lse in acreage planted
to peas for canning and freezing purposes. The fr.rmcrs have also been successful in the raising of w~riJu.s typos of seed, part:~cularly cabbag·J, clover and
turnip.
A largu C:)ntract hus boon entered into by 'Jne of the local logging
companies with the United Stat0s Government for the purpose of logging a
very valuable stand of timber in the forest reserve arev.. It is expected
that logging will commence early in December and will create employment for
a large number of men.
PUBLIC EELATIJNS ACTIVITIES OF FEDERAL RESERVE BArh\S
OCTOBER, 1937
Federal
Reserve
Bank
Visits to b<:cnks
I
Non- i1 To t a 1
Member
,
memoer 1
Boston
New York
Philadelphia
Cleveland
I
"<;j1
r-i
I
Richmond
Atlantn
Chicago
St. Louis
Minneapolis
Kansas City
Da11ns
San Francisco
:ccttended
Attendance
Addressqs made
Attendance
Number
1
14
2
145
60
178
9
#
None
50
6,605
4
<1, 238
4
2
5
1,615
5
#
• None
13
113
47
97
81
38
39
•
Meoti
Number
41
10
32
11
17
13
60
1
28
9
49
5
710
530*
5,725
52
5
9
6
1,797
'Z
9
4
3
4
v
23
98
80
21
:3
2,650~
57
16
6
4
518-*'~""
980
5
2
580
158
540
525
90
None
2
80
2
1
235
150
None
#Attendance not reported.
*Attendance at l not roportGd.
*'~Attendc.nce at 2 not reported.
•
R-115
BOARD OF" GOVERNORS
285
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
AOORESS IJF"F"ICIAL CIJRRESPIJNOENCE
TIJ THE BIJARO
November 20, 1957.
SUBJECT:
Code Word Covering New
Issue of Treasury Bills.
Dear Sir:
In connection vvi th telegrnphic
trans['~c-
tions in Governnent Securities between Federal
reserve b<mks, the following code word
h;:~s
been
designated to cover a new issue of Treasury Bills:
"NOZJYN"
Treasury Bills to be dated
November 24, lS37, and to
mature Mn.rch 18, 1938.
This word. should be ins8rtod in the Federal
R~S:serve
Telegraph Code book, following the
supplemental code word "NOZJUGn on page 172.
Very truly yours,
Noell,
Assistant
S~cret~ry.
TO PRESIDENTS 8F ALL FEDERAL RESERVE BANKS
286
BOARD OF" GOVERNORS
OF" THE
'
FEDERAL RESERVE SYSTEM
R.-116
WASHINGTON
ADDRESS OF'F'ICIAL CORRESPONDENCE
TO THE BOARO
November 23, 1937
SUBJECT:
Holidays during December, 1957
Dear Sir:
The Board of Governors of the Federal Reserve
SysteJl1 is advised that the Havana .Agency of the Federal Reserve Bank of Atlanta will be closed on Tuesday,
December 7 in observance of Cuban Memorial Day.
On December 25 the offices of the Board and all
Feder&l Eesorve benks and brenches will be closed.
truly yours,
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
R-117
28?
BOA~D
OF GOVERNORS
OF THE
_FED]:R.AL RESERVE SYSTEM
STATEMENT FOR THE PRESS
For release in morning papers,
Thursday, November 25, 1957.
The follov,ing summary of general
business and financial conditions
in the United States, based upon
statistics for October and the
first three weeks of November,
will appear in the December lssue
of the Federal Reserve Bulletin
and in the monthly reviews of the
Federal Reserve banks.
Volume of industrial production showed a further sharp decrease in October end the first three weeks of November, and there
was a reduction in employment.
Commodity prices continued to decline.
Distribution of commodities to consumers was maintained at tho level
of other recent months.
Production and
emplo~nent
· In October tb.e Board 1 s seasonally adjusted index of inG.us·trial production was 103 percent of the:
192~-1925
average as compared
v;ith 111 percent in Septembwr and an average of 116 percent in the
first eight months of this year.
There wa.s a marJ.{ed curtailment of
activity in the durable goods industries.
Output of steel ingots,
vvhich had .. shown a steady declim, since Allgust, was at an average rate
of 59 percent of capacity in October and by the third
ber the rate had dc;clined to 56 percent.
w~ek
in Novem-
Automobile production in-
creasGd considerably in October as most mo.nufactut'8rS bogan assembly
of 1938 model cars.
In the first three weeks of November output of
288
R-117
-2-
...
automobiles showed little change from the level reached at the end of
October, with assemblies by one leading manufacturer continuing in exceptionally small volume.
Production of lumber and of plate glass de-
clined further in October.
In the nondurable goods industries, where
output had been declining since the spring of this year, there was a
further decrease in October.
Cotton consumption showed a sharp re-
duction and activity at woolen mills and shoe factories continued to
There was an increase in output at sugar refineries, where
de~line.
activity hEtd been at a low level in September.
changes in output were largely seasonal.
In moet other lines
Mineral production continued
at about the level reached at the close of 1936 and maintained throughout this year.
Value of construction contracts awarded in October and the
first he lf of November was smaller thr.n
cording to figures of the F. W. Dodge
j
n the precerUng six weeks, acTbe decline vm s
Corpornt~Lon.
chiefly in privecte nonresidentiGl construction.
Fnctory employrmmt declined substantially in October
~:md
pay-
rolls showed little ch[;nge, although &n increase is usu::.l at this
season.
Dec:;.int.:::' in the number employed were reported by fcctories
producing steel, machinery, lumber, and textiles, and in many smaller
industr les.
factories.
at
Th"'re was
c;
seo.sonc~l
incre::."!Se in employment
£~t
o.utomobile
Errmloyr:wnt and pB.yrolls increc,sed SE.-2Sumclly at mines and
establis~!Jnents
crgo.ged in wholesr:le cmd
ret::-~il
trtuie.
Distrib~tiog
Sales at depar0msnt stores c.nd mril order sr:lE;s increased
seasonally in October.
•.t'hroughout the yor;r s?les at
de~)!:;.rtment
stor8S
289
R.-117
-·3-
have been sustained, with seesonal fluctuations, and the Boardis adjusted lndex of these sales has shown little change.
Freight-car loadings declined in October and the first half
of November, reflecting smaller shipments of forest products, ore, and
miscellaneous freight.
Commodity prices
Prices of industri:-el
mat(~rials,
particularly nonferrous met-
c:.ls, steel scrap, rubber, end hides, declinffd further from the middle
of October to the third week of November, and there were some decreases
in the prices of finished industrial products.
Livestock and meat
prices declined substantially and coffee prices dropped sharply following the announcement by Brazil of modif:i.cation of its control policy.
Bank credit
During the first half of November the Federal Reserve banks
purchased $28,525,000 oi' United States Government securities, in accordance with the policy adopted in
SE~pte:nber
to provide additional re-
serves for meeting seasonal currency and other
requir<c~ments.
From the
middle of October to November 17, excess reserves of member banks increased from about $1,000,000,000 to
~l,lOO,OOO,OOO,
reflecting the
Federal Reserve security purchases and a considerable decline in requircd reserves at member banks in New York City, caused partly by a
reduction in demand deposits arising from n liquidation of brokers'
loans.
Loans to brokers nnd
de~lers
reported by hanks in loading
cities declined by t:250,000,000 d-uring the four weeks
<~nding
November
290
H-117
-417.
Commercial loans, following a steady increase for several months,
declined C'l.fter the middle of October.
Mi::;mbGr benks in Nev: York City
increased their holdings of United States Government securities by over
(150,000,000 while banks outside New York City showed
duction.
D~posits
c.
further rc-
continued to show moderate reductions.
291
R-118
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
AOORESS DF"F"ICIAL. CORRESPONOENCE
TO THE BDARO
November 29, 1937.
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:
"NOZKAS"
Treasury Bills to be dated
December 1, 1937, and to
mature March 18, 1938.
This word should be inserted. in the Federal Reserve Telegraph Code book, following the
supplemental code word "l!OZJYN" on page 172.
Very truly yours,
TO PRESIDENTS OF ALL FEDEHAL HESEHVE BANKS
292
R-119
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGT.ON
ADDRESS
OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
December 5, 1937.
SUBJECT:
Complimentary Copies of
Federal Heserve Bulletin
for StLte Bank Examiners.
Dear Sir:
In accordance with its practice in recent
years, the Board of Governors of the Federal Reserve
System Ylill ser.d to State
banl~
examiners upon request
a complimentary copy of each issue of the FcdP-ral Ros~;rvc
Bullotin pubUshod in 1938.
In this connoc-
tio:c1, it will be appreciated if you will submit as
soo:1. as possible tho names and addressos of all
Statu bank oxnmin0r;:; in your district who desire to
avail themselves of this service.
Vory trul;:r yours,
J. C. 1Joul1,
/.
A3sistant Sccruto.ry.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS (.,!.:xccpt Chi cage)
R-1.20
I
B01'-i:W OF
GQVS.;.cNOi:,~;
293
OF' THE
.F£.u !!;h.,L r... t;;.; Eh VE. i.:l Y~.iT E.rJl
Statement for the Press
For release in morning newspLpers
of Sunday, uecember S, 1937.
Uecember 4, 1937.
The Board of Governors of the Federal Reserve System adopted today,
effective January 1, 1958, a gener£tl revision of Ii.egulation T with a vievr to
clarifying and simplifying this ref:,ulation, which relates to the extension
and maintenance of credit b-y brokers, dealers and members of n&tional securities exchanges.
The principal ch;.mges made by the revision are technical.
The revised regulation makes no change in the level of margin requirements
and contains no provisions requiring liquidation of outstanding commitments
or reduction of outstanding loans.
The Board also amended,
effe~tive
immediately, the existing regulation so
that a broker w.ill h&ve the option of separating a customer's transactions in
commodity futures from the customer 1 s margi.11 account in securities pending the
taking effect on January 1, 1958, of the revised regulation whieh requires a
mandatory sepnr&tion of such trnnsc.:ctions.
The revised regulr.:.tion
libereli~es
requirement:;-, affectL"lg so-c::.:.lled
restricted accounts by providing that in the
c~.:.se
of sale of registered
securities in such accounts, custom-::rs may withJr&w, under specified conditions, 40% of the proceeds of such sales.
It
mcnts &ffecting such u.ccounts by providing that
fu~ther
[L
liberalizes require-
customer may make a deposit
which may be ple.ced in a "speciB.l miscelltneous account" instead of being
~sorbed
into the so-called r1.:;:strictod c,ccount.
294
R-1%0
.-.
-,::..-
The revision r.lso incorporc.tes rules prescribing m&rgin requirements for
dealings in securitiea on c.
11
when jssued 11 basis.
These requirements agree
substantially vdth those r:.dopted by the princip2l m.tionnl securities exchcnge~J
in conformity with
cert<~b
rules of the Securities 1.-,nd Exchmge
Commission.
The revision nlso cl<... rifies provisions relating to trcmsactions in specirl
.
cu.sh c.ccounts by providing th<:t the 7-day
pc~riod
obtain settlement from the customer for
purchi:se of securities sh·1ll date
b.
within which the broker must
in the typical C[Se from the time of the purchc,se •
.frovision continues to be
m[::_de for :JXtending the period in c.;xceptiono.l cu.scs.
T11e
ruvi~3Gd
r.;.:;gul.:..tion b
b<,scci on the
t.::nt&tivc~
dn:..ft th<;t wo.s submitted
l&st July for co;mnent to c.ll the Fc;derc.l heserve banks o.nd th..;; national
securities exchanges.
&nd the tGmpornry
l:\
copy of the rcvL:wd reguLtion, the new supplement,
~.~men<t1ll.mt
to tlw existing· regulr:·.tion are c.ttbched.
295
R-121
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
AOORESS OF"F"ICIAL CORRESPONOENCE
TO THE BOARO
December 4, 1937.
SUBJECT:
Code Word Covering New
Jssue 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:
"NOZKEY" - Treasury Bills to be dated
December 8, 1937, and to
mature March 19, 1938.
This word should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental code word "NOZKAS" on page 172.
Very truly yours,
tr. C. Noell,
Assistant Secretary.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
/
296
BOARD OF GOVERNORS
CIF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARO
R-122
December ~~
1937
Dear Sir:
Referring to tho Bo~rd's letter B-lle6 of Junu~ry
5, 1937,
following is c. stc.tomvnt of chc..nt;es during Novernbor in tho list of
nonn10mbur banks thr1. t have filed agroem;_mts with tho Boc.rd pursuc.nt
to tho provisions of Section 8(a) of tho Securities Exchange Act
of
1934:
Delete tho "Farmers Deposit EanJ: 11 1 P(:rryvillo~ Kentucky, from
pugo 2 of the list c.nd add it to page 5 under the hGo.ding relating to
bn.nks no longer in oporc,tion rts nonnlOmbor banks with tho followin; note:
"(Merged into Tho Old Bc.nk~ Perryville~ Kentucky, as
of November 2, 1937.) 11
Delete "Farmers Sto.to Ban.J.c of "host College Corner 1 Indi:::ma 11
(P, o. College Corner, Ohio) from pa.go l of tho list and add 11 Tho
Farmers State Banlc of vwst Coll0ge Corner, Indiana" (P, O, College
Corner, Ohio), with thd follovling; note:
"(Na.mo changed as of October 25, 1937, from 'Farmers State Banl<:
of VJest College Corner, Indiana 1 , in which namo the
agreement was executed.)"
Very truly yours,
E. L. Smead, Chief,
Division of Bank Onorations,
TO
http://fraser.stlouisfed.org/ l'...I L FEDERAl
Federal Reserve Bank of St. Louis
RESEFVE AG:C:?TS
297
BOARD OF GOVERNORS
R-123
Of" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS DF"f"ICIAL. CORRESPONDENCE
TC THE SOARD
December 4, 1937.
Dear Mr.
In accordance with the telegram sent
you toda;y, there are inclosed herewith
six mimeographed copies of revised Regulation T, "Extension and Maintenance of'
Credit by Brokers, Dealers, and Members of
Na. tional Securities Exchanges 11 •
Vory truly yours,
Chest3r Morrill,
Secretary.
Inclosures.
TO PRESIDENTS OF ALL FEDZRAL RZSERVE BAIJKS
c
298
EOJLBD OF GOVERNORS
of the
FEDERAL RESERVE SYSTEM
.
EXTEHSI ON AND MAl NTEJNANCE OF CREDIT
EY EROICERS, DEALERS, AND MEMBERS
OF NATIONAL SECURITIES EXCHANGES
REGlJLATION T
This regulation as printed herewith
is in the form as revised effective
January 1 1 1938
(Seal)
299
(Note for inside front cover)
INQ.UIRIES REGARDING THIS REGULATION
Any inquiry relating to this regulation should
be addressed to a national securities exchange of
which the person making the inquiry is a member or
the facilities of which are used for his transactions, or, if this be not practicable, the inquiry
should be addressed to the Federal Reserve bank of
the district in which the inquiry arises.
In the
event that an official of an exchange desires information as to a.'ly such question, he should make
inquiry of the Federal Reserve
ba.~
of the dis-
trict in which the exchange is located.
300
CONTENTS
Page
Sec. 1.
Sec. 2.
'c
uec. 3.
Scope of Regulntiotl ................................. .
Definitions ......................................... .
Generul Accounts
(a.) Contents of general o.ccou..11t ••••••••••••••••••••
(b) General rule ................................. , .
(c)
(d)
(e)
(f)
Sec. 4.
Maximum loan vr:tlue and curron t market vnlue ••••
Adjusted debit balance ••••••••••••.••••••.•••••
Liquidation in lieu of deposit •••••••••••••••••
Extensions of time •••••••••••••••••••••••••••••
(g) Transactions on given day ••••••••••••••••••••••
(h) Unissued securities ........................... .
Special Accounts
Sec. 5.
(b) Special
(c) Special
(d) Special
(e) Special
(f) Special
Borrowings by
(a) General rulH • . . . . • . . . . . • . . . . . . . . . . . . . . . . . . . . . . •
omnibus vccount ••••.•••••••.•••••••••••
cash t:tc count • • • • . • • • • • • • • • . • • • • • • • • • • • •
o.rbi truge nc cotmt • • . • • • . • • • • • • • • • • • • • • •
commodity account ••••.••••.••••••••.•••
miscellaneous aceount ••••••••••••••••••
Mombors, Brokers, and De&lers
l
5
3
4
5
6
6
6
7
8
8
9
10
10
10
(a) General rule ............ • . . . . . . . . . . . . . . . . . . . . . .
Sec. 6.
11
(b) Agreements of nonmember bankD • • • • • • • • • • • • • • • • • •
(c) Borrowing from other creditors •••••••••••••••••
Certain Technical Detrdls
(n) Accounts of partners ••••••••••••• , • • • • • • • . . • • • •
(b) Contribution to joint r•. dvonture • • • • • • • • • • • • • • • •
ll
ll
(c) Guaranteed nce,ounts • . . . . . . . . . . . . . . . . . . . . . . . . . . .
(d) Transfer of accounts • • • • • • • • • • • • • • • • • • • • • • • • • • •
(e) Reorguni zations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(f) Time of receipt of funds or securities ••••••.••
(g)
{h)
(i)
( j)
Intnrest, service charges, etc. • • . • • • • • • • • • • • • .
Borrowing and lnnding securi tifJS • • • • • • . • • • • • • • •
Credit for clonrcnco of SPcurities •••••••.•••••
12
12
12
13
13
15
Foreign currnncy . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .
(k) Innocent mistttkcs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . •
Sec. 7.
14
14
14
14
14
Miscellaneous Provisions
(a) Arranging for loan3 by others •••••••.••••••••••
(b) Mointr:mance of crr~cli.t • • • . • • • • • • • • . • • • • • • • • • • • • •
(c) Declaration as to purpose of loan ••••••••••••••
15
15
15
(d) Rc!ports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(e) Additional requirements by exchtmges and
croc.li tors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APPENDIX
15
15
301
REGULATION T
Revised Effective January 1, 1938.
EXTENSION AND MAINTENANCE OF CREDIT BY BROKERS, DEALERS,
AND MEMBERS OF NATIONAL SECURITIES EXCHANGES
SECTION 1.
SCOPE OF REGULATION
This regulation is issued by the Board of Governors
of the Federal Reserve System (hereinafter called the
"Board") pursuant to the Securities Exchange Act of 1954
(hereinafter called the "Act"), particularly sections 7
and 8(a) thereof, and applies to every member of a nationnl
securities exchange and to every broker or dealer who transacts a business in securities t~rough the medium of any
such member.
·
•
2
SECTION 2.
302
DEFINITIONS
For the purposes of this regulation, unless the context otherwise
requires:
(a) ~e terms llpersonll, "member", "broker", 11 dealer11 , 11 ~1 ,
'purcJ:jasell, "sale", n selln, "securi ty11 , a,nd "bank" have the meanings
given them in section 3(a) of the Act 1 pertinent parts of which are
printed in the appendix to this regulation.
(b) The term ''credi torn means any member of a national securities exchange or any broker or dealer who transacts a business in securities
through the medium of any such member.
(c) The term "cu.stomer" includes any person, or any group of persons
acting jointly, (1) to or for whom a creditor is extending or maintaining
any credit, or (2) who, in accordance with the ordinary usage of the trade,
Wo\ud be considered a oustomer of the creditor.
It includes, in case the creditor is a firm, any partner -in the
firm Who would be considered a customer ~~ the firm if he were not a partner,
and includes any joint adventure in which a creditor participates and which
would be considered a customer of the creditor if the creditor were not a
participant.
(d) The term llregistered security" means any security which (1) is
registered on a national securities exchange; or (2) in consequence of its
having unlisted trading privileges on a national securities exchange is
deemed, under the provisions of section 12(f) of the Act, to be registered
on a national securities exchange; or (3) is exempted by the Securities ahd
Exchange Commission from the operation of section 7(c){2) of the Act only
to the extent necessary to render lawful any direct or indirect extension
or maintenance of credit on such security or any direct or indirect arrangement therefor which would not have been unlawful if such security had bee~
a security (other than an exe~ed security) registered on a national securities exchange.
(e) The term "exempted securitY'' has the meaning given it in section
3(a) of the Act except that the term does not include a security which is
exempted by the Securities and ~xchange Comwission from the operation of
section 7(c)(2) of the Act only to the extent described in subdivision (3)
of section 2(d) of e1is regulation.
303·
3
SECTION 3.
GENERAL ACCOUNTS
(a) Contents of general account.
All financial relations
between a creditor and a customer, whether recorded in one
record or in more than one record, shall be included in and be
deemed to be parts of the customer's general account with the
creditor, except that the relations which section 4 permits to
be included in any special account provided for by that section
may be included in the appropriate special account, and all
transactions in commodities for or with any customer shall be
included in the special commodity account provided for by sections 4{a) and 4(e),
p
..
(b) General rule, "A creditor sl1all not effect for or
with any customer in a general account any transaction which,
in combination with the other transactions effected in the aC•
count on the same day, creates an excess of the adjusted debit
balance of the account over the maximum loan value of the securities in the account, or increases any such excess, unless
in connection therewith the creditor obtains, as promptly as
possible and in any event before the expiration of three full
business days following the date of such transaction, the deposit
into the account of cash or securities in such amount that the
cash deposited plus the maximum loan value of the securities deposited equals or exceeds the excess so created or the increase
so caused,
A transaction consisting of a withdrawal of cash or
registered or exempted securities from a general account shall
be permissible only on condition that no cash or securities need
be deposited in the account in connection with a transaction on
a previous d~ and that, in addition, the transactions (including such withdrawal) on the day of such withdrawal would not
create an excess of the adjusted debit balance of the account
over the maximum loan value of the sec~ities in t4e account or
increase any such excess,
Rules for computing the maximum loan value of the se•
curities in a general account and the adjusted debit balance of
such an account are provided in sections 3(c) and 3(d), and certain modifications of and exceptions to the general rule stated
above are provided in the subsequent subsections of this section
and in sect\on 6,
4
304
{c) Maximum~ value and current market value. - The
maximum loan value of the securities in a general account is
the sum of the maximum loan values of the indiVidual securities in the. account, including securities (other than unissued securities) bought for the account but not yet debited
thereto, but excluding securities sold for ~he account whether
or not payment has been credited thereto.
Except as otherwise provided in this section 3(c),
the maximum loan value of a registered security (other than
an exempted security) in a general account shall be such
maximtun loan value as the Board shall p?escribe for general
accounts from time to time in the supplement to this regulation, and the maximum loan value of an exempted security shall
be as determined by the creditor in good faith. No collateral
other than registered securities or exempted securities shall
have any loan value in a general account.
A warrant or certificate which evidences only a ri~1t
to subscribe to or otherwise acquire any security and which expires within ninety days of issuance shall have no loan value
in a general account; but, if the account contains, in addition to such warrant or certificate, the security to the holder •
of which such warrant or certificate has been issued, the current market value of such security (if the security be a registered security) shall, for the purpose of calculating its maximum loan value, be increased by the current market value of
such warrant or certificate.
For the current market value of a security throughout
the day of its purchase or sale, the creditor shall use its
total cost or the net proceeds of its sale, as the case may be,
and at any other time shall use the closing sale price of the
security on the preceding business day as shown by any regularly published reporting or quotation service. In the absence
of any ~~ch closing sale price, the creditor may use any reasonable estimate of the market value of su~~ security as of the
close of business on such preceding business day.
..
305
5
(d) Adjusted debit balance. - .For the purposes of this regulation, the adjusted debit balance of ~' gAneral account shall be cBlculated by taking the sum of the following items:
(1) the net debit balance, if any, of the account;
(2) the tott"tl cost of any securities (othr>r than unissued securities) bought for the account but not yet debited
thereto;
(5) the current morket value of fmy securities (other
than unissued securities) sold short in the account plu)'
for each such security (other than an exempt.c~d security , such
ammmt as the Board shall prescribe from time to time in the
supplement to this regulation as the margin required for
such short sales, except that such runount so prescribed
in the supplement need not be included when there are held
in the account securities exchangef'.ble or convertible Within
a reasonable time, without restriction other than the payment of money, into such securitj.es sold short;
(4) the amount of margin specified by section 3(h) for
every net commitment in the account in unissued securities,
plus all unrealized losses on each cor.nnitment in unissued
securities ond minus all unrealizod gains (not exceeding
the required margin) on each com::1itment in unissued securities; and
( 5) the amount of nny rnnrgin custoLlarily regu:lreu by the
creditor in connection with his endorsement or guarantee of
any put, call or other option;
and deducting therefrom the sum of the following i terns:
(6) the net creait balance, if any, of the account; and
(7) the net proceeds of sale of any securities {other than
unissued securities) sold for the account but for which payment
has not yet been credited thereto.
In case the general account is the account of a pnrtner
of the creditor, the account of a joint adventure in which the creditor participates, a gunrantccd account, or tho account of a customer
who has gu&ranteecl the t~ccount of another customer., the adjusted dcbi t
balance shall be computed according to the forFgoing rule and the supplementary rules prescribed in sections 6{a), 6(b), and 6(c).
6
(e) Liquidation in lieu of deposit.* - In any case in
which the deposit required by section 3(b), or any portion
thereof, is not obtained by the creditor within the threeday period specified in that section, securities shall be
sold or covering or other liquidating transactions shall
be effected in the account, prior to the expiration of
such three-day period, in such amount that the resulting
decrease in the adjusted debit balance of the account exceeds, by an amount at least as great as such required
deposit or the undeposited portion thereof, any resulting decrease in the maximum loan value of the securities
in the account.
(f) Extensions .~ ~. - In exceptional cases, the
three-day period specified in section 3(b) may, on application of the creditor, be extended for one or more
limited periods commensurate with the circumstances by
any regularly constituted committee of a national securities exchange having jurisdiction over the business
conduct of its members, of which exchange the creditor
is a member or through which his transactions are effected, provided such co~nittee is satisfied that the
creditor is acting in good faith in maldng the application and that the circumstances are in fact exceptional
and warrant such action.
(g) Transactions~ given day. - For the purposes
of section 3(b) 1 the question of whether or not an oxcess of the adjusted debit balance of a general account
over the maximum loan value of the securities in the account is created or increased on a given day shall be determined on the basis of all the transactions in the account on that day exclusive of any deposit of cash, deposit of securities, covering transaction or other liquidation that has been effocted on the given day, pursuant
to the requirements of seotion 3(b) or 3(e), in conn,ection with a transaction on a previous day.
*
This requirement relates to tho action to be taken when
a customer fails to make the deposit required by section
3(b), ¥d it is not intended to countenance on the part
of customers the practice commonly known as u free-riding"
or n three-day riding'', to prevent which the principal
national securities exchanges have adopted certain rules.
See the rules of such exchanges and section 7(o) of this
regulation.
306
307
7
(h) Unissued securities. -The amount to be in~
eluded in the adjusted debit balance of a general account as the margin required for a net long commitment in unissued securities shall be the current market value of the net amount of unissued securities
l~ng minus the maximum loan value which such net
amount of securities would have if they were issued
registered sec~ities held in the account; and the
amount to be so included as the margin required for
a net shott commitment in unissued securities shall
be the amount which would be required as margin for
the net amount of unissued securities short if such
securities were issued ~curities and were sold short
in the account: Provided, ~at no amount need bo included as margin for a net short eommitment in unissued securities when there are held in the account
securities in respect of which the unissued securities
are to be issued,nor for any net position in unissued
securitie~ that are exempted securities.
Whenever a creditor, pursuant to a purchase
of an unissued security for a customer, receives an
~sued security which is not a registered or exempted
security, the creditor shall treat any payment by him
for such issued secUrity as a transaction (other than
a withdrawal) which increases the adjusted debit balance
of the account by the amount of the payment minus the
amount required to be included in the adjusted debit
balance of the account, at the time of and in connection with the purcl1ase of the unissued security, as the
margin required for such purchase.
SECTION 4.
SPECIAL ACCOUNTS
8
308
(a) General rule. -Pursuant to this SP.ction 4, & creditor may
establi.sh for any customer one or more special accounts •
.•.
Each such special account shall be recorded separately and
shall be confined to the transactions and relations specifically
f..tuthorized for such account by the appropriEite subsection of this section and to transactions and relations incidental to those specifically
authorized. .An adequate record shall be maintnined showing for each
such account the full detc..ils of all transactions in the account.
A special accmmt established pursuant to this section shall
not be used in any way for the purpose of evhding or circumventing any
of the provisions of this regulation. If a customer has with a creditor both a general account and one or more such special accounts, the
creditor shall treat e~ch such special accmmt as if the customer had
with the creditor no general account.
Tho only other conditions to which transactions in such
special accounts shall be subject under the provisions of this regulation shall be such conditions as are specified in the appropriate
subsection of this section and in sections 2, 6 e.nd 7.
(b) Special omnibus account. - In a special onnibus account, a
member of a national securities exchange may effect for a customer
transactions which arc effected in reliance upon a signed stotement
which the member has accepted from tho customer in good faith, and a
duplicate originnl of whtch has be(~n filed by the member with the secretary of a national securities exchange of which he is a member, that the
customer is a broker or deLler who is subject to the provisions of this
regulation or has places of business only in foreign countries; and such
a special or.mibus account shall be subject to all the conditions to which
it would be subject if it were a general nccount except that --
(1) In such a special omnibus account, no securities shall
have loan value and no short sales of securities shall be carried, except securities and short sales as to which the member
shall have accepted in good faith a signed statement of the customer that he is in turn ca.rrying such securities and such short
sales for the E,ccount of his customers· other than his partners;
(2) The maximum loan value of a rogistered security (other
than an exempted security) having loan value in such a special
omnibus account shall be such special n~-cximum loan value, and the
amount to be included in the adjusted debit bvlance of such an
account as the mnrgin required for short sales shall be such special mnount, as the Board shall prescribe from time to time for
speci&l omnibus accounts in the supplerwnt to this regulation; and
(3) If the naxlnru1:1 loan vDlue of the securities in the eccount
shall have equalled or exceeded the adjusted debit balance of the
account after all thP. transactions in the account on any day within
the pe·riod specified in section 3(b), the liquidating or covPring
trans&ctions required by section 5(e) need not be effected.
9
309
(c) ~&1 cash accoun~. - In a :::;pecial cr~sh account, a creditor may
effect for or with any customer bona fide cash transr.1ctions in securities
in which the creditor mtty --
(1) purch~~se any security for, or sell any security to,
any customer, provided ·funds sufficient for the purpose are
already held in the account or tho nurchasc: or sale is in reliance upon an cgreement accepted by the creditor in good faith
that the customer wi 11 promptly make full CD.sh payment for such
security; or
(2) sell o.ny sccuri ty for, ur purchnse any sr:,curi ty from,
any customAr, provided the security is held in the account or
the purchase or sale is in reliance upon an agreement accepted
by the creditor in good faith thRt the security is to be nromptly
deposited in the account.
Except as otherwise provided in this section 4(c), in case a customer does not make full cash payment for a security nurchased by him in the
account, or does not (h:posi t in the [:ccount a SPcuri ty sold by him in the
account, within seven days aftnr the date on whj_ch the sccuri ty wt.,s purchased
or sold, the crcdi tor shall promptl::,· ctmcel, cover, or oth~;rwise liquidate,
the transu.ction or the unsettled portion thereof.
If the security was purchased for the customer subject to a customary "seller's option" ns to tho time of dnlivery, or if the security was
purchased for, or sold to, the customer and the croditor 11 feiled to receive"
the security at the usual time of deli very, the period referre<l to in the nreceding paragraph shall be five day::; from tho d<JY on which thf' creditor [; cting
in good faith wa;> able to obtain the security. If thn security wns sold for
the customer subj oct to a customary 11 seller 1 s option :t tt:J to the> time of delivery, such period shall end with the day on whieh the option expires. If
the security when purchased or sold was an unissued security, such period
shall be seven db.ys from the dL'Y on which the Stocuri ty wets made availt"ble by
the issuer for delivery to purchnscrs of the security.
If any regularly constituted committee of a national securities exchange having jurisdiction over the business conduct of its members, of which
exchange the creditor is a r1ember or through which his tronsDctions are effBcted, is satisfied that tho ercditor is o.cting in good faith in making
the application, that tho applieetion relat0s to P. bona fid0 cash trnnsrwtion,
and that exceptional circumstences warrant such Hetirm, such committe<':, on
application of the creditor, ;nay (A) extend any ncriud specified in the two
proceding paragraphs for uno or more limited periods commensurate with the
circur:Jstances, or (B) in tho cnse of the nurchnse of a rE!gistPrPd or cxel"!pted
security which has been effected by the customer in the &ccount, authorize
the tr1msfer of the transection to a general account or spPcial omnibus account and the completion c;f the tnnsaction pursuGnt to the provisiuns )f
this regulation relating to such accounts.
The Jays specified in this section 4(c) are calendD.r days, 'but if
the last day of any neriod spr:;cified herein is a Saturday, Sunday, ')r h~)li
dny, such perirJd shall be considered to end on the nAxt full business day.
For the nurposos ,)f this section 4(c), a creciitor may, nt his option, disrf;gt,rd any sum ciue by the cust:Jmer not excoeding Cso.
310
10
(d) Special arbitrage et.cconnt. - In a 3peda1 arbi trr:ge nccount, ~J
member of a national securities exchange may effect nnd finAnce for any
customer bona fide arbi trag8 transactions in sc~curi ties. For the purposes
of thin subsection, the term "arbitrage" mo.•ms (1) a purchase or r,~:,le of e.
security in one market together with an offsPtting snle or purchase of the
same security in a differr>nt market at as nearly the same time as prt•cticable, for the purpose of takine advantage of a difference in prices in
the two markets, or (2) a purchase of a security which is, without restriction other thDn the payment of noney, exchaneBable or convertible within a
reasonable time into n second security together with Em offsetting snle at
or !'~bout the same time of such second security, for the purpose of tL.king
advant~ge of a disparity in the prices of the two securities.
(e) Special commodity account. -In a sp(~cial commodity account, a
creditor way effect a11d carry for uny customer trc.nsoctions in commodities.
(f) Specie.l miscf1llaneous accmmt. - In a special miscellaneous accotmt, a creditor r:my -(1) With tho approval of ony regularly constituted committee
of a national securities exchange having jurisdiction over the
business conduct of its ;nembers, make and maintain loans to meet
the emergency needs of any creditor;
(2) Effect and finance, for nny joint adventurf) in which the
sole participr.nts vre the creditor and one or more members of a
nr.tional securities exch&nge who are registered on such exchangf.:
as odd-lot dealers and acting as such, uny trunsactions in securi-ties with respect to which all participants, or all participants
other thon the creditor, are so registe;rod and so act;
(3) Effect transactions for and finance any joint adventure
or group in which the creditor participvtes and in which C!ll participants are uen.lers (whether such particip!'mts be acting jointly
or severally), or r.ny I!lembr-)r th<.Jreof or participant therr-dn, for
the purpose of facili t[,ting the tmdcrwriting or distributing of
all or part of an issue of securi ti(~S (A) not through the r.tedium
of a national securitie:> exchange, or (B) the distribution of
which has been approved by the approprir1te committee of a nationbl
sccuri ties E.~xchange;
(4) Effect for any cusbner the collection or exchange (other
than by sale ar purchase) of securities deposited by the custJmer
specifically for such purposes, and (subject to any other applie!lble prov::J.SJ.ons of law) roceivc from •>r for any custDmel:', e.nd pny
:mt or deli vcr to or for any cust0mc:r, an~~ m:mey or socuri ties;
(5) Effect and carry f~.lr e.ny customer trr:nsnctions in foreign exchange; end
( 6) Extend and r.taintain credit to or for any custor.mr without collr~terr:tl or on any collateral whatever for any nurpose other
than purch(•Sing or r.arrying r)r trading in securities.
11
SECTIOU 5.
BORF.m'iiNGD BY MEMBERS, BHOK~RS, AND DEf,LEP,S
(a) General rule. -· It is unlawful for any creditor, d::.reetly
or indirectly ,to borrow in the ordinary course of business as a
broker or dealer on any registered se:;urity (other than &n exempted
security) except
(l) from or through a member bank of the Federr.l
Reserve System; or
(2) from any nonmembf)r bank which shall have filed
with the Board an agreement which is still in force and
which is in the form prosc:ribed by this regulation; or
{3) to the extent to which, under tho provisions
of this regulation, lonns are permitted betvo•een members
of a national securities exchange Emd/or brokurs c.nd/or
det:.lers, or loans e're permitted to meet emergency needs.
(b) Agreements of nonmember banks. - An agreement filed pursuant to secti.on 8(a) of the Act by ~~ bank not a membf"r of the
Federal Reserve System shnll be substantially in th8 form contained
in Form F.R. T-2 if th<; bank has its rrincipal plac(; of business
in a territory or insular possession of the Unitc-;d States, gr if
it has an office or egency in the United States and its principnl
place of business outside the United States. The agreement filed
by any other nonmember benk Ghall be in substanMally the form
containt>d in Form F .H. '1'-1. Any nonr:wmber be.nk which has ex-ecuted any such ngreemont may terminn t:.e the sgrer;mcm t if it
obtcins the written consent of tho Board. Bla..YJ.k forms of sueh
agrPements, information rognrding their filing or tf:rmination,
and information rc:garding the names of nonmember banks for
which such agrnements are in force, may be obtained from
any Federal Reserve bank.
(c) Borrowinr, from other ermli tori?_. - A creditor j:Jay borrow
from another creditor in th£-; ordinary course of business as a
broker or dealer on nny registernd security t.o the Pxtent anri
sub,i ect to the terms upon which th<=J latter may extend credit
to hira in accordance with thG provisions of this regulP.tion, and
subject to an;,r other applicnble provisions of lmv.
31:1
31.2
SECTION 6.
CF.R'£AIN
TECHNIC.r~L
DE"'AILS
(a) Accounts of partnnrs. - In ctH3e e gonnral account is the: f..c)f a pc,rtner of the creditor, the creditor, in calculating the
edj usted debit bDla.nco •>f such account and the J:lHXimum Lnm Vf>lue of
thf.:1 s~curities thurein, shall disrt:lgt.:rd the partner's finc::.ncial relf:tL.ms
with the firo as reflected in his cE.pi tal t.nci. ·.)r(!inal;r drawing r:.cc(,unts.
c~.mn"t
(b) Contribution ~ ,j •)int ·adventure. - In en sA a general account
is the account of a joint adventure in which tho creditor pnrticipatAs,
the Hdjustetl debit bEU.Dnce of the Eccount shall include, 5.n edJi ti ;n
to the: items specified in ;:;cction 3(d), any runount by whieh thP. crrditor1 s cantribution to the joint adventure ~xceeds the c•.mtribution
which he would hnve r.ta<.le if he had contribut<:1cl !'l{:;rely in rroportion
t:> his right to share ~n the prufit,i)f the joint adventure.
(c) Guaranteed ucc·>~unts. - In case fl general acc::>unt maintr.inod by
n crnditor for one cust0Jllor is guaranteed in writing by enothor customer
f·)r whom the creditor maintnins a general r:.ccount, the adjustec'! debit
balance of the guaranteed account may, nt thn ~;pti0n of the cr~>di t·Jr,
be computed by deducting from the sum of the items specified in section
5(d) an amount not grer:tf~r thf.m the excess of the maximum lrJen value
of the securities in th~ guar1mtor 1s genert~.l ecc01mt ovt'lr the adjusted
debit balance of such guarantor's account c&lculated wi th:mt the ~ld
d1.tion thereto prescribed by the following pnragraph, providNl (1) the
guarnntor is nut a creditor, (2) a duplicate original of tho guarantee
ht.s been fileu with t.he secret.t:>ry 0f a national securities exchange ·)f
which thE:: creditor is a menber or through which his transactions ere
eff8cted, and ( 3) th(; guarcm tee pe:rJ.'li ts the cret ~i tor to use funds ti.nd
securities in the guarantor's account to c~rry the guaranteed accrmnt
without restriction, except that the guarantee may be limited to n
specified tun.)unt and in that event tht~ deduction shull not exceed
such amount.
In cnse a guarant(~e hns servocl to ;)erui t in the gua.rantned
u.cc ..Junt uny tra.nsactivn which could not otherwise hevo b(;!en eff(·cted
i:n accordance with thi3 rngulation: (A) the ndjusted debit balnnce of
the guarant,.)r• s acc.Junt sludl be c:.>mputeJ. by ndcling to the sum uf the
i terns specifieCi .in section 3{ d) an am(mnt equnl to tho d~rluction m•de
pursoont to tho nroceding pe.rngroph; (B) thA crr~:li tor shflll not subsequently decrnase the araount of such doduction, or the El!.l:;unt of the
consequen·t addition to thE'! adjustec: debit br1lcmce of tho guarr.nt:-:>r 1s
account, unless the adjusted debit balance ;:>f the guaranteed i:CC·:>unt,
after such decrease !lnd after all trnnsacti·Jns in such gunrr·nteeu ·
nccvunt on tho date of such d0crense, uoes not exceed the mc.tximum lonn
value ')f' the SE'curities in such guaranteed nc.:count; and (C) if the
guarantee is terminatod ,)r tho r:.nnunt there:.)f reduced, the crndi t:.>r
shall rE~quire thnt, nft£;r all the transActi·:ms (including such termination or reduction) on the ue.tc of such termination or reduction, the
alljustPrd d€-bi t bt~lance of the {;,TUaranteed r:.ccount shall not Hxceed the
mc::dmuo l1)ru1 vrlue Jf the se;curities in the t:.ccount.
15 .
3:13
(d) Transfer or accOlmts. - In the event of the transfer of a
general accmmt from one creditor to another, such ~ccount may be
treated for the purposes of this regulation as if it had been maintained by the transferee from the date of its origin: Provided, That
the transferee accepts in good faith the signed stotement of the
transferor tb.nt no cash or securities need be deposited in the account in connection with a:1y trru1sr.ction th11t has been eff~cted in
the account or, in case he finds thr:t it is not prc.cticnblc to obtain such a statement from the trt::nsferor, (ICCepts in good faith such·
a signed st~tement from the customer.
In the event of the trr.nsfr.:Jr of a genert.il account from
ono customer to another, such account may be treated by the creditor
for the purposas of this ragulation ns if' it hnd been maintained *'or
the transferee from the dli.tn of its origin.
(e) Reorganizations. -A creditor may, without regard to the
other provisions or this regulation, eff~ct for a customer the exchunge of any rC!gistered or exempted security in E-. gE'lnerr..l account
for the purpose of participating in a reorganization or r~capitali
zation in which tho security is involved: Provided, That if an unregistered non-exempted security is a.cquired in exchange, the creditor smtll not, for a poriod of sixty days following such acQuisition,
permit tho wi thlrrtwal of such Sf,curi ty or the proceeds of its sale
from too customer's account except to tho extent that such security
or proceeds could be withdrawn if the security were n register~d
security.
(f) Time of r~ccipt of fUnds ££ securities. - For the nurnoses
of this regulation, a creditor may, at his option (1) treat the roceipt
in good faith of any check or drf:ft drawn on a bar»~ wldch in the ordinary course of business is pay~ble on present~tion, or any order
on a savings bank with passbook attached which is so ~ayablc, as
receipt of payment of the amount of such check, drf'.ft or order;
(2) treat the shipmont of socurities in goou faith with sight drnft
attcched as receipt of payment of the runount of such sight draft;
and (5) in the cr~se of tho recolpt in good ft<.ith of written or telegre.phic notice in connection with t. special omnibus account of a ·
customer not located in the su.r.u~ city tho.t a specified secnri ty or a.
check or draft has been dispatched to th'1 crf'>ditor, treat th£> re- ·
ceipt of such notice as rocAipt of such security, cheok or drnft:
Provided, however, That if the crflui tor r(•coivHs notice tho.t su.ch
check, draft, order, or sight Jrc,ft describ(~d in cls.use (1), (2)
or ( 5) is not paid on the duy of present·!ti•)n, or if such security,
check or draft described in cl&uso (5) iG not rc·ceived by the cretiitor within a re~~soneble tirJe, the credi t-..)r shall ?romptly takP such
r.ction as he would hHvo been roquir0.d t'> tr.ko by the f.l.pl')roprietn provisLms of this regulation i!' the provisions of this subsectirm hncl
not beun utilized.
14
(g) Interest, service charges, etc. -Interest on credit maintained in a general account, communication charges with respect to
transactions in, the account, shipping charges, premi urns on securities
borrowed in connection with short sales or to effect delivery, dividends or other distributions due on borrowed sec:t.rri ties, and any service charges (other than commissions) w;1icl1 the creditor may impose,
may be debited to the accom1t in accordance with the usual practice
and without regard to the other provisions of this regulation, but
such items so debited shall be taken into consideration in calculating the net credit or net debit balance of the account.
A creditor may, without regard to the other provisions of
this regulation, pay to or for a customer from a general account interest or caru1 dividends collected by the creditor for such accow1t,
if such payment is made within 35 days after the day on which, in
accordance with the creditor's usual practice, such interest or dividends are credited to the account, and if the crediting thereof has
not served in the meantime to permit in the account any purchase of
securities or other transactions which could not otho~vise have been
effected in accordance with this regulation.
(h) :Borrowing and ;tending securities. -Without regard to the
other provisions of this regulation, a creditor (1) may make a bona
fide deposit of cash in order to borrow securities (whether registered or unregistered) for the purpose of making delivery, of such. securities in the case of short sales, failure to receive securities
he is required to deliver, or other similar cases, and (2) may lend
securities for such purpose against such a deposit.
( i) Credit for clearance of securities. - The extension or maintenance of any credit which is maintained for only a fraction of a day
(that is, for only part of tho time between the beginning of business
and midnight on the same day) shall be disregarded for the purpose
of this regulation, if it is incidental to the clearance of transactions in securities directly between members or through an agency organized or employffld by the members of a national securities exc~ango
for the purpose of effecting such clearance.
(j) ~~ currency. -If foreign currency is capable of being
converted without restriction into United States currency, a creditor
acting in good faith mey treat any such foreign currency in an account
as a credit to the account in~~ amount determined in accordance with
customary practice.
(k) Innocent mistakes. - If any failure to comply with this ree,'U.lation results from a mistake made in good faith in executing a transaction, recording, determining, or calculating any loan, balcmce, market price or loar1 value, or other similar matter, the creditor shall
not be deeraed guilty of a violation of this regulation i f promptly
after t:w discovery of the mistake he tr.:.lkes whatever action may be
practicable in the circumstances to remedy the mistake.
314
15
315
SECTION 7.
MISCELLANEOUS PROVISIONS
(a) Arranging for loans _Ei others. - A creditor may arrange for the
extension or maintenance of credit to or for any customer of such creditor by any person upon the same terms and conditions as those upon which
the creditor, under the provisions of this regulation, may himself extend
or maintain such credit to such customer, but only upon such terms and
conditions, except that this limitation shall not apply with respect to
the arranging by a creditor for a bank subject to Regulation U to extend
or maintain credit on registered securities or exempted securities.
(b) Maintenance of credit. -Except as otherwise specifically forbidden by this regulation, any credit initially extended without violation
of this regulation may b~ maintained regardless of (1) reductions in the
customer's equity resulting from changes in market prices, (2) the fact
that any security in an account ceases to be registered or exempted, and
(3) any change in the maximtun loan values or margin requirements prescribed by tl1e Board under this regulation. In maintaining any such
credit, the creditor may accept or retain for his own protection additional collateral of any description, including unregistered securities.
(c) Declaration ~ 1Q purpose of loan. -Every extension of credit on
a registered security (other than an exempted security) shall be deemed
to be for the purpose of purchasing or carrying or trading in securities,
unless the customer shall file with the creditor a written declaration
signed by the customer which shall state the use to be made of such
credit and which shall state specifically that such credit is neither
for the purpose of purcl.asing or carrying or trading in securities nor
for the purpose of evading or circumventing the provisions of this regulation. In connection with any extension of credit, a creditor may rely
upon such a written declaration unless he knows the statement to be false
or has information which would put a prudent man upon inquiry and if investigated with reasonable diligence would lead to the discovery of the
falsi t;r of the statement.
·
(d) Reports. -Every creditor shall make such reports as the Board
may require to enable the Board to perform the functions conferred upon
it by the Act.
(e) .Additional requirements _Ei exchanges and creditors. -Nothing in
this regulation shall (1) prevent any exclwnge from adopting and enforcing any rule or regulation further restricting the time or manner in
which its members must obtain initial or additional margin in customers'
acco~<ts because of transactions effected in such accoTh<ts, or requiring such members to secure or maintain higher margins, or further restricting the amount of credit which may be extended or maintained by
then, or (2) modify or restrict t:1e right of r:my creditor to require additional security for the maintenance of any credit, to refuse to extend
credit, or to sell any securities or property held as collateral for any
loan or credit extended by him.
316
§UPPLEMENT TO REGULltTION 1.
ISSUED BY T!ffi BOARD OF
GOVER~ORS
OF THE FEDER11L RESERVE SYSTEM
Effective JDnuary 1, 1938.
Maximum loan value for general accounts. - The maximum loan
value of a registered security (other than an exempted security)
in a general account, subject to section 3 of Regulation T, shall
be 60 percent of its current market value.
~aximum
loan value for special omnibus accounts. - The maximum
loan value of a regis t13red security (other than an exempted security)
in a special omnibus account, subject to section 4 of Regulation T,
shall be 75 pnrcent of its current market vnlue.
Margin required for short sales. - The r·;mount to be included in
the adjusted debit balance of a general account pursuant to section
3(d)(3) of Regulation T, as mnrgin required for short sales of securities (other than exempted securities) shall be 50 percent of the current m&rket value of each such security, and in the case of n special
omnibus account with
~mother
r.1ember, broker or dealer, such amount
shall be 35 percent of sueh current market vDlue.
317
Amendment No. 11 of Regp.lation T - Effective December 6, 1937
BE IT RESOLVED, That, effective December 6, 1937, Regulation T, as
amended, is further amended by adding at the end thereof after section 12
a new section reading as follows:
SECTION 13.
SPECIAL COMMODITY ACCOUNT
Notwithstanding any other provision of this regulation:
(a) In a special commodity account recorded separately, a creditor may
effect and carry for ru1y customer transactions in commodities, and such a
special account when so recorded shall be exclwled from all calculations
•
involving any combined account or any other special account; and
(b) On or before December 31, 1937, the creditor shall transfer to the
special commodity account of a customer from the combined account and from
any other special account of such customer (1) all open trades or contracts
in commodities carried in such combined acco,mt or such other special account, together with (2) funds in an amou..>1t equal to the amount of margin
customarily required by the creditor on all such open trades or contracts
so transferred plus any net loss on such open trades or contracts OR minus
any net profit (not exceeding such margin) on such open trades or cont:r:-acts.
A special commodity account established pursuant to this section shall
not be used in any way for the purpose of evading or circumventing any of
the provisions of this regulation.
If a customer has with a creditor both
a combined account and such a special commodity account, the creditor shall
treat the special commodity account as if the customer had with the creditor
no combined account.
318
BOARD OF GOVERNORS
R-124
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
December 4, 1937.
TO THE BOARD
Dear Mr.
Recently a suggestion was received from President Fleming of
the Federal Reserve Bank of Cleveland that it would be beneficial if
meetings of the directors and officers of the Federal reserve banks
with the Board of C'.overnors could be arranged, either in groups of directors and officers or the directors and officers of individual Federal reserve banks.
In its reply, a copy of which is attached, the
Board has requested that President Fleming obtain the suggestions of
the board of directors of the Federal Reserve Bank of Cleveland as to
thG details of a program for such meetings.
if
It will be appreciated
you will discuss the matter with the board of directors of your
bank in the light of the req.uest made in the letter to President
li'lGming and advise the Board of tho suggestions that your diroctors
may wish to make.
When the suggestions of all Federal reserve banks have been
received, the Board, sometime after the first of the year, will advise you of the program determined upon.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO
PRESIDENTS
OF ALL
li~DERAL
RESERVE BANKS (Except Cleveland and Chicago.)
R-124.-a
319
December 4, 1937.
}1r. M. J. Fleming, President,
Federal Reserve Bank of Cleveland,
Cleveland, Ohio.
Dear Mr. Fleming:
Mr. Szymczak brought to the attention of the Board your letter
of November 15 with respect to meetings of directors and officer·s of
the Federal reserve banks with tho Board of Governors. The Board also
received a letter dated November 19 from President Schaller, of tho
Federal Reserve Bank of Chicago, transmitting a suggestion of the board
of diractors of that bank that a meeting of ell directors of the Federal reserve banks be held at least annually at some point convenient
for all directors.
'rhe Board is in full accord with the thought that meetings
with directors of' Federal reserve banks from time to time would be very
desirable. In this connection you may recall that in 1934 an attempt
v:as made to arrange for meetings wi. th boards of directors of the l''edoral reserve banks, but becallSe of other demands it was not possible
to work out a practical program, and the meetings were postponed. Certain questionG of procedure have arisen in considering the idea Ur:>On
which the Board would be glad to have the advice of your directors,
and it will bE: appreciated if' you will discuss the matter with them.
Naturally, the first question that arose was whether the mGetings should be confined to directors only, or to directors 11nd officers
of' the Federal reserve banks, and whether they should be extended to
include directors of the branches. Even without the directors of the
branches, it was pointed out that a meeting of all the directors and
senior officers of the twelve Federal reserve banks would be quite
large and might not be productive of the desired results. On the other
hand, doubt was suggested as to wh8ther a meeting with the directars
and officers, including possibly, also, the directors of the branchea
of a singlu district; would be as d8sirctble o.s ::;. grouping of, say,
three districts at one meeting.
Interwoven with these questions were the additional q_uestions
as to whether tllf..l meetings should be held in Washington or at f.:Ome other
place or places which might be convenient for the particular banks represented, and what sort of a program should be formulated, and by whom, as
to the matters to be discussed.
'l'he Board will bo glad to have the benefit of the recom;nendations of your directors on these questions and is sending a copy of this
letter to the President of eEtCh of the I1 ederal roserve banks for the
'
same purpose.
(Signed)
Very tn1ly yours,
Chester Morrill
Chester Morrill,
Secretar-y.
320
BOARD OF GOVERNORS
R-125
CIF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS Of"f"ICIAL CORRESPONDENCE
TO THE SOARD
December 6, 1937.
SUBJECT:
Reconsideration of Exception
in Section 5(a) of Regulation
L re Morris Plan Banks.
Dear Sir:
Pursuant to the authority conferred upon it by Section 8 of
the Clayton Act as amended by the Banking Act of 1935, the Board of
Governors, as you know, hn.s granted permission to any private banker
or any director, officer or omployoo of a member bank to serve at
the samo time as a director, officer or employoe of not more than
one "Morris Plan bank, cooperative bank, credit union or other similar institution." This permission, which is sut forth in Section
3(a) of tho Board 1 s Regulation L, was gr~1ntcd because 1.t appeared
that Morris Plan banks wore not generally engaged in the same
classes of business as commercial. banks.
There appears, however, to be an increasing tendency on the
part of commercial banks and on tho part of Morris Plan banks and
other similar institutions to engage in the same classes of business.
Specifically, it appears that some Morris Plan banks and other similar institutions now receive deposits subject to chock, as well as
time and savings deposits, and that some no longer limit the scope
of their lending activities to tho typo of loans which were originally peculiar to Morris Plan banks and similar institutions. Some
commercial banking institutions, on the other hand, havo inaugurated
personal loan departments which arc being operated on tho basis of
installment repayments and co-maker note sec1~ity.
Those developments raise the question whether Morris Plan
banks and similar institutions, on tho one hand, and commercial
banks, on the other, arc now engagod in some of the same classes
of business to such an extent that tho permission granted ~J tho
Board in Section 3(a) of Regulation L to servo a member bank of tho
Fedoral Rusorvo &'ystom and not more than one Morris Plan bank or
other similar institution should be withdrawn. In the circumstc.nces,
i t will be appreciated if you will ascertc.in and advise th0 Board
321
-2-
R-125
as to the approximate number of interlocking relationships involving
Morris Plan banks and similar institutions in your district which
would be prohibited by the Clayton Act except for the permission
gTanted in Section 5(a) of Regulation L, and also as to the extent
to which such institutions in your district are now engaged in the
same classes of business as member banks.
It is not contemplated that the information desired by the
Board will require that the Federal Reserve banks address questionnaires or other requests for information generally to tho banks in
their respective districts, as it is believed that data already in
the possession of the Reserve banks by reason of their own intimate
knowledge of banking conditions in their districts, or readily available to them through directories, reports of examinations, and discussions with examiners, supervisory authorities and representative
bankers, should bu sufficient to provlde tho Board with the information necessary to a·propor consideration of tho question. In addition, it is possiblu that counsel to your bar-k may have knowledge of
developments which would have a bearing on the matter.
In submitting this information it will be appreciated if you
will also give the Board thu bonefi t of your views as to the desirability of amending Regulation L at this time by eliminating tho words
11 FI:orris Plan bank," from Section 5(a) thereof.
Vocy truly yours,
L. P. Bethea,
Ass1.stant Secretary.
TO THE PRESIDENTS OF ALL FLD:E:R.AL RESERVE BANKS
322
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
R-126
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
December 6, 1937.
Dear Sir:
Replies from the Federal Reserve banks to tho Board's letter
of February 2~, 1937 (B-1200) indicate that i t will be impracticable
to compile comparable fic;ures of earnings and expenses of tho Federal
Reserve banks for th; period 191L-1935 in tho detail shown on Forms
95, 96 and 96a as revised for usc during 1937. Accordingly, it is
proposed at this time to prepare only condensed comparative reports
of earnings und expenses for tho years prior to 1936. While it may
bo necessary to request some additional information from your bank
in order to proparo such statomonts, it is not contemplated that you
will be asked to submit extensive data ns to earnings nnd oxponsos of
prior years.
In 'compiling comparative reports of profit and loss for prior
years, we should like to have mor0 complete information than is now
availnblo with respect to losses sustained by tho FcdGral Reserve
banks, and, accordingly, it is requested that you submit tho data
called for on tho inclosed forms, which provide for a tabulc.tion of
losses by years during the period l91L-1936. The figures for 19291934 should be reconciled with those furnished the Board in reply to
its tclogr~ of August 2, 1935 (TPu~TS 2293) before they nrc forwarded
to tho Boc.rd.
Very truly yours,
Chester Morrill,
. Socroto.ry.
Inclosures
~
1937
J.NALYSIS OF LOSSES
R-126a
-~ ..J)o••.
.~liD
F.R. Bank of
RESERVES FOR LOSSES
--------------------
(Exclusive of reserv-es and charge-offs on b.unk promises, other real estate origino.lly acquired
f~r banking house purposes, and F.D.I.C. stock)
1
Reserves at
end of proceding year
2
Additional
reserves
set aside
3
Recoveries
of previous
charge-offs
credited to
reserves
4
5
.lunounts
Losses ~.f withdrawn
charged orr·
from reserves
during year i o.nd credited
direct to
to profit
reserves
and loss
6
7
Reserves
at end
of year
Losses
charged
direct to
profit and
loss
8
Recoveries
of previous
charge-offs
credited to
profit and
loss
9
Total net
losses
(4 + 7)
.. (3 + 8)
'
1914-1915
1916
1917
1918
1919
1920
1921
1922
1923
1924
1925
1926
1927
1928·
1929
1930
1931
1932
1933
•,
1934
1935
1936
Note:
a~. charged to current ~xponses or deducted from gross earnings should not be included in this st~tement,
b'!,t~o.. sepn.:rste. statement ~should' b~ submitted classifying by years available information with respec:t to .such lo~•~s~e~s=-·---'--..._.__..'
Losses, if
DISTRIBUTIOH OF NET LOSSES ( Co1unm. 9 of R-126a)
l
On___
discounted
papor
·---- -· __. _
On
On sales
bills
of Gove:~etj/
socurltles.::;
bought
. _¥ _______ --
On co.-sh
On
and non-cash
industrial
items
----·-- _______..___ advances
--
1914-1915
1916
1917
1918
1919
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
193"0
1931
1932
1933
1934
1935
1936
<
'
1/ Submit sopo.ra.tc schedule of net :profits on so..les of U. S. securities by yours.
2/ Explain runounts in excess of ~;2, 500.
F.R. Bunk of
All
othe :r.2/
--------
I
--r----·-·---·----
Totc.l
~-
------
325
BOARD OF GOVERNORS
R-127
OF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE SOARD
December 7, 1937.
SUBJECT:
Code Wo:rds Covering New Issues of
Treasury Notes and Treasury Bonds.
Dear Sir:
In connection Y,'ith telegraphic transactions betv.een Federal reserve banks covering Government securtties, the following code. words have been designc::_ted to
cover new issues of Treasury Notes and Treasury Bonds:
11
NOWI.OG 11
-
11
NOWDEB 11
-
l 3/4% Tr~asury Notes, Seri~Js
C-1942, to bo dated Decornb0r
15, 1937, and to mature December 15, 1942.
:2 l/2% Treasury Bonds of 19 15,
to be dated December 15, 193'7,
and to mature December 15, 1945.
1
T?wso code words should be inserted in the FederJ.l Reserve Telegraph Code book, on pago 172.
J. C. Noell,
Assistant Secretary.
~0
PRESIDENTS OF ALL FZDER.AL RESERVE BfliKS
/
326
BOARD OF GOVERNORS
R-128
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS DF"F"ICIAL. CORRESPONDENCE
TO THE SOARD
December?, 1937.
Dear Sir:
There is inclosed for your information
a copy of a letter which the Board is addressing to the Federal Reserve Bank of San F·rrmcisco
with regard to the stolen bonds referred to in
the Board's lettnr of
Januar~y 13,
1936 (X-9428).
Vu.ry truly yours,
~--::?
c:::;._:;;.·.~~
. ---F1--7Jt4--"vU./
L, P. Bethea,
Assistant Secretary.
Inclosure.
'rO ALL PRESIDENTS 01<' FEDERAL RESERVE BANICS
R-128-a
327
December?, 193'7.
I,fr. c. E. Ear•hart, Cashier,
Federal Reserve Bank of San Francisco,
San Francisco, California.
Dear Mr. Earhart:
This refers to your letter of October 26, 193?, requesting information as to the numbers ~~nd denominations of the
stolen bonds listed with the Board's letter of January 13, 1936
(X-9428) which have not yat been recovered.
We have just received from the Federal Bureau of Investigation the following list of such stolen securities which
have not as yet been recovered:
Two $100,000 U. s. Treasury Notes, Series
B, 2-?/f!i/;, due June 15, 1938, Nos. 96101,
1402B
Three $10,000 U.S. Treasury Notes, Series
B, 2-?/8%, due June 15, 1938, Nos. 380201,
. 38053C, 38054D
Stolen from U.S.
Trust Comp~ny on
December 13, 1934.
Five $10,000 U. s. Treasury Not€'S, Series
A, 2-1/8%, due June 15, 1939, Nos. 46398,
46399, 46400, 46401, 46402
One $5,000 U. S. 'rreasury Note, Series C,
2-?/s%, due April 15, 1936, No. 5789K
One $1,000 4th U. S. Liberty Loan Bond,
4-1/4% (called) G02346?8?
Stolen from The
Bank of' Mu.nhatta.n
Company on
January 28, 1935.
Five $1,000 Nationel Public Service 5%
bonds, due February 1, 19?8, Nos. M2050
M8939 , :M8940, Ml219l, Ml3020
Very truly yourG,
(Signed)
L. P. Bethea
L. P. Bethea,
Assistnnt Secretary •
...
......
328
BOARD OF" GOVERNORS
CF' THE
FEDERAL RESERVE SYSTEM
WASHINI3TCN
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
R-129
December 8, 1937
Dear Sir:
Referring to the Board's letter of December 6,
1937, (S-50), there
~s
inclosed a proof copy of For.m 34
as revised for use during 1938.
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations.
Inclosure
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
329
R-150
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
AOORESS OF"F"ICIAL CORRESPONDENCE
December 8, 1957.
Dear Sir:
There are inclosed herewith
copier of statement rendered by the
Bureau of Engraving c.nd Printing,
covering the cost of preparing Federal reserve notes for the month of
November, 1957.
Very truly yours,
ailrxdh
0 • E. Foul:k,
Fiscal Agent.
Inclosure.
TO PRESIDENTS OF ALL FEDERAL RESEI\VE BANKS
TO THE BOARO
R-130-a
Statement of Bureau of Engraving and Printing
for· furnishing Federal Reserve Notes,
November 1 to 30, 1937.
Federal Reserve Notes, Series 1954
$10
$20
Total
She0ts
Amount
Boston
105,000
25,000
150,000
$ 12,480.00
New York
175,000
45,000
220,000
21,120.00
Philadelphia
90,000
25,000
115,000
11,040.00
Cleveland
96,000
96,000
9,216.00
Richmond
40,000
o5,ooo
6,240.00
Atlanta
45,000
45,000
4,320.00
Chicago
95,000
150,000
14,400.00
St. Louis
65,000
65,000
6,240.00
Minneapolis
30,000
50,000
2,880.00
Kansas City
35,000
60,000
5,760.00
Dallas
25,000
25,000
2,400.00
San Francisco
80,0UO
35,000
115,000
11,040.00
881,000
255,000
1,116,000
$107,156.00
25,000
55,000
25,000
1,116,000 sheets@
~96.00
per M, ••••••• $107,156.00
330
331
BOARD OF GOVERNORS
R-131
CF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF'F'ICIAL. CORRESPONDENCE
December 11, 1937.
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:
"NOZKIT" ... Treasury Bills to be dated
December 15, 1937, and to
mature March 19, 1938.
This word should be inserted in th.e :F'ederal
Reserve Telegraph Code book, following the supplemental code wo.rd "NOZKEY" on
-page
172.
truly yours,
• J. C. Noell,
Assistant Secretary.
TO PRESIDENTS OF ALL ]'EDERAL RESERVE BANKS
TO THE BOARD
332
R-132
301,lW OF GUVEhNOhS
oF nm
December 14} D37.
;~tkched
is [. cop;y of tho n.dd;ress du1i vurod by
Chrirm:~n Ecc1e~3
for..; the 1mnuc.l iVlo::Jting of th8 _,u::e:ric<n Fc:T!J Burer>.u .t"oderDtiun
Tu,_;sdDy foren'.>on, Decenber 14, 1837.
~tt
be-
Chiccgu,
333
Z-62
AN ADDR.t<.:SS
BEFOHE THE
ANNUAL MEETING
OF THE
JuviERICAN FARM BUREAU FEDER1-1.TION
AT CHICAGO
DBCEMBEH 14, 1937,
BY
MARIUNER S. ECCLES,
CHl>.lRlV1r,N OF THE BOARD OF GOVEi1.J.'\JORS
OF THE
FEDERAL RESEhVE SYSTEM
It is particularly gratifying to me to have this opportunity today
to speak before the American Farm Bureau Federation.
Your leaders and
members, to a much greater extent than some of the other organized groups
in this country, are approaching fundamental economic problems from a
broad public-interest stanapoint.
I feel, therefore, that I can discuss
here some of the problems as I see them at this time, knowing that you
are interested, as we who are charged with certain monetary responsibilities must be, in finding wherever possible the solutions which will be of
the greatest benefit to the nation as a wholo.
I do not need to tell you that your da.ily life and prosperity are
dependent on developments in industry and trade, and that the proper
functioning of the monets.ry mechanit3ID is of great concern to you.
Ac-
cordingly, you will understand why I wish to confine my remarks largely
to an intef'pretation of the present situation in the industrial and monetary field, rD.ther than to attempt to ciiscuss the agriculturnl problem
which you know so much better than I do.
on that subject.
I would r.sther listen to you
334
-2Juring the past three yesrc l have lived continuou;c:ly ,.Jith the
problem of hovv to
<:~chieve
and ,i:aintain
ful~
&nd continuous employment
of th:; country 1 s hrnno.n and material resources.
I have been chiefly
concerned ·:dth the contribution thA Federal Government in general and
~~es-arve
the Feder::,l
the problem.
i>S
System in particular could rnai{e to the solution of
time has pacsed, I have become increasingly impres:3ed
'Nith the danger to our common goDl
of uifferent economic groups.
of stability
re~mlting
from conflicting policies
Before v;e can achieve
la.rger measure
D.
will have to find some ·.wy of ensuring th&t the policies
He
of private business a:ncl orgnnizc::.tionsJ whether of farmers, of labor, or
of business men,
ar'~
not in conflict with our common obj ectivcs.
From 1934 up to tho bst qm-trte:r of 1906, we hud an orciorly recovory
movement.
The ste::.c.iy eXp<msion in conswner incom,..:s ::md buying power, in
con:.>ld>Jrr.;blo part cttritu.t::;blc:: to r1hat tho Govcrn1ncmt spent in
what it collGcted, 1od to
Lc
~>tsnly
growth in production.
Industrial Production liiOV..;d gn:.chl<JlJ.y upwc:;rJ from 86 in
to 110 in Octob0r 1 1836, ''lhi1G the lndux
the 3[;.m0 period.
Jwl:::s~:
chc.ngod, so thct th.::
lc commodity
e:r~pa.nsion
~)f
price~:;
remc,irwd
:,Cis th<:,t they
Th,:; ::Jrd:::rly chu·o.ctcr cJf
st·.:::~dy
pr~;gr;.;ss
heed
b-i&l
1J8cemb.~l·,
tm-
C•.IH: 1JJlt
tlv:~
uf
[,0
money r._;ce:i vcd by our
C•.Ju~:ci
purchase.
r<:c_,v,;ry .Jl<>V..;munt, 1mdc.:r which such
Ill< cL.o, UJ1c:i::r:re;n t :. dn stic ch:,.ng'-' in tlw finc1l
qu&rtor of 1936, [;nd in tho ;;ix lll<Jnth3 f;,llYi!ing Octc;be:r cf lest
1934,
in tho m.tionr. l inCtl!Jt3 from 1834 tG 1956
p~ople,
incrJC.S(; in the
Thcl Index of
prnctic~.l1y
In:)rt.;;
f.il1
of
F&yrolls roso 3\) p.:::rccnt in
of somo .,;,14 billic;n rc:pros._nt'-'d nut merel;y·
but
execs~~
yc~::r
335
Z-62
- 3 -
pricos.
the~
beg~:1.n
to rise rapidly.
It was in this six months' period that
groundi<Ork of the present recession was laid.
Among the factors contributing to the upsurge in costs, prices
and jn'Jentory buying; were the bonus payments coming un top of already
heavy Government expenditures and giving a sharp additional impetus to
cons-wner buying.
The organizing campaign of labor, together with the
drive for higher wages and shorter hours, added to expectations of
higher prices.
The rearmament program in various countries contributed
to the general inflationary sentiment.
J, sellers 1 market developed and
vvid<;sproad acivantage was taken of it to increase prices.
Various import-
cmt soctors of industry which had not added to their productive capacity
in the preceding years found themselves unable to promise quick delivery,
leading to still further piling up of orders and higher prices.
The
prict::s of various internationally-controlled raw materials skyrocketod,
whih; bond pricos Jeclin·Jd.
The longer this condition
p1·ict.:s advcmcod, the
ThE.~rcfore,
lll<:JTG
p~rsisted
sever-s the inovit;:,ble reaction was bound to be.
before tho rnovem:mt a.cquired further momentum, the President,
un April 2, issued a we_:cning str.ternent.
B:::wrd
<)f
and thu further vm.ge costs and
The previous
~·nnouncement
by the
Gwvernors of rai.:::ed reserve requir.:;ments for member banks, which
I sh[1ll discuss in more det:.:;.il later, tooci.ed to dirainish the feu.r vr expectation of credit inflation.
ti.:mcTy SGntiment.
In
~my
cc.se, n dt1mper -..vc.s put on infla-
Prices tornpCJrtJ.rily leveled (lUt.
lnduGtrial production,
336
- 4 tho"L:gh .i.nterrupted here 1.md there by strikes, was broe.dly nwintained.
Bnt it was maintained on the basis largely of fonrard. orders e.nd part
of the output Nas piling up in the form of inventories rather than mov-·
ing forward. to consumers.
The bccklog of orders which hnd
in anticipation of price
the summer.
adv~:.nces
~:.ccumuJ.ated jn
the winter Dnd spd.ng
kept business going until WI.Olll along in
Balance sheots of indust,ri:ll corporations and mercantile
este:1blishmcnts reveal
th~tt
in the l.:ttter pert of this suiiUiler
vre:co in excess of whc:t thuy wert:
her-.-; declining.
.1~-.st
inventoric~s
ycr,r whilG Lt the same t.imo
s~1ls:3
If SG.les to consumers had cont:inuc.od to increase, inYen--
tories could h::..vo been rapidly
~:bsorbc:d.
As fr. . r
.'lS c~:m
be judged from
available figures, hov1ever, consumer buying did not increas3 af'tor lr, st
spring.
Thi) incomt.l of consu;ners .ctppnron tly CGBsed to
c.nd the volume of th0ir purchoscs
likcwit~e
oxp~md
after llllty
fr.ilod to increrLse.
An important factor in the arrested growth of buying by consumers
was the failure of buildin£ activity to expand.
There was every reM:on
to expect residentiel tuilding of substantial proportions this year.
The
national incowe was running con;.:;idera·clly above 1936, rents were riei.n§;,
and the accu..rrmlated housing shortage was growing more acute.
As has fre-
quently been pointed out, we should be building an average of some 800,000
housing units a year for five years to make up f'or the shortages, to offset demolition and to provide for the normal growth in the numb(:}!' of families.
Yet, instead of incre:asing, residential buildjng c:.ctually turned dovm
in May, and it is doubtful
wheth~r
the nwnber o:I.' units built this year
Z-6(~
337
-5will much uxcc,ed
~80,000,
thcJ
numb~r
construct.cd in 1936.
Tho cnly ox-
plt.nc;ti:'n th[tt cr:.n be ..;fferou tj cccount fvr this disappointing shuwing
is tho slwrp c.dve.nce in c mstruction costs lc..st spring whilu rents did
n·)t c::dv·:.ncc; r,;s r::pidly, s.) tklt it becwnc; loss prufi t:<ble to build.
C.mpled ·,ri th th8So dovol0pments, th.;;re
expenditures •:md ::.n in ere:.: ;::;e of tcx
security o..ccount.
WLJ
collections~
~;_
docrecs0 in G0vornment
p0.rticul.srly on social
In the first eleven months of this year, the exeess
of cash expenaitures by the Feder:Jl. Government over cash receipts declined by three billion dollr;.rs &s com pored \'lith the ss.me period last
year.
Owing to the f0ilure of consumer incomes and buying to increase,
industry found that as form:.. rd orders wero filleet there were not enough
new orders coming along to keep up the volur,1e of production end thus of
employm•. mt.
The %.rious factors which l have •:mumEorated were chiefly responsible,
in my judgment, for bringing <:.bout the current Jecline of business.
Other
fc.ctors may h&vc be·:m contributory :in some def;rec, but upon ce.r':Jful anDlysis they eppe.:,r to be entirely insufficient to r_ccount for the recussion.
The more I hc.ve: considered other explnm:tions, the more I hc.ve been
the conclusion that the C'JSt un:i pric.; c:.dw.nccs of
were the principal cr.us.:;s
~;£
resp:.:msiblJ f:lr the prc:scnt
Re::;crv~J SysL~.u
to
Hint . ;r :,.nd spring
tlw subsequent downturn.
r:c~ccssion.
incc,ming gold by th0 Trcv.sury
the Fodorol
.lc:~st
lc~d
~-lld
They think thcct sterilizE,tion of
th'-' ':cticms of thu Boc:rd of Governors of
in incret:.sing th:.;
r\~sorvt:
requiroments of' Htumb0r
338
Z-6(2
- 6 -
bauks caused a reversal oi' tJ:1e upward movement.
Upon careful searching
of the re...:ord, I cannot find convincing evidence to support this analysis.
At the time these actions were taken member banks had a volume of
reserves that could have become the basis of an inflationary expansion
of creJit which under the law it was the duty of the Fedr:.Jral· Hescrve
authorities to prevent.
At the tL'lle final action on reserves was taken
th8 aggrcgata of bank deposits and of currency in circulation w&s larger
tha..'1 it had been in 1929.
vvould by now have been
If no action had been token, excess reserves
ab~ut
$5 billion, sufficient to support
'.ill
enor-
rr.:>us <mu. inflationary increase in deposits.
Even after the excess reserves were reduced, member banks still hE_J
enough left to meet all current demands for credit, and money r1,.tes rem&ined at exceptionally low levals.
did not
11
In effect, the actions of the Board
put on the brakes", us :;;orne critics have said, but merely took
up a la:cge
pa~·t
of the slack so thn.t the Reserve System
position it was intended to occupy in which,
aS
W1:!.S
placed in tho
v1as statod at the time,
it would be able to use the trt1ditiorw.l and flexible instrwnents of openmarket ::.nd rate policy either in the direction of further monetary eaae or
in the opposite direction as changing conditions and the public
might require.
As a matter of fact,
l~st
int;;.~rtlst
spring tho Board eased conditions
through open-market opc:r<Jtions and again this fell, in cooperation with the
Treasury, furthe:r stops wer0
of gold
~.nd
tr.k~n
in the s2me direction lly dosterilizr::tion
by subsequent upen-mcrket operations.
Similarly tho R\;sarvc
System put into offcct last .August the lowest di::>count rates in thG histGry
of the System.
Z-62
339
- 7 If the rcctiuns t<:J;..en lc:.ct ·.:intsr h[,c'J. ' psych:1lugic::·.l 0ffect in rcstrr:ining the
infl~ctiurw.ry
dtJV'_;l:::Jpments which Jere clecrly 1mdcr
HI~Y
nt
the time, th·:m these tcctLns werv definitely in the public interest.
If
this be so then r;iy .mly regret :i.s n:)t tlwt tho e,cti ..;ns ·.mro t::ken, but
th:.:t thoy ·aero n:)t tc.ken eurlier.
Anuther cxplc.rwtion )f ths reccssi.m thc-.t has
bc~·m
it rrimcrily to tho undistributed pr•Jfits c.nd CLpit:.:l
l;ffcctively t.; dc;str:)y tht..:m.
L
I ·,;..;uld bo the l1.. st
s ,v-:.uld ,11.ske th:.:;IJ1 l:I.)rc equi tc bJ.c:
~Ji thJut
-~nd
impr(:V(.) th0
tc~
r:.dvr.. ncud
g~.ins
~tSCrJ.bos
tuces.
Thoro
crJntcn<i thr,t these
·vn~V.:ing
·Jf thP ;ll(;;chrnisrn
vremrturely r.b:.:.nd.ming the principles uf th<;;sc tc.xes.
It sh·Juld be rGc;-.:lloci th1:t the undistributed ,)r.:;fits Lx JGS d.csJ.gJ.1ed
tJ Crol'J<JCt t..'Vils
~~ppee.rin;_;
rt";cent yec:rs, such
bracket inc,_.mos
LS
in tho cconumy uf the t'ikntius, u; well
S
in m.;re
the 1:.V:)id<J1Cc: of indiviciut:l surt::xes in the upp(.)r--
th~mgh
n:m-distributLm A' prufits, the inoquditiGs in the
kxutLm of incJrpJrrctod :::..nd uninc-:.-rp,Jrutod
curpurL.te eurnings v1hich
111~
businc;;s~s,
tho piling up Jf
ke fu:r furtht.:::r co:.Jbinatiuns c.nd. ccnsulid.c-,_ti ms
bvJstod security prices thr;._·ugh b0ing .i:)o.rwd t':J the cc.ll nnney
that c §;GnJrc.l liquid[.ti::n ··f d;;;bts in thu
idl,; rcs:.:rvc f1.mds c·mld woll int:;:;nsify
r
e:c~:n.1uy
w u grc::ducl
dofl~·.ticmcr;y
1.1~.rket
<:<nd
~.ccur.mlr.tLm
_.f
f.)rces c.t this tL:1c, ·ah<.:Jra.s
340
Z-62
- 8 -
if thG tDx 1:ero so modified as to GXempt ecrnings VIhich wera
usc~d
for
ccpi tc.l c.ccount, the.; effect v:ould be to incre.c:.se the uso of funds c.nd hence
business ctctivity.
It would be well to consider how this tnx cu1 be Hlc·de
to function more equitably, pc.rticulcrly ·.,ith respect to sm&ll businoss.
It vmuld, h:)i"JeVer, be sh:)rtsightud to be
st~;wpcdcd
into hr,sty [cb::md:.Jm:!unt
uf a. tb.X principle v;hich is fundcmente.lly s0unci c.nd equitcblc.
Likevdse, v;hilo I r.gree thrct the
-,,e
sh~1uld
reJ;IOli,b-.:r
progr~ssi vc
th~~t
c;~.pitc~l
g[ ins
t~.x
this tc-.x is designed simply to
should be improv,Jd,
Iit<.;ko
effoctivo tho
tc..x:;.ti-:m of inCJ!ilG in c ccord~nc'-:l -,;i th ebili ty to pc.y--<::: c·-Yllrse
•.m ·v,;hich I think tho 1-Uneric,.::.n
.
pc~0plo
[;_re ::l·Jund.ly d.oto1·mined.
There; is little
convincing reason why the reclized incumc fr.Jm '-' ri:.>e in pr..;porty vc.luos;
including s pocult: ti ve profits, sh:Juld be dealt iii th iil'Jre leniently thrn
the rer,lizcd inc;-.;ne, for instc.ncc, frm:l
p~Jrscmc..l
o:.. rningc.
Thore is little
in the llistory ·:;,f socurity pricos to indic.s.tr::l thrt thay hLve f.luctuc.t,)d moru
1-.:idc:ly when this t[:;.X wu:; higher thDn v1hen it
VIeS
lJvmr.
hr s gune up ana dvvm whon the cr. pi t<.cl g<dns to.x v7rcs
The stuck m:o;rket
1~1uch
sut::::..1l-.;r :::.nd le:;as
rostrictivu, ::.s in 19:;.9, Dnd when thG ccpitf.,1 g!_:ins tLx w:.:-s 1auch lc.rgcr cs
in 1956-37.
~'io
sh,Juld r,lsc; rclilGElber thc.t buth the undistributod
pr~)fits
tn.x and th,) C'l.pi tc.: 1 gc:. ins tcx ware in force in 1956, -i;_rhen industrial plant
o.nd vquipm.:.:nt expandi turos end. g<:inorL-1 inv8st:.n:mt
l'iC.TG
quitv ns rcpid cs could re:;sonLb1y hc.v.; bt.;e:::n <.::Xp'-'cted.
oxp[;Tiding : : t e rcto
And during thu first
nine ;,1onths :.:,f this J-'0(,r tha volu:i18 :.f industrir.l p.J.[tnt <.-nd equiprn.:mt l:Xpdnditw·os was iar·inteined E:t r.: 1ovel c·.lJprJximEting thc.t 'Jf the pre-CieprossLm
ym.r :•f
19~8.
Th0 rocessLm, thoref::.;rJ, ccm10t lugicc:..1ly be r.scribod tu tho
curt&ilment ·.Jf e:xpondi ture::> bt,;c;,uso ·jf this t:x.
341
- 9 The br·.sic cruses of the present siturction
~'.re
not to be found either
t~.:.x,
in tha c..;.pitr::tl gc:ins tt::x, the undistributed profits
policy, but,
r~s
or in monet.!:cry
1 hr<ve indic.s.ted, in the rr:pjd price u.nd cost
~_,dvi
nces of
last winter ::.nd r.pr1ng.
The experience of thin past yer.r illustrc:tes
ag:.dn the limitations of
monet~... ry
<nd fiscc.l policy.
Fisc•;.l policy, in
pa.rticular, cu.nr..ot be quickly o.dJ•J.sted to sudden changes in business
ncti vi ty bec;,use such policy depends largely upon prior
legisl~:. ti ve
t:n·-
r..ctments.
,\hen tho disruptive price f£:ctors becune intensified lr st spring
~end
propos<.;.ls were u.dvc.cnced in some qucrters to corroct the situation through
monetcry action to tighten J;lOne;r n.tes, 1 iouuod c. public sto.tem-;mt for
the purpose of refuting the notion thr..t monet&ry [cCtion should be invoked
to correct such conditions.
1 pointed to the ft..ct thc:..t the price rises
were the result prii11Lrily o.f non-monetory fc.ctors including foreign :·rm::cment dt)J:lc.nds, strik..-,s end r,l•)nopolistic pr:-;.ctices by
C·~rtcin
industry and org;:.nized hbor .:.nd th£.t those
hLd led in turn to
speculative security
price
~cd.w~nces.
c~nd
f~;.ctors
coJiwmdity buying which served to
group2 b:.1th in
c.ccelen·t~.>
th:.;
I suggested :; t the time the.t other mec.ns than a rostricti ve
money policy must bu used undor such cvnd.itiuns to
cont~~ul
umvu.rrWJ.tod price
<.·.dVF;nces 'Vhich result in ['_ ris8 in the cost of .living for r.;. racj ,::;ri ty :;f the
peuple without ::1 comE;..msurr.tc incro:::se in thuir incoiae:.
It is, of course, i.)I'Sior t·:> rciso problems then it is to solve th\JilJ.
When we revimv· tho 0vents lotcding up to tho current rec0ssi.m, it b8CCl!1:.;s
~.pp.:J.rent
th<.tt v. b::. s:Lc difficulty in nchiev:ing full '.md c::.ntinuous uti1i::.<.·-
tion of vur huL£ . n &nd
mediate priw·to
n~"t,urLl r0s~)U1'CC!S
int~1rosts
;mJ. tho
tributud t•:; tht; upsurge in c..;sts.
t:ccting .::litho~~
lies in the c._.nflict butvi'0t.m 11.1-
~;en":nl
~~nd
w(.;lfc,ru.
Th::J3e gr_-;ups th:_ . t c·.Jn-
}lricos lrst vif:int;):c (nd spring \·iuro rnt
in the public int;;r.:-st -Jr in tbeir
0\ffi
ul tiwc,t<~ inter0st.
342
.Z62
-· 10-
We must recoesnize the fact that cumpetition has declined and monopoly elements have increE.! sed uver l::o,r[ e :.:;;.;cturs of our E.conomy.
ample, it could only h&.ve been the atsGnc.:·:::
tuilding costs
spring.
t~)
o.~
c~)mpr::ti tion
For ex-
that permitted
soar on the low voL1me u:f.' building ttat took place last
It is only the abr;ence uf cumpeti tion that can expLl.in the main-
te11ance of fixed prices and wage rates when the v0lumo o£' activity decliues
sharply.
The gradual increase in the non-competitive
elem~mts
in our econ-
orny, so strikingly illustratt:d in the developments of the past year, rahes
some l:ighly important questions;
How are V'e to .';.chieve and maintain full employment if private grou.ps
and organizations raise prices and costs whenever incrcaf.cd demand appears,
although there is still an abundanc.:' of idle E.nd wmsod man power, plant
facilities and raw materials':
Duas this aecessitate steady increase::; in con-
surner buying: power through deficit spending:·
course'?
economy·;
How lung can we pursue such a
h.re we to u.ttempt to r0i.urr1 to a truly competitive laissez faire
If not, are the c...l ternati vcs facini' organ:i.za tions 0f capital and
lah)r either self'-grJvornm.::nt in tb"' public intc,rest or incrm:..sed regulation
in the public intt:rr:st ~
I earnestly hope they v:ill choo:co the former al t<:.rna t.i ve.
So far as
a return to laissez .faire. is coDcerned, I du,lLt that this is po:.::sitlc.
development of the indu.strial
has br:..ruf_ht into being VcTi :m:~
labor.
pr,jce~;s
~·orms
The
itself has created larger units c.nd
of organizution uf both capi tc.J. and
Rather than attE.m,tJt t•J r8vcrt tc. ec...rlier forms of organizaticn,
it sGems to mo th&t our be::t hope lies in
tion for capital :lnd l'lbor vthich will
bo::~t
developi~lf.
that form of organiza-
fLlrther tho pt.lhlic interfJst.
Thought must also be given to the best !orm of
o~ganiz&tion
that
~ill
in-
sure an adcy_uate ropresents.tLm 'Jf the public intt::rust involved i:1 price,
wage and production
policies.
343
Z--6:2
- 11-
The ultimate self-interest both of capital and of labor is identical
with the public interest.
strat~gic
I am hopeful that individu&l business men in
positions, and the various local, trade and national a::;socirJ-
tions of business men, will act upon a recognition of the fact that their
long-run interests are bound up vdth the largest possible volume of production at the lowest possible prices.
For their own ultimate benefit,
as well a.s in the interests of a stablo economy with a steadily
risin~s
sta:..1dar·d of living, they must resist the temptation to secure largar r..:;turns through tho adoption of policies that restrict output.
Likcnvisu, I am hopeful thbt lu.bor poli(!y will increasingly take into
account tho fact that after a certain point the gains of labor are ctependent upon incroased productivity.
Acivances in wo.ges which are in excGss
of increasing productivity 1md result in increused prices reL..ct <:).guinst
labor itself, c_s v:oll us &gEd.!'lSt the commrmity :;.t large.
If they result
in [;_dvancing prieos, thay unccurCJ.ge speculu.tive inventory buying, or shut
off demand, or both, as we have recently seen.
If they reduce profits
below a point that encourages new investment, they lead to decreased
plant, equipment and other capital expenditures.
Similarly, general short-
aning of hours not offset by increases in L:fficiency is bound to rosult
in a lower standard of living f'or workers generally.
Accordingly, it is
to the interest of lu.bor leaderst,lp to take into consideration thd effect
of its policies on the g0ncral price level, on the standard of livint?;,
and on progress toward
bS
ful;_ and as continuous c;mploymont as possible: of
tho hum2n and maturii:il productive ro::;ourcas of tho n&tion.
We ar,3
prone~
to t£<kt. for grunted a steadily risini; st&ntlard of liv-
ing vvi thout inquiring too closely into th..:; basi.'> f-:)r this b8lbf.
f
ctually
344
- 12 thGre is only one way jn v;hich the general standard of living can rise
and that is by an increase in the pro<.iuction and eonsumption of real goods
<tnd services per head of the population.
This stubborn fact, though in-
controvertible, is too often ignored or forgotten.
~·Je
are inclined to
think too much in terms of money incomes and not enough in terms of what
the incomc::s will buy.
In the final analysis, the national income is measured ~ the total
output• of goods.
If there is lcss to divide, all groupfJ of the popula-
tion, including capital, .Labor, and agriculture, will suffer; The national
standard of living will decline.
I have sought to state in tho broadest and most fundamental terms
what I believ-e to be some of the major economic problems raised by our
rec0nt zxpcrience.
These long-range, fundamental problems cannot be solved
overnight or without hard and realistic thinking.
eventually, however, if'
WG
They muJt be solved
uro going to be able to rec.lize our enormous
prJductive potentialities and maintain full and efficient
all our resources.
We
ar~
emplo~nent
of
("Jnly doomed to disappointment if we place all
our faith in monetary mcmctg;;ment .:>r fiscal policie·s and ignore the problems r!:.ised by the decline in competition b.nd the growth of restrictive
policbs.
Tho pr:_)blems tu which I refer are not all new and they c.re not
exclusively the problems of any political group.
They are the basic
problems which must be successfully met if we are to preserve our capitalistic system, and they will confront whatever group may have the responsibility for government.
Although I have been thinking mainly of the basic problems raised by
the current recession, much of what I have been saying is applicable to
Z-&2
345
- 15 the
ii;u.1edi~.te
covery.
problem of stopp:L"'lg the contr[·ction end resu;aing the re-
Two of the
of' the recession v.:cre excessive in-
princip~.l c~uses
ventory e;.ccumulutions l..nd the ft.ilure of building construction, rrilroad
increc.~se
<md utility expenditures to
sufficiently to offset the decline
in the Goverru.1ent 1 s contribution to cm.t.:lunity buying power.
Consid.er:·i.ble
progress has bean j,lc.de since SepteLlber in rectifYing the inventory situv.tion.
Production
declined ;.mch uort:l r<..pidly
dem~nd
If consumer
i~la.Y
hf.'~s
soon begin to
m~y
c::.n be sustr:dned, we
incre.~.se.
Loc.~·.l,
th~:.n
conSUl•lption.
be hopeful that prouuction
stt::te Wld Federel provision for the
unemployed afford a support to consur.1er buying power thE:t
w~~s
l6.cking prior
to 1955.
At the sc..me tii!lc, it is highly desiro.blo f,:>r business .nen, both in
their mm v.nd in the public interest, to review cc:refully their presunt
und prospecti V•:) inventory,
pl.~.nt ~.nd
tniL,1,mt of expcndituret; for these
that J;tt.ny
line~
equipjl.;;.nt rvquirements.
purpose;.:~
Furthur cur.:..
[;,t the prvs,.1nt t:ilrre will ;noun
::Jf business will bo physicr-.lly unt.ble to moet tho orders
thr.:t will como to th-JJ.:i when thw rwcover.r J;lOVGJ>lt.mt is r>3SU:.l0d.
In ordGr to
cxpc.nd thci:r p:roducti vu f':.. cili tiv::; t:; r.let:t th..:: du:;.r..nd, thoy Nill find thensolves bidd.ing r'g.:... inst uc..ch othe-r :::t .:>d.vDncing prices.
In :::ddition to
need o.n i1apotus
i.iGt~sures
th~ t
to susk.in buyjng p-:;wor end pruductivn, we
will bring r-.:bout
['tll
r..ctuu.l incroEse.
1aust look pri;ac:.rily tr:: thu builuing industr,.
in the past its r.bility tu :.Dvo
rel.:. tion uf
c~:.:sts
to rent.:; is
tiun nuw pending, tho
favorc,bl~
sc;::le.
Fcdcr~:l
;:~gu.inst
f'r:.vvr&bl~
For this, we
Building hns d011'.mst:-::. t:.:u
c. genor[..l dJwmvc.rd tr<:Jnd if the
fur c·:.mstruction.
In lugislr.-
G·.:;verni'ihJUt pr·..)pos0s to bring ab,)ut l:tore
torus f•:Jr fin:c11cing h ..msing bvth on r,
sm[~11
It has, CLlJng <)thor things, t!:kon stops t:;
c.lld Jn r. lc..rg;;;
pl~.ce
the ::;,pp.;rtunity
Z-6~~
346
- 14 f::>r ccquiring
E•
p\l·..~ple
new home within the re:.ch vf
who c::.:n r.fford unly o
f'vvr hundred dullcrs 'd,·Jv.n p.: . y;aant.
f _,r this '.:-.pp.)rtuni ty t:) b.; fully avt.ilud :.;f,. hr,;yrcvvr, build-
:Jrd~r
In
ing c:)sts sh.l'uld bo
lY~er(!d
t:; r.r..;und
~ithor
11-.b·:..•r :>rgt.nizt.tic·ns cun.."lectud
ing industry
r~duc;.:;
ccn t:)
Lv-~;cr
ct~n
·)~m ~~d
::v:rvc thdr
th~
lo;;v.::Jls :;f 1956.
Business Lnd
dir0ctly :;r indircctly with th.:.; buildthe public
intoro::~t
unit costs ':.nd in thi& ;:r.y incr.:.;r.sc th::;ir
b.,: d.Jing v.hnt they
t
ggrogr: t~; ret:.urns.
h~·using
fint..ncing C·.)sts' c.nd th:J u1CChnnism pr•Jp•:;sod in tho ponding
bill, f;)r large sc:·.le hcusing productivn will
Lvwar roc.l
est~~te
tt:.xt:ls ..:n ne·,.:
constructi•..~n
~-ls=.>
c.s <J"oll c,s l:.:wer h.nd vrlucs
would likewise g1·ently c:.id the h(;U:Jing progrt.m.
pc.rts ·Jf the building field, c:>sts bevc
c;;ntributc; to this end.
:...lre~.dy
In the lil')ro
comp;~titlve
decJ,ined substr;ntic.lly.
Fundt:.mento.l solution vf the r.:-.ilrc.ad probloJJ is bound up ,·;ith increr.,::.;ing traffic, .-;ith c·::msolid::lti:>ns r:nd clit1inr: tion of duplicr•ting
fo.cili tioo .s.nci ·,·Ii th
deere~. D~d
.c-:>sts.
I trust th.:..t the
imp~>rt~nce
ing r.:;vlval in this conn(:jcti•'Jn vdll n·.:-·t be Lst sight of.
·.Jf
t•
build-
t questic.n \'<hether
r.:.ny steps to holp tho .rr..ilro:: ds thn t ··Ii.:uld h<.:Vc th.::: cl.ff•.;ct •.;,f incro:..: sing
c:.~sts
bulldi.'lg
rr.: ilr :.;&ds
•)J'
:.n:·
ruducin~
A' the
g~n;;,rr- 1
f':.. rlil inc::·.Jii.;: ·;,uuld ixl in th•; ro:o.l
intur1.~st
public.
Br ;.adly spc:.:.king, 1 f(;lcl th<.t the r-Jsu.nptL>n vf E.r. vrdcrly
pends upon the
~,ajustmont d:..;~m·,;c.r·d
:..:.nd ;/:...ge rr-.tus
~;hich
cht.sing
iilB.Y
b-.:
p·~~vor,
t.·~\.)
<::nd .:·.n
')f
th·.;s~::
~aju.st;Jont
r~C->Vi3l'Y
de-
mun :.LJ::>listic ::,r c:cntr-.)lled pricus
still ro.:u: in t j::. higi1 in
r...;l~. ti:m
t·; c-:msuucr pur-
up.:;rrds ::>!' such p:riCI.!S tnd wLgc r;: t.(J:J as
ls.; in relc.tLn tJ t.I;D c >St vf
m•;;>nt, .t;.griculturo, busineSS
A· the
:-.:.n~l !,[cb. >r
li~ting.
Th·.:l p.)licics
-~,f
G... vorn-
to b-.; SUCCi:lSSf'ul fuUSt bo dir>3ct ..;d
347
Z-6~
- 15 toward tho abj ecti ve of rosturing tnd J!l.r.intcining r. bott0r bc:l•·:nccd
thB.t will m2-ke f,jr c.
gre~~ter
~JC;.Jnomy
productbn end distribution of rc<_._l wm.1.lth.
In c:)nclusion, let me sny thr.tt in
LlY
·)pinion the extent of the premc.l~.dju:.:>tmonts
sent recessi:m will depend upon ho•ii rapidly the more seri..:>us
I
between prices r..nd buying p0wer nrc currectcd o.nd incronsed m.;.t,iom:.l inC·Jlne
is created. by the ::cctivity ;Jf privc.;tc business.
An c.d.::qu~te tredtlont ')f
your p&rticule.r problem of agriculturc.l income must be u major part A'
successful progrr·.m of recovery.
t~lX~~tbn
~J.
I feel thnt the G·Jvernment in its policy :Jf
end spending must c•. d[~pt itself b
chmlgus in the nr..tional incoJJo
crcE.ted by priv.:,tE:J enterprise .;,;nd., fim,lly, I f0d
th;~t
the
monctr~ry
authcr-
iti0s should exert their cff..;rts t:) keep tho t;vc;,.ilc.bili ty, supply rend cost of
m:.mey r.;.t such
C•.Jffit;.)
[~
level :,s t,, encJurt:.ge continuous expsnsi•)n :)f the ree.l in-
of tha mttion in gvods und s..;rvicos [.nd t:J prevent
~jr
moderate : n ex-
pension of r.l•JnE.Jk.ry inc:,mo in excess A' the ncti·. m's l->r;)ductive c1..pc.city.
I
[..Ill
full
c:mfidcnt thct ;nonctr..ry e;uth:Jritics r:rc
she;r~
prept~rcd
tv c:.mtribut..: their
tv th,J end thc:.,.t tho m tiun' s oc:.>n Jr.liC ho.::.lth mr.y be rcgr:ined [·.nd
pros:::rvod.
R-133
BOARD OF GOVERNORS
348
CF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
AOORESS
OF"F"ICIAL CORRESPONDENCE
December 15, 1937.
TO THE SOARO
Dear Sir:
Referring to the Board's letter of November
23, 1937, H-116, subject,
Holiday~
during December,
you are advised that in accordance with an Executive
Order issued by the Pre3ident, the offices of the
Board of Governors will llo closed on Friday, Dec omber 24.
The Washington telegr-aph office will be open,
however, and the transit clearing through the Interdistrict Settlement Fund will take place as usual.
There will be no Federal Reserve note clearing and no
shipments of currency to F'edePal Reserve banlcs or
agents on December 24.
Plense notify your branches.
Assistant Secretnry.
TO THE PRESIDlt::N'I'S OF ALI. FEDERAL HESERVE B.ANI\:..S
R-134
349
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
December 16, 1957.
Dear
TO THE BOARD
Sir~
Under date of September 3 there was forwarded to you, as
stated in the Board's letter R-71 of that date, a supply of blank
forms for the use of State bank members and their affiliates in submitting reports as o.f the next call date. Inasmuch as the usual
fall eall for reports has not been made, the blank forms now in the
possession of State bank members should be used in submitting the
reports usually called for at the end of tho year. In addition,
however, it is desired that tho banks report tho amounts of thoir
agricultural loans and farm real estate OVv1'lcd by thom as of tho
next call date. For this purpose please send three co)ios of Form
105-f, a supply of which h:J.s boon sent to you undclr Boparate cov~)r,
to each State bank member at the time it is formally notified of
the next call for condition reports, with the request that a report
thereon be submitted in duplicate at the same time that tho condition rGport on Form 105 is sub:ni tted. The information called for
by Form 105·-f is tho same as was called for by tho two memorandum
itoms which appeared at tbe bottom of page 4 of Form 105 on tho
..Tunc 50, 1937 call for condition roports.
It is suggested that tho figures reported on Form 105-f as
of tho next call date be compared with the corresponding figurGs
reportod against the two memorandum items at tho bottom of page 4
of the reports rendered as of Juno 30, 193'7, in order to make sure
that the figures reported for the two call dates appear to be comparable. One copy of the report on Form 105-f shoulJ bf3 sent to
the Board and tho othGr cop:,r retained by your bank.
Very truly yours,
IJ. P. Bethea,
Asslst~~t
Secretary.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
R-135
BOARD OF GOVERNORS
350
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS
December 18, 1937.
SUBJECT:
OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
Summary Statement of Federal Reserve
Bank Personnel.
Dear Sir:
In accordance with the usual practice, ·i;len.se furnish
the Roard with a summary statement showing the number and salnries of officers and employees of your bank (including
branches, if any) as of' Decemb<:;r 31, 1937, mGde out in acco:cdance with the
attac~1ed
fo:r·m.
.
The :figures, which should not jn-
clud8 any changes in either tho number or salaries of officers
or c-)mploy•:?.es that become effective on January l, 1938, will be
publLshed in the .Bonrd' s 1937 .Annu::-;_1 .Report.
Very truly yours,
Chester Morrill,
Secretary.
In~losure.
TO PRESIDENTS OF ALL FEDERAL
RESERVE
BA~JKS.
351
R-135·-a
l\T01\IiBEH AND SALA~IES OF OFFICERS 1\ND El'v1PLOYEES OI:'' THE
WEDEl'U\ L P:t;,;SEF.VE BJIW.J:C OF
( INCLUDING BRJ\l'JCI-fES)
December 31, 1937
officers
and employees,
including those
whose salaries
are reimbursed
to the bank in
whole or in part
~rotal
Annual salary of President
~-
-----
Officers anci.
employees (inclucied in column
1) whose salaries
are reimbursed to
the bank in ·whole
or in part(a)
$
------
Other officers:
Number
Annual salaries
Employeos, both permanent and
temporary:
NumbfH' (b)
Annu~J.l
salaries
(a) Should reprGsent aggregate of fractional amounts in the c2se of
employees whose salaries are only partly reimbursed to the bank.
For example, i f 25% of the salary of' an employee receivine $1,200
a yenr is reimbursed to the bank, .25 should be included in the
computation of the "number" of employees, nnct the amount of salary reimbursed, $300, should he included in the computation of
the annual salaries.
(b) In the case of ns.rt-time employees, i.e., employees who are regularly engaged for less than e. full dny, the "number" reported
should represent the portion of' the full dey ·worked. F'or example, if nn employee is regularly eng'lged for one-half of the
'lSUal working d.ny, • 50 should be included in the computr1 tion of
the "number" oi' omploye(cs.
352
BOARD OF" GOVERNORS
R-136
CF' THE
FEDERAL. RESERVE SYSTEM
WASHINGTON
ADDRESS CFFICIAL CCRRESPCNDENCE
TC THE BCARD
. December 18, 1937.
SUBJ.Et.:·r:
Word Covering New
Issue of Treasury Bills.
Code
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:
"NOZKOW" - Treasury Bills to be dated
December 22, 1937, and to
mature March 23, 1938.
This word should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental code word "NOZKIT" on page 172.
Very truly yours,
(
J. C. Noell,
Assistant Secretary.
TO PRESIDENTS OF ALL ]'EDER/IL RESERVE BANKS
R-137
353
BOARD OF GOVERNORS
CJF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS
December 18, 1937.
SUBJECT:
OFFICIAL CORRESPONDENCE
TO THE BOARD
1938 Budgets for Federal Reserve
banks.
Dear Sir:
It will be appreciated i f you will mail to the Board
as soon as practicable ef'ter January 1 a copy of the budg~t
approved by your bank for its head office and e<lCh of its
brnnches, if any, and for the head office r-md branches combined, for tpe calendar year 1938.
--
Since detailed figures of operating costs are compiled along functional lines by nll Federal Reserve banks
and since a better comparLwn can be made between expenses
and budgets whon the budgets are prepared jn tho same form
in which expenses nre reported, it will te.appreciated if
the 1938 budgets furnished to the BoFJrd are prep~::~red along
functiono.l lines :Ln accordance with thH smnplc form, R-13?-a,
attached. The stP.temsnta should show totals for O'lch function
in the functional expense report, Form E.
In addition, it is requesteci that budget state-·
ments be submitted on Form R-137-b and R-137-c showing ttw
itemization of the budgets of the stntisticnl and analytical
and bank examination functions.
A supply of fonns R-137-a, R-137-b, und R-13?-c is inclosed.
Very truly yours,
Chester Morrill,
Secretary.
Inclosures.
TO PRESIDENTS OF ALL FEDERAL RESERVE
BAJf~
R-1:37-a
354
SUMMAJ[Y OF BUDGET ES'i'EviATES I 1938
Federal Reserve Bank of
-n:ndica'"tewheth;r--l;e-a"d office-:-branch or "combined" report)
Expenses,
Year 1937
Function
Budget,
Year 1938
General overhead - Controllable
General overhead
Noncont~ollable
Provision of space (less income and
distribution)
)
F·urni ture and equipment
Provision of personnel
General s6rvice
Postage
Insurance
Failed banks
Loans, rediscounts, and acceptances
Securities
Currency and coin
Check collection
Noncash
col~ection
Accounting
Legal
',
Bank and public relations
Auditing
Bank examination
Federal Reserve note issues
Statistical and analytical
Securities
exchan~e
Fiscal agency, custodianship, and
depositary:
Reimbursable expense
Expense not
reimburs~ble
Jloreign
TOTAL
(Column 1 must agree
with Form E)
355
R-137-b
Federal Reserve Bank of
--------------------------- -(fn'dica.te-wh'eth;r-head' ~irice-;branch or "combined" report)
-------------------------------------Budget,
Expenses,
Expense Unit
Yec.r 193?
1. Statistical:
a. Salaries - Officers*
b. Salaries - Employees
c. Retirement system contributions
for current servlce
d. Traveling expenses
e. Printing, stationery, and supplies
f. Telephone and telegraph
g. Postage and expressage
h. All other
TOTAL
2. Monthly letter:
a. Printing and sta t.i~mery
b. Pontage and expressage
'rOTAL
3. Library:
a. Salaries - Officers*
b. Salaries - Employees
c. Retirement system cont~ibutions
for current service
d. Traveling expenses
e. Printing, stationery, and supplies
f. Telephone and telegraph
g. Newspapers, periodicals·, books,
binQ.ing, clipping service, etc.
h. All other
TOTAL
.TOTAL, STA'l'IS'l'ICAL AND
.ANALY'l'I CAL
Number of copies of Monthly Letter
printed for month. of December, 193?
*Indicate in a footnote the complete allocetion
of the time and salary of ecch Officer whose
salary is charged in whole or in pq.rt to this
unit.
Year
- 1938
356
R-137-c
BAW~ EXru~INATION
BUDGET, 1938
l<'ederal Heserve Bank of
- -(fndicate-wh"ether-heact oft,.ice-;branch or "combined" report)
§ank Examinatiouunction
Budget,
~~
- Officel"s*
a.
Salaries
b.
Salaries - Employees
c.
Retirement system contributions
for current se!'vice
d.
Traveling expefises
e.
Printing,
f.
'l'elephone an.d telegraph
g.
Copies of bank examination reports
h.
A
Expenses,
Year 193?
All other
~tationery,
and supplies
TOTAL
DEDUCT - EXJ:.:>ENSES CHARGED AGAINST
BANKS tt.AMINFll
N~~
TOTAL, BANK EXAMINATION
*Indicate in a footnote the complete allocation of the tir'1e and
salary of each officer whose salary is charged in whole or in
part to this function.
R-138
BOARD OF GOVERNORS
357
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
December 18, 1937.
SUBJECT:
ACCRESS CF'F'ICIAL. CCRRESPCNCENCE
TC THE BCARC
Holidays during January, ·1938.
Dear Sir:
On Saturday, Janua~J 1 the offices of the Board of Governors of
the Federal Reserve System and all Federal Reserve banks und br:mches
will be closed.
The Bonrd is advised that the following holidays also will be
observed by Federal Reserve bnnks and branches during the month of
January:
January 8 (Saturday) Anniversary of the Battle of New Orleans
New Orleans Br&nch
January 19 (Wednesday) Anniversary of the birthday of Robert E. Lee
Louisville
Richmond
Charlotte
Memphis
Atlanta
Dallas
Birmingham
El Paso
J::wksonvilJ.e
Houston
Nashville
San Antonio
January 28 (Friday) Anniversary of the birthday of Jose Marti
Havana Agency
On January S and 19 the Federal Reserve bank offices affected
will not partic.ipcte in either the tra:asi t or the Federe_l Reserve note
clearing through the Interdistrict Settlement Fund. Please include
transit clearing credits for such offices on January 8 and 19 with
your credits for the following business days. No debits covering shipments of Federal Reserve notes· for the account of the head offices concerned should be included in your note clearing of January 19.
Please notify branches.
Assistant
PRESIDENTS
TO
OF ALL FEDERAL RE8K'<VE BANKS.
358
BOARD OF GOVERNORS
OF THE
R-139
FEDERAL RESERVE SYSTEM
WASHINGTON
AOORESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARO
December 18, 193?.
Dear Sir:
On December 14, 193?, Chairman Eccles addressed
the Annual Meeting of the PJnerican Farm Bureau Federation
in Chicago.
The address related to problems which are of
interest to the Federal Reserve System and it is believed
that, if they have not already done so, some of the officera and directors of the Federal reserve banks may be interested in reading it.
For that reason there are being
forwarded to you today, under separate cover, ton copies
of the address and additional copies will be sent to you
should you desire to have them.
Very truly yours,
Chester Morrill,
Secretary.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
/
R-140
BOARD OF GOVERNORS
359
OF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL. CORREIIPONDENCE
December 20, 1957.
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 November, 1957.
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 tho Federal Reserve Bank of Richmond b.y wire th~ amount and purpose of the
credit.
Very truly yours,
aif~
O. E. Foulk,
Fiscal Agent.
Inclosure.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
TO THE BOARD
R-140-a
REPORT OF EXPENSES OF MAIN LINE..9 OF FEDERAL RESERVE
LEASED WIRE SYSTEM FOR THE MONTH OF NOVElffiER, 1957.
Number
of
Words
Sent
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chice.go
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Board of
Governors
Total
Words sent
by N. Y.
chargeable
to other
F.R. Banks
Total
Words
Chargoable
55,545
99,556
27,695
45,627
46,045
54 ' 962
.
74,480
61,709.
25,529
59,854
56,201
70,709
Federal
Reserve
Bank
948
54,295
99,556
28,655
44,600
46,972
55,884
75,510
62,758
26,251
60,761
57,125
71,727
962
975
929
922
1,050
1,049
922
927
922
1,018
599,605
1,055,071
Personal
Services(l)
Wire
Rental
$ 514.75 $
996.67
256.61
256.21
181.50
276.07
1,102.26
188.15
135.55
259.18
267.75
404.71
599,605
10,602
1,47:G.80
10,969.55
1,065,675
$6,072.17
$10,969.55
Total
Expenses
$
Pro Rata
Share of
Totnl Expenses(2)
Credits
Payable
to
Board
of Governors
514.75 $ 549.45 $
514.75 $
996.67
1,594.72
996.67
256.61
459.10
256.61
256.21
714.56
256.21
181.50
752.56
181.50
276.07
895.55
276.07
1,102.26
1,102.26
1,209.79
188.15
1,005.48
188.15
155.55
420.58
155.55
259.18
975.49
259.18
267.75
915.20
267.75
1,149.18
404.71
404.71
12,442.55
6,402.26
$17,041.70 $17,041.70
254.70
598.05
222.49
478.55
571.06
619.28
107.55
817.55
285.05
714.51
647.45
744.47
12,442.35
$17,041.70 $6,040.07
(1)
Includes salaries of main line operators and of clerical help engaged in work on main line business, such as
counting the number of words in messages; also, overtime and supper money and Retirement System contributions
at th0 current service rate.
(2)
Based on cost per word ($.016021559) for business handled during the month.
R-141
361
BOARD OF GOVERNORS
CF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
December 21, 1957.
AOORESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARO
Dea..r Sir:
Recently the Federal Deposit Insurance Corporation advised
the Board that it desires to have figures of deposits as of December
31, 1937 for each branch of insured banks; stating that figures of
branches of national banks are obtainable from the Comptroller of
the Currency, sinco national banks are required to furnish tho Comptrollor's office with separate condition roports for each cf thoir
brQnches; ru1d that figxu~cs for nonmember insured banks will be obtained on special forms prepared by tho Corporation; and requesting
tho Board of Govornors to obtain similar figures for branches of
State bank members of the Federal Reserve System. The Board has
advised the Federal Deposit Insurance Corporation that it will obtain tho desired information for branches of State member banks.
In this connection, tho Board has decided to ask State bank
mombors to furnish for each of their branches as of tho next call
date, condition statements similar, but in somewhat more condensed
form, to those used by the Comptroller of th0 Currency in obto.ining
reports from branches of national banks. A copy of Form 105-h to
be used for this purpose is attache;d, and a supply of the form has
boon sent to you under separate cover. The form should be executed
in triplicate, a copy to be retained by tho mombor bank for its
files, o. copy to bo forwarded to tho Board, and the original to be
retained for the files of your bank.
In addition to ;>·our usual checking of condition repc·rts at
the Federal Reserve bank, please reconcile the numbor of branch reports roceivod on Form 105-h with tho numbor of branches shown in
Schedule D of Form 105.
VerJ truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO PRESIDF~NTS
OF ALL FEDERAL RESERVE BANKS.
f(-142
362
BOARp OF GOV~RNORS
OF THE
F~DERAI, EESERVE SYSTEM
STATEMENT FOR THE PRESS
for release in morning newspapers
of Monday, Decembt>r 27, 1937.
December 23, 193'1.
The Board of Governors of the Federal Reserve S;:rstem has issued, effective December 31, 1957, an amendment to its Regulation F
to provide that in States where collective investment of trust funds
is permitted by State law, national banks may invest funds of various individual trusts in participations in a common trust fund, provided the amount so invested from any one trust does not exceed
$25,000, or 10 per cent of' the value of the assets of such common
trust fund, whichever amount is less.
Regulation F has heretofore permitted national banks to make
collective investment of funds of individual trusts only if such
funds were too small to be invested separately to advantage, and the
amendment now issued permits this to be continued under a minimum of
regulatory requiremer.. ts provided the amo1.L.'1t so invested from any one
trust account does not exceed $1,200.
The Board also runended subsections (b) and (c) of section 6 of
Regulation F, in certain minor respects, with respect to the trust
department committees already provided for in the
r~gulation.
In the Revenue Act of 1936 Congress recognized the desirabilitY;,
under proper safeguards, of permitting banks to operate common trust
http://fraser.stlouisfed.org/
•.
Federal Reserve Bank of St. Louis
363
-2-
R-l·i2
f:.ll1ns when it granted certain tax exemptions to common trust funds ad-
uinL:;tered hy any bank in conformity with rules and regulations pre-
ser1bed for national banks by the Board of Governors.
Some States
have enacted .legislation specifically authorizing the operation of
common trust f"Lmds and in other Statos similar legislation has been
considered.
In upholding and construing provisions of law relative to the
exorcise of trust powers by nationccl banks, the courts havo recognized
thut the regulation of the administration of trusts is a mattor pocu1'-· ·
iarly within thu province of the Statos.
In issuing the present amend-
ment, the Board has permitted the collective investment of funds of
various trusts in common trust funds only when the laws c•f tho State
in which the particulu.r nationul bank is located authorize or permit
such investments by Stato banks, trust companies, or other corpc!'ations
which compete with national banks.
Issuance of such an amendment was recommended by a special committee of the American Bar:kers Association, and the 11mendment was
dr11fted after consultation vJi th the committee and after submission of
a tentative draft of the proposed r8gulation to and
rece~ving
criti-
cisms and comments from that commit too, all FE:-der<:l Reserve bar..ks u.nd
other intofested groups.
'l'he Board's regulations have been drawn specifically with a view
to preventing common trust funds from being operated as inves·tment
trusts for other than strictly fiduciary purposes c.nd to prcviding safeguards to prevent preferences or other inequities between trusts pc.trticipating in common
t~ust
funds.
R-143
BOARD OF GOVERNORS
364
CF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
December 22, 1937.
Dear Sir:
There are inclosed herewith six copi~s of amendments
to the Board's Regulation F which have been approved by the
Board to bGcome effective December 31, 1937. Twenty-five additional copies are going forward to you under separate cover.
The amendment to section lO(c) and the new section 17 have
to do with the operation of Common Trust Funds by national
banks for the collective investment of funds of separate
trusts, and the amendments to subsections (b) and (c) of section 6 have to do with what persons may serve on trust department committees already provided for in the regulation. There
is also inclosed herewith a copy of a press statement which
will be released by the Board for publication in the morning
papers of December 27, 1937.
As soon as practicable, you will be furnished with
printed copies of Regulation F, as amended, and, in the mean~
time, you are authorized, on and after the date of the release of tho press statement mentioned above, to furnish
copies of the amendments to such interested parties as you
deem desirable.
Please advise inunediately by wire how many copies of
the revised regulation you desire sent to your bank. The
amendments will appear in the Januaxy issue of the Federal
Reserve Bulletin.
VerJ truly yours,
Chester Morrill,
Secretary.
j
Inclosures.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
365
L-544
Amend Re£lllation F by runending subsection (c) of sec.!Jon
JP 8.nd adding a new section 17.
SECTI_ON 10.
INVESTMENT OF TRUST FUNDS
(c) Colle~tive investmen:t of trustl fundG. -- Funds received or held by a national bank as fiduciary shall not be invested
collectively2 except as permitted in section 17 of t:b.J.s regulation.
*
SECTION 17.
COMMON TRU..§.l. FUNDS
(a) In general. -- Funds received or held by a national
bank as fiduciary may be invested collectively in any Common Trust
Fund established and maintained in accordance with the provisions
of this section whenever the laws of the State in which the national
lUnless the context otherwise indicates, the term "trust",
as used in this section or in any other part of this regulation,
refers to any fiduciary relationship which a national bank is
authorized to enter into under the provisions of section ll(k)
of the Federal Reserve Act.
2This does not prevent the bank from investing the funds of
several trusts in a single real estate loan of the kind whlch could
be made by the bank under tho provisions of section 24 of the Federal Reserve Act, as amended, if the bank owns no participation in
the loan and has no interest therein except in its capacity as
fiduciary.
366
-2-
L-544
bank is located authorize or permit such investments by State banks,
trust companies, or other corporations which compete with national
banks.
As used in this regulation the term "Common Trust Fund"
means a fund maintained by a national bank exclusively for the
collective investment and reinvestment of moneys contributed thereto by the bank in its capacity as trustee, executor, administrator,
or guardian3.
'I'he purpose of this section is to permit the use of
Common Trust Funds, as defined in section 169 of the Revenue
Act of 1936,4 for the investment of funds held for true fiduciary
purposes; and the operation of such Common Trust Funds as investment trusts for other than strictly fiduciary purposes is hereby
prohibited.
N8 bank administering a Common Trust Fund shall
issue any document evidencing a direct or indirect interest in
such Common Trust Fund in ony form which purports to be negotiable or assignable.
The trust :i.nvestmcnt committee of a bank
operating a Common Trust Fund shall not permit any funds of any
trust to be invested in a Common Trust Fund if it has reason to
3As used in this regulation the term "guardi8n 11 means guardian
or committee of the estate of an infant, incompetent, or absentee,
by whatever name known in the State in which a particular national
bank is located.
4For applicable provisions of the Revenue Act of 1936, see
Appendix.
367
-5-
L-544
believe thn t such trust was not created or is not being used for
bona fide fiduciary purposes.
Common ·rrust Ftmds administered tmder this section shall
bo subject to the following requirements:
(1) z'\.SSElts in a Common Trust Ftmd shall be consider·ed
us assets held by the bank as fiduciary;
(2) A bank administering a Common Trust Fund shall not
invest any of its ovm funds in such Common Trust Fund and
lf a bnnk, because of a creditor relationship or any other
reason, acquires any interest in a participation in a Common Trust Fund under its administration the participation
shall be wi tb:irawn on tho first date on which such withdrawal can be effected in accordance with the provisions
of this section;
(3) A bank administering a Common Trust Fund shall not
have ·any interestS in the assets held in such Common Trust
Fund, other than in its capacity as fiduciary, except to
the extent permitted for a temporary period as provided in
the immediately preceding paragraph.
5A bank shall not be deemed to nave an interest in assets
in which collective investments are made merely because of the
fact that the bank owns in its own right other stocks, or bonds or
other obligations of a pe.rson, firm, or CC)rporation, the stocks, or
bonds or other obligations of which ore among the assets of a Common
Trust Fund •
•
368
L-544
-4(b)
Common Trust Funds for investment of small amounts.
Subject to all other provisions of this regulation except subsection (c) of this section, cash balances received or held by a bank
in its capacity as trustee, executor, administrator, or guardian,
which the bank considers to be individually too small to be invested
separately to advantage may be invest0d, with the approval of the
trust investment committee, in participations in a Common Trust Fund,
provided the total investment of the funds of
aQy
one trust in one
or more such Common Trust Funds shall not exceed $1,200.
(c) Common Trust F1mds for general investment. -- Subject
to all other provisions of this regulation except sub section (b) of
this section, funds received or held by a bank in its capacity as
trustee, executor, administrator, or guardian may be invGstod in
participations in a Common Trust Fund.
All participations in such
a Common Trust Fund shall be on the basis of a proportionate interest in all of the assets of the Common Trust Fund.
(1) Common Trust Fund to be operated under written plan. -Each Common Trust Fund administered by a bank shall be established and maintn.incd in accordance with a written plan (referred to herein as the Plan) approved by a resolution of
the bank's board of directors and approved in writing by
competent legal counsel.
The Plan shall provide that
th~
369
-5-
L-544
Common Trust Fund shall be administered in conformity v:i th
the rules and regulations, prevailing from time to time, of
the Board of Governors of the Fodoral Rcsorvo System pertaining to tho collective investment of trust funds bJ national
banks, and shall contain full and detailed :provisions not inconsistent with tho provisions of such rules and rogulations
as to tho manner in which tho Common Trust Fund is to bo
operated, including provisions relating to.the investment
powers of tho bank with rospoct to tho Common Trust Fund, tho
allocation of income, profits and l'osscs, the terms and conditions governing the admission or withdruwal of purticipations in tho Cor::unon 'I'rust Fund, tho r.cudi ting and settlement
of accounts of the ballk with respect to the Common Trust Fund,
the basis and method of valuing assets in the Common Tru::>t
Fund, the basis upon whicl1 the Common Trust Fund may be krminated, and such other matters o.s may be necessary to define
clearly tho rights of participants in tho Common Trust Fund.
A copy c,f the Plan shDll be available at tho principal office;
of the bank for inspection, during ell banking hours, to any
person having an interest in a trust a.ny funds of which are
invested in a participation in tho Common Trust Fund; and
upon reasonable request a copy of tho Plan shall bo furnishod
to such parson.
370
L-544
-6-
(2) Trust investment committee to approve participation.
No funds of a trust shall be invested in a participation in
a Common Trust Fund without the approval of the trust investment committee.
Before permitting any funds of any trust
to be invested in a participation in a Common Trust Fund,
the trust investment committee shall review the investments
comprising the Common Trust Fund; and, if it finds that any
such investment is one in which funds of such trust might not
lawfully be invested at that time, funds of such trust shall
not be invested in a participation in such Common Trust Fund.
At the time of making the first investment of funds of
a trust in a participation in any Common Trust Fund, the
bank shall send a notice of such investment to each person
to whom an accounting ordinarily would be rendered.
(5)
Common Trust Fund to be audited annually.
A bank
administering a Common Trust Fund shall, at least once during each period of twelve months, cause an audit to be made
of the Common 'Trust Fund by auditors responsible only to the
board of directors of the bank.
The report of such audit
shall include a list of the investments comprising the Common Trust Fund at tho time of the audit which shall. show the
valuation placed on each item on such list b.Y the trust investment committee of the bank as of the date of tho audit,
a statement of purchases, sales and any other investment
371
L-544
-7-
changes and of income and disbursements since the last audit,
and appropriate comments as to any investments in default as
to pCJ.yment of principal or interest.
The rensonable expenses
of any such audit made by independent public accountants may
be charged to the Common Trust Fuml.
Tho bonk
shc~ll,
without charge, send a copy of the latest
report of such audit annually to each
per~;on
to whom an
:lC-
counting of the trusts participating in the Comrnon Trust Fund
ordinarily would be rendered or rhall send advice to each such
person annually that the roport is available and that a copy will
be furnished vdthout c"J.arge upon request.
(4) Value of asf'ets to be determined periodicnlly. -- Not
less frequently than once during each period of three months
the trust invost'nent committee of a bank administering a Common Trust Ftmd shall determine the value of the assets in the
Common Trust Fund.
No participation shall be admitted to or
withdravm fro'll the Common 'l'rust :Fund except on the basis of
such valuation ".lllO. on the date of the determination of such
valuation or, if permitted by the Plan, within two business
deys sut)sequent to the date of such determination.
No par-
ticipe.tion shall be B.dmi tted or V'lithdrawn unless, in rtccor·dance
with provisions of the Plan, prior to the date of the
determina-
tion of such valuation, notice of intention to participate or
to :nake such withdrawal shall have been given in writiag to
372
L-544
--8-
the bank administering the Common ·frust Fund, or e. written
notation of the contemplated participation or
~~thdrawal
shall
have been made in the records of the bank.
(5) Miscellaneous limitations. -No funds of any tru.st
shall be invested in a participation in a Common Trust Fw1d
if such investment would result in such trust having an
inte:rest in the Common Trust l''und in excess of 10 per cent
of the: value of the assets of the Common Trust Fund, e.s deter!!lined by the trust investment committee, or tbe sum Qf
$25,000, whichever is
le~s
at the time of investment.
If
the bank administers rnore than one Common Trust Fund, no
investment shall be made which would cause the aggregate
investment of funds of any one trust in all such Common Trust
Funds
to exceed such limitations.
In applying the limita-
tions contained in this paragraph, if two or more trusts
are created by the same settlor or settlers and as much as
one-half of the income or principal or both of each trust is
payable or applicable to the use of t..'le saMe person or persons,
such trusts shall be considered as one.
No investment for a Common Trust Fund shall be made in
stocks, or bonds or other obligations of any one person, .firm,
or corporation which woUld cause the total amount of investment in stocks, or bonds or other obligations issued or
guaranteed by such person, firm, or corporation to exceed
373
-9-
L-544
10 per cent of the value of the Common. Trust Fund, as determined by the trust investment committee, provided that
this limitation shall not apply to investments in obligations of the United States or for the payment of the principal and interest of which the faith and credit of the United
States shall be pledged.
No investment for a Common Trust Flmd shall be made in
any one class of shares of stock of any one corporation whlch
would cause the total number of such shares held by the Comman Trust Fund to exceed 5 per cent of the number of such
shares outstanding.
If the bank administers more than one
Common Trust Fund no j.nvestment shall be made which would
cause the aggregate investment for all such Common Trust
Funds in shares of stock of any one corporation to exceed
such limitation.
Any bank administering a Common Trust Fund shall have
the responsibility of maintaining in cash and readily marketable securities6 such part of the assets of the Common Trust
Fund as shall be deemed by the bank to be necessary to provide adequately for the needs of participating trusts and to
6A readily marketable security within the meaning of this
section means a security which is the subject of frequent dealings
in ready markets with such frequent quotations of price as to make
(a) the price easily and definitely ascertainable and (b) the security itself easy to realize upon by sale at any time.
-10 ....
L-544
prevent inequities between such trusts.
In ar1y event, prior
to any admissions to or withdrawals from a Common rrust Fund,
the trust investment committee shall determine what percentage
of the value of the assets of a Common Trust r1md is composed
of cash and readily marketable securities; and if such committee
determines that, after effecting the admissions and withdrawals
which are to be made pursuant to notice given as require,d in subdivision (4) of this subsection, less than 40 per cent of the
value of the remaining assets of the Common ·rrust Fund would
be
co~posed
of cash ru1d readily marketable securities, no ad-
missions to or withdrawals from the Common Trust Fund shall be
permitted as of the valuation date upon which such determination
is made, except that ratable distribution upon
all participations
is not prohibited.
{6)
Distribution upon withdrawnl of participation. -
When participations are
~~thdravm
from a Common Trust Fund,
distributions may be made in cash or ratably in kind, cr
partly in cash and pe.rtly ratably in kind, provided that all
distributions as of any one valuation date shall be made on
the same basis.
Before
a~v
distribution in cash is made, the
trust investment committee shall determine whether any investment remaining in the Common Trust Fund would be unlawful
for one or more participating trusts if funds of such trusts
were being invested at that time; and no distribution shall
374
375
L-544
-11-
be made in cash until any such unlawful investment shall have
been eliminated from the Common Trust Fund either through sale,
distribution in kind, or segregation as provided in the subdivision immediately following hereafter.
(7) Segrt:Jgation of investments. -- If for any reason
an investment is withdrawn in kind from a Common Trust Fund
for the benefit of all trusts participating in the Common
Trust Fund at the time of such withdrawal and such investment
is not distributed ratably in kind it shull be segregated and
administered or realized upon for the benefit ratably of all
trusts participating in the Common Trust Fund at the time of
wi thdruwal.
(8) Management of Common Trust Fund and fees. -- A national bank administering a ComJ;.on Trust Fund sh1.Lll have the
exclusive manag(;)ment thereof and shall not charge
a
fet'} for the
management of the Common Trust Fund, or receive, either from
the Common Trust Fund or from any trusts the fund.s of which are
invested in participations therein, any ad.di tiomd fees, commissions, or compensations of any kind by reason of such participation.
The bQllk shall not pay a fee, commission, or com-
pensation out of the Common Trust Fund for management.
Nothing in this parugraph shall be construed as prohibiting
a bank from reimbursing itself out of a Common Trust Fund
for such rcusonable expenses incurred by it in the e.dministrction
376
-12-
L-544
thereof as would have been chargeable to the respective
participating trusts if incurred in the separate administration of such participating trusts.
(9) Effect of mistakes. -- No mistake made in good faith
and in the exercise of due co.re in connection with the administration of a Common Trust Fund shall be deemed to be a
violation of this regulation if promptly after tho discovery
of the mistake the bank takes whe.tever action mo.y be practicable in tho circumstances to r3rnedy the misk.ke.
NOTE:
The reference in section 12 of Regulation F to "subsection
(c) of section 10" will be changed ~ppropriately, footnotes to the proposed amendments to the regulation hnd subsequent footnotes in the regulation will be numbered appropriately, and tho pres0nt section l7 will h__; renumbered
18.
Amend the second sentence of subsection (b) of section 6
of Regulation F to read as follows:
"The acceptance of all trusts shall be approved by.the board
of directors or a con:mittee appointed by such board, and the
closing out or relinquishment of all trusts shall be
~pproved
or ratified by the board of directors or a committee appointed
by such board; and such committee or committees shall be composed of
b&nk."
c;;~pabl.J
and experienced officers or directors of the
377
L-544
-13-
Amend the first sentence of subsection (c) of section 6
of Regulation F by a footnote thereto reading o.s follows:
"It is contemplated that there shall be r:. committee the
members of which shall have a continuity of responsibility
for the discharge of the duties of the committee.
However,
alternates appointed by the board of directors
serve in
m~w
plr,ce of regular members of the committee who are unable
to serve on account of vacations, illness, or other good
and sufficient reasons if the minutes of the committee show
the reason for tho service of such a.l ternate in
regular member."
pl~.ce
of the
378
L-544-a
APPEJ.~DIX
In the reprint of Regulation F, the following will be
included in the Appendix to Regulation F under the following
description:
There are printed below certain prov~s~ons of the Revenue
Act of 1956 which are pertinent to some of the subject matter
of this regulation.
SEC. 169.
COMMON TRUST FUNDS.
(a) DEFINITIONS. - The term "common trust fund" means
a fund m&int::ined by a bank (us defined in s.;ction 104)(1) exclusively for the collective investment and reinvestment of moneys contributed t.l-lereto by the bank in
its capncity as a trustee, executor, administrator, or
guardian; D.nd
(2) in conformity with the rules and rr3gulations, prevailing from time to time, of the Board of Governors of
the Federal Reserve System pertaining to the collective
investment of trust funds by national ronks.
...,
(b) TAXi.TION OF COMJIJiON TRUS'I' FUNDS. - A common trust fund
shall not be subject to taxe.tion undor this title, Title IA.
or section 105 or 106 of the Hevenae Act of 1935, and for ·
the purposes of such titlen c;nd sections shall not be considered a corporation.
(c) INCOME O.B~ PARTICIPANTS IN FUND. - Each participant
in the common trust fund sh&ll include in cc:>mputing its net
income its proportionate share, whether or not distributed
and whether or not distributable, of the net income of the
common trust fund. The net income of the common trust fund
shall be computed in the sume manner and on the same basis
as in the case of an individual. The proportionate share
of each participant in the &mount of interest specified in
section 25(a) received by the common trust fund shall for
the purposes of this Supplement be con:::idered as having been
received by such participant as such interest.
(d) ADMISSION AND WITHDRllWAL. - No gain or loss shall be
realized by tho common trust fund by the adm"i.ssion or withdrawal of a pE~rticipant. The wi thdrawnl of any participating
379
-2-
L-544-a
interest qy a participant shall be treated as a sale or exchange of such interest by the participant.
(e) RETURNS BY BANK. - Every bank (as defined in section 104)
maintaining a common trust fund shall make a return under onth
for each taxable year, stating specifically, with respect to such
fund, the items of gross income and the deductions allowed by this
title, and shall include in the return the nRmes and addresses of
the participants who would be entitled to share in the net income
if distributed and the amount of the proportionate share of each
participant. ·rhe return shall be sworn to as in the case of a retu~ filed by the bunk under section 52.
(f) DIFFERENT TAXABLE YEARS OF COMMON TRUST FUND AND PARTICIPAN·r • .:.:. If the taxable year of the common trust fund is
different from that of a participant, the proportionate share
of the net income of the common trust fund to be included in
computing the net income of the participant for its taxable
year shall be based upon the net income of the common trust
fund for any taxable year of the common trust fund (whether
beginning on, before, or after Janunry 1, 1956) ending within
the taxable year of the participant,
SEC. 104.
BANKS AND TRUfT COMPANIES.
(a) DEFINITION .... As used in this section the term "bank"
means a bank or trust company incorporated and doing business
under the laws of the United States (including laws relating to
the District of Columbia), of any State, or of any Territory, a
substantial part of the business of which ccmsists of receiving
deposits and making loons and discounts, or of exercising fiducia~
powers similar to those permitted to national banks under section
ll(k) of the Federal Reserve Act, as amended, and which is subject
by law to supervision and examination by State or Federal authority
having supervision over banking institutions.
380
R-HA
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF'FICIAL CORRESPONDENCE
TO THE BOARD
December 22, 1957.
SUBJECT:
Monthly Report of Bank and
Public Relations Activittes.
Dear Sir:
There is inclosed for your information
a summary of the bank relations reports submi tted b;:,r the Federal RosOl,Ve banks for the
month of November in response to the Board's
letter of August 25, 1936 (X-9680).
Very truly yours,
Chester Morrill,
Secr::ctary.
Inclosure.
TO PRESIDENTS OF ALL FEDERAL :RESERVE BANKS
R-144-a
381_
December 15, 1937"
TO
The Board of Governors
FHOM
Mr. Hammond,
Division of Bank Operations
SUBJECT:
Swrunary of Bank
Relations Reports.
Heports of bank relations as requested in the Board's letter
of August ~5, 1936 (X-9680) have been received for the month of November and excerpts therefrom will be found on the f'ollow:i.ng pages. A
table showing for all twelve banks the number of visits made, meetings attended, and addroSS(~S delivered has also been prepared and
follows the quotations.
Tho attitude toward tho Federal RGSijrve System
The reports contoJ.n interesting comment upon. th0 preference of
many banks for the correspondent rolat:l.onship. Philadelphia mentions
tho caso of a nonmember bank which maintatns large balances with its
metropolitan correspondents because through connections with those
correspondents it has been enabled to secure valuable new business.
It is unwilling to enter the S'ystom because reserve requirements would
prevont the maintenance of tho correspondent balances it feels essential to its own interest. Cleveland mentions the definite preference
of a certain member ba.1k for its correspondent relationships, though
no reason for the proforonce is giv0n. St. Louis roports that banks
are attracted w tho corrospondont rcl.lationship bccausG they rocoivo
immediate credit i'or chock collection items m1d find tho procedure of
check collection simpler when handled through corruspondents. Kansns
City reports thu.t banks, particularly in Kansas, osto·3rn the correspondent relationship because it enables them to arrange loans for customers and bank officer;3 which the bank itself could not make.
Banking conditions
Low returns and high opernting costs cuntinue to be a ::mbject
of complaint. In the East the desirability of houshl!:S loar.s is frequently mentioned, the evidence being that a considerable number of
enterprising banks find the placing and servicing of insured mortguges
profitable .
.QJ;neral economic conditions
Comment upon the Dlowing dovm of industrial acti.vi ty is genoraL
Agricultural crops of variuus kinds al!d in widely separate regions appear to have been abundant, but at tlw same time prices have been low.
Tho rosult has boon a l&rgo and active circulation of funds inadequate
in volume however to covor expcn::ws and dobt rctiroment .
F..xcorpts from the reports follow~
attached to tho original horeof).
(The reports thomsolvos are
382
-2-
R-144-a
Boston
During November visits were made to 41 country banks located in
Massachusetts, Connecticut and Rhode Island.
A number of manufacturing plants ofvarious sizes making textiles,
shoes, hardware, small tools, and electrical equipment are located in
the several sections visited. The extent to which these manufacturing
concerns have been affected by the current business recession was the
principal topic of conversation at the.banks visited. In several communities devoted entirely to cotton spinning, mill operations had been
entirely suspended and in others curtailed to the point of one or two
days of operation a week. Somewhat tho same condition prevailed in commlmitios where the principal industry is the manufacture of shoes. At
other points there had been a curtailment in tho various industries of
the n~ber of operating hours per week, and reductions woru general in
the number of employees. Labor unrest was noted in several communities
which heretofore had been practically free of labor trouble. The general
tone of those who discussed the business situation was pessimistic. Retail trade in the several communities visited was reported to be on~
fair, ~d the information obtained was to tho effect that the local
merchants have not stocked heavily for the Christmas trade.
Practically all the banks visited reported a very light or no demand at all for credit, and officials of some of the smaller banks seemed
somewhat discouraged over the prospects for profitable operation.
No unfavorable comments were made at any of the banks relative to
the policies and edministration of the Federal Reserve ~ystem or the
operations of the Federal Reserve Bank of Boston.
Now York
Steuben County, N.Q!! York
General business conditions tl1roughout tho county are said to be
less satisfactory than the.y were a year-ago, due in part to a decline
in farmers' income, and partly because of a reduction in employment in
the industrial centers. Potato and bean crops have brought poor prices
this year, but dairy farmers have boon helped somewhat by large feed
crops. Grape growers in tiw section around Keuka Lake obtained slightly
higher prices for their wine grapes this year, !Jut the crop was not as
large as had been expected duo to an ear~ frost. All of the wineries
arc giving steady employment as this is their peak season. In the section around the village of Addison which is devoted largely to dairying,
nine large gas companies have been drilling for gas, and since last
spring have brought in ~wolve wells which have a daily flow of twelve
to thirty million cubic foot. Expcrien.ced na turc.l gas producers say
this area is a proven gas territory and are now laying pipe lines, one
of which has already been extended to· tho county seat, Bath, which is
383
-3-
R-:1..44--a
about trlmrty-:fivo milos north. Employment in the industrit3.1 centers of
the Cc>nnty shows a decroasc since last spring. Tho lr.n·gc.; gla.ss works in
CorLing which employed about 3,500 people up until a month ago has boon
rucll:cing its force and it is oxpoctod that about 600 will h<.:.ve bocm laid
off by tho end of tho year, reducing its total number of Gmploycos to
about 2,700. In tho village of Painted Post, throe miles west of Corning,
the Ingersoll-Rand Company's br,mch plant is now employing 1,125 people
as compared with 1,086 last JUJ."l.e. This plant is said to have received
throu f})cd sized Oi~dcrs recently which will enable it to give comparc~tive
ly steu.dy employment to the; mon now on its pDyrolls. The Eri•J R::.tilroad,
·lvl;j_ch mnintains the largo~;t of ito repair shopa and froight yards in the
cj_ t;v· of Hornell, has d,;crousod its omploymon t slightly during the last
month. Cons-truc~ion of' nov1 homes is practicn.lly n.t a str:.ndr;till throughout tho county.
'I'he topic of conv-ersation usually first introduced by bank 'JXocuti vc::;::; was th•J condition ol the socurit.~T markot over which all appear to
1Jc deeply concurnod.
Ire tho maj or.i ty of casos market value of securi tios
is s~1id to bo curruntly loss than, or approximately equal to, book vaJ.uo}
but officers of six banks state that tl1eir lists still show some appreciation. United Statec government obligations compose, on the average,
approximately 54 per c-::mt of total hond portfoljos of all commGrci&l
banks ln this county.
Demand for loans in general con~~inuos li[jht, only six of the fifkon banks reporting a fa:i.r to good dl;mand for crodi t. Tho customar:v ra to
ch:1rE38d throughout tho county is 6 po::.., cent, but bank~> in the ci t~,r of
Ki:agston appa1·cntly roduco this rate j_n m.:my ca~>os to 5 per cont, and
evm1 to 4 per C':mt, in nogotit'ting amortized mortgo.go:~ and oth0r loans
r;ocurcd by prima colla tornl. Sovcrcl bankers rn:.,do a point uf' uxprossing
-~heir BC. tisfaction v.·i th tho mr~imor in which modernizD.tion lot;.ns under
Ti.tle I of the Nn.tional Housi.ng Act aro baing liquid~1tod, there having
bt:on no locses and fow, if ony, dolinquoncius. Common t on tho Production
Crodi t Associc,tion was also entirely favorable, one bD.nko1· add.i.ng th.:;.t
both this agency and the Federal Farm .Mortgage Corpor:::.tionhave been a
r.;reu t help t.::> the commurli ty.
Hudson Cour..t:v._, Now Jersey
Tte principal industrial citic;s in Eudson Covnty aTe Jersey City,
Hoboken, Harrison, Ke1.rn:r, and B11yonno, v1Loro plants and branch factories
of many nationally known companies r,re located. Bn.n~':0rs in these w1rious
conummi ties report th:.t t there h quite a dofini te slowing dov.-n in business
activity, end payrolls arc S(dd to have decroasod ~~s much as 20 por cent
a~, compared with throe months ago, thu hoDvy linus of industry being af-foctod pDroticulc..trly. Bailie officers in Harrison, where there are a numbGr
of large manufacturing concerns, say tho. t this slo·wing up of business is
384
-4.F.!:ill Y2s1~ con ·U.nucd
duo not only to the falling off of
officials and plant ms.nagers (with
opurations as a rno.ttar of caution,
soiao dofin:i. te word or ass1u·ance is
Adrninj.stra tion.
nevi orders but also to the fact that
whom they have talked) are curtailing
deeminG it advisable to wait u11til
gi von as to the futuro policy of the
Philadelphia
Ia nearly every industrial community it, was reportud that thoro
hod becm an approciable decline in activity during tho past f'.JW months.
Bu~d noss lcadors were said to bo fearful of tho imposition of additional
rostrictions and taxes, and contend ti1at industry cannot stand much more
of uither and that improvement cannot bo expected until this situation
is cla1•ified.
Thoro has boon an absoncu of labor trouble in tho sections covered
by this report so that that .factor has had little to do witl.1. this decline.
Agricultural conditions gonor£dly aro considered fair. Tho prices
received for crops this year wore disappointing and a goodly portion of
both the fruit and potato crops has been stored in anticipation of better
prices during the winter.
·
Credit demand is not strong, in fact in many communities tho total
of loans is still declining. Deposits, other than those of a special
nature, show an increase in most banks, nlthough some bankers stated
that the recent decline wns begj_nning to bu reflected in withdrawals by
individuals and businoss men. Loan liquidation is reported to be satisfactory. Investment accountu .wore ro~.)or·C.ed, in all but a fow instances,
to show dcproci"'tion. It n:ts notvd that tho trond appears to be towards
o. further increase in holdines of government oblig[< tions.
Rentals are increasing and in some communities it was reported that
there is.a shortage of desirable homes. However, there is little being
done to correct this condition, except ti'J.a t j_n one county there has been
a considerable amount of residential building, due principally to tho
fact that the banks in tlw.t county have boon strong advocates of the Federal Housing program. However, a considerable portion of' this construction is in dwellings sui table only for summer occupancy. .IU1 increas~ng
number of banks are grr.mting personal loans or other types of amortized
loans.
Sevural bankers complained of the tax burden. One banker presented
an analysis of his bank's income and oxpcmscs for tho years 1933- 1936,
-which showed that, whereas in 1934 taxes paid amounted to slightly less
than 3 per cent of gross income, in 1936 the amount paid was equivalent
to l5t per cent of the gross income, and for the first six months of 1937
exceeded 12 per cent of the gross income, an amount greater than that
385
-5-
E-11.4-a
carried into the undivided profits account. This bank has total resources
of 8.pproximately (>1, 700,000. The cashier of another bank with r•JSourcos
o.f vbvut ~~500,000 stated that taxes had increased to a point where they
lmd ·becomo exorbitant. He said that they would approx:Lmate $2,000 for
his bank this year.
'l'he president of a non-member institution having dcposi ts of about
stated that his directors d:i.d not expect to apply for mcmb(:rship 1.mtil they had to, as they could not see wher·e it would be of any
benefit to them. This institution maintains large balances with several
corr8spondent banks in New York and Philadelphia and would be UJJ.able to
continue to do so, if it were to become a member of the System, as its
rosoryc would have to l;lc at the ruscrvo bank and it could not afford to
keep these other ftmds uni;westud. Thoso correspondent connections were
said to have been verJ beneficial to this institution in obtaining new
business from firms moving into the city from cities where this bank has
correspondent relations and this institution has no intention of losing
these contacts unless it is absolutely necessary.
~626,500,000
Cleveland
In the northwestern p<::.rt of Ohio deposits arc stationary or in
some casos show lncreases. The volume of loa:1s is increasing by rof,l.son
of loans to farmers for the purposes of purchasing feeder stock, for new
construction, and for th<) purchase of farms. Bankers generally are not
making now purchases of bonds. Tho tondoncy is to hold Govor:r.11rHmts
and municipals.
Crop yields in. this S;Jction .-mro well bolow average b;y- rvason of
unusually rainy wuathor in tho late spring.
In tho portions of Pennsylvania visit...:d by our field roprcsonktivos
deposits ap~Joar to be increasing. Loans are up, largely by roG.son of
incrc.:ases i.n personal J.ouns, automobile loans c.nd the.; purch.::LSO of insurod
F. H. A. loans. The tcndonc;;,r to dispose of long-wrm bonds ai)poars to
be.: con tinuod. Somo banks arc hvlding cash rccui vod from the stele of longterm issues for better LTJ.vestmont opportuni ti.es while others <::.r0 lnvnsting in short-term Governments and high-grecdo short-term domestics.
In the main the attltude of mornb,)r bonks -was friond.ly, and thO"J
appear r0asonc.bly sD.ticfiod ·with momborship. One State bt~nk, whic}+ hns
boon a member of the Syst;.)m for a rol::..tivoly short time, stated that if
tho~- woro forced to give up membership in the System .or sove:r their rolo.tlcms with their correspondent bank they would pr0for to do without
Systc:m membership. Tho offic~rs [tro not yot complc. tely "sold" on mcmburshlp n:rid it is understood th::~t an j_mportant factor inducing thorn to join
th0 ~ystom was tho e:sccpo from Foder<:>.l social security taxation.
-6-
R-144-a
386
Cleveland continued
Another State member bank with a capital structure of $150,000 and
deposits of $450,000, has expressed a desire to withdraw from membership
because of the increase in reserve requirements.
The attitude of.non-member banks visited last week was friendly but
Some of those_ w:i. th deposits over $1,000,000 expressed the thought tmt with the probn.bility of
further revision of banking laws before 1941, the entire situation will
be changed by that time. They prefer to "mark time" for the present.
they are generally uninterested in membership.
In many instances it was apparent that in the minds of the bankers,
the Federal Reserve System is considered an agency of the administration,
and a part of it. This is-seemingly one feature which contributed to the
indifference towards membership.
Many bankers are concerned as to what the attitude of supervisory
authorities will be in the matter of requiring write-downs in cases where
bond depreciation is substantial.
There is vigorous opposition to Government owning of Federal reserve
banks as provided in thE.1 Patman Bill, on the ground that further centralization of banking control in Washington would have an adverse effect on
banking and business generally.
Richmond
A certain nonmember institution in Virginia, 'dth two city branches,
has grown rapidly in the last year or so, due in a measure to the fact
that it is not a member of the local Clearing House Assoclotion and not
subject to rules of the association concerning the pa~ent of interest on
time deposits and in other respects. This bank has talked of membership
in the System on several occasions, and recently, at the request of the
institution, one of our representatives made a special visit to the head
office to discuss the questions involved. Briefly, the bank appears to
wish to obtain the advantages of membership without relinquishing any of
its present freedom of action. It is unlikely that favorable action will
be taken by the subject bank at this time.
Tobacco growers in our district appear to be in a favorable position,
with comparatively large yields of tobacco, selling at prices which are
rather consistently higher than a year ago. The markets in the so-called
"old belt" in Virgini& and North Carolina will close on December 15th for
the holiday season, reopening on January 11, 1938. Tobacco manufacturing
in our district, as indicated by official reports, show slight declines
in all departments, compared with last year, except in the manufacture of
cigarettes. In this instance, current figures, when compared with last
year, show an increase in production of 5.2 per cent.
387
-7-
R-144-a
Richmond continued
The situation in cotton ~extiles has shown no improvement, and it
is now reported from authoritative sources that cotton textile mills
generally in North Carolina average about 50 per cent of nol'!'llal operations.
Until a short time ago, the textile situation in South Carolina appeared
to be in better position than in North Carolina, 'but as the present period
continues this apparent preferential position .or the South Carolina textile mills bas about disappeared. The inventory situation is a question
of concern to the industry and to others interested. One textile manufacturer, at the bead of a substantial chain or mills, who is also a
member banker, writes us that evm though there should be an upturn in
business he does not see how the cotton mills generally can IIIB.ke much headway for the next three to six ~tbs. H~ writes of the heavy inventories,
which nearly always have an unfavo~able effect.on prices so that the prospective profit is absorbed. ·
·
Current reports from furniture manufacturing business sho• little
change, with new orders for October, 193?, approximately 30 per cent less
than in October, 1956. It is rep()rte,d, that retail furniture houses have
been forced to repossess a large.amount 6r furniture which they naturally
hope to sell again before tbe,y. are actively in the market for new goods.
The lumber industry,
district, baa suffered from
and building activity.
~ich
is a cqpsiderable item in parts of our
in furniture manufacturing
·
·
reduQed.ope~tions
'l;he peanut ·crop is an important item in our district, and from best
information obtainable the curr~t crop will yield from 10 to 15 per cent
in quantity better than the 195Ercrop•. Prices are off, ho1rever, and it is
said that the total income from'the crop will be less this year than in
1956. The peanut industry in our district reports increasing competition
with other Southern states.
The apple crop for the CUITent year will yield twice the number of
bushels as compared with 195'6. A large percentage of the crop is moving
into storage on account of tbe unfavorable market price$. · Virginia grown
apples have been ~ported to British markets in former years in amounts
approximating 40 to 50 per cent of the colll'!lercial apple ~rop, bu:t such
shipments have decreased materially since the Ottawa pact of 1952 became:
effective.
The unemployment situation has been greatly aggraqted, notwi thata.nding the increase in employees necessary to conduct the Christmas trade•
Harvesting is at an end for all practical emplqy.ment purposes; textile ·
manufacturing concerns are averaging perhaps three days p~r week; other
manufacturing concerns are curtailing production and consequently payrolls.
388
-8-
R.-144-a
Reports throughout the distriqt indicate that local merchants
:report further decline in retail tr~de and there is apparently a noticeable switch to buying in lower-price stores.
Atlanta
State of Georgia
Practically all of the banks visited during the month of November
are located in cities where group meetings of the Georgia Bankers Association were held.
The principal topics discussed at these Group meetings were tax
revision programs for the State of Georgia, increased hog and cattle
production, cotton control and soil conservation, and service charge
schedules.
·
The decline in the price of cotton was usu.."\lly the topic of conversation at informal gatherings of the bankers attending the meetings.
It was the consensus of opinion that the cotton planter, as a general rule,
will realize a sufficient sum from a .sale or from a loan obtained on his
crop to liquidate his indebtedness to the banks, but that after the payment of bank loans the farmer will have little or nothing left to apply
on indebtedness he might have contracted at mercantile establishments or
for household necessities ox· farm machinery. This situation, of course,
raises the question as to whether these farmers who are not able to
liquidate current indebtedness are going to be able to obtain funds for
the planting of wtnter crops and finance preparations for next year's
operations. There is some spectliation as to whether there will not.be a
large number of farms left abandoned by removal of the occupants to cities,
where they will seek employment rather than run the risk of attempting to
farm another year without assurance of obtaining funds for farm operations.
It was also learned that some of the smaller banks, located in
rural sections, are being compelled to liquidate their loan portfqlios
through partial payments to a greater extent than has been the case for
several years. It is understood that the low price now being received for
cotton seed is responsible for the tenant farmers being forced to request
the banker to let them retain a small portion of. the procee~s of the sale
of cotton for use toward current expenses, whereas it is customarily true
that this type of farmer is able to supply his needs from funds obtained
through the sale of cotton seed.
Chicago
Calls on member and nonmember banks were made mainly in Indiana and
Wisconsin, although a few were made in Iowa and Illinois. Ten of the banks
-9-
R-144-a
389
Chicago contlnued
visited were recently admitted to the System - most of them expressed themselves as being satisfied with their membership, and stated th~ were making use of the services offered by the Federal Reserve bank. One banker,
however, whose bank joined the S,ystcm about a year ago, said that he felt
membership was rather expensive, as it had been necessary for them to dispose of earning assets in order to meet reserve requirements.
In discussing Regulation A with one of our member bankers, the comment was made with respect to loans under Section lOb that while there
might be unusual situations or inst::mces where the F'eder~l Reserve bank
would be warranted in accepting non-liquid assets as collateral, it was
felt tait extreme care should be exercised.
The majority of banks report deposits increasing Vl.ri th very little
change in loans. Some referred to their bond dcprecintion and expressed
concern over the future of the bond market.
A number of calls were made on banks which are not on our par list
with the idea in mind of having them placed thereon. As a rosul t, sever-al
promised to consider the matter r.nd three have definitely been added. Most
of them, however, feel they cr.nnot afford to give up the revenue from exchange charges.
Membership ha.s been discussed with a number of the banks and several
appear to be excellent prospects.
Generally, there is a report of a slowing up of business. This is
particularly true in manufacturing towns with payrolls down from the
October figure, although in two instances it was reported that new industries coming into the to~n had offset any unemployment caused by reductions in for-ce in cxisting.plants. No abnormal inventories are reported; some a little higher than might be desired, but simply a question
of working them off, and merchants are not buying except on a "hnnd to
mouth" basis. In one town visited the statement was made that during the
first half Of 1937 at least 100 residences had been erected, but about
June this work ceased very abruptly due to high cost of materials and
labor and that there is practically no building going on at this time.
The feeling among local business men and industrialists seems to be one
of caution rather than of fear.
St. Louis
Except in the fruit growing and oil producing sections, general business conditions in Arkansas show a sharp recession, because of the decline
in the price of cotton. At the opening of the season 10~ cents per pound
was the prevailing price, but as ginning proceeded it became evident that a
large overproduction existed, and prices began to steadily decline, finally
falling to
cents. However, as loans could be secured from Government
6t
390
-10-
R.;..l44-a
St. Louis continued
agencies at from 7 to 9 cents a pound, sales ceased, and that condition
continues to prevail.
When cotton prices fell below 8 cents, the recession in mercantile
business developed. Wholesale concerns and some manufacturing plants,
notably lumber mills, are now involved in ·the adverse effects.
Harvests of com and hay were miformly excellent throughout
Arkansas and Southern Missouri. Farmers generally have an abundant
forage crop with which to meet their needs for the next few months.
In the fruit belt of Northwest Arkansas splendid crops of apples and
grapes netted the growers a large amount of cash in spite of the low
prices which prevailed. In the same area tomatoes and beans were processed in large quantities by canning factories, though a large portion
of these products are still held in warehouses.
In the oil producing section of Arkansas there has been a consis-..
tent ca.tnpa:ign of development work and results are proving satisfactory.
A number of producing wells have been brought in, and the volume of oil
has more than offset the inevitable decline in production in older districts. Drilling continues on various new prospect~ despite the tremendous cost of operations in a field where a depth of seven or eight thou-.
sand feet is sometimes necessary. No recession in business is in evidence in this oil area.
Banks· in Missouri and Arkansas have not yet been adversely affected
by the decline in mercantile business; in most instances actual increases
in deposits are reported. There is very little local demand for loans.
In the meantime, many Arkansas bankers are using idle funds for Government cotton loans, which appeal to them as a desirable short-term investment.
Sharply divergent opinions prevail regarding future business con-.
ditions, but almost without exception bankers in the cotton section feel
that some form of compulsory control of cotton production must be enacted
if that important Southern industry is to be extricated from its present
chaOtic condition.
Curtailment or discontinuance of FRB check collections by a few
members was said to be because of immediate credit and simplification or
the work when handled through correspondents, and not because of any dissatisfaction with the Reserve bank. The increasing number of nonpar points
was also given as a reason for curtailment of check collections.
Officers of a •ember in Southwestern Missouri deplored the inroads
being made on the par collection system, and regret that no course of action has been devised to check them. Reserve Bank officers visited four
nonmember banks in an effort to keep them on the par list. One wished to
.
~--.-·
391
-11-
R-144-a
St. Louis continued
withdraw because neighboring banks are charging its customers for cashing their checks, but it promised to defer action until it had had an
opportunity to discuss the matter with the F.D.I.C. examiner. In another
case the importance of revenue was the deciding factor.
Minneapolis
Group Meetings-North and South Dakota
It is apparent that the Banking Department of South Dakota is
having its problems, for eight or nine of some of the smaller banks in
thut State are slated for suspension. These aforementioned institutions
are all members of the Federal Deposit Insurance Corporation.
The Superintendent of Banks of North Dakota com~ented on the fact
that five paying and receiving stations are now in operation in the
State. He assumed the attitude that these stations could not be operated on a profitable basis, and in line with that assumption, he definitely discouraged bankers from becoming interested in paying and receiving stations. He stated further that the decision of the Commission in
granting permission to banks to operate such stations, was based wholly
in the interest of the public, - whether or not the necessit,y existed
for such a station. He stated also that the Federal Deposit Insurance
Corporation was reluctant to give its permission to this modified type of
branch banking, unless the bank had ~ sound capital structure of not less
than $55,000.
Although the Federal Reserve Bank of Minneapolis has now developed
a friendlier feeling among the North Dakota bankers as a direct result of
personal contacts with them in their own banks, at group meetings, and
state conventions, nevertheless there does not seem to be the close friendship that exists among the bankers of South Dakota and Minnesota. However,
it seems probable that continued personal contacts with the North Dakota
bankers will sooner or later break down any barriers which may now exist.
Kansas City
During the month of November there was considerable activity in
various states of this District in regard to certain national legislation
affecting banks. Group and regional meetings·were numerous and many
resolutions were proposed and adopted. Probably the most voluble sentiment was in relation to the Patman Bill. The belief is expressed that the
ultimate result of such legislation would be a unified banking system
that would mean the end of the present dual system. The belief is also
expressed that it would take the control of our banking system out of the
hands of the present diversified personnel of business men, bankers, stockmen, and farmers. There is particular objection expressed to the provision
392
-12-
R-144-a
Kansas City continued
in the bill that would permit the Board of Governors to increase or decrease reserve requirements without limitation. The uneasiness on this
point undoubtedly grows out of present experience, for there is still
considerable resentment agdinst recent increases in reserve requirements.
Bankers feel that their earning power has been restricted as they assume
the additional reserves would have been invested in Government securities.
But they seem especially dissat:tsfied with their balances with city correspondents as they feel a proper relation with these correspondents is
essential in taking care of certain types of borrowers in their communities. Practically all of the Kansas bnnks desire to carry, in addition
to the reserve with the Federal Reserve Bank, a reasonablY satisfactory
account with their city correspondents, so that customers who cannot be
accommodated by the local bank may be referred to the city correspondent,
and in a number of instances the banker may desire accommodation from
the city correspondent.
Meetings of bankers during the month of November also brought to
the surface much of the old opposition to branch banking. Here again
the be~ef is expressed that it would destroy the dual banking system
and pppoeition is especially strong to any legislation that would permit
branch banking across state lines.
Many bankers are at a loss to understand why deposits are declining. A considerable number report an increase in loans. In Oklahoma
government cotton loans are a matter of great current interest- W,Yoming
bankers continue to report that conditions in that area are good.
Bankers from that state report that the policy adopted a few yeurs ago
of requiring sheepmen to operate on a budget has proved its worth, not
only to banks but to the sheepmen as well. In Kansas bankers are showing considerable interest in studies of operating expenses of banks.
Great effort is being ~de in that state to get bankers to lay their
own operating results alongside that of group experience in order that
they may see the weak places in their own management. Immediate results
of such a campaign of education of necessity cannot be spectacular, but
the people in Kansas who have this work in hand believe that steady
pressure of this kind over considerable periods of time will produce farreaching results.
Dallas
~
Texas
East Texas was found to be in a fairly satisfactory economic condition, despite the setbacks caused by recent price recessions in the
markets for some of its·basic products, particularly cotton. Money
placed in circulation by the large yield of this crop, consisting both
of proceeds of sales and proceeds of government loans, has materially
393
-13-
R-144-a
Dallas continued
augmented this section's income from other leading products, including
oil and lumber, and on the whole the banks und producers are taking a
cheerful view of the situation.
North Texas
Banks in the 11bla<;k land" belt of North Texas report conditions in
that area as being generally satisfactory. However, some are still complaining bitterly of the unconscionable competitive tactics which they
say are being pursued by certain local Production Credit Associati.)ns in
a persistent effort to divert and capture va+uable credit business that
legitimately belongs to the banks. The situation has created widespread
indignation among country banks and there is a grow.1ng senti~ent that
legislative action is acutely needed to restrict the loans of these
government agricultural credit agencies to borrowers who can show inability to obtain credit accommodations at reasonable rates from commercial
banking institutions, thus conforming to the government's avowed desire
to transfer normal credit extension to private lending agencies as rapidly
as possible.
General approval was voiced by the visited bankers of the actions
taken by the Board of Governors this year for the furtherance of recovery
and the l'!!obilization of monEiy and credit for that purpose.. The president
of a prominent North Texas bank com~ended the tendency of the Board of
Governors to publicize the purposes and objectives of the various measures
·and policie§ adopted by it ln the interest of the economic situation. He
commented particularly upon Mr. Szymczak's recent public addresses, and
those made by other memb6rS of the. Board in recent 'liOnths, and stated that
as a result of these utterances he has obtained a much better understanding of the objectives of Federal Reserve policy and approves them. Other
North Texas bankers commented most favorably upon Governor Davis' address
to the Dallas Clearing House Association on November 18.
San Francisco
San Joaquin Valley, California.
From observs.tions and conversations November 4th iio 6th, we found
that conditions throughout the So.n Joaquiri Valley were generally good.
The raisin crop was of high quality.
profits to the growers.
Prices should return fair
Cotton yield h~s been exceptionally good. Prices have been unsatisfactory. Considernble uneasiness was expressed over the fact that buyers
were inactive.
394
-14-
R-144-a
San Francisco continued
Deposits generally in the banks have been increasing, and offlcers
complained of their inability to obtain good loans, stating that there
was a lack of demand.•
Palo Verde Valley, California
Alfalfa growers in good shape.
Poor cotton crop.
Good tourist crop.
Owing to past vicissitudes, this district is just about keeping its
'head above water.
Northern Arizona
Cattle and sheep men have had a successful year.
Tourist crop not quite up to expectations.
Reduction in copper mining activities will have an effect on areas ·
tributa.ry to the mines.
Business activities have slackened the last few months, but are
estimated to be running at about last year's level.
Considerable diminution in building activities this year as compared
with last year.
Rains needed.
Salt River Valley, Arizona
Bumper agricultural crops.
Excellent cotton crop but pickers are badly needed. Bulk of the
cotton in this area is largely grown b,y big operators, and opinion is
advanced that probably two-thirds of the crop was contracted at a price
around 15 cents.
Reduction in copper mining activities will affect this area.
Considerable reduction in building activities.
Business has receded from the high point reached earlier in the year.
Good tourist crop.
Rain is needed.
PUBLIC RELATIONS ACTIVITIES OF FEDERAL RESERVE
BAl~KS
NOVEMBER, 1937 ,
Federal
Reserve
Bank
Boston
New York
Philadelphia
Cleveland
I
Lf)
r-l
I
Vis'ts to banks
Non- !Total
Member
member
41
101
69
106
2
7
4
3
660
690
115
895
650
5,L10:)
750
l'lone
Nono
5
5
425
1,590
620
2,505
460
1,454
5
5
None
None
7
42
11
9
5
54
15
59
Minneapolis
t~ansa.s City
Dallas
San Fr<.:a.ncisco
56
18
54
2
2
4
42
42
12
*Attendance not reported.
Addresses made
Humber j Attendance
None
5
4
2
104
55
97
65
44
11
56
26
c.tteuded
Attendance
*
1~2
60
24
41
~.gs
2,197
1;.150
1,552
41
142
'Jl
228
41
22
Richmond
Atlanta
Chicago
St. Louis
Meeti
Number
6
3
2
540
500
R-145
396
BOARD OF GOVERNOR§
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FGR THE PRESS
For release.in morniag papers,
Friday, December 24, 1957.
The following summary of general business and financial conditions in the
United States, based upon statistics
for November and the first three weeks
of December, will appear in the January
issue of t.be Federal Reserve Bulletin and
in the monthly reviews of the Federal
Reserve banks.
In November, volume of industrial production
cantinu~d
sharply, and employment and payrolls also decreased.
to decline
During the first
half of November commodity prices declined further but for the past month
they h4ve been steady.
Production and employment
Volume of industrial output, as measured by the Board's seasonally
adjusted index, declined from 105 percent of the 1925-1.925 average in October to 90 percent in November, reflecting chiefly a sharp reduction in
the manufacture of durable goods.
There was a further curtailment of ac-
tivity at steel mills and output for the month was at a rate of 58 percent
of capacity, a decline of one-third from October.
In the first three weeks
of December steel production was at about 28 percent of capacity.
Output
of lumber and plate glass also declined substantially in November, and
automobile production showed considerably less than the usual seasonal increase.
Production of nondurable goods, which had decreased by a substan-
tial amount earlier this year, declined further in November, reflecting a
continued reduction in output of textiles and shoes, partly offset in the
397
-2-
total by an increase in activity at sugar
R-145
ref~neries.
as well as manufactures, declined in November.
Output or minerals,
There were marked decreases
in outpu-t of bituminous coal and :In iron ore shipments, while crude petroleum production continued in large volume.
Total value of
F.
w.
constructio~
contracts awarded, as reported by the
Dodge Corporation, showed little ·change in Noyember
the first
~nd
half of December. Awards for privately-financed projects declined, refleeting chiefly a further reduction in residential building, While contracts for publicly-financed work.increased.
Employment and poyrolls at factories showed an unusually sharp decline between the middle of October and the middle of November, and there
were decreases also in the number employed in trade and other
turing lines.
nonmanufac~
The Board's seasonally adjusted index of factory employment
was at 94 percent of the 1923-1925 average in November as compared with a
. level of 102 last summer and 96 in November last year.
r chin~y,
In the steel, ma-
lumber, and textile industries the number employed decreased by
f substantially more than the usual seasonal amount, and there was so~e decline at automobile factories, although an increase is usual at this season.
There were declines also in the seasonally adjusted indexes for
most other lines, except foods and tobacco which showed
l~ttle
change.
Agricutture
Department of Agriculture estimates recently issued indicate that
most crops will be about the same size as forecast earlier
bu~
that cash
farm income will be lower than had been anticipated, largely because or
price declines both for crops and livestock. .Cash income in 1957 is
398
R-145
-3-
expected to be $8,5oo,ooo,ooo, as compared with $7,918,000,000 in 1936.
The increase over a year ago is due primarily to increased income from
marketings of wheat, tobacco, and fruits and to larger Government paymenta.
Distribution
Distribution of commodities to consumers, which earlier had been
maintained, declined slightly in November.
There was a slight decline
in sales at department stores, and mail order sales decreased considerab~,
while sales at variety stores showed little change.
Preliminary
information for the first half of December indicates that department
store sales increased by approximately the usual seasonal amount.
Freight-car loadings declined by considerably more than the seasonal
amount in November and the Board's adjusted index for that month was 71
percent of the 1923-1925 average as compared with 76 percent in October
and an average of 81 percent in the first
hr~f
6f the year.
The decline
from October to November reflected princiBally marked decreases in loadings
of coal and miscellaneous freight.
Commodity prices
The general level of wholesaie commodity prices, which had declined
sharply from the latter part of September to the third week of November,
has shown little change since that time.
Prices of nonferrous metals,
leather, wool, textile ynrns, and finished cotton goods have declined
somewhat further in this period, while steel scrap, hides, rubber, cotton,
print cloths, and bituminous coal have recently shown some advance.
399
-4-
R-145
Bank credit
Excess reserves of member banks showed a small decline but for the
first three weeks of December remained somewhat over $1,000,000,000.
The increase in demand for currency during December ha.s been smaller
than usual, reflecting largely the effects of the recent sharp decline
in business activity and payrolls.
·rotal loans end investments of reporting member banks 1n 101 leading cities increased somewhat during the four weeks ending December 15,
reflecting a growth of
~190,000,000
in holdings of United States Govern-
ment obligntions, mostly in New York City.
was the
purch~se
ities.
Co~mercial
by banks of the December 15 issues of Government s ecurloans, which had begun to decline in October, showed
a further reduction.
A factor in this increase
.
' ~
.
".
(00
BOARD OF' GOVERNORS
:R-146
OF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRII:aa OP'P'ICIAL CORR!I:ai"ONDII:NGII:
TO THE aaARO
Deoamber 25, 1937
SUBJECT:
Functional Expense Reports
Dear Sir:
Under date of June 11, 1937 tho Board asked Mr, Harrison, Chairman
of the Conference of Presidents, to appoint a committee of ~:~onior Federal
Reserve bank offioial.a to review suggested changes in the functional ox"'"
ponse report, Form E~ and b. the manual of instructions governing its
preparation, submitted to tho Board in response. to its letter, B•l2o6, of
March 27, 1937, and ao~umolato¢ by tho Board's rcprosenta~ivos during tho
course of tho survoys ~do fo~ ~he purposo of reviawing tho methods of
allocation followed by the F!;:ldqra.l Rosorvo banks in preparing tho functional
oxponso reports. Mr. Htlrrisou appointed Mr .. c. E. Earhart, Ca.shior 1 Federal
Rosorvo Bank of San Francisco, Mrr'L, R. Rounds, Vico Prosidont, Fodora.l
Reserve Bank or New Yo~k, and Mr. ~ s. ~alden, Jr., First Vice President,
Federal Reserve Bank of{ Jtiohmond, ala a committee for this purpose.
The above~entidned committ~e met in Washington on November 8 and 9,
1937, and reviewed all the suggested changes in the Manual of Instructions
and in Form E, ~ following the meeting of the Committee Form E and the
Manual of Instructions gover~ing i~~ preparation wero revised, effective
January 1, 1938, in ac<Jor(\e.nce with .tho action taken by tho Committee.
There arc being torwardod to~you under separate cover
complete
sets of the Manual and \the remaining number of copies·· requested will be
Form E is boing reprinted
forwarded shortly atte,r tho ftr~t of tho year.
and the number {)r -oopie's roquoitod for 1938 will be forwarded to you as
·Soon o.s recaivGd from the printer which should bo in tho oourse of the next
few :4lays.
Vory truly yours,
QhesterMorrill,
Secretary •
http://fraser.stlouisfed.org/
~. PUSIDilf.l'S
Federal Reserve Bank of St. Louis
.m
or .AlL Fl»ilUL. ~S.ii.iRVE
BAl\'fJCS
;
'
..
R-147
Q
., 4 1
BOARD OF" GOVERNORS
OF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADORES& OFFICIAL CORREBPONDIENCE
TO THE BOARD
December 25, 1957.
Dear Sir:
There is attached a cop,y of a ~eSolution
adopted b,1 the Board of Governors of the Federal
Reserve S,ystem levying an assessment upon the various Federal resorve banks in an amount equal to two
hundred and eighty-five thousandths of one per cent
(.00285) 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
51, 1957, to defray the estimated expenses and salaries of the members and employees of the Board
from January 1 to June 50, 1958.
The resolution also contains instructions
with regard to the manner in which the payments on
the assessment shall be deposited with tho Federal
Reserve Bank of Richmond.
Vary truly yours,
O. E. Foulk,
Fiscal Agent.
Inclosure.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
402
R-147-a
•
RESOLUTION LEVYING ASSESSMENT
WHEREAS, Section 10 of the Federal Reserve Act, as amended,
provides, among other things, that 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 p~ its estimated expenses and tho salaries of its members and employees for
the half year succeeding tho le~ing of such assessment, together
with any deficit carried forward from the preceding half year,
and
WHEREAS, it appears from a consideration of the estimated
expenses of the Board of Governors of the Federal Reserve System
that for the six months' period beginning January 1, 1958, it is
necessary that a fund equal to two hundred and eighty-five thousandths of one per cent ( .00285) of the total paid-in capi.tal
stock and surplus (Section 7 and Section 15b) of the Federal reserve banks be created for such purposes, exclusive of the cost
of printing, issuing and redeeming 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 two hundred and eightyfive thousandths of one per cent (.00285) of the total paid-in
capital and surplus (Section 7 and Section 15b) of each such bank '
at the close of business December 51, 1957.
(2) Such assessment shall be paid by each Federal reserve
bank in two equal installments on January 5, 1958, and March 1,
1958, respective~.
(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 Interdistrict Settlement Fund to the Federal Reserve Bank of Richmond
for credit to the account o.f the Board of Governors of the Federal Reservo System on the books of that bank, with telegraphic
advice to Richmond of the purpose and amount of tho credit, and
the Federal Reserve Bank of Richmond shall pay its assessment by
crediting the amount thereof op its books to the Board of Governors of tho Federal Reserve System on tho dates as above provided.
R-148
403
BOARD OF' GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS DF'F'ICIAL CDRRESPDNDENCE
TD THE BDARO
December
SUBJECT:
2~,
1937.
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 TreasuiJ• Bills:
"NOZKUP" - Treasury Bills to be dated
December 29, 1937, and to
mature March 30, 1938.
This word should be inserted in the Federal
Reserve Telegraph Code book, following the supplemental code word
"NOZKO~
on page 172.
Vary truly yours,
TO PRESIDENTS OF' ALL FEDERAL RESERVE BANKS
404
R-149
.SOARD OF' GOVERNORS
OF THE
F'EOERAL RESERVE SYSTEM.
WASHINGTON
ADDRESS DI"I"ICIAL CDRRII:8PDNDENCE
TD THE BOARD
December 29, 1957.
SUBJECT:
Earnings and Dividends Reports
of State Bank Members, Form 107.
Dear Sir:
There have been forwarded to you today
under separate cover
copies of Form 107 to be
used by State bank members in submitting their
reports of earnings and dividends for the six
months ending December 51, 1957.
The form is
identical with the one that wus used 1n submitting reports for the scmio.nnual period ended
June 50, 1957.
Very truly yours,
\ ',
s. R. Carpontor,
Assistant Sccrotcry~
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
. 405
BOARD OF' GOVERNORS
·,
OF THE
R-150
FEDERAL RESERVE SYSTEM
WAS.HINGTCN
ADDIU:•• QP'P'IDIAL DC .. RI:.PQNDIENDIE
TQ THIE •aA,.. D
December 30. 1937
SUBJECTa
Forms for use during 1938
Dear Sirs
There are being forwarded to you today under
sep~rate
the number indicated 6f the following forms £or usa at
~our
cover,
bank
during 1938:
Form 38,
copies
Form 95,
copies
Form 96,
copies
Form 96a,
copies
•
Very truly yours,
E. L. Smead, Chie£,
Division 6f Sank Operations.
TO THE. PRESIDENTS OF ALL FEDERAL RESERVE BANKS
406
BOARD OF" GOVERNORS
R-151
OF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDIIIESB DP'P'ICIAL. CCIIIIIEBI"DNDIENCIE
TD THE BCARD
December 51, 1957.
SUBJECT:
Instructions Governing the Preparation of Earnings and Ex~nse Reports
and Profit and Loss -.Statements.
Dear Sir:
TI1ero are inclosed
c6pies of pages 6, 15,
14, 20, 22 and 26 of the Board's Manual of "Instruc-
tiona Governing the Preparation of Earnings and Expense Reports
~1d
Profit and Loss Statements b.y the
Federal Reserva 'Banks" as revised for usc in 1958.
Additional copies of these pages arc being forwarded
to you under separate covor •.
.
l
~-.,..
Very truly yours,
Chester Morrill,
Secretary.
Inclosures.
TO THE PllliSIDENTS OF AI..L FEDERAL RESERVE BANKS
R-152
~
40?
·OF THE
FEDERAL RESERVE SYSTEM
l!'or release in morning
of January 1, 1958.
~ewspapers
December Bl, 1957.
·rhe Board of Governors of the Federal Reserve System today announced the following designations and appointments of chairrrum and
deputy chairmen or the Federal reserve banks for the year 1958, and
directors of Federal reserve banks and branches for the terms specified•
FEDERAL RESERVE BANK OF BOSTON
CHAIRlUN AND FEDERAL RESERVE AGENT: Mr. F. H. Curtiss of Boston
DEPUTY CHAIRMAN: Mr. H. s. Dennison of Framingham, Massachusetts
li'EDERAL RESERVE BANK OF NEW YORK
DEPUTY CHAIRMAN: Mr. Owen D. Young of New York
CLASS 11C11 DIRECTOR:
For three-year term ending December Bl, 1940:
of New York
Mr. Owen D. Young
Buffalo Branch of the Federal Reserve Bank of Now York
BRANCH DIREC·roR:
For three-year term ending December 51, 1940:
Kellogg of Buffalo
Mr. Howard
FEDERAL RESERVE BANK OF PHILADELPHIA
CHAIRI'v!ArJ .AND FEDERAL RF..SERVE AGENT: Mr. R. L. Austin of Philadelphia
DEPUTY CHAIRI·JIAN: ~4r. T. B. McCabe of Chester, Pennsy1 vania
FEDERAL RESERVE BANK OF CLEVELAND
CHAIRMAN AND FEDERAL RESERVE AGENT: Mr. E. S. Burke, Jr., of
Cleveland
DEPUTY CHAIRMAN: Mr. G. C. Brainard of Youngstown, Ohio
CLASS 11 0 11 DIRECTOR:
For three-year term ending December 51, 1940: Mr. G. C.
Brainard of Youngstown, Ohio
Cincinnati Branch of the Federal Reserve Bank of Cleveland
BRANCH DIREC'l'OR:
For two-year term ending December 51, 1959: Mr. S. B. Sutphin
of Cincinnati
408
R-152
-2-
____________ ____
___
FEDERI\I,
,..
RESERVE Bi\111K OF,, CLEVELAND (contt)
f}.ttsbl.J!:Rtt..Ji~anch
of the Federal Reserve Bank of Cleveland
BRANCH DIRECTOR:
For two-year term ending December 51, 1959:
of Pittsburgh
Mr. H. S. Wherrett
n'.!QElUL_RESERVE BANK OF RICHMOND
;,,1r. Robert Lassiter of Charlotte, North Carolina
DEPU'I'Y CH.1IR!11.AN: ~~1r. w. G. Wysor of Richmond
CLASS 11 C11 DIRECTOR:
For three-year term ending December 31, 1940: Mr. Robert
Lassiter of Charlotte, North Carolina
CH.HR.\1AN AND FEDERAL RESERVE AGENT:
Baltimore Brunch of the Federal Reserve Bank of Richmond
BRANCH DIRECTOR:
For three-year term ending December 51, 1940:
of Baltimore
!VIr. W. F. Roberts
Charlotte Branch of the Federal Reserve Bank of Richmond
BRANCH DIRECTOR:
F'or three-year term ending December 31, 1940:
of Great Falls, South Carolina
Mr. G. M. Wright
FEDERAL RESERVE BANK OF ATLANTA
CHAIRMAN AND FEDERJU. RESERVE AGENT: \1r. F. H. Neely of Atlanta
CLASS "C" DIRECTOR:
For three-year term ending December 51, 1940: Mr. Donald Comer
of Birmingham, Alabama
Birmingham Branch of the Federal Reserve Bank of Atlanta
BRANCH DIRECTOR:
}<'or three-year term ending December 51, 1940:
of Birmingham
Mr. E. L. Norton
JacksonVille Branch of the Federal Reserve Bonk of Atlanta
BRANCH DIRECTOR:
For three-year term ending December 51, 1940:
of Jacksonville
Mr. B. W. Haynes
409
R-152
-5f.JLI).f:Ri\.L RESERVE _BANK QF CHICAGO
DEPU·ry CHAIRI'IfAN: Mr. R. E. Wood of Chicago
CLASS "C 11 DIRE;CTOR:
For three-yea~ tei~ ending December 51, 1940:
of Chicago
Mr. F. J. Lewis
Dotroit Branch of the Federal Reserve Bcnk of Chicago
BRANCH DIRECTOR:
For three-year term ending December 51, 1940:
of Detroit
Mr. A. C. r-'arshall
FEDE.RAL RESERVE BANK OF ST. LOUIS
CHaiRMAN .AND FEDERAL RESERVE AGENT:
Mr. W. T. Nardin of St. Louis
Little Rock Branch of the Federal Reserve Bank of St. Louis
BRANCH DIRECTOR:
For three-year term ending December 51, 1940:
Jr., of Batesville, Arkansas
Mr. I. N. Barnett,
FEDERAL RESERVE BANK OF MINNEAPOLIS
CHaiRMAN 11.ND FEDERAL RESERVE AGENT:
Mr.
W. B. Geery of Minneapolis
Helena Branch of the Federal Reserve Bank of Minneapolis
BRANCH DIRECTOR:
For two-year term ending December 51, 1959:
of Square Butte, Montana
Mr. H. D. Myrick
FEDERAL RESERVE BANK OF KANSAS CI1Y
CHAIR\MN AND FEDERAL RESERVE AGENT:
Mr. J. J. Thomas of Sewero, Netraska
Denver Branch of the Federal Reserve Bank of Kansas City
BRANCH DIRECTOR:
For three-year term ending Decemb0r 51, 1940:
of Albert, New Mexico
~t~.
A. K.
~Utchell
Oklahoma City Branch of the Federal Reserve Bank of Knnsas City
BRANCH DIRECTOR:
For three-year term ending December 31, 1940:
of Tulsa, Oklahoma
Ftr. Lee Clinton
410
-4-
R-152
Z~:~FRAL RESERVE BANK OF KANSAS CITY (con 1 t)
Omab.A. Branch of the Federal Reserve Bank of Kansas City
Bf~NCH
DIRECTOR&
For three-year term ending December 51, 1940:
Scbellberg of Omaha, Nebraska
fETJERAL
~;ESERVE
P~so
w.
H.
BANK OF DALLAS
CHAIRMAN AND FEDERAL RESERVE AGElfT:
Texas
El
Mr.
Mr. J. H. Merritt of McKinney,
Branch of the Federal Reserve Bank of Dallas
BRANCH DIRECTOR:
For three-year term ending December 51, 1940:
of Tucson, Arizona.
Mr. J. B. Martin
Houston Branch of the Federal Reserve Bank of Dallas
BRANCH DIRECTOR:
For three-year term ending December 51, 1940:
of Bryan, Texas
Mr. G. G. Chance
FEDERAL RESERVE BANK OF SAN FRANCISCO
CHAIRMAN AND FEDERAL RESERVE AGENT:
Francisco
Mr. A. O. Stewart of San
Los Angeles Branch of the Federal Reserve Bank of San Francisco
EIWICH DIRECTOR:
For two-year term ending December 51, 1959:
Santa Ana, California
Mr. C.
v.
N:ewman. of
Portland Branch of the Federal Reserve Bank of San Francisco
BRANCH DIRECTOR:
For two-year term ending December 51, 1959:
of Portland
Mr. G. T. Gerliqger
Salt La.ke City Branch of the Fecieral Reserve Bagk of $an Francisco
BRANCH DIRECTOR:
For two-year term endin~ December 51, 1959:
ot Salt Lake City
Mr. H.
s.
Auerbach
411
-5-
R-152
J?EI2f1Y.!I~...!tES:mVE l3ANK OF SAN FRANCISCO (con 1 t)
Sefl Lt.le Branch of the Federal Reserve Bunk of San Francisco
BRANCH DIREC'l'ORi
For t.wo-year term ending December 51, 1939:
of Bellingham, Washington
Mr. C. F. Larl~abee
.§.QQ_lgme Branch. of· the Federal Reserve B(,lflk of San Francisco
BRANCH DIRECTOR:
For two-year term ending December 31, 1939:
of Kellogg, Idaho
Mr. S. A. Easton
412
BOARD OF GOVERNORS
S-12
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TC THE BCARD
July 8, 1937.
SUBJECT:
Reports of Violations of Criminal
Provisions of the Banking Laws of
the United States.
Dear Sir:
In its letters of April 4, 1923 (X-3683) and Januar.y 22,
1936 (X-9459), the Board requested that the Federal reserve agents
report to the local United States Attorneys and to the Board for
submission to the Department of Justice all cases of apparent violations of the criminal provisions of the banking laws of the
United States coming to their attention in the performance of their
duties, involving State member banks or Federal reserve banks.
The Board has recently given careful reconsideration to its
policy in regard to the reporting of misdemeanors and is of the
view that a Federal reserve bank, in determining whether or not to
report the facts of any such case to the local United States Attorney, should give consideration to the question whether the making of such report would be desirable or undesirable in the public
interest or would serve any useful purpose in view of the importance of the case and all of its facts and circumstances. The bank
should then report or not report the matter in the exercise of a
sound discretion. In every case in which such a report is not made,
a complete record of the facts and circumstances of the case should
be preserved in the files of the Federal reserve bank for review by
the Board's examiners.
The above applies only to misdemeanors and not to felonies,
however, and the Federal reserve barJ.k should report to the local
United States Attorney every case in which facts come to the bank's
attention from which it appears probable, even though it is not entirely clear, that a violation of the banking laws constituting a
felony may have occurred. In this connection, it is suggested that
counsel for the Federal reserve bank be consulted on doubtful questions which may arise from tLne to time, both in respect to the
question whether the facts of a particular case may constitute a
413
-2-
8-12
felony or a misdemeanor and in regard to other aspects of' the matter. In every case in which a report is made to the local United
States Attorney, whether of a felocy or of' a misdemeanor, three
copies of the report should be forwarded to the Board in order
that the Board may transmit copies to the Attorney General of' the
United States.
This letter relates to the manner of reporting apparent .
violations of the criminal provisions ot the Federal banking laws
which involve Federal reserve banks or State -member banks, as weil
as any othllr viola tiona of' such ·provisi;ns which should appropriately be reported .b.Y the Federal rese~ banks or tho Board of Governors. Hov1ever, the letter is not to be understood as arfecti.ag
the reporting of apparent violations ·~ch involv.e national bunks,
as this is covered b,y the Board• s letter of' Febru!l!"'l.f 8~ 1928
(X-5072), nor the reporting of bank robberies, as this is covered
~' the Board's letters of September 24, 1954 (X-8017) and March ·
15, 1955 (X-9147).
Very
~ ~ours,
Chester Morrill,
Secre·tar'l.,r.. ·
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
$--15
Reg. 'f-56
IITERPm!'JlOI Ql MAW
(Copies
to
be
sent
~. MQJJL.t\'l'IQI
414
to all Feder$1 reserve ~:s)
. June 7, 1937.
Mr.
'
Vice President and Secretar,y,
Federal·Reserve Bank of ___,
___________, -------Dear Mr. - - - -
'•
Reference is made to Mr.
letter of May 5,. ·1957, regarding
the time as of which certain securities recently issued by - - - - Corporation should be considered to ha"Ve acquired loan value under Regulation T.
·
·
It is understood that on March 17, 1937 the
Stock
Exclumge certified to the Securities and Exchange Commission its approval of the list::.ng and res:tstration of th~se securities bt~.t that, at
the re.:;.uest of the compa.lly', the
Stock Ex:cha.nce temporarily deferred calling the securities tor ~ on the exchange. Under the·
P.pplicable proviSiOnS of section l2(d) Of th8 Securities Exchange Act,
the registration of these securities would ordinarily become effective
on April 17, 1937 at which time they would acquire loan value as registered securities, and it appears that the 0.~. question in this connection is whether this is a1 tered by the failure of 't:.bde securities to be
called for trading.
A copy of Mr.
letter and inclQSUre were referred to the
Securities and Exchange Commission for an expression . or 1 ts views on the
matter. There is inclosed a COPT or a aelt-expl.anatorr letter~ dated
May 25, from Mr. Chester '1'. t.a.pe 1 Assistant 0.82"al Counsel of the Commission, from which it will be noted that Mr. Lane is of the opinion
that it is not neceasary that a securi'GY' be admitted to trading on a
national securities achanae in order .that it may be considered to be
registered thereon within the meaning of Section 12 of the Securities
Exohange Act, and that, in the instant case, the securities of the
--~~ Compar;~¥ described in the correspondence 'became registered
on a national securi ti<.lS exchange as of April 17, 19S7.
Tho Board sees no reason to differ with the views expressed by
Counsel for the Securities and txcbance Commisaion and is ot the opinion
that the securi ti&s in question ahould be considered to have acquired on
April 17, 1957, tor the purposes of RegW.ation T, the status of regiatcred securities and to have acquired accordingly the loan value prescribed by the regulation.
Very truly yours,
(Signed)
Inclosure.
L. J?. Bethea
L. P. Bethea,
Assistant Secretary.
S-15-a
Rt"3g. T-56
SECURITIES AND
EXC~TGE
415
COMMISSION
Washington
May 25, 1957.
Board of·Governors of the
Federal Reserve System,
Washington, D. c.
Re: - - - - Compal\1
Gentlemen:
This is with referonco to your letter of May 19, 1957, in
which you present an inquir.y received from the Federal Rosorve Bank
of
concerning ·tho time as of which securities issued by the
above company should be cons~dered to be registered on a national
securities exchange.
~
I understand that on March 27, 1957~ the
Company
issued 5,986,641 shares of common stock, $7 1 664,100 principal amount
of fifteen year 4% sinking fund debentures, and common stock purchase
warrants evidencing ~ights to purehase 1 1 205,261 Shares of no par
value common stock. The
Stock Exchange certified to the
Commission its approval of the listing and registration of these securities on March 17, 1957. In accordance with the applicable provisions of Section 12(d) of the Securities Exchange Act, the registration of these securities became effective on April 17, 1957. However, at the request of the com~, the
Stock Exchange has
temporarily deferred calling the issue for trading on that exchange.
The question presented is whether tbe securities should be deemed to
be registered on a national securities exchange even though not admitted to trading thereon.
In my opinion, it is not necessary that a securi'GY be admitted to trading on a national securities exchange in order that it
may be considered to be registered thereon Jd thin the meaning of Section 12 of the Securities Exchange Act. In the instant case, it
would appear that the statutory requirements have been fully complied with and 1t is, therefore, DtY opinion tha. t the securities of
the
Com~ described in your letter became registered on
a national sectirities exchange as of April 17, 1957.
You will appreciate that the views expressed herein constitute only a statement of ley' op~on as counsel to the Commission and
do not involve an, ruling b.1 tbe Commission.
Very truly yours,
For Allen E. Throop,
General Counsel:
(Signed) Chester T. Lane
Chester T. Lane,.
Assistant General Counsel.
416
BOARD OF GOVERNORS
OF" THE
ti-14
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE I!IOARO
July 16, 1957.
SUBJECT:
Reports of Criminal Violations to
ti1e Federal Bureau of Investigation.
Dear Sir:
There is inclosed
here~~th
a cop,y of a letter received
by the Board from Assistant Attorney General Brien McMahon, in
which it is suggested that copies of reports of violations of
the criminal provisions of the banking laws of the United States
which are commonly made to the Department of Justice be transmitted to the respective local offices of the Federal Bureau of
Investigation. In this connection there is also inclosed a
copy of a memorandum from the Director of the Federal Bureau
of Investigation wlrlch contains a list of the field offices of
the Bureau.
In accordance with the request of the Department of
Justice, it will be appreciated if your bank will transmit to
the appropriate field office of the Federal Bureau of Investigation a copy of each report of apparent violations of the
criminal provisions of the banking laws of the United States
which is made to the local United States Attorney and copies
of which are transmitted to the Board of Governors pursuant
to the procedure stated in the Board's letter of July 8, 1957
(S-12).
Very truly yours,
L. P. Bethea,
Assistant Secretarf.
Inclosures.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
417
S-14-a
DEPARTMENT OF JUSTICE
Washington, D. C.
June 18, 1957.
The Board of Governors,
Federal Reserve System,
Washington, D. c.
Sirs:
The quetJtion was presented to this Department soll8t1me ago whether
it would facilitate the illvestiption .ot alleged offenses at National
banke if copies of the repo:rte of lational baNe exaainers were sent directly to the respective local of'tices of the Federal Bureau of Investigation in the t1eld. The matter bas been considered in this Department,
and the conclusion .reached that such plan would be of decided advantage.
The Comptroller of the Cul"Nftcy- baa boon advised !&ceo~, EU1d the
Department bAs bean heretotol'e assured that the Compt.Toller Will cooperate in ct1r1'71ng it into effect.
The question has also been suge:fted -~the·~ plan might
be adopted w1 th benefit in ,.lation to state ltaake wht.ch are members o£
the Federal Reserv~ System, and I o.m presentiiJI that ftg8etion herein
for your consideration. You are tul.q a'IU'e how higb.]¥ important it is
in the entoreement of the crlainal law tb«:t action be. take a&~ promptly
as poasible. It is believed that that end:. would be pl'OIDOted if it can
be arranged without too areat inconvenience tor' your .xamt.uers or other
·officials in the field to traumit to the res}ltCtive l~eal offices ot
the Federal Bureau of Ilp'eetlption copies ·Of sUCh ·:reports as. ;you com..
monly transmit to this Jtepa.rt.aent.
· .
.
It is desired of cqurse that the two copies for tats Department
shall be received here •s in tho past, the cow sent cU.rectly to the
local office ot the Bureau being an addi tiQnal copy.
For 70ur information, I am enclosing horewith photostatic copies
of the letter of January 91 1937 received troa t.he Co~~rpt:roUer of the
Currenc,y on this subject, and a. mellorandua ot ,.¢1 2~, 1957 trom the
DirectQr of' the Federal Bureau ot Investiption, i.n which, 8Jilong other
things, he lists all of the present existing field otfic&s of the
Bureau.
Respecttully,
For the Attorney General,
(Signed) Brien laMahon
BRIEN McMAHON
Assistant Attorney General-.
418
S--14-b
FEDERAL BUREAU OF INVESTIGATION
UNITED STATES DEPAR'l'MEWT OF JUSTICE
.
Washington, D. C.
April 22, 1957.
MEMORAIDtlM FOR ASSISTANT ATTORNEY GENERAL McMAHON
A'fitention:
r.tr. Byaez
Reference is made to your memorandum dated January 27, 1937,
suggesting that it mq be an advantage tO the service to have the practice adopted of chief national bank examiners fUrniShing field divisions
of this Bureau with copies of reports on criminal violations in national
banks.
It is believed that this procedure would have a decided advantage in causing cases to be spoedily referred to field divisions for
investigative action and the same meets with the approval of this Bureau. ·
It is also sugestod that the Federal Reserve Board might be willing to
adopt the same practice with re:forence to state member banks of tho Fedoral Reserve Syatem.
For your information, the following is a list of the field .
divisions to which cases should bo raf'erred by the several chief national
bank examiners throughout the Ullited StateSJ the letters to be addressed
to the Spacial Agent in Charga, Federal Bureau of Investigation, United
States Department of Justice, at the following addresses:
Aberdeen, South Dakota
Atlanta; Georgia
Birmingham, Alabama
Boston, Ma.ssachusetts
Buffalo, New York
Butte, Montana
Charlotte, North Carolina
Chicago, Illinois
Cincinnati, Ohio
Cleveland, Ohio
Dallas, Texas
Denver, Colorado
Detroit, Michigan
El Paso, Texas
.
Indianapolis, Indiana ·
Kansas City, Missouri
L1 ttle Rock, Arkansas
- 610 Alonzo ward Hotel Building
- 501 Healey Building
- 520 Federal Building
- 10 Post Office Square, Room 950
- 400 U. S. Court House Building
- 302 Federal Building
- 254 Federal Building
- 1900 Bankers • Building
- 1130 Enquirer Building
- 1448 Standard Building
- 1206 Tower Petroleum Building
- 722 Midland Savings Building
- 911 Fed8ral Building
- 202 U. s. Court House Building
- 506 Fletcher Trust Building
- 1616 Federal Reserve Bank Building
- 500 Rector Building
f,
S-l~b
-2Los Angeles, CalU'ornia
Louisville, Kentu~
Miami, Florida
Milwaukee, Wisconsin
Nashville; Tennessee
Newark, New Jersq
New Orleans, Louisiana
New 'fork, N.-w York
Oklahoma C! ty, Oklahoma
Omaha, Nebraska
Philadelphia, Penns;ylvania
Phoenix, Arizona
Pittsburgh, Pennsylvania
Portland, Oregon
Salt Lako City, Utah
San Antonio, Texas
San Francisco, CalitoJ'Ilio.
. st. Louis, Missouri
St. Paul, llinn~sota
Washington,
n·. c.
Ver,y
-
903 Pao~tic Commerce Building
775 Starks Buildinl
1300 Bisca;yne Building
1021 Bankers' Building
508 Medical Arts $U.Uding
936 JtqmoDd...Colllll81"Ce Building
1308 Masonic Temple Building
607 u. s. ObUrt House; Foley Square
224 Fedel'al Building
629 First Nationai ~ Building
1300 Libe~ TrUst Building
316 Security Building
620 New Federal Building
4ll u. s. Court House Building
301 Continental Bank Building
1216 Bid tb-Younc Tower Building
Suite 1105, Mills Tower Building
425 U. s. Court House and Custom House
404 New York Builcl:i.ng
4244 United Statee Departaent of
Justice Building. ·
trui1
(Signed)
yours,
J. E. HOOVER
John Edgar Hoover,
Director.
.
.. 420
\
s-:u;
Reg.
tl~l7
(Copies to be sent to all Federal reserve banks)
July 15, 1957.
Mr.
, Vice President,
Federal Reserve Bank of _ _ _ ,
------~
-------·
Dear Mr. _ _ _ _ _ :
Reference is made to your letter of June 25,;1957, identified as
"Inquir.y No.8 re.Regulation U," with whicb you !Dclosed copies of two
letters received from certain banks in your district under date of June
8 and June l5, respect! vely, rai~.ng certain questions w1 th respect. to
section 3(e) of Regulation U rolative to the transter of loans.
1.
EssenY,al;S of tl:le ·Transret of a km•
Section 3(e) of Regulation U provides in part as follows:
11 A bank may accept tbe transfer of a loan from another bank,
or permit the transfer of a. loan between borr91ters, without
following the requirements of' this regulation a.s to the making of a loan, provided the loan is not increased and the collateral for the loan is not changed;
*''
**
The first question presented in connection with this provision is
whether it should be considered that a bank accepts the transfer of a
loan if it makes a loan to a customel" to enable him to reduce or retire
existing indebtedness at another bank or to replace fluids which the borrower has used to reduce or retire indebtedness at another bank.
It is the view of the Board that a transaction such as that described
should not be considered to be the accepting of ~ transfer of a loan pursuant to section 5(e) • The provisions of' section· 5(e) apply only to a loan
which is 'transferred by the proceS8 Of pqment by the transferee bank to
the transferor bank against the receipt of the proper collateral, and a
transaction such as that described above does not come within the provisions of the section.
·
2.
The Indebte4nes@ §Pd ColJ.steral to
be Trnasferred.
Questions also are rais~d as to the indebtedness and the collateral
to be transferred.· In general, two different ~pes of cases arise in this
connection, one relating to indebtedness incurred on or after May l, 1936,
and the other to indebtedness incurred prior to tbat date. Since the
S-16
421
Reg. cr-17
inquir,y did not present any question as to the requirements tl1at might
affect the transferor bank, the two types of cases will be examined on.:cy
with respect to the requirements that affect the transferee bank.
Nonexpepted lQana JJW,de 'or tb&· de@i&AA't§d purpose on or after Ma,y :}; 1
1936. - The first type of case involves iDdebtedness that is for the purpose of purchasing or e~rr,ying stocks registered on a n&tional securities
exchange, that is not excepted qy section 2 of the regulation, and that
was incurred on or after May 1, 1936. Although the transferor ba.rtk may
have treated certain portions of thio indebtedness as separate loans for
certain purposes, the agreement between tho customer and the bank is such
that all the collateral for aey of the described indebtedness secures all
such indebtedness.
In this connection, it is to be noted that the second paragraph of
section 1 of Regulation U provides that:
"* * * the entire indebtedness of 8XJ:1 borrower to arJ:¥ bank incurred on or after May 1, 1936, for tho purpose of purchasing or
carr.ying stocks registered on a national securities excr~ge shall
be considered· a single loan; and all the collateral securing such
indebtedness shall be considered in determining whether or not the
loan complies with thia regulation~" .
In view of this provision, it is evident that the regulation contemplates that, in certain connections, the aggregate of the described indebtedness and all the collateral. tll,at secures that indebtedness should
be considered a unit, regardless of whether or not the transferor bank.
may have treated a portion of such indebtedness as a separate loan and
assigned particular collateral to that portion. It is clear that. it would
be permissible under section 3(•) tor a transferee bank to accept the
transfer of the aggregate of such indebtedness accompanied b.Y the aggregate collateral, but there $e presentod tho additional question of whether
it is permissible under section 3(e) to accept the transfer of a portion
of this aggregate indebte~sa accompanied by a proportionate part of the
aggregate collateral.
It is the opinion of the Board that if a bank accepts a transfer of
a portion of the aggregate indebtedness the bank may properly be considered
to have accepted a transfer of a loan within the meaning of section 5(e,),
and that if the transferred indebtedness is accompanied 'tv' its proper portion of the collateral so that the ratio of loan value to indebtedness is
the same with the transferred portion of the indebtedness and transferred
portion of the collateral as with the aggregate indebtedness and aggregate
collateral, it should properly be considered tbat "tho collateral for the
loan is not changed,u If e. transfer meets both these conditions and the
ind~btedness is not increased, the transferee bank may,- ·pursuant to section 3($') of the regu.lation, accept the transfer "without following the
requirements of this regulation as to tbe making of a loan."
422
C-15
Reg. U-17
ru. * sautat.ed
Jloptxqeu.eq lpw 1141:•
IIIDP"
Mav 1. J:~56.
-.The other type of cue uarolvea lD<I*tedDeaa· that is for the purpose of
pu.rcmsing or carrying ~teNd· atocU, tbat is not excepted bV section
2 of the regulation, but tbtlt • • ;111~ prior to Mq 1, 1956.
won
It will be noted that the pi'Q'f'ilio# of seotioD l of the regulation
quoted above w1 th respect. tp t:bJ .trea:ta,nt of aareeate indebtedness and
aggregate collateral as a ulit does nDt 1appl.J to itldebtedness incurred
prior to llq 1, liM. ID tbe CU$ ol. w.ch an old loan, therefore, identification ot the loan and the collaWral tb.erefor, all or part of which
are to be transferred, should 1:lll't t~Wlde; qa tbe basis ot the practice which
the transferor bank and the bo~r ·Nmit. consiatent]T followed in good
tai th in dealing w1 th t.t.. loan.~ 1t1t ri.~Jdebtedfteae which has been treated
as conat1tuting a single loan, t.Di coUatel'&l which bas been treated as
having loan value tor the purpdMe ot tbat loan and as not having loan
value tor other purposes, . shQUld ~ . cousil;lered as a unit, and they should
be so considered w1 thout regard to a aUSt.,_H t agreement under which coll~teral for one loan secures another.
It the entire amount of such an old loan thus identified is to be accepted b,y the transferee bank pursuant to section 3(•)- it should be accompanied b,y 1111 the collateral which, as indicated above, has been treated as
having loan value for the purposes ot the loan and as not having loan value
for other purposes. If a portion of such a loan is to be accepte4 'by the
transferee bank pursuant to section 3(o), it should be accompanied by tha
propor proportion of the collateral which has been so treated, so that tho
collateral would not be changod, i.o., the ratio or loan value to indebtedness is tho same with iJbe transforrod portion o£ the indebtedness and transferred portion of the tollateral as with the indebtedness originallY treated
as a single loan and t4e collateral treo.ted as having loan value only ~or
the purposes or that loon.
3.
Detef!Rinatiop ot Futl
IE!Jal\9' ng . transfer of MoiP•
A question is all() presented as to the method which a transferee bank
may use to determine wbather or not tbe conditions neces&ar,J for the transfer of a loan pur~t to section 5(e) are beiQi followed. SpecificallJ,
the question is raised whether the 'b'&nSferee bank may rely upon a siped
statement of the bonower or the transferor bank which it accepts in good
faith to determine these facts.
As in the case of a number of otbsr facts that are relevant to opera,tions under the regalation, no epeoitie method of ·deterld.ning these facts
is required. The requirement ie that the bank operate diligently and in
entire good faith, and in doiD(C this it mll'1 utilize various methods for
ascertaining the facts ,in particular cases. As one method of determining
.
.
-423
S-15
P.t.:g; U-17
the facts in connection with the tr4Lnsfer of a -loan, a transferee ba.nk
would be justified in re:cy-ing upon, a aia,ned statement of the borrower
or the transferor bank which the trolUiferee~ bank accepts in good faith.
Very-
( Signod)
.•
'
trulf
y~,
Chester Morrill
Chester Morrill,
Secretar.Y.
424
BOARD OF GOVERNORS
S-16
OF" THE
FEDERAL RESERVE SYSTEM
WASHIN13TON
ADDRESS OFFICIAL. CORRESPONDENCE
TO THE SOARD
Juiy 19, 1907.
Dear Sir:
There is inclosed for your information a
copy of a letter which the Board is send:5.ng today
to Mr. Hill, Vice President of the Federal Reserve
Bank of Philadelphia., with reference to the question of whether the term "records" as used in the
Board's letter X-9842-a of March 15, 1937, regarding the destruction of records, should apply to
working papers compiled qy examiners for the Fedoral reserve banks in the course of their field
<:;Xamina tions.
Very truly yours,
·_
~~
~
L. P. Bethea,
Assistant Secretary.
Inclosure.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
425
S-16-a.
July
19, 1957.
Mr. E. c. Hill, Vice President,
Federal Reserve Bank of Philadt~lphia,
Philadelphia, Pennsylvania.
Dear Mr. Hill:
This refers to your letter of July 8,
1957, inquiring whether the term "records" in the
request made in the Board's letter of March 15,
ot the bank examination departments of the Federal reserve banks
be destroyed wi tbout tho advance approval of the
Board ot Governors, should be construed to include
examiners • working papers which are oompiled during the course of field examinations.
1957, X-9842-a, that no records
It was not intended that the term
"records" as used in the Board's letter X-9842-a
should app]J' to examiners' working papers, and
accordingly the determination of the period of
time during which such papers are retained and
the disposition thereof are matters which are
left to the diacretion of the respective Federal
reserve banks.
Very truly yours,
(Signed)
L. P. Bethea
L. P •. Bethea,
Assistant Secretar,y.
426
Reg..
S-17
'I.'- !'37
U!TERPR:ETATION OF .LAW OR REGULATION
(Copies to be sent to all Federal reserve banks)
July 16, 1957
, Secretary,
Mr.
Federal ReserVe Bank of - - - - ·
__________, ----------------'
Dear Mr. - - - - Reference is made to your letter of July 9, 1957, in which you
include an excerpt from a letter received b.y you raising a question
regarding section S(d) of Regulation T.
Your letter is not entire:cy clear as to the question for which
an answer is\desired. As a result of a subsequent telephone conversation between yourself' and a member of tlle Board' s staff, however,
it is understood that the question intended to be presented may be
stated as follows:
"Section S(d) states tll.at certain credlt maintained
without collateral or on collateral o.ther than exempted
or registered securities may bo so maintained until January 1, 1958. · Does section S(d) require tho liquidation
on or before this date of credit in a special account established pursuant to section 5(b) of the regulation, i.e.,
credit that is maintained without collateral or on colla teral other than non-exempted registered securities but
that is not for the purpose of pUrchasing or carr.ying securities or of evading or c.ircumventing the provisions of
the regulation?"
In replY to this question you are advised that the time limitation in section S(d) does not ap~ to credit provided for in section
S(b) and that, therefore, credit providsd for in section 5(b) may be
maintained without regard to the date specified in section 5(d).
Very
(Signed)
truJ.Y
yours,
L. P. Bethea
1. P. Bethea,
Secretary.
Ass~stant
' l
427
S-18
INl'ERPRF~TA'riON
OF LAW OR REGULATION
(Cop.ies to be sent to all lt'ederal reserve banks)
July 17, 1957.
Mr.
_, Vice President,
Federal Reserve Bank of ___,
____________, -------------·
Dear M r . - - - - -
This refers t~ Mr.
letter of July 8, 1937, submitting
a request of the
National Bank for advice as to whether tho
Board would object to the appointment of alternates for members of
the Trust Investment Committee of that national bartk functioning
under the provisions of paragraph (c) of section 6 of·the Board's
Regulation F.
It is understood the Trust Investment Committee is now composed
of four officers of the bank appointed b,y its board of directors.
' It is proposed that there shall be appointed by the board of directors of the bank an alternate to each member of the· Trust Investment
Committee, each alternate to act only when the regular member is absent from the bank or is unable, because of the demands of other official business upon his tima, to attend the meetings of the Committee. It is also understood that the principal difficul~ which the
______ National Sank contemplates meeting by the appointment .of
such alternates is the one arising out of absences of members of the
Committee during the vacation season, and that on this phase of the
matter it desires earlY advice.
.
'
The provision of the regulation referred to contemplates a Committee the members of which shall have a continuity of responsibili~
for the discharge of the duties of the Committee. However, the Board
recognizes that it may be propef,to'appoint alternates to serve in
the place of the regular members· of the Committee in certain circumstances Ydthout loss of tho desired continuit.1 of action b.Y tho Commi ttce. Tho Board is not prepatod at this time to lay dovm any general rule as to all circumstancas under which alternates might properlY serve in place of regular Il\embers of the Committee, but it
would have no objection to alternates appointed by the board of directors serving in place of r~gular members who are absent from the
bank on account of vacations, illness, or other good and sufficient
reasons. Whenever ~~ alto~ate serves in the place of a regular member of the Committee, the Board believes that the minutes of the Committee should show the reason for such service in place of the regular member.
),
-2-
B-18
Reg. F·-11
It may also be suggested that the difficulties referred to by
the
National Bant might be el1minated through the enlargement of the number of regular members of the Trust Investment Committee, it being assum0d, of course, that any action by th0 Committoe would ropresont tho action of at least a quorum of tho Committee
as described in the Board's letter of March 15, 19'37 (X-9872).
Please advise tho -----------National Bank accordingly.
Very truly yours,
(Signed)
L. P. Bethea
L. P. Bethea,
Assistant Socreta~J.
428
429
BOARD OF' GOVERNORS
S-19
CF'THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS I:IF'F'ICIAL CORRESPONDENCE
Ttl THE SCAR!:)
July 26, 1937.
Dear Sir:
There is transmitted herewith, for your information 1 a cop,y of the Board's self-explanator,y letter
of this date to Mr. C.
c..
Walsh, Federal Reserve Agent
at the Federal Reserve Bank of Dallas, with regard to
indebtedness und outside business activities of, and
ownership of bank stock b,y, the Federal Reserve Agent
and employees in the Agent's department occupying responsible positions.
Ver,y truly yours,
---
L. P. Bethea,
Assistant Secretary.
Inclosure.
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
430
S-J.~-a
July 26, 1937.
Mr. C. C. Walsh,
Federal Reserve Agent,
Federal Reserve Bank of Dallas,
Dallas, Te:ms.
Dear Mr. Walsh:
Receipt is acknowledged of your letter of July 16, 1937,
transmitting for the Board's information and files a report with
respect to tho indebtedness and outside business activities of,
and ownership of bat~ stock by, officers ana employees of the Federal Reserve Agent's Department occupying recpons:!.ble positions.
Under the revised procedure outlined in the Board's letter
S-8, dated June 25, 193?, such reports need not in the future be
subr;,itted to the Board of Governors as the procedure contemplates
that such reports with respect to the Assistant Federal Reserve
Agents and other employee:;; of tho Federal Reserve Agent 1 s Depa,rtment occupying responsible positions will be submitted by the Federal Reserve Agent to the Board cf Directors of the Reserve Bank,
and the Board's exarniners have been instructed tc review the reports regarding indobtGdnoss, cut::;ide business activities, and
ownership of banlc s cock submit ted to the Board of Directors, and
tc advise the Board of Govornr:-rs of any unusual situations presented
thereby.
It has been noted that the report as submitted to the Board
of Governors included information regarding yourfoelf, as Chairman
of the Board and Federal Reserve Agent. In view of the transfer to
the banks of the non-statutory duties previously performed in the
offices of Chairmen and Federal Reserve Agents and the placing of
the Chairmanship upon an honorarium basis, the procedure set forth
in the Board's letter S-8 does not require that the reports submitted to the Board of Directors of the Reserve Dank with respect
to the Federal Reserve Agent's Department include information regarding the Federal Reserve Agent.
Very truly yours,
(Signed)
L. P. Bethea
L. P. Bethea,
Assistant Secretary.
431
S-20
Reg. T-58
INTEP.Pl:tE_±}.TI\'N Q.L1£Yv OH HEGUL}TION
(Copies to be sent to all Federal reserve banks)
July 28, 1937.
Mr.
'
..
,
Assistant Vice President,
Federal Reserve Bank of -------'
Dear Mr. ___
Reference is made to your correspondence regarding the inquiry presented by------ Stock Exchange as to whether certain
transactions constitute bona fide arbitrage transactions within
the meaning of section 5(d) of Regulation T. As you know, a reply
to your letter has been delayed while certain practical aspects of
this problem were being investigated.
It is understood that the inquiryrelates to transactions
in two securities of which the first is an issued warrant of a particular corporation which evidences a right to subscribe, by the payment of a specified sum of money, to a security which is definitely
to be issued by the corporation. The .second security is the security that may be obtained by exercising the warrant, and it may conveniently be referred to as the subject security.
In order to take advantage of the disparity in the relative
market prices of the warrant and the subject security, a customer
of a member of a national securities exche.nge purchases the warrant
through the member and simultaneously, or nearly simultaneously,
sells short through the member that quantity of the subject secllrity
called for by the warrant.
In one case the subject security is part of an additional
issue of outstanding securities of the corporation and is sold short
as an issued security. In another case the subject security is part
of an issue of which no portion is outstanding, and it is sold short
on a "when issued" basis. In both cases the customer instructs the
member to exercise the warrants and to cover tha sales with the securities thus acquired, and the member advances the subscription
funds for this purpose.
It is the opinion of the Board that if transactions of the
type described are effected etS outlined above in good faith and not
for the purpos~ of evading or circumventing the provisions of the
regulation, such transactions would constitute bona fide arbitrage
432
S--20
n
-1':.--
Reg. 'I'---.-8
transactions in securities vvithin the weaning of section 3( d) of
Regulation T and, ther';fore, might bo effected in a s9ecis1 account
pursuant to thE: provisions of that section.
Very tru.iy yours,
(Signed)
L. P. Bethea
L. P~ Bethea,
Assistant Secretary.
433
BOARD OF GOVERNORS
S-21
OF THE
FEDERAL RESERVE SYSTEM
Ri;g. K-1
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TD THE BOARD
JuLy
~~9,
1937.
Dear Sir:
In order that e.ll foreign banking corporations operating under the supervision of the Board pursuant to the provisions of either section 25 or section 25(a) of the Federal
Reserve Act may be placed on substar:tially the same basis with
respect to reserve requirements, the Board has amended, effocti ve Sl'3pterr.ber ·1, 1937, the first sentence of the third paragraph of.section XIV of Regulation K to read as follows:
"Against all demand deposits and time deposits
received by the Corporation in the United States a
reserve shall be maintained in the percentages required to b(:l maintained by member banks of the Federal Reserve System located in central reserve cities,
provided that in no event shall such reserve be less
than 10 per cent of the aggregate runount of all demand deposits and time deposita received in the United
States."
For your information, you are advised that only one of the
foreign banking corporations operating under the supervision of
the Board pursuant to the provisions of section 25 of the Federal Reserve Act is not now required to maintain reserves against
deposits received in the United States in the percentages required to be maintained by member banks located in central reserve cities. Tho Board is taking appropriato steps to require
the same reserves to be maintained by this corporation.
Very truly yours,
L. P. Bethea,
Assistant Secretary.
TO PHESIDENTS OF ALL FEDERAL RESERVE BANKS
434
S-22
Hog. F-12
(Copieo to be sont to all Federal reserve banks)
August 4, 1937
Mr. --·---- -----······' Vice President,
Federw ResL:rve Ba.nk of ---··-···-'
-·--·---·-·~·'
De:ar Mr.
___..._.
·-··--·~-
.
This refers to Nfr. ____.___ letter of July 16, 19:3'7, re·la tint; to an inquiry from The .---·--· Na.tional Bank u:nd '~ruot Com-pany of
__ , -------·----' .
_, conce:rning tb.e
applice..tion of section ll(a) of the Board's Regulation F', t'1e per·tinant provisions of which read as follows:
Funds recei v13d or held by a national benk as
fiduciary ahall not be invested in stocks or
obligations of * * ·1!- the bank or its directors
11
*~~7E-."
It appears that the bank was recently appointed co-trustee
of a trust which has been in existence for a number of years u.nd
that amoug the as~ets of the trust rec0i ved by the bank was a
mortgage note of one of tho bank's directors which matures in
August, 1957. The bank inquires '!".nether the renewal of the note
vwuld violate Regulation F. .
The above-quoted provisions of Regulation F relate· to the
investment of trust funds and do not prohibit the retention of assets received by a national bank as a part of a trust estate when
it becomes trustee. Further, in accordm1ce with the princlples
applied in n recent ruling relating to ro1 analogous situation, t.he
renewnl of a. note so received as a part of e trust estate should
not be considered as an investment of trust funds within the meaning of such requirement of the reguln tlon (see ruling in Fedez·al
ReservE' B\.1 lletin for May, 1937, at page 392). Therefore, it is
the view of the Board that the regulation itself docs not prevent
the renewal of the note referred t.o 1:1.bove; it being understood, of
cou.rse~ that the investment is otherwise a proper investment 0f the
trust in view of all the circumstances relating thereto nnd such
investment is not othervr.l.se subject to critic ism.
435
-2-
S-22
Reg. F-12
However, the bank's attention should be called to certain
provisions of law which may have some bearing on the question
whether the note should be renewed. Section ll(k) of the Federal
Reserve Act provides that it shall be unlawful for a national bank
to lend trust funds to any officer, director, or employee of the
bank rmd makes it a felony for any officer, director, or employee
to make or receive such loan. Since the enforcement of such statutory provisions fallswithin the jurisdiction of the Department of
Justice, the Board eannot undertake to express any opinion concerning
their i.nterpretation and their application to the renewal of the note
in question.
Very truly yours,
(Signed)
Chester Morrill
Chester Morrill,
Secretary •
...
•
S-~3
Reg. T-59
(Copies to be sent to al: Federal reserve banks)
July 19, 1937.
Mr.--·-·------'
Division of Se<.-1.~dt;r
LoLns,
Federhl Heserve Bank of
Dear Mr.
----·,
-'----·.
Reference is made to your correspondence regarding ~ho Ulquiry of
Co., as to whether certain trnns0Ctions involving the clear:mce of securities may be effected in
a special cash account pursuant to section 6 of Regulr:o. tion T. A
reply to your letter har~ been dela;p::d in order that the questions
presented might be considered in conne::::tion with certo.in similar
questions which have arisen in connection with Regula tlon U.
Tr..ree different cases are presented, each involving a trans-·
action in which a broker or dealer subject to the regulation clears
certain security transactions for another dealer. These cases may
be briefly described as follows:
1. The broker or dealer subject to the regulation buys a
security for the other dmler and handles the trcmsaction as any
cash transaction for any customer would be handled.
2. The broker or dealer subject to the regulation takes up
for the other dealer, from another house or customer, securities
that the other dealer has purchased end has already sold to other
persons for prompt delivery against full cash payment. The broker
or dealer subject to the regulatlon promptly delivers the securities to the persons to whom they have been sold, obtaining full
cash payment again~t such delivery.
3. The broker or dealer subject tCJ the regulation takes up
fx·om another dealer se:curi ties which the other dealer has already
sold to other persons for prompt delivery against full cash payment, and in taking up the securities from the other dealer, the
broker or dealer subject to the regulation makes him en advnnce
against funds to be received when the securities are deliver8d.
The broker or dealer subject to the regulation promptl:,r delivers
the securities to the persons to ·whom they have been sold,
436
437
S-23
Reg. T-59
-2-
obtaining full cash payment against such delivery.
It is the opinion of the Board tha.t each of the transactions
described is permissible, subject to the conditions specified in
sect:i.on 6 of Regulation T, in a special cash account established
pursuant to that section. Under ruling No. 34 interpreting Regulation T, any transactions in registered securities that are permissible in such a special cash account are, in general, permissible in unregistered securities and, therefore, such transactions
would be permissible whether the,y involve registered securities
or unregistered securities. As indicated in the proposed reply
to
Co. that you forwarded with your letter, the
fact that the broker or dealer subject to the regulation may require the other de!uer to keep on deposit collateral fc·r the first
broker's or dealer's protection while clearing the securities, or
the fact that he may make a service charge, does not affect the
status of bona fide cash transactions.
r
It should be noted, of course, that in cases numbered ~ and
3 above it is assumed that the sale has been made by the other
dealer before the broker or dealer subject to the regulation
clears the transaction. These appear to be the situations presented in the inquiry, nnd your proposed reply apparently is also
based on this assumption. However, it might be advisable to alter
the proposed reply to make this fact clearer.
Since the point referred to in the next to the last paragraph
of your proposed reply is not specifically mentioned in the inquiry,
it is suggested that the point be omitted and instead a general
statement be included to the effect that all such transactions must
comply with the requirements of section 6.
In the last paragraph of your proposed replY·refcronce is mad~
to the fact that if a bona fide sale is cancelled, it would be permissible in certain circumstances for the broker or dealer subject
to the regulation to return thc·securitios to the dealer for whom
the clearance is being effected, receiving repayment from that dealer.
It is suggested that it be pointed out in this connection that such
reversals of transactions are, of course, supposed to occur onlY as
unusual and unanticipated cases and without prearrangement.
Very truly yours,
(Signed)
Chester Morrill
Chester Morrill,
Secro to.r-.r.
S-24
438
Reg. F-15
IH'l'ERPRETATION OF LAW OR REGULATION
(Copies to be sent to all Federal reserve banks)
August 4, 1937.
Mr.
, First Vice President,
Federal Reserve Bank of
,
---------------'
Dear Mr. - - - - This refers to your letter of June 9, 1937, and its inclosures,
relating to an inquiry from The
National Bank,
,
-=------' concerning the application of section ll(a) of the Board's
Regulation F, the pertinent provisions of which read as follows:
"Funds received or held by a national bank as fiduciary
shall not be invested in stock or obligations of, or
property acquired from, the bank or its directors, officers, or employees, or their interests, ~*' * ~~ . 11
It appears that in the latest report of examination of the bank
the examiner listed certain trust investm~1ts as investments in concerns in which directors are interested and criticized those purchased
since June 1, 1936, as having been purchased in violation of the abovequoted provisions of Regulation F which became effective on that date.
The investments listed are stocks or obligc.. tions of
Creamery
Company,
Power Company,
Railroad Company,
Railway Company, and
Railroad and Navigation Camp~. The
bank inquires whether the investment of trust funds by it in such securities is prohibited by Regulation F.
It appears that one.direct6r of the bank is a director and executive vice president of
Creamery Company; that one director
is a director of
Power Company and, until recently, another
was a director of that company; that one director is a director and
president of each of the railroad companies; that the securities of
the railroad companies are listed on the New York Stock Exchange and
possess a gene'ral market; and that the securities of the other companies are not listed on any securities exchange but it is stated that
they are not closely held and possess a fair~ active local market.
It is understood from a letter received from the president of the bank
that none of the securities is ever purchased from the issuing corporation or through any of the directors of the bank and that such securities are purchased entire~ through brokers or bond houses of independent and national standing.
The purpose of the above-quoted prov~s~ons of Regulation F is explained in a footnoto which reads, in part, us follows:
S-24
-2--
439
Reg. F-13
11-l*- * ~~ this requirement contemplat')S that the national
bank will not invest tr·ust funds in the obligations of
any organization in which offict-7rs, directors or employ~es
of the bank havr~ such rm interost as might affect the
r;;xercise of the best judgment of the management of th~
bank in investing trust funds."
~Vhil'J
thD footnote ref9rs only to oblig&tions of organizations in which
officers, dirr;ctors, or omployoes ar0 int<Jrested, the same principle is
appl:Lcnblo in the case of' inv'3stments in stocks of, or property acquired
from, such orgonizations.
In determinlng wheth'Jr particular investments are prohibi tf.:Jd, it is
necessary to consider all of the facts and circumstances of ~ach case.
For 'JXamplrJ, the mero fact t.~nt a d:i.r'3ctor of a national bank is director
of a corporation does not nec0ssarily rnak·~ it a violation of tho r<:lgulation for the bank to invest trust funds in stocks or obligations of the
corporation. On thrJ other hand, such un investment mey not b'a properly
made unless it :is cler.J.X that, in view of all of the facts end circumstances of th<J case, the int!Jrest of the dirCJctor in the corporation is
not such as mlght. affect the excrciso of the best judgment of the management of th9 bank in inv<Jstj_ng tho trust funds. An investment which may
otherwise b~~ entir::lly ::n:opf;;r, or oven highly dr:3sirable, may be in violation of tho abovB-quot'i3d provisions of the Board's regulation, and the
wcll-establi.shed principl·.:Js of sound trust administration upon which they
c.r'9 bas:;d, b(~cause conflicts of int'Jr:;st are involved; transactions in
which trus!tecs have conflicting int':lrGsts arr~ cond'.::mned as o. class because there is grave dangr::Jr of ubus'JS.
Th'.:J Board f0els that, as a g<Jneral proposition, it is undesirabl.;~
for it to att-;mpt to rule upon :JpDcific casBs of the kind pres·~nted by
this inquiry, both br~caus<:J of the difficulty of ascertaining and accurately stating c.ll of thrJ f:~cts tmd circumstances involved and b0cause
such rulings t<;;nd to destroy the int~:mdod floxibili ty of the p~:;rtinr..mt
language of the regulation. It is felt that this is a matter which Should
be left primurily to tho good faith and sound judgment of the bunks and
that ordino.rily they must d•::Jtermin·::J for themselves whether particular
transactions m·e in violation of th; spirit nnd purposo:J of this requirement of th<.: r·-,;gulation.
•.
It is sugg·:;stad the.t th•J inclosr;d copy of this lott8r bo furnished
to Th9
National Bank, togoth".)r v:ith any additional cornm•mts which
you r.:o.y wish to make.
V·-~ry
truly yours,
(Signr:ld) Ch<:Jstc;r Morrill
Chest';lr Morrill,
Secretary.
+
S-25
440
Rog. F-14
INTERPRETATIO~
OF LAW OR REGULA'riOI{
.August 4, 1957.
}
Mr.
, First Vico Pr'3sident,
Fsdort;.l R-::s·JrV 13 Bunk of
,
-------
------------' ------------------1'his r·:Jfers to Y')ur l<:Jtter of Juno 9, 1957, and its inclosur<:::,
relating to on in9.uiry from The
National Bank at ---.,.-.....---,---,,...---'
.
, ccnc·..:rning th:.; applicc,tion of S<.:lction ll(a) of
the Board's Regulation F.
<
Th9 bank inquires whether such Sf~ction prohibits the bank from investing trust funds :Ln real estate mortgage: loans purchus'3d through
- - - - - - Company, Inc. , of which Mr.
, a dirf:lCtor of the
bank, is chairmen of the boc.rd of direc·tors. It is stated that such
loans are not obligations of
Company, Inc.; that proposed
loans ur3 submitt·}d to the trust dopartrnr.:nt of the bank before commitment and. closed only after its approval; and that they ar"e secured by
first mortguges on ror:.l estnt'3 of a sufficient appraised value to m'~et
the rec;_uir~m<:mts of th<;l Nebraska law. In tho latest report of '3xa:nination of the bank the investments in such mortgng,) loans which had b=;!;m
nude since June 1, 1936, were criticized as being in violntion of the
regulation.
Th•; bank also inquires wh8thru' the r;.bove-r.lentioned proVl.Sl.ons of
r<::gulntion apply to "gr.m<.:lral. marl::et &nd l:Lst<Jd bonds, 11 mcntionlng
obligations of
Pow·:.Jr Company and
Railroad Company. It appears that a dir·Jctor of the bank is a director
and vice prc3Sid'.mt c.nd gf.morc.l ra3lla.g<:Jr of
Povmr Company and tho.t
anoth:;r clirector is a director nnd oxecutiV'J vice prrjsident ·of
,
- - - - - Rnilroo.d Cor.1pany. It is stutod that the~ bank has in
th•:J pae.t purchas<Jd obligatiuns of' such com;xmios for trust accounts and
that such obligations ar,:.: on thr~ banl:: 1 s list for future investments.
th(~
The vir:ws oxpress~Jd. by th':J Board in its l;~tter of this date; to you,
relating to a similar inquiry from Tho
National Bank, -----.,.-'
- - - - - ' are eqnally applicabl'J in conn(.Jction with this inquiry and
it is :3Uggested that you adviso The
National Bank at
in tJ.ccordunce ther'J'With. In r.,ddition, th~J bwk should be ndvised that
the fact that bonds are listr:.ld on ::t Becuri ti;;s exchango or possess a grmeral uarket doos not ;ar.l~Ce th0 pertinent provisions of the regulation inapplic:c.ble thereto, although it may h:::.ve n bearing on tho question whether
the interest of offic9rs, directors, or ~mployees of the bank in the
obligor is such as night aff,3ct the f.;xercis::3 of the best judgment of the
r.wna.g0m~nt of the bank in investing trust funds in such bonds.
---
+
Rr:;g.
441
-2-
}
S-25
F-14
Further, th0 Bo<:.rd feGls thnt i t should sp0cially call att'3ntion to
the fo.ct that tho r:o.ortgag'3 J.oo.ns in qu'~:·;tion quite Gl·'JcTly constitute
11 proJY3rty o.cquirod from"--·--- Cor.1pruly,/Inc., with.ill the r:waning of
the regulo.tion, .:md that, ''vsn thuu:;h such Joo.ns nre otl:erv'ise proper
trust investl:ients, their pnrch1.,.se is fortlcid-:m, if, as uppurently may b'3
thc3 CL.se,
Coupally, lne. is an 11 intc3r'3St 11 of Mr.
vvithin the spirit and purpow:w of t!lo r0gulation.
Very truly yours,
(Signed) Chesbr Iviorrill
,
Chester Morrill,
Secretary.
442
S-26
Reg. U-18
}:NTEHPR.ETATION OF L;iVV Oh nr.;GULATION
(Copie::> to
(l.a
sent to all Federal r"Jservr:3 banks)
Auguzt 5, 1937.
-·-' lice President nnd Secretary,
Fad:Jral Rose:cve Bank of
Ni'.
.,,
-·
------'
Dear Mr. - - - - - · -•
.
Rof01"3llC8 is ;;w.do t . ) your lett<?.l' of July 26, 1937 with \Jhich you
inclos,.;d c:. copy of a letter from !vir.
, National Bank Examiner,
-----'
, pre3enting on inquiry with refer>Jnc·:: to R"Jgulation U.
It is 1md•3rstood thc~t the qu•)stion pr<JS':mted involves a lean thc:.t
was made prior to r;:a,Y 1, 1936 for th'J purpose of purchusing or carrying
registcr0d. stocks .s.nd war; socur'.)d by such stocks. After this date cash
was substituted for n.n -;qt:.r~l mt'.rket valuo of th:J stock collatc:r.s.l, r..nd
lat<::lr this eash vvo..a withc'irc.lvn 011 tha d-3posit of nn equal murk0t valuG of
regist',3r<Jd stocks. The cuestion ruisod. is whether the cc.sh can be consider·.~d as collf:t'3ral or wh,::thr)r it should be consider'"d that the dr:roosit
of. Cli.Sh is the liquide.tion of u portion of th"~ old lon.i.l so th£~.t th•:; ~iith
drawaJ. of the cc.sh would constitute the making of a new lorm subject to
th··) r~;gulation.
"
1ou n3f~.)r to th.;; ruling forwr:.rd,3d ·with tho Board 1 s l.<3t,t3r (X--9655)
of July 20, 1936 tn the ~Jff,.;ct that c. cashi1::r 1 s chr-.;ck mig(lt bi~ tr~;atcd
as CGlla toral for u. loan mac~c iJrior to M:Jy 1, 1936 and that, theref0re,
securiti<.:JS might be substitut·36 for thr3 cashior 1s c!nck without a n•3w
loan brdng mud·J that vwuld b-.: subjt,ct t•J ttF.J r·,;gul.ation. It is th:l vigw
of tho Board that th::l sruac orinciple upplies to the pr:;sont casril, and
that it nould be proper to tr··:;nt the cash as collat(Jral for the loan so
th~~t 'tjvh'3u th8 C[cSh was subs:;qurmtly withdro.wn tbJ)l'C would br:J merely c.
change in the collateral for a lonn ,,rir;inull.r made prior to M~-Y 1, 1936
rnth,3r than th~7. making or a m;w lo2n subject ·to the r<Jgulation.
In this Cdnl1')Ction it is tG b-s noted, ,jf eou:rs~J, that o.ftsr .Amendment
No. 5 of Ree,ulution U becomes effective on Si.;ptomb~r 1, 1957, l')t:.UlS mado
tefore May 1, H~56 will be oubject to the r~gulution und that thus thJ
effect of treating ca::..;h us collat:)ral f_:.r such a loun vJill b(;l considerably
al tercd. If cash slwuld b'3 hsld as C;ollateral for a lor,n subject -t') the
443
S-26
Reg. U-18
-2-
regu.Lo.tic.n, unc~er thr; first p:_;rat;roph ;)£' S'Jction 1 of the reg._tlation the
C::'cSl1 v:ould u'tvLmsJ.y "!1ave a much high0r loan value tha.l1 stocks :end, ther0.flll'e, could not be r;ithLirnvm agaiHst ru1 equal market valur; of stocl:s if
th(l 'Yr:ithdrnwo.l wouiL1 crer:..t"J or incre[:S'3 an excess of th0 lcl'J.ll over tho
1T.~l.."'{.i;nU!ll loan valu0 of th':> collc.t")ral.
•
Ver·y truly yot'.rs,
( Signod)
L. P. Both·aa
L. P. B•;thea,
Assistant Secr,.;t£:ry.
:
444
S-27
Reg. D--6
INTERPRETATION OF LAW OH REGULA'riON
(Copies to be sent to all Federal reserve banks}
August 5, 1957.
Mr.
, Vice President,
Federal Reserve Bank of -------------'
----------------'
Dear Mr.
This refers to your letter of June 29, l937 presenting the question
whether member banks in (name of city) ma.y, in computing required reserve
balances, deduct from their gross demand deposits matured bonds and coupons
payable in (same city) which have been roceived by thr:lm and which are
still in th8 process of collection. 'fhis involVf;"JS the question whether
such matured bonds and coupons may be considered as "cash items in procr:Jss
of collection" within th'l m<3aning of S'3Ction l(g) of Regulation D so as to
be deductibl'3 from gross demand deposits und0r ssction 2(b) of th0 r0gulation.
'.
•'
From your letter it is understood that (na.I!le of city) banks customarily
Give immediats deposit credit, or one day deferred deposit credit, for
matured bonds and coupons pa.yable in (same city) whether received ovorthe-colm.ter or through tht:J mails from their depositors and bank correspondents; that such i terns are customarily received £rom correspondent br:tnks
in cash letters; ths.t aft(.;r such cash letters have befJn proved, the mc..tured
bonds and coupons therein are sortad according to paying agents (and
thereafter according to issues and denominations) preparatory to presentation; that where the pay.ing ag~nts are metlbers of the (same city) Cl13aring
House Association thf2l coupons ar~;~ cle::1red through th•J Clr:Jaring House, but
the matured. bonds nre presented ov(~r-the-counter; that where the paying
agents are no't members of the Association, both t.~o matured bonds and
coupons are presented over-the-counter; that in th~ case of items cleared
through the Clearing House the pres'3nting bank receives c. due bill on the
day of cl(laring which due l;lill is cleared on tho following day in the
check el.;arings; that in the case of items presr.mted over-the-counter to
·the pey-ing agent, a clearing house check is r<Jceivl3d the same day in pay-·
mont fo:t• the items, which check is cl"3ared t;he next dey; t.md that the due
bills given for the coupons pres~nted through thu Clearing House and the
clearing house checks given for the bonds and coupons presented over~the
counter are themselves deductible from gross d.emand deposits.
It is also understood that your bank handles matured coupons forwarded
by your member b&nks and direct sending banks as cash items, giving one day
deferred deposit credit therofor, o.nd in some instP...nces hundles matured
bonds oa the above basis and in oth9r instances handles matured bonds as
non-cash items. We further understand that the quostion pr'3sented does not
refer to maturing bonds and coupons.
3-27
RJg. D-6
-2-
f'
445
You ar-.; a;::lvis,~d thnt, aftc:r coiJ.sidering this ;aatt':lr in th0 light of
thr.:J f:tcts stll t.;cl abov8, the Boarll of Govurnors is of the opinion that
J:1ettu!'i.:Jd bonds and coupons, to the extent that thoy are tr'3ntcd ::mel handlr;;d
by r.:er:1b::r bent::s as cc.sh itmas :O>Ubdta:ttiully in ac~ord wi tl1 thB prr,ctice
d.s scribed, nay proo0rly bo includ;.;d by such banks in 11 S11Ch othor i t'3:r:ls in
prcGe~:1S of collection, pay;:cbl•; iuracdiE-.t'3ly upon pr.':Jsentnticm in thH Uni t'3d
Stcctr:Js, o.s o.re custoi~lDrily clear;;d or coll<:Jcted by bnnk3 as cash it'.OL1S 11 ,
within the rue3Iling of section l(g) (3) of Rl.')i;;Ulat:i.on D, end c:Jckctorl by
such br,nks f:i.·m.1 thD a:Jo1.mt uf thr;ir gross c.l-:n:wnd deposits in cor.iput.ing
their rc;quirr;C. l'•.:;s:~:::ves.
Very truly yours,
(Sl' t::.' ._.
'""n·>d)
\
L • P • Br,th""
""
. . v.
·~
L. P. Bethea,
Assistant S'3cretary.
'y
I
446
BOARD OF GOVERNORS
S-28
Sec. 5136 R.S.
CJF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
Saptem~or
Subject:
2, 1937.
Method of amortizing premium on different
lots of bonds of same issue under Comptroller's regulations rega:r·ding investment
securities.
Dear Sir:
Thore is inclosed herewith for your information
,' T
a copy of r. letter from the Comptroller of the Currency
expressing his views upon the question whother the amortization of investment securities should be based on the
aver[ige cost of bonds of
D..
given issue or upon the specific
cost of each lot of bonds of such issue held by a member
bcnk.
Very truly yours,
>
•
L. P. Bethea,
Assistant Secretary.
Inclosure.
TO PHESIDENTS OF ALL FEDERAL RESERVE BANKS.
447
S-2tl-a
::~ec. 5136 R.s.
-2-
the broker in two or three installments, at vc.rying pr.ices. In such.
case, it is suggested that the overage price may be tn.ken r~s the purchc se price of each of the bonds involved for the purpose of t:.pplying
the amortization requirements of the regulations.
Vor~
truly yours,
(Signed)
GIBBS LYONS
GIBBS LYO~S
Deputy Comptroller
'
j
448
..
S-28-a
COPY
f)ec. 5136 R.S.
TREASURY DEP .~RTMENT
CURRENCY
WASHINGTON
COMPTROLLER OF THE
tugust 27, 195'7.
Mr. L. P. Bethea, Af;sistant Secretary,
Board of Governors of the
Federal Reserve System,
Washington, D. C.
De:::r Sir:
Reference is made to your letter of Augu2t 2, 1937, with which
you inclose copy of a letter from ·Mr. h. B. Spear, E;xecutive vice
presi.dE::nt of the Depositors Trust Compe.ny, Augusta, Maine, presenting
a question regording amortization of premium on investment securities
under regulations of this office.
The question, as stated by Mr. Spear, is as follows:
" ••••• we have ;;p2o,ooo bonds of n particular issue which cost
us 105 5/4. Within s few days, due to "the decline ir1 the bond
market, we have been able to buy ~:~0,000 morn bonds of the
same issue, identical with the ones we held, at a price vvhich
brings the aver::1ge cost for the forty bonds to 99 l/2. The
question then arises an to whe;thor wE, should still continue
under the regulation to amortize the premium on the first
1i20,000 bonds purchased at E~ :premium, or whether because their
t,verage cost is bolo'?: par, there is no need of further omortization on that particular issue."
r
Section II ( 4) of the reguL1tions prohibits the purch~cse of an
"Investment security" at a price exceeding par unless regular amortization of premium is provided by the b~:.nk through one of two methods
specified. Hence, it is necessary for premium on e.s.ch bond purchased
above par in the c::.se cited by rJir. Spear to be amortiz8d, and therefore it would not be permissible for the same to be used to equalize
the.carrying values of the bonds subsequently bought below par.
In practic.'ll application of the above rule, it me.y be found in
some instances as a matter of fact that E, bank lms purch;:J.Sed bonds of
the same issue at varying prices under circumstances·which warrant a
consideration of the individual purchases as part of a single transaction - such r:..s where the bank may have placed an ordsr for the purchase
of a cert::dn number of such bonds but the actual purchas~~s are made by
449
BOARD OF GOVERNORS
OF" THE
S-29
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE BOARD
September 5, 1937.
SUBJECT:
Rate Schedule
Dear Sir:
In order to avoid any possible differences between the Board's
records and the records of the Federal Reserve banks with respect to
Federal Reserve bank discount and open market rates, it will be appreciated if you will furnish the Board each month a statement showing
each rate in effect at your bank.
It is requested that the first state-
mont show rates in effect on September 4, 1957, and that beginning with
October tho statements show rates in effect on the second Wednesday of
tho month.
Six copies of the form to be used in submitting the report are
furnished herewith and an additional supply will be forwarded under
separate cover.
No change should be made in tho present practice of advising
the Board by wire of rates fixed
~~
your bank subject to the Board's
{
approval.
Very truly yours,
~?j~;:z:~
L. P. Bethea,
Assistant Secretary.
Inclosures.
TO PRESIDENTS
OF ALL FEDERAL RESERVft
~ANKS
..
450
Form F. R. 296
Sept. 1937
RATE SCHEDULE CJF fEDERhl.. RESERVE BANK OF
-------
This report should be submitted as of the second Wednesday of each month.
Use word NONE to indicate no rate.
Percent
In effect
beginning
Discount Hates:
Rediscounts for and advances to member banks under
Sections .13 and l3a . ............................. .
Aci.vances to member banks under Section lO(b) ••••••.••
•
Advances to individuals, partnerships, and corporations secured by di:t.·Gct obligations of the
United States (last paragraph of Section 13) ••••••
Rates on Industrial Advances under Section l3b:
Advances direct'to industrial or commercial
organiza.tions . ................................... .
)'
Advances to financing institutions On portion for which the financing institution
is obligated ••••••••••••••••••••••••••••••••••••
On remaining portion .•••.•..•....•••...•••....•..•
Commitments to make advances •••••••••••••••••••••••••
\
Buying Rates on Acceptances:
Bankers Accept~illces 1-15 da~y-s
16-30 days
31-45 days
46-60 days
61-90 days
91-120 day'S
121-180 days
{
..........•...•...•••.........•......
.................................... .
......................................
........................................
Resale agreement .•..••••••••••...•••••..•.•..•....
Trade Acceptances
....................................
•R::tes on Government Securities, resale ngTocment •••••••
Signature
Date --------·--------------
Title ------~-----------------------------
•
451
.,
S-50
Reg. U-19
INTERPRETATION OF LAW OR REGULATION
(Copies to be sent to all Federal reserve banks)
August 26., 1957.
Mr.
, President,
Federal Reserve Bank of ____ ,
______,
. Dear Mr. - - - - Receipt is acknowledged of Mr. - - - - - ' s
letter of August.l9, 1957, requesting a ruling on the
question whether paid-up shares of a Massachusetts cooperative bank should be considered "stock" within the
meaning of section 5(1) of Regulation U.
He states
that his office has expressed an informal opinion that
such shares should be considererl. "stock", and you are
advised that the Board is of the same opinion.
Very truly yours,
(Signed) L. P. Bethea
l
L. P. Bethea,
Assistant Secretary.
S-31
Reg. U-20
INTERPRETA'I'ION OF L.AW OR REGULATION
(Copies to be sent to all Federal reserve banks)
September 2, 1957.
Mr.
, Vice President,
Federal Reserve Bank of _____ ,
,
\
Dear Mr.
Further reference is made to your letter of August 23, 1937,
inclosing a copy of a lGtter from Mr.
, Vice President
of the
-· Bank,
,
_ , inquiring whether
the provisions of Regulation U, a;:l amended to September 1, 1937, are
applicable to a loan mado by 11 bank prior to the enactment of the Securities Exchanee Act of 1954., for tho purpose of purchasing or carrying a stock which subr>equently became a stock registered on .s. national
socuri ties exchange. Mr.
asks whether the rGgula tion should be
regarded as not applicable in such a case because there were no stocks
"registered on a national securities exchange" pr:i.or to 1954.
The regulation is applicable, with certain exceptions, to any
loan initially made for the purpose of purchasing or carrying a stock
"registered on a national secm:i ties exchange", and the phrase quoted
has reference to the present status of the stock. Accordingly, a loan
for the purpose of purchasing or carrying a particular stock is for tho
purpose of purchasing or carrying a registered stock if that particular
stock is now registered, and this would be true even if the stock was
not registered at the time the loan was originc:;.lly made, as would be
the case if the loan had been made prior to the enactment of the Securities Exchange Act of 1934.
Very truly yours,
)
•
(Signed)
L. P. Bethea
L. P. Bcthoa,
Assistant Secretary.
452
S-52
Reg. U-21
453
INTF.RPRETATION OF LAW OR REGULA'l'ION
(Copies to be sent to all Federal reserve banks)
September 5, 1957.
,
Mr.
--------'
Assistant Vice President,
Federal Reserve Bank of --------'
Dear Mr.
Reference is made to your letter of August 25, 1937 forwarding a copy of a letter regarding Regulation U from Mr.
,
Assistant Cashier, The
Trust Company,
'•
}
.
It is under~tood tl~t Mr.
is interested in a loan
which was maqe prior to May 1, 1936 but which is subject to Regulation
U since Amendment No. 3 became effective on SeptembGr 1, 1957. Certain
cashier's checks are held as collateral for the loan, ~1t when the cashier's checks are given a maximum loan value of 100 per cent of their
face the maximum loan value of the collateral is less tll<'ln the amount
of the loan. Mr.
_ wishes to know whether the Board agrees with
his view that in such circumstances the reinvestment of the cashier's
chocks in an equal market value of stocks would be forbidden as a substitution that would increa.se tho deficiency in the maximum loan value.
The Board's letters (X-9655, S-26) of July 20, 1936 and August
5, 1957 are to the effect that it is permissible to hold cashier's checks
as collateral for a loan subject to Regulation U. As indicated in the
last paragraph of S-26, however, cashler 1 s checks held as such collateral
would have a higher maximum loan value than stocks. The replacement of
cashier's checks by stocks having an equal market value would, of course,
be a substitution of collateral, and such a substitution necessarily would
reduce tho maximum loan value of the collateral for the loan. If such a
reduction caused the maximum loanvalue of the collateral to be less than
the amount of the loan, or increased an existing deficiency, the substitution would be forbidden by the last paragraph of section 1 of the regulation.
In the present case there is an existing deficiency which would
be increased by the substitution here in question and, therefore, the substitution would not bn permissible. It is to be noted, of course, that
the regulation would not forbid tha purcl:J.ase of the securities desired by
the borrower if the borrower deposits, either in the forn of cash or additional collateral, sufficient margin to cover such a purchase.
Very truly yours,
(Signed)
L. P. Bethea
L. P. Bethea,
Assistant Secretary.
454
BOARD OF GOVERNORS
· CF' THE
S-35
Reg. P-11
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF'F'ICIAL CORRESPONDENCE
TO THE SOARD
September 27, 1957.
)
•
Dear Sir:
There is attached, for your information and
guidance, a cop,y of a self-explanatory letter which
the Board addressed to Mr. Sargent, Vice President
of the Federal Reserve Bank of San Francisco, under
date of September 16, 1957, relating to the procedure to be followed and tho information required
where a holding company affiliate which holds a general voting permit has acquired additional banks and
desires to obtain a voting permit covering such banks.
Vury truly yours,
{
L. P. Bethea,
Assistant Secretary.
Inclosure.
TO THE PRESIDENTS OF ALL
FEDERl~
RESERVE BANKS
455
S-:33-a
Reg. P-11
September 16, 1957.
Mr. S. G. Sargent, Vice President,
Federal Reserve Bank of San Francisco,
San Francisco, California.
Dear Mr. Sargent:
This refers to your letters of July 27, and July 7, 1937, and Mr.
Paulger's telegram to you of July 10, relating to the procedure to be
followed and the information required where a holding company affiliate
which holds a general voting permit has acquired additional banks and
desires to obtain a voting permit covering such banks. ·It is noted from
your letter of July 27, that your inquiry was made at tho instance of
Corporation n.nd in order thnt you might be informed on the
subject and be in a position to issue instructions in reg<:trd thereto
should occasion arise.
A holding company affiliate which holds a general voting permit
covering certain member banks and which desires to obtain a permit entitling it to vote the stock owned or controlled by it of additional
banks should file a new application on the Board's Form P-1, listing
in Exhibit A thereof the addition.::tl banks with respect to which a voting permit is desired. Exhibits C, K, M, and 0 should be submitted
with the new application, in accordance vdth the list of exhibits shown
in Form P-l and the instructions sot forth in tho Bocrr1 1 s letter of January 21, 1936 (X-9456).
,·
In connection with Exhibit B, it is, of course, unnecessary thttt
additional copies of materiu.l submitted in Exhibit B of the holding
company affilic.te 1 s previous npplicati::m for a voting pcrmi t be furnished with a new application, but it is suggested that tho documents
constituting Exhiui t B of the previous ,;.pplicntion bo incorporated by
reference in Exhibit -B of thG new application, and that it be certified that such documents, together with any new documents which may be
furnished, constitute the charter or articles of incorporation and bylaws of the holding company affiliate as amended t:) date.
As a minimum requirement, tho other eYhibits submitted with the
now application should be c.>mpletc, in accord::mce with tho list of
exhibits in Form P-1 Gnd th<:.: instructions set forth in X-9456, with
respect to all subsidiaries of the ::~.pplic~:mt and all ath,3r organizations with which the applicant or any of its subsidiaries is affiliated which were not coverud by the exhibits submittod with the holding company affiliate's prc;vious opplicatiun f0r a voting permit, or
amencL11ents or supplements trwroto. Also, Exhibit D ·:)f the new applico.tion shoulcl include at least a current statem1.mt Df financial
-2--
S-5:i;-a
Reg. P-11
condition of the applicant, showing separately each control account or
each principal group o:r class of assetu, liabilities, and net worth.
Exhibit G should include at least a list of all ~:ubsidiaries of' the
applicant and all other organizations with which the applicant or any
of its subsidiaries is affiliated., including organizations which were
covered by Exhibit G of the previous application for a voting permit,
together with full inform.'ltion with re~pect to the functions and relationships of the latter organizations if substc.ntial changes have
occurred since the information in tho previous application or supplements thereto was filed.
The nature and extent of furthor detailed information to be fur,..
nished by the f... pplic<mt with rcg[<rd to its financial condition and
m::magemont, &nd with regard to oth,Jr organizations which v:ere covered
by tho previous application or amendments or BUpplements thereto would
depend on the circumstances of the case, ·such as the relR-tive importance
of the additional banks, other clk'tnt,;es in tho composition of the group,
tho nature and extent of information already available from reports of
examination, and whether the latt:st inf0rmation furnished by the holding company affiliate in connection v;i th its previous npplica tion for
a voting permit is reasonably current.
It is the Board's desire to av)id plecing any unnecessary burden
upon a holding company affiliate in connection with the inf,Jrmation requirod to be su b:ni t ted with a new appli co. ti •Jn for a v ~)tint; permit. It
is important, however, that the informaticm furnishod v;i th 11 new application set out clearly the existing situation in the group in order that
the Board may be informed with regard to all significant changes that
have occurred since the f.iling of tho previous application or amendments
or supplements thereto. In gt:meral, it is necessary, of course, that
tho current information be adequate for the purposes of the Federal Reserve Ba:nk in maklng its recommendations to the Board, anu for consideration by the Board, as required by law, of the financio.l conuition of
the applicant, the general chf'..racter of its management, and the probabl3 effect of the gra.ntin[~ of the permit upon the affairs of the subsiclin.ry banks.
/
It is noted from your letter of July 27, 1937, t h a t - - - - - Corporation did not indicate its position with regard to future acquisitions. In this con.."'lection, it is sugge8ted that, if a holding company affiliate has acquired control of member banks subsequent to the
issuance to it of a general voting permit ancl is eneaged in c program
looking towarJ further expansion or reorganization at an early date,
the filing of a new application for votinc permit might, in the absence
of immediate need for such permit, be deforred until the entire program
has been completed, in ordor to avoid the hurden or inconvenience to
the holcline; comp:1ey affilia to which might result frcm filing sever:;cl
new c..pplications with necessary SU:t)portin-;, details in each case. It
is ir.1portant, howevor, that a now application be filed at a sufficiently
early date to ellow ample time for consideration by t~1e Federal R.oserve
.~
456
457
l
-3-
S-3:5-a
Reg. P-11
Bank and the Board of tbe issuance of a general voting permit prior to
the next regular annual meetings or specic.l meetings of the shareholders
of the banks named in Exhibit A of the new application. Of course, as
heretofore, while an application for a voting permit is pending before
tho Board, Exhibit A of such application may be amended to include additional banks which become subsidi::crics of the applicant after the application is filed.
Attention is directed also to the fact that if a State member bank
becomes a subsidiary of a holdinr, company affiliate, such bank must,
under the provisions of section 9 of tho Federal Reserve Act nnd S<JCtion 3 of the Board's Regulation P, obtain from its holding company
affiliate an ae;reenient in the form of Exhibit P (Form P-5) within 80
days after the bank becomes a subsidiary, end that such agreement must
be filed promptly, irrespective of when an application for a voting
permit covering such bank is filed.
Very truly yours,
(Signed)
L. P. Bethea
L. P. Bethea,
Assistant Secretary.
I
Reg.
458
I
INIERPRETATION OF LAW OR REGULATION
(Copies to be sent to all Federal reserve banks)
September 50, 1957.
Mr. J. F. T. O'Connor,
Comptroller of the Currency,
Washington, D. C.
Dear Mr. O'Connor:
,
,-
This refers to Mr. Gough's letter of September 5, 1g57,
requesting a ruling upon a question presented by Mr. - - - - - - '
Vice President o~ the
National Bank,
,
Mr.
inquires whether it is permissible for the Board of
Directors of his bank to grant authority to an executive officer
to borrow up to $2500 and permit this authority to continue in
full force and effect until revoked.
As you know, section 22(g) of the Federal Reserve AQt
prohibits an executive officer from borrowing from or otherwise
becoming indebted to the member bank with which he is connected,
but contains an exception under which an executive officer may
become indebted to such bank in an amount not exceeding $2500
with the prior approval of a majority of the entire board of directors. The Board's Regulation 0 provides that a loan or extension
of credit of not exceeding $2500 must in each case be given prior
approval by a majority of the entire board of directors of the
member bank.
To facilitate the practical application of the law and
the regulation the Board of Governors will consider that the fequirement of the regulation with respect to the prior approval
of loans not exceeding $2500 is met in a case in which a majority
of the board of directors of a member bank grant continuing authority for such a loan or extension of credit to an executive officer if such approval by its terms remains in effect for only a
reasonable period of time and in no event longer than twelve months.
The authority given by the board of directors in such a case may,
if desired, provide that the executive officer may borrow from
time to time during the effective period of the approval granted,
upon condition, of course~ that the amount of the indebtedness
outstanding at any one time does not exceed *·2500.
·
Very truly yours,
(Signed)
L. P. Bethea
L. P. Bethea,
Assistant Secretary.
S-35
Heg. T-60
459
INTEHPli.E'I'ATION OF LAW OR REGULATION
(Copies to be sent to all FedertJ.l Reserve bnnks)
September 24, 19[7.
Mr.
, Vice President,
Federal heserve Bank of
--··--Dear r1r.
, --·
_______
----'
:
Reference is made to your letter of Sept~mber 14, 1937, relating
to the effect, under H.egulation •r} of the stamping of Convertible $6.50
Cumulative P1·eferred r:ltoek of the
Company with a legend to
indic~te tho acceptance by the stockholder of ~ certain offer to exch:mgu thi::: stock for other securities. Th(:; question pres:)ntGd is, in
effect, whetber a eustoiner with a restricted. n.ccount cont'lining the
stock in qm~rtion may be permitted, without the deposit of additional
margin, to huV<3 such stock stamped in this manner, :md ther8after to
consummate tbe exchange offer.
Since the in~uiry involvGs.the question of whether and at what time
the stock tecomes a diffr.)rent security and hence, in the absence of a
sepc,rate reg:\.stre_tion, an U:."lregist8r+:::d security, the views of the Securities r,nd Exchange Corrm1ission Vfer;~ requcstc;d on this point.
There i~> o.tt~tcbed a copy of a self-explanatory 1etter, d::,ted September 22, .L 937 .• from Mr. Harold H. Neff, Director of the Forms :md
Regulations Division of the SecuritieE o.nd Exchange Commission. It
will Oo noted that Mr. Nc.:ff iz of tho opin.Lon thEtt the stamping of the
stock here• in question does not c:.:use the stock to become_, .<;. different
security, that the stock doos become n diffc,rent r>ecuri ty when the :~x
ch~:.nge offer b('comes i'inally effectivf,, but thr.:.t the different security
would then hn.vG D special exemption under hule .AN19.
The Eoard see:.:: no recu:on to differ with the v:i.eNs e;:prEsscd l;y the
Directcr of t,he Commissi·:m 1 s Forms and Hegulations Division. Accordingly, the Board is of the opinion that c. customer with o. restri(~ted
account containing the stock in quC;stion may bs permlttc,ci, without the
deposit of e.ddi tionu.l margin, te; have such stock stamp0d t•.j indicate
the acceptance of the exchange offer. The Board is also of the opinion
that in the circumstances the consummaticn of the proposal by ~1cccpting
the new $5.50 Prior Preferred Stock in exchenge for the stamped stock
would not require the obtaining of additioqrcl margin regardl<:ss of 1Nhether
or not the new Prior Preferred Stvck is registered.
Very truly yours,
(S~gned)
L, P. Bethea
L. P. :eethea,
Ass~€taqt
Secretary.
S-35-a
Reg. T-60
SECURITIES
Al~D
EXCHANGE COMMISSION
WASHINGTON
September 22, 1937.
of Governors of the
Reserve System
Washington, D. C.
Bo~rd
lt'eder~ll
Gentlemen:
This will acknowledge the r..:;ceipt of your letter of SeptGmbor 17, 193'1, in which you request an opinion as to whether
the Convertible $6.50 Cumulative Preferred Stock of the _ __
- - - - - - - - Company will become a new security if the certificates are stamped with a legend evidencing the holdor 1 s acceptance of a certain excho.nge offer.
From the material which accm1panied your letter, I understand the facts to be as follows: On September 30, 1937, the
Preferred Stade will l>e in arrears on dividends in the runount
of $58.44 per sb.are. It is proposed to amend the Certificate
of IncQrporation to auti.1orize a nevv issuo of $5.50 Prior Preferred Stock, which is to be offered in voluntary exchange to
the holders of the prGsent Preferred. Preferred stockholders
desiring to accept the exch:mg0 offer c~re required to forward
their stock certificates to tho
Trust Company,
agent for the issuer, to be stamped ao follows:
"'rhe holder of the shares of stock represented
by this certificate has accepted, .::md overy successive
holdor or register,:;cl owner thereof by becoming such
accopts, the exclwnge offer • • • and each such holder
or I'egistercd owner agrees to be, and is, bound by
all the terms and provisions of said exchange offer
and Letter of Tr<.msmi ttal; subjoct, howcVl1r, to s<.;.id
exchang<J offer 1 s becoming finally effective and to
the right of such holder or registe:red owner to revoke
or withdraw such acceptance, as provided in said exchange offer and s.::;id Letter of Transmittal. n
The Letter of Trt,nsmittal provide~:. that the accept~mce may
be revoked by writ-Len notice at any time before th8 Board of
Directors decb.res the exchange offer effecti vo. After tho oxcho.nge offer is declared of.focti ve, the :·.ccept:,,nco may be withdraV'm by I'ITi tten notice until the close of business on the third
460
461
-2-
S-:35-a
Reg. T.,-.6()
business day following the date of mu.iling the notice that the
exchange offer has become effective. The exchange offer becomes
finally effective at the close of such three-d2.;;r period unless
the holders of more than 5% of the shares wi thdrmv, in which
event the plan may, nevertheless, be declared effectivs at any
time within 15 days. If the exch&ngo offer does not bacome
finally effective within 15 days after tbe expiration of the
withdrawal right, or in any event, on or before Decembt:;r l, 1937,
holdel's of stamped certificates are entitled to turn them in and
receive instead unctc..mped certificates.
Under the circumstance::; the <:tccepkmce of the exchange off:.~r
by the prefern;d stockholder would not Etppear to crente a binding obligation upvn either the c.orporation or the stockholder,
ancl in my opinion, the st~1mping of an endorsement evidencing the
accepto.nce upon the Cf:rtifieates would not make the Preferred
Stock a nevi security as to whLch £~ now application for registration is requir<:lci. On the other hand, when th0 exehange offer
becomos finally effective, st1.mped certificates come: to represent a new or additional security 'd1ich would have to be registered, if tre.ding is to continue on 1:: national securities exch~mge,
unless an exemption is availab.1.e. It is my opinion, on the basis
of th8 filets stated, th'lt the temporary exemption under Rule A.Nl9
would be av~::tilabL'l to this new security. It shou.Ld be pointed
out, how,:wer, that unless registration vvere effected with reasonable pro;nptness, proceedings would be in order under paragrapt
(c) of Hule ANl9 to terminate this exemption.
If you have any further question, I shall be glao tc· be of
service.
Very truly yours,
(Signed)
Harold H. Neff
Hnrol(t H. Neff
Director
Forms and Hegulations Division
S-56
Reg. T-61
462
INTERPRETATION OF LAW OR REGULATION
(Copies to be sent to all Federal Reserve banks)
October lb, 1937.
Mr.
, Vice President,
Federal Reserve Bank of -----Dear Mr.
Reference is made to your letter of August 20, 1937, and our letter of October 2, 1937, relating to the status, under Regulation T, of
the certificates of deposit for the 5% Convertible Colla.toral Trust
Bonds of (B) Corporation and the stamped certificates of capital stock
of The (A) Corporation involved in a proposed plan to consolidate these
two corporations.
As ind..i.cated in our letter of October 2, the views of the Securities and Exchange Commission were requested in connection with the question of whether or not the certificates of deposit and the stamped
stock are rogistered securi tics. TheTe is attached a self-explanator.r
letter from Mr. Harold H. Neff, Director of the Cornmission 1 s Forms and
Regulations Division, from which it will be noted that Mr. Neff is of
the opinion that the stamped stock and the certificates of deposit here
in question are, respecti vcly, not the same securities e.s the unstampod
stock and the bonds for which the certificates were issued, and that
neither the stamped stock nor tho certificates are registered securities under the Securities E..x.ch.:mgc Act of 193-4.
The Board sees no reason to differ with the views expressed by the
Director of tho Commission's Forms and Regula-cions Division and also is
of the opinion that the stamped stock and the certificatos of deposit,
rosp<'ilCtively, should not be considered to represent, for tho purposes
of Regulation T, the unstampcd stock and the bonds for which tho cer-·
tificates are issued. Accordingly, it is the view of the Board that,
in the case of a customer with a restricted account containing the unstamped stock or the bonds in question, the creditor ma;,' not, without
the deposit of additional margin, permit the stock to be sta.mped or release the bonds from the account against the receipt of tho certificate
of deposit.
Very truly yours,
(Signed)
L. P. Bethea
L. P. Bethea.,
Assistant Secretury.
Attachment.
S,...36-..a
Reg. T-61
SECURITIES AND E.1CHANGE COMMISSION
463
Vhshington
Bonrd of Governors of thu
Federal R2sorve System
Wnshington, D. C.
October 8, 1937.
Gentlemen:
This will acknowledge the receipt of your letter of OctobGr 2,
1937, in which you reqllCflt an opinion whether tho stampod certificates
of Capital Stock of (A) Corporation and· certificates of deposit for
tho 5% Convertible Collaturnl Trust Bonds of (B) Corporc:.:.tion, issued
in connectior: with tho plan of consolidntion of the two corporc:.:.tions,
arc sccuri tius 1·cgistorod on n natim}al socuri tios oxchangc under the
Securities Exchange Act of 1934.
With respect to tho stamping of tho stock of (A) Corpora-t,ton, I
understand the relevant facts to be as follows~ Und0r the Agreement
of Consolidatior. dated August 17, 1937, holders of the stock of (A)
Corporation other than the (B) Corporation arc to roceivo in oxchango
for each share held one share of 5% Cumulative Convertible Prior Pre-·
ferred Stock of the nGw corporation,. which is to be known as (C) Corporo.tion. As an alternativo, hownvor, stockholders of (A) Corporo.tion
Railway Company on the bnsis of
o.re offered common stock of _
1! shares of Railway Company stock for each share cf (A) Corporation.
Holders desiring to accept this alternate offer were required to present their certificates on or before August 16, 1957, for stamping
thereon of a notation of Duch acceptance.
As to the (B Corporation) bonds, tho Lgroemont of Consolidation
providus that. tho now corporation will assumt.: the bonds and will upon
resolution of tho board of dirocto:;:-s pay ~200 in cash and ~~(300 par
value of 5% Cu. mulativo Convertible Prior Prof'un•od Stock in the nov~
corporation tn exchangu for each $1,000 principal amount of the bonds.
Thu Plan of Consolidation provides that bondholders desiring to accept
this exch;:;..Y!gc:J offur must deposit their bonds with a designated depositFry in exchange for a registered transforable certificate of deposit.
Bonds so dcposi tod :nay be withdrawn at an;y· time prior to the accoptanco
by tho new corporation of tho offer of exchange.
It is· rrrJ opl.nJ.on, on the basis of the facts stated above, that the
stamned stock and the certificates of deposit are, respectively, not
\ihe same securities as the 1.mstamped stoc::.C and the bonds for which the
certificates wero issuad. Accordingly, since no application has been
filed for registration of tho stamped stock or the certificates of deposit, neither or.' those securities is presently rcgistured under the
Securities Exchan5o Act of 1954.
I
..
Vory truly yours,
(Signed) Harold 11. Noff
H[.;.rold H. Neff
Director
Forms und R..::gul.:Ltions Division
464
S-57
Reg. U-22
INTERPRETATION 01'"' LAW OR REGULATION
(Copies to be sent to all Federal Reserve banks)
October 19, 1937.
Mr.
, Vice President,
Federal Reserve Bank of ------------'
Dear Mr.
Reference is made to your letter of October 15, 1957, regarding
the inquiry submitted to your bank by Mr.
, Vice President
of
Trust Company of
, relating to section 5(i) of
Regulation U.
It is understood that the
Trust Company made a loan to
an individual pursuant to Regulation U, and that Qy reason of depreciation in the market value of the collateral the margin behind tne•loan
became less than the bank customarily requires to be maintained for
its o~n protection. In reply to the bank's call for additional margin,
the borrower advised the bank that his vdfe had an ordinary securities
account at a brokerage office and was willing to transfer her account
to the bank in order to give the bank the protection of h~r equity in
tho account. The wife's account at the brokerage office has a substantial equity but is a restricted accom1t and, therefore, could not
be taken over by the bank as an ordinary increase in the bank 1 s loan
to tho husband. Dection 5(e) of the regulation, which makes special
provision for transfers between lenders, provides only for transfers
from ono bank to anothar bank.
Section 5(i) of Regulation U provides:
"Nothing in this regulation shall be construed as preventing a bank from taking such action as it shall deem
necessary in good fu..i th for its own protection. "
...
Mr.
indicates that, while the taking over of the wife's
account to strengthen the husband 1 s loaTJ. would afford the bank additional protection, the bank would like the Bo:::.rd's views as to whether
this would be considered to be 11 nccessary 11 for the bank's protection
within the meaning of section 3(i). In this connection he points ou~
that there are, at least in theory, three other methods by which the.
bank could be protected. The bank could take an assignment of the ·
equity in the wife's e.ccom1t, securities could be liyuidated from the
husband's loan, or securities could be liquidated from the wife's account sufficient to make tho account unrestricted and the account could
then be transferred as an ordinary incroasa in the husbrllld' s loan. In
465
S-37
Reg. U-22
-2-
other words, the transfer is not indispensable to the protection of the
bank, although it probably would be more satisfactory than any of the
other methods.
"The word 'necessary' has not a fixed meaning or character peculiar
to itself, but is flexible and relative. ***It may mean something which
in order to accomplish a given object cannot be dispensed with, or it may
mean something reasonably useful and proper." Marshall County v. Rokko,
(Minn. 1916) 159 N.W. 791; Words and Phrases (Series 1-4); Black's Law
Dictionary Third Edition (1933). From this scale of meanings, the word,
as used in soction 3(i), should, of course, receive that graduation 0f
meaning that is most appropriate in the light of the general purposes of'
the regulation.
The Board feels that a particular action might be "necessary" for
the bank's protection even though it might not be indispensable for such
protecticm. On the other hand, the Board is of' the opinion that an action
shrmld not be c:msidered to be "necessary" for the bank's protection, within the meaning of secti:::m 5(i), merely because it might afford sr)me incidental protection to the bank.
The Board believes that the proper test to be applied under section
5(i) is, in effect, whether the action is reusonable ~:nd appropriate as
one whose only important purpose is to strengthen the collateral for one
of the bank's existing loans. While this does not mean that the action
must be indispensable to the safety of the loan, it necessarily noans
that the -''cti0n could not be actively engaged in with a view to increasing tho bank's loan portfolio and could not be promotional or competitive
in nature.
Mr.
's caution in wishing to be certain that his bank operates
in strict conformity with tho spirit and purpose of Regulation U, as well
as its letter, is, of c,)urse, highly commendable. The Board believes,
however, that the possibility of protecting the bank by some other meth's inquiry, does not prevent the proposed
ods, as indicated in Mr.
transfer from being 11 necessaryn fe>r thG bank's protection. On the basis
of the facts indicated, and assuming the absence of promotional or competitive features as discussed above, the Board is of the DpinLm that the
transfer would be permissible under the provisions of section 3(i).
Very truly yuurs,
(Signed)
L. P. Bethea
L. P. Bethea,
Assistant Secretary.
466
S.38
Reg. A-1
<
BOARO OF''GI;IVERNORS
DF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE SOARO
October 22, 1937.
SUBJECT:
Comments of Federal Reserve ·
Banks on Regulation A.
Dear Sir:
Pursuant to the Board's letter of July .30, 1937 (R-41), all
of the Federal Re$erve banks submitted their comments and suggestions with regard to the proposed revision of Regulation A. The
suggestions and criticisms received from the Reserve banks were of
muc~ assistance to the Board and to its staff in working out the
final form of the regulation, and the Board wishes to express appreciation to the banks for the thorough consideration which was
given ~~ ti1em to the proposed regulation.
It seems appropriate to refer to the more important suggestions which were made by the banks, especially those which wore not
incorporated in the final regulation, and to state some of the considerations which influenced the Board and its staff in reviewing
these suggestions.
Qeneral PrinciRl~s. - Several banks made suggestions as to
the elimination or modification of the preface to the regulation antitled "General Principles", and .in the light of these comments certain changes have been made in the statement o£ General Principles
in the final form of the regulation.
Seption 1. pj.sgotmt of po1(@Sa QFaft; ,!Q.<i pi;j,J.§ for gper
banl&;l. - Two of the Federal Rosorve banks suggested that sections 1
and 2 be reversed so that tho provisions relating to discounts would
come first .and those relating to advances would be next in order iu
the regulation. This sugaestion hae been adopted, as well as a suggestion that the subsection entitled "Ac.ivancos on·eligiblo paper"
precede that entitled "Advances on Gov~rnment obligations" in what
is now section 2 of tho regulation.
Section l(a), Commercial, asric\lJ.turaJr gp.d indy.strial
paper. - Ono o:f the Federal Reserve banks suggested that the question
467
-2-
S-38
Reg. A--1
whether paper the proceeds of which are loaned to some other borrower be made eligible for discount should be submitted to a committee of Presidents for study and recommendation before any change
was adopted. The subject is one which has had thorough consideration over a number of years past, and it was felt that addi·tional
study would develop little important information not already available on the subject. Accordingly, it was considered that no sufficient reason existed for deferring ~ decision with respect to the
matter.
Section l{c). Construction loans.- Two of the Federal
Reserve banks suggested that what is now footnote 4 under "Construction loans" be changed so a.s to exclude the offering member bank
from the "persons" who may enter into the agreement to advance the
full amount of the loan upon the completion of the construction
financed by the note offered for discount. Since member banks are
permitted to make mortgage loans it was not thought that a member
bank should be excluded from entering into such an agreement merely
because it was extending the com~truction loan. The question whether
a member bank is an acceptable "person" in any givGn case is essentially one of credit, to be considered by the Federal Reserve bank
in the light of the facts in the particular case rather than one of
eligibility.
Section l(i) Limitations. - Two of the Federal Reserve
be.nks called attention to the last sentence of this subsoction with
regard to the amount of the paper of one borrower discountable for
a Stn te member bs.nk. The law itself contains a provision in the
twelfth paragrepp of section 9 that no Federal Reserve bank shall
bo permitted to discount for any Stete bank or trust company notes,
drafts or bills of exclw..nge of any one borrower who is liable for
borrowed money to such State bank or trust company in an amount
greater than that which could be borrowed lawfully from such State
bank or trust company were it a national banking a.ssoc:l.ation, and
the regulation morely restates the provision cf the statute. The
same limitation is not applicable with respect to national banks,
because a Federal Reserve bank is forbidden by the law to discount
for a national bank only the amount of paper of onu borrower which
is in excess of the limitations of section 5200 of the Revised Statutes. The distinction is one·which occurs in the statute itself,
and it did not seem desirable to make the limitation of the regulation with respect to national banks more stringent than provided in
the law m(3rely because the law subjects ~)tate member banks to the
more restrictive provision.
Section !U_c). Advances on other security under section
lO(b) of the Federal Reserve Act. - It was suggeFt.cd that the words
468
-5-
S-58
Reg. A-1
"highest rate applicable to discounts for member banks 1.mder the
provisions of sections 15 and lSa of the Federal Reserve Act" be
changed to "highest discount rate". This change was not adopted
because it was thought that the regulation should conform to the
existing practice and to the manner in which the statute has been
consistently interpreted.
One of the Federal Reserve banks suggested a rewording
of clause (2) at the end of this subsection so that it would read
"on demand at the option of the Federal Reserve bank". This particular clause of the regulation is one which has been rephrased several
times and has been made the subject of careful study in the light
of suggestions previously received from the Federal Reserve banks.
It is believed that the language as incorporated in the final form
of the regulation accurately reflects the statute and will work out
satisfactorily in practice. It did not seem clear that the substitute language suggested was in accord with the intention of the
statute.
Sectio 2 d •
ds of ollateral wbi h ma be used as
securit for advances un er ect on 10 b o the Federal Reserve Act. The views of the Federal Reserve banks with regard to the provisions
of this subsection were not uniform, one or two feeling that the provisions were undesirable, while others offered no objection to them.
Certain suggestions for specific changes in phrasing were made. The
Board felt it desirable to retain the provisions in the final regulation as an indication of a preferred list of collateral for advances
b,y Federal Reserve banks under section lO(b) of the Federal Reserve
Act, but with the general provision that such advances may be made
against any collateral satisfactory to the Federal Reserve bank when
in its judgment circumstances make it advisable to do so.
Several banks suggested that the wording of the subparagraph
relating to loans upon the security of stock made in conformity with
Regulation U be changed so that it would app~y to obligations evidencing loans upon the security or stock wnich are not made in violation or the provisions of Regulation u. It was thought that such a
change would make the provision more eomprehensive than it should be,
and inasmuch as the paragraph·conetitutes merely a preferred class
of collateral, without rendering ineligible as collateral other nonconforming loans on stock, there was no sufficient reason for broadening the subsection in the manner suggested.
'··
One of the Federal Reserve banks suggested that it would
be appropriate to include in this subsection reference to the fact
that the loan value of assets acceptable under section lO(b) is
469
-4-
S-58
Reg. A-1
subject to determination of :the Reserve bank. In view of the provision which has been included in section 3(d) with reference to the
amount of assets required as collater~l "at their reasonable value
determined in a manner satisfactory to the reserve bank", it is believed .that the purpose of this suggestion has been substantially
met.
It was also suggested that all obligations of the kinds
enumerated in this subsection as security for advances under section
lO(b) should be negotiab~e 1b for~. Inasmuch as the law permits a
Federal Reserve bank to a~cept any assets satisfactory to it as collateral security for a.dvqnces under section lO(b), it was thought
that the regulation should not make any specific requirement with
respect to negotiability a£ assets securing such advances· but that
the question whether non-negotiable assets should be taken as such
security should be treatedas one affecting acceptability from a
credit standpoint for consideration by the Federal Reserve bank in
each case.
Section §(a). APP;Licatj.ons. for discounts or advances. One Federal Reserve bank called attention to the fact that this subsection does not require that the app~ying bank shall certify in
its application that the paper offered is eligible for discount under
the terms of the regulation. Under the regulation each Federal Reserve bank is free to use its own/< discretion as to wheth'er it will
include such a requirement in its discount application forms. It
appeared unnecessary rro.n the sta.ndpoin t of the Board to make the
inclusion of such a requirement mandatory.
Section B(d). M.¢rgipal Collateral. -Comments were made
by the Federal Reserve banks upon the question whether it was desirable that the Board me.ke any statement regarding the amount of marginal collateral required by the Reserve banks. Some objected and ·
others offered suggestions as to the phraseology which might be used
in this connection. This point wa.e thoroughly discussed by the Board
and its staff and consideration.was given to the desirability of making any such statement, whether such a statement should be incorporated in a letter to the Federal Reserve banks or in the regulation
itself, and what specific limitation on the amount of marginal collateral should be prescribed. As you know, the regulation ~s adopted
does not forbid a Federal Reserve bank to accept collateral in excess
of the percentages named, but provides that Federal Reserve banks
shall report to the Board in the loan schedule the facts of any case
4?0
-5-
S-58
Reg. A-1
in which the amount of collateral exceeds 25 per cent of the amount
of a discount or 125 per cent of the amount o~ an advance.
Section 5(e). Credit on security of obligations of the
United States. - A number of the Federal Reserve banks offered
objection to the provision contained in the. draft of the regulation inclosed with R-41 relating to the amount of credit extended
on security of' obligations of the United States, and indicated a
number of administrative difficulties in connection with any such
provision. This provision has been considerably modified in tbe
final regulation and requires merely that where the amount advanced
on the security of obligations of the United States is less than par,
the bank must re,Port the facts to the Board in the loan schedule.
This is not intended to mean that such a report must be made in a
case in which a member bank obtains the full aw~unt requested by
it, but if the member bank requests an advance in the full par
amount of the Government obligations offered as security and the
advance is made at less than par the facts an~-circumstances should
be reported in accordance with the regulation.
Section 4(a). Prohibition upon acceptance of nonmember
bank paper. - Some of the Federal Reserve banks suggested the desirability of revising the exception to the prohibition upon
the acceptance of nonmember bank paper as it appe&red in the draft
of the regulation submitted with R-41. After cont>iderat.ion of
these suggestions, the prohibition has been reworded so as to except therefrom assets otherwise eligible which were purchased by
the offering bank on the open market or otherwise acquired in good
faith and not for the purpose of obtaining credit for'a nonmember
bank.
The subject of the acceptance of nonmember bank paper
for discount or as security for advances under saction lO(b) of the
Federal Reserve Act is now governed exclusively b,y the provisions
of seqtion 19 of the Federal Reserve Act and section 4 of the revised Regulation A, the prohibition in the revised regulation being
intended as a revocation of the blanket authority heretofore outstanding which was granted by the Board's telegr~s of March 11
and March 13, 195~ (Trans Nos. 1620 and 1659) and which authorized
Federal Reserve banks under certain conditions to discount or accept
as security for advances paper acquired from or bearing the signature or indorsement of nonmember banks.
471
-6-
S-38
Reg. A-1
Section 6. Bankers' acceptances. - In accordance with the
suggestions of several Federal Reserve banks, there have been restored to the regulation as finally approved the words "between foreign countries" in paragraph (1) of subsection (b) and the words "or
issued by a grain elevator or warehouse company duly bonded and licensed and regularly inspected by s~~te or Federal authorities with
whom all receipts for such staples and all transfers thereof are
registered and without whose consent no staples may be withdrawn" in
paragraph (3) of subsection (b). The restoration of these provisions
brings the new regulation in to conforrni ty ln these respects with the
old regulation.
Recommendations as to minimum standards in making real
estate loans and installment loans. - Some of the Federal Reserve
banks recommended the elimination from the Appendix of the recommendations of the Board regarding'minimum standards for installment
paper and real estate loans used as collateral security for advances
to member banks, while others favored their retention. After being
modified in several respects to meet specific suggestions of the
Federal Reserve banks with regard to the provisions of these recommendations, they have been·ret.ained in the Appendix in the hope that
they may serve to encourage sound practices by member banks.
General. - Several suggestions as to wording or phraseology made by the Federal Reserve banks were not adopted because of
th~ desire to have the language of the regulation follow the language
of' the statute where this was practicable, unless the use of other
language appeared to be desirable for some special reason. It may
also be said that in a very general way the provisions of the old
regulation which are found in the new regulation have been carried
forward in substantially the same form unless some material reason
for changing the language appeared to make modifications desirable.
yery truly yours,
Chester Morrill,
Secretary.
TO PRESIDENTS OF ALL FEDERAL RESEaVE BANKS
WASHINGTON
~
October 25, 1957.
AbORISS DP'P'ICIAL CDRIU:•I"ONDII:NCC;.
TD THC •cARD
· StJBJIC'l't ; Rulings by the Board of
'
·
Governors on abstract or
~thetical questions.
·Dear Sir:
From time to time in the past the Board of Governors. has declined
to issue rulings or pass upon questions subni tted upon the ba.silJ or abstract inquiries or eypothetical cases, but it l'uis not followed a uniform
· practi.ce_ in this regard.
'
·
'""
Tbe 1.ssuance of wlings upon the basis of abstract or qpothetical
questions is in the Bo8.1'd' s opinion an undesirable pre.etic.;) which is ·
:fraught with .the possibilit'g of misunderstanding or confusion. When an
abstract questio~ is c<)nsidered 1 t ~~ nat possible to , visualize all of
tho different concr$ti.3 situations whJ:oh Ul$3 arise fd thin the scope. of
a.7J'¥ answer wbich ntq be given. Co1111equently, .i.t is difficult to limit
the an~:twer in such a way that it may not appear to apply to situations ·
which were not in mind in the prepn.rn tion of the answer and with respect
to which the answer given might b<-J inapplicable. Moreover, in order
tht1t .a.ey question mar have thorough 90llSideratloJ1 it. is, of course, nee...
essnry that all of th.e mat-erial facts which affect it should be known.
With these considet:ations in mind, the Board lws decided that it
will not issue rulings on abstract or l\YPOtbetical questions b.tt only
when a full nnd defiaite statement ot the facts of an actual case is betore the Board. An exception to this policy 1!11Jf be made in individual
cases, however, when the question presented is one which is alaost cer.:.
tain to arise in an actual transaction and a tull explanation of the ·
matter is presented to th& Boardt including the reasons wey it is contemplated that such u question will arise.
,.
',·
When a Federal Reserve bank fin4s it desirable to submit to the
Bonrd a question which ~ arisen in ita operations or has been submit ...
tad to tt either by a i1110Il1ber OOnk or some other personj counsel for. the
Reserve bank should either p,r~ro or review tha statement of the question and the facts to ~be subn:tted to tho Board with a viaw to a full
and adequate presenta~i.On of tlle case, and ·he should· include a.n expression of his views w1 tH. r~gard to the question presented.
.
!
\
{
~
'
.
473
8-59
It is expected, however, that Federal Reserve banks will continue
the practice now followed o£ disposing of queations presented to them in
so far as possible on the basis of previous :rulings of the Board, and that
they will submit questions to the Board for consideration only when they
have specific requests to do so or when after tull consideration they feel
that the questions are of such a nature or of such importance that it is
advisable that the Board be asked to pass upon them.
It is believed that the policy above described will be more satisfactory than the practice which has prevniled heretofore and ~~11 entail
less possibility of misunderstanding or confusion as to the scope or meaning -of rulings made by the Board. The cooper~tion of the Federal Reserve
banks in carrying out this policy will ~·appreciated by tho Board.
Very truly yours,
i
Morrill,
SeeretD.r7.
'
.
C~ster
TO PRESIDENTS OF ALL FEDERAL RESERVE BAN!{S
8-40
BOARD OF" GOVERNORS
4?4
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDREBB CF'F'ICIAL CCRREBPCNDENCI:
TC THE BCARD
October 29, 1937.
Dear Sir:
It appears that 'inee the Reconstruction Finance
Cor~oration,
in accordance with its program, mq not grant any further commitments
to make industrial advances and may not make any more industrial ad-
vances, except under commitments heretofore granted, the Federal Reserve banks may rece~ve a mUch larger number of requests for industrial advances or commitments to make such advances thru1 has been
the case in the recent past.
The Board hopes that sympathetic con-
sideration will be given to such applications as are received and
that advances will be made where the tanks can consistently do so
under the provisions of the law and tho Board 1 s regulations.
Mr. Szymczak has already talked with an official of your bank
over the telephone and acquainted him with the Board's position in
this matter; he has also been in touch with Washington officials of
the Reconstruction Finance Corporation and he requested the representa ti ve of your bank wi tb whom he talked to get in touch vd th the
local Reconstruction Finance Corporation agenc,y with a view of working out a procedure b,y which all worthy applicants will be referred
to the Federal Reserve bank.
475
S-40.
-2-
For obvious reasons the Board does not think it desirable
a.t this time to conduct a campaign on this subj act, but it hopes
that particular pain$ will be taken to guard against the public
getting the impression that the Federal Reserve S,ystem has also
discontinued making industrial advances.
may think it desirable
~o
In this connection you
talk with representative bankers in your
district from time to time with respect to the facilities in this
field which the Federal Reserve banks have to offer.
Vcry truly yours,
Chester Morrill,
Secretary.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
•
s-~ 476
.,.,
$OARO OF GOVERNORS
.
Reg. Q-32
DF' THE
FEDERAL. RESERVE SYSTEM
'
WASHINGTON
ADDRESS OP'P'ICIAL. COIIIIIIESPCNDENCIE
TC THE SOARD
October 50, 1957.
SUBJECT:
•
Classification of Deposits
of' Certain,Organizations
as Savings Deposits •
Dear Sir:
;1
For your information there is inclosed herewith a copy of a ruling which has just been approved
by the Board of Governors and which will appear in
the November number of the Federal Reserve Bu+letin,
relating to tho classification ot deposits or certain organizations as savings deposits under the
definition in Regulation Q.
Ver,y
truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
4??
S-:-41-a
Reg. Q-52
Classification of
Depos~ts
of Certain Organizations
e.a Savings Deposits
The definition of savings deposits in Regulation Q, which
relates to payment of inter.est on deposits, and in Regulation D,
which relates to reserves of member banks, reads in part as follows:
•
"The torm 'savings deposit' means a deposit, evidenced by a pass book, consisting of funds (i) deposited
to the credit of one or more individuals, or of a corporation, association or other organization operated
primarily for religious, philanthropic, charitable,
educational, fratornal or other similar purposes and
not operated for profit, or (ii) :tn which the entire
beneficial interest is held by one or more individuals
or by such a ~orporation, association or other organfzation, * * *. 11
It will be noted that under this definition member banks
may classify deposits of one or more individuals as savings deposits
if the deposits comply in other respecto with the rogulatiofi; but
they may not classify deposits of any corporation, association or
other organization as savings deposits
unles~
(1) such organization
is operated primarily for religious, philar.thYopic,
ch~ritablc,
edu-
co.t.iona.l, fraternal or other similar purposes; (2) such organization
is not operated for profit; and (5) such deposits comply in other
..
·respects with tho requirements of tho regulation.
With respect to many
organ~z6.tions
such as churches, chari"W
hospital associations, fraternal ordors and endowed educational institutions which arc not operated for profit, no
qu~tion~
have arlsen
since such organizations are obviously oporated for religious, phil-
,
anthropic, charitable, educational, fraternal or other similar
478
-2pt~poses.
S-41-a
Reg. Q-52
However, numerous questions have arisen as to whether de-
posits of certain other types of organizations which are near the
border--line of the de£ini tion
savings deposits.
.)j
~
be classified by member banks as
The Board has given careful study to these ques-
tions and has reached the conclusion that the types o£ organizations
set
~orth
below may be considered to be operated primarily for relig-
ious, philan t..i.ropic, charitable, educu tionc..l, fra tcrnal or other
similar purposes and, therefore, that deposits of such organizations
may be classified by member banks as savings deposits if the organizations are not operated for profit and if the deposits otherwise
comply· with tho requirements of the definition.
"
...
Professional associations, such as bar, medical, and
dentiats' associations.
·
Trade associations, including manufacturers' associations,
retailers' associations, and chAmbers of commerce.
Business men's clubs, such as Rotar,y Clups and Ki~~is
Clubs.
Recreational clubs, such us golf a.nd tennis clubs.
Social clubs, such as lunohoor. clubs P-Ud college fraternities •
Labor unions of the usual -cy-pe.
Volunteer fire compnnios and ladies auxiliaries thereof.
Cemetcr,y associations.
School districts.
Police or firemen's pension or relief associations (including a special fund held ~J a political subdivision to
provide pensions for police or firemen).
American Automobile Association, Retired Officers
Association, and other similar organizations.
The Board has also reached the conclusion thut deposits of
the organizations listed below may !lot be classified qy member banks
as savings deposits either because tho organizations are not op.era ted
primarily for religious, philanthropic, charitable, educational, ·
479
S-41-a
Reg. Q-52
-3frato!~al
or other similar purposes or because they are operated for
profit.
Building and loan associations.
Mutual or cooperative fire or lifo insurance associations.
Reciprocal or inter-insurance associations.
Cooperative marketing associations, such as citrus growers
or dair.ymen 1 s cooperative marketing associations.
Credit unions, Federal or State.
States and municipalities and other political subdivisions
thereof (except school districta) including ciepartmeilts,
boards, and commissions of such political subdivisions.
Although deposits of tho types of organizations listed immediately above may not be classified by member banks as savings deposits
for the purpose of payment of interest or of computation of reserves,
attention is invited to thG fact that any of such organizati<)ns may
.,
maintain time deposits with member bru1ks.
With respect to such deposits,
which may be either in the form of time certificates of deposit or time
deposits open aceount, member banks may pay interest in accordance with
the provisions of Regulation Q arid maintain reserves in accordance with
the provisions of
R~ation
D relating to time deposits.
The above lists of organizat.ions which may or
not maintain
savings deposits in member banks are not intended to be complete but
merely contain examples compiled from various cases which have been sub"
•
mi tted to the Board.
Any necessary inquiry as to the proper classifica-
tion of other organizations for this purpose should be submitted directly to the Federal Reserve bank of the district in which tho
arises rather than to the Board.
The Federal
Res~rve
i~quir,y
banks will, in so
far as possible, answer such questions in the light of the illustrative
cases stated above.
Reg.~~ 480
INTERPRETATION OF LAW OR REGULATION
{Copies to be sent to all Federal Reserve b&lks)
October 29, 1957.
Mr. _
, Vice President,
Federal Reserve Bank of ;..·_ _ _ _ ,
Dear Mr.
-----·.
Reference is made to your letter of October 18, 1957, regarding
Regulation U.
~
It is understood that a bank made a loan to a brokerage firm
pursuant to Regulatio~ U and that subsequently, when the market value of
the collateral declined below that which the bank customarily requires to
be maintained for its own protection, the bank issued a demand for tnargin,
although such margin was not required b,y the regulation. Since the brokerage firm received the margin call on Saturday and it was customary with
the firm to eliminate the routine operatlons incident to entering vaults
to obtain securities on Saturdays when deliveries and clearances of securiti.;)S are not usually effected, the firm proposed thlit it ba permitted to
deposit a certified check on Saturday in temporary sutisfa.ct.ion of the demand for margin, and that on Mondny it be permitted to replace the certified check with stocks.
The certified check would be made for an amount equal to the·
current market value of the securities to be deposited rather than the
maximum loan value of such semtritias, since a certified check limited
to the maximum loan value of the :securities might not afford the bank as
much protection as the securities. The question presented is whether
this PI'OCedure may be followed.
As indicated in the Board's letters S-26 and S-52 of August 5
a.nd September 5, 1937, tha withdrawal of a certified check against the
deposit of an equal market value of stocks ordinarily would not be permissible when the amount of the loan exceeds the maximum loan value of
the coll~teral, since the substitution would reduce the maximum loan
value bf the collateral and thus increa.se the deficiency. It appears
in the present case, however, that margin would be deposited to satisfy
the bank's maintenance requirements rather than ~y requirement of Regulation u, that the entire tr~nsaction would be completed within what
amounts to only a comparatively few business hours, that the procedure
would be followed in entire good faith and not for the purpoje of evading the regulation, and ~~t the not effect of the procedure, which would
S-42
481
Reg. U-25
facilitate the usual operations of the brokerage firm, would be the same
as if the securities had originally been deposited on Saturday or the margin cull had not been met until Monday.
In the circumstances, the Board is of the opinion that the substitution of the securities for the certified check need not be separated
from the other portions of the transaction and that the entire transaction
may be considered according to its net results and be treated for the purposes of the regulation as if the securities had been deposited on Saturday
or the margin call had not been met until Monday. The Board believes the
transaction would be permissible on this basis although, of course, an entirely different situation might be presented if any of the circumstances
were altered.
In view of the discussion above, it is believed that it is not
necessary at thi.$ time to express an~r opinion as to the other considerations referred to in your letter.
Very truly yours,
(Signed) L. P. Bethea
L. P. Bethea,
Assistant Secretary.
INTERPRETATION OF LAW OR
RF1IDI~TION
(Copies to be sent to all Federal Reserve banks)
October 29, 1957.
(Addressed to a Vice President
of a Federal Reserve bank)
Re your wire October 21 and letter October 18 re Regulation T.
It
is understood that question is whether, if a customer substitutes exempted
securities for a portion of the registered nonexempted securities in a restricted account, the broker may treat the exempted securities as having a
maximum loan value not greater than they would have if they were registered
nonexempted securities, and at some subsequent period when the account is
still restricted may, without demanding additional margin, permit the exempted securities to be replaced by registered nonexempted securities of
equal market value.
Section 2(h) of Rl3gulation defines "maximum loan value" of a security
as maximum amount of credit which may be extended on the security in conformity with section 5.
Under section 5(e) this maximum for exempted se-
curities in present case would be not more than their current market value.
Although broker may fix lower loan values for his own purposes this would
not affect "maximum loan value" for purposes of the regulation.
~
According-
ly, replacement of exempted securities with registered nonexempted securities of equal market value would increase the excess of the adjusted debit
balance of the restricted account over the maximum loan value of the securities in the account and could not be permitted unless broker demanded additional margin.
(Signed)
L. P. Bethea
BETHEA·
8-44
BOARD
483
OF GOVERNORS
OF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
November 5, 1957.
ADDitll:88 DP:,.ICIAL CDitRE8PDNDII:NCIE
TD THE 8DARD
Dear Sir:
A review of the discount schedules received from the various
Federal Reserve banks since October ,l, when revised Regulation "A"
became effective, indicates that it is desirable to clarify certain
points as to tbe.Board's requirements with respect to the reporting
of excess or marginal oollateral.
No special report need be submitted in any case where the
additional collateral is voluntarilY pledged b,y the borrower and is
not required b,y the Federal Reserve bank,
Schedules reporting discounts and advances secured b,y direct
obligations of the United States, or obligations fully guaranteed by
the United States, on which collateral in excess of the amoWlt advanced is required by the Federal Reserve bank should show the face
value of the collateral pledged
contain a complete statement of
tho reasons for the requirement.
and
Sohedules reporting discounts and advances other than those
secured b,y United States Government obligations on which marginal
or excess collateral with a face value of more than 25 percent of
the discount or advance is required by the Federal Reserve bank
should show both tho face val.U(t and the reasonable value, as determined by the Federal Reserve bank, of the marginal or excess collateral, and, if the reasonable value as determined b.y the Federal
Resel"te "bank is more than 25 percent of the discount or advance,
the schedules should contain a complete statement o£ the reasons
for the requirement.
Very truly yours,
Chester Morrill,
Secretary.
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
I
'I
!
·1
484
S-45
Reg. Q-35
INTERPRETATION
OF
LAW OR REGULATION
(Copies to be sent to all Federal Reserve banks)
November 12, 1937.
Honorable J. F. T. 0 1·Connor,
Comptroller of the Cl~rency,
\'Iashington, D. C.
Dear Mr. O'Connor:
This refers to Mr. Gough's letter of September
presenting the questlon whether deposits of' the
Association and the __________Mutual Benefit Association
classified by member banks as savings deposits ·,mder the
tion in section l(e) of Regulation Q.
20, 1957,
Mutua.l Burlal
may be
defini-
It is understood from Mr. Gough's letter that these two
associations are operated by lo~ro.l undertakers under the mutual
burial insurance laws of (name of State); that the funds on deposit represent 10 per cent of the assessments collected from members of the rospoctive associations nnd constitute resqrves for
the purpose of paying clr.ime brought about by unusual circumstc.nces
causing the det:tth of a greater number of members thc.n is ordinarily
anticipated, such as an epidemic of sickness or a tornado; thot the
associations also carry regular checking c.ccounts in which they deposit all of their dues except the 10 per cent deposited in savings
accounts; that the r..;.ssocio.tions are nonprofitc.ble and make no other
investments; :"..Lmi that tho interest derived from the savings deposits inures to the ben~fit of the reserve funds.
The Board of Governors hc.s recently taken the position
the.t deposits of mutual or cooperc.tive fire or life insurance o.ssoci.-:;.tions may not be classified by member b::uucs o.s savings deposits and it is our opinion that deposits of the above aosociations
which are opere.ted under the mutual burictl insurance hc.ws of (name
of Stcte) fall within the scope of this ruling. Accordingly, it
is our view thc.t deposits of these associ<'.tions mc.y not be clc.ssif:l.ed by member b::..nks as snvings deposits.
Very truly yours,
(Signed)
L. P • Bethen
L. P. Bethee,
Assistant Secretnry.
485
S-46
Reg. Q-34
INTERPRETATION OF LAW OR REGULATION
(Copies to be sent to all Federal Reserve banks)
....
November 12, 193? •
Honorable J. F. T. O'Connor,
Comptroller of the Currency,
Washington, D. C.
Dear Mr. Comptroller:
This refers to Mr. Prentiss' letter of September 18,
1936, inclosing a copy of a letter from ~he
National
Bank, - - - - · ,
, presenting the question whether a
deposit of the
Poor District may be
classified by a member bank as a savings deposit under the
definition in section l(e) of Regulation Q.
The Board of Governors has recently taken the position that a school district may be considered as an organization operated primarily for religious, philanthropic, charitable, educational, fraternal or other· similar purposes within
the meaning of section l(e) of Regulation Q, and that a denosit
of such a district may be classified as a savings deposit if
it complies with the other requirements of the definition. On
the same basis, a poor district constituting a sep~rate nolitical
subdivision the primary function of which is the care and relief
of the poor may be considered as an organization operated primarily for religious, philanthropic, charitable, educational,
fraternal or other similar purposes and, ther0fore, a oeposit
of such a district may properly be classified by a member bank
as a savings deposit provided the deposit complies with the
other requirements of the definition.
....
Very truly yours,
(Signed)
L. P. Bethea
L. P. Bethea,
Assistant Secretary.
S-4 7
Reg. Q-55
INTERPRETATION OF LAW OR RgGULATION
(Copies to be sent to all Federal Reserve banks)
November 13, 1937.
Mr.
, Chief Exfpniner,
Federal Reserve Bank of
,
____,
Dear Mr.
This refers to your letter of June 11, 1937, and inclosures,
presenting the question on behalf of the
Trust Company,
----~·'
, whether funds of the local chapter of the
Railroad Employees' National Pension Association m~ be classified
as savings deposits under the definition in section l(e) of Regulation Q.
It is understood from the copy of its Constitution and Bylaws that the Association is a corporation organized without capital
stock, not for profit, for the purpose of obtaining retirement and
disability pensions for all members of railroad companies, express
companies, and pullman companies under the regulatory power of Congress. The Constitution of the Association also provides that in
the -event a satisfactor,y retirement pe~sion is achieved through an
act of Congross the Association may be'liquidated by a convention
or, at tho discretion of the delegates, the Association may be continued as a national legislative association for railroad employees.
-
As you know, the Board of Governors has recently taken the
position that labor unions of the usual type may be considered as
organi~ations operated primarily for religious, philanthropic, charitable, educational, fraternal or other similar purposes and that
deposits of such organizations may be -classified as savings deposits
if the organizations are not operated for profit and if the deposits
otherwise comply with the requirements of the definition. It appears that the Railroad Employees' National Pension Association has
sufficient similarity to a l~or union to cause it to fall within
the scope of the Board's recent ruling and, accordingly, deposits
of such Association may be classified by a member bank as savings
deposits if they otherwise comply with the requirements of the definition.
Very truly yours,
(Signed)
L. P. Bethea
L. P. Bethea.,
Assistant Secretary.
486
·.!'
•·,>II
-
.1
._,.
'
487
:
BOARD OF' GQVERNORS,
OF" THE
··FEDERAL RESERVE SYSTEM
8-4$
Reg. D-'1
WASHINGTON.
AODRESS Df"f"ICIAL CCIRRESPDNQENCE
TD THE SDARQ
November 19,
19~?.
Dear Sir:
For your intormation there is
inclosed a copy ot a letter written to
the Federal Reserve Be.nk ot Chicago under date ot November 19, 193'1, with respect to the waiving of penalty on def1-
ciencies in reserves ot member banks.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
S-48-a .
Reg. D-7
488
Nov.ember 19, 1937.
Mr. G. J. Schaller, President
Federal Reserve Bank of Chicago
Chicago, Illinois
Dear Mr. Schaller:
Reference is made to your letter of October 27 in reggrd to the
waiving of penalties for deficiencies in reserves of member banks.
The Board
appreciat~~
that there may be exceptional circumstances
when it would be desirable to disregard the reserve computation period
in which a bank becomes a member of the System insofar as ·the assess-
...
ment of a penalty for a deficiency in reserves is concerned
an~
also
to waive the assessment of a penalty for the first deficiency in reserves occurring subsequent to such resene computation period, and
accordingly modifies paragraph (b) of its letter X-7411 of April 14,
1933, to read as follows:
-
~(b) When a member bank is deficient in its reserves
during the reserve computation period within which it became a member, a penalty for such deficiency may be
assessed or not, in the discretion of the Federal Reserve
bank. When, for the first time subsequent to the reserve
.computation period within which a bank became a member,
there is a deficiency in its reserves, which is subject
to a penalty, such penalty may be assessed or not as the
Federal Reserve bank may determine upon consideration of
the circumstances of the case."
Very truly yours,
(Signed}
Chester Morrill
Chester MorrHl.
Secretary.
~···
l
\'
489
l:u:jj\RO OF' GOVERNORS
,
.~
OF' THE
FED~RA~ RESERVE SYSTEM
S-49
Reg. A-2
WASHINGTON
ACCREBB DI"I"ICIAL CDRREBPDNDI:NCE
TD THE BDARC
November 25, 1957
\
SUBJECT:
'
Discount of Consumers' Paper
by Federal Reserve Banks.
Dear Sir:
For your information there is inclosed herewith
a copy or a letter which the Board has addressed to the
First Vice President of the Federal Reserve Bank of San
Francisco with regard to the question whether a note
given directly to a. member bank, the proceeds of which
are used by the maker of the note to purchase goods for
use and not for resale, is eligible far discount by a
Federal Reserve bank under Regulation A.
A ruling incorporating the substance of the inclosed letter will be published in the December number of
the Federal Reserve Bulletin, and Federal Reserve banks
may advise member banks of the Board's position in this
matter immediately if they so desire.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure.'
I
TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
S-49-a
Reg. A-2
November
2~,
490
1937.
Mr. Ira Clerk, First Vice President,
Federal Reserve Bank of San Francisco,
San Francisco, California.
Dear Mr. Clerk:
This refers to your telegram of October 1, 1957, and our reply of October 2, 1937, and to our later correspondence with regard
to the question whether a note given directly to a member bank, the
proceeds of which are used by the maker of the note to purchase
goods for use and not for resale, is eligible for discount by a Federal Reserve bank under Regulation A. In this connection it should
be noted that the regulation permits paper, the proceeds of which
are advanced or loaned to some C)ther borrower, to be discounted provided the proceeds are used by such other borrower for a commercial,
agricultural or industrial purpose, and provided the paper is of
proper maturity and meets the other requirements of the regulation.
If, therefore, the purchase of goods for use and not for resale is
regarded as a commercial transaction, the note of a finance company,
the proceeds of which have been or are ~o be used to finance the purchase of goods by consumers, may be eligible for discount.
Section 13 of the Federal Heserve Act authorizes a Federal Reserve bank, under certain conditions, to discount "notes, drafts and
bills of exchange arising out of actual commercial transactions; that
is, notes, drafts, and bills of exchange issued or drawn for agricultural, industrial, or commercial purposes, or the proceeds of which
have been used, or are to be used, for such purposes, the Board of
Governors of the Feder&l Reserve System to have the right to determine or define the character of the paper thus eligible tor discount,
within the meaning of this Act."
It is the opinion of the Board that n borrowing for the purpose
of making a purchase of goods is a borrowing for a commercial purpose,
whether the borrower intends to use the goods himself or to resell
them. A note of a buyer given to a seller in payment for articles
purchased is clearly a note issued or dre.wn for a commercial purpose.
However, the purpose of the note is the same, whether given by the
buyer to the seller or given by the buyer directly to a bank or finance company, for in either case the proceeds are used to finance
a sale-- a "commercial transaction". While it may be suggested that
from a practical viewpoint there is a difference between the discount
of such a note in the hands of the seller and n direct lending b,y a
bank or finance company to the purchaser, there appeo.rs to be no justi- ·
fication for·ru1y such distinction from a legal standpoint. In either
491
-2-
S-49-a
Reg. A-2
ca.se the purpose of the giving of the note is to finance the final
step in the distribution of goods, the sale to the consumer.
Accordingly, upon consideration of the question which has.
been presented, the Board has reached the conclusion that a note,
the proceeds of which are used by the mak~r to purchase goods for
use or consumption rather than for resale is a note arising out of
an actual commercial transaction within the meaning of section 15
of the Federal Reserve Act. Accordingly, such a note given by tbe
maker directly to a member bank will be eligible for discount by a
Federal Reserve bank under Regulation A i f it meets the applicable
requirements of the regulation as to maturity and in other respects.
For example, a note given to a member bank by a householder who uses
the proceeds to purchase household equipment such as rr..dios or furniture will be eligible for discount if it has ~- :naturity at the
time of discount of not ·exceeding 90 days. Likewise, the note of
a finance company given to a member bar~, the proceeds of which are
loaned to other borrowers who use the funds thus obtained to purchase goods for use or consumption, will be eligible for discount
by a Federal Reserve bank if the note meets the applicable requirements of the regulati:-Jn as to maturity and in other reapE.~cts.
Very truly yours,
(Signed)
Chester Morrill
Chester Morrill,
Secretary.
>
; f
492
BOARD OF' GOVERNORS
CF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
S-50
ADDRESS DP'P'ICIAL CDRREBPCNDENCI:
TC THE BOARD
December 6, 1937
Dear Sir:
The daily balance sheet, Form 34, has been revised for use during
1938 and a proof copy will be sent you a,s soon as it is received from the
printer.
For.m 34 now provides for the deduction of reserves on bwru~ premises
and on certain miscellaneous assets from the respective assets to which
they apply. Reserves to cover estimated losses on industria~ advances
or on other assets carried among bills and securities, however, are shown
on the present Form 34 against the liability item "Reserves for losses
not elsewhere provided for"• In.the published state110nts such reserves
have been included with "Reserves for contingencies"• Since reserves for
contingencies are intended to take care of future unforeseen losses rather
than losses of the kind above mentioned, Form 34 as revised for use in
1938 provides for showing "Reserves for contingencies" i.Inmodiately follow•
ing "Surplus" and "Reserves for ostimatod losses on bills and 130curitios"
as a soparato item under "Miscellaneous liabilities"• Tho latter item
should include reserves for estimated losses on industrial advances and
on discounted bills shown in the bills and securities Qlook of the daily
balo.nce sheet •. Accordingly, beginning January 11 1938, reserves for es•
timo.ted losses on industrial advances co.rried among "Bills o.nd securities"
should be shown against the new item "Reserves for estimated losses on
bills and securities". All re·serves except those deducted from assets
and those shown o.gainst the eo.ption "Reserves for esti.n'lc.ted losses on
bills nnd securities" should be reported against the caption "Reserves
for contingencies".
The 1938 edition of Form 34 provides for showing the Hungarian
credits under "Miscellaneous assets" o.gninst a new caption "Hungarian
credits"• Accordingly, beginning January 1, 1938, the reserves set up
against such credits should be included with reserves deducted from
"Miscellaneous assets".
Chargo-offs of assets ag~inst which reserves for estimated losses
are carried, whether such reserves arc deducted from tho particular assets
or included in "Reserves for estilnatcd losses on bills and securities" 1
493
-
S-50
2
If c.t tho end of the y0ar tho
should be made direct to such reserves.
roscrvc.on a purticulc.r class of assets is in excess of tho anticipated
losses on such assets, tho excess should be credited to profit c.nd loss.
.Inasmuch us reserves for contingencios a.ro in effect o. segregation
of surplus, bogin11ing with 1937 no additions to "Reserves for contingencies"
should be charged to current net earnings. Further additions to reserves
for contingencies should be charged direct to surplus, und the reserves
thus established should be kept separate on the bank's books from contingent reserves heretofore set up, credits to which have boon deducted from
current net earnings in tho annual profit and loss statements.
If it is desired at any time to reduce reserves for contingencies,
tho wnount of tho reductions should be included in tho profit and loss
statement as an addition to current not earnings until the contingent
res0rvcs sot up out of current net earnings have boon exhausted.; o.nd
thereafter such reductions should be credited direct to surplus. By
this procedure reserves which have boon accumulated prior to 1937 through
charges to current not earnings will be exhausted boforo any usc is made
of reserves uccun1ulatod by transfers from surplus.
There are inclosed
copies of pages 40, 41 and 42 of the
Boc.rd's Manual of Instructions Governing the Preparation of Eo.rnings and
Expense Reports and Profit and Loss Statements by the Federal Reserve
Banks, 1?rhich revised pc.ges should be inserted in the copies of the Mcmual
sent you in o.ccord::mce with the Board's letter B-1200.
Very truly yours,
·~mtJVL~
Chester Morrill,
Secretary.
-·
~
Inclosures
TO THE. PRESIDENTS OF
~\LL
F. R. BANKS
494
40
FINlillCIJi.L RESULTS OF OPERATION
A statement should be mailed, or telegraphed,
Board in time to
to~ho
roach Washington on the morning of tho second business dny of tho
year, showing the financial results of operation of the Reserve bunk
for tho preceding calendar ycc.r.
The datu should be furnished in the
following; form unless otherwise requested.
(Code)
EARL - Earnings from discount0d bills • • • • • • • • • • • • • • $
EDGE - Earnings from purchased bills •• • • • •
••• • '
EJ~SE
Earnings from Industrial ~dvances • • • • • • • • • • • •
EBOE
Burnings from· cor.mlitments ·to make· industrial
advo.nces • • e • · • • • • • • • • • • • •
• • • • • • •
ESPY
Ec.rnings from U. s. Government securities • • • • • • • •
ETCH - Other earnings (items 6 o.nd 7 on form 95) ·
• • • • •• •
EACH Total CurreD:,~ Earnings
• • • • • • • • •· • • • • • • •
EBON - Total operating expenses
• • • • • • • • • • • • • • • •
re iir,bur sements for certain· Fiscal Agency
EBURLess
o.nd other expenses •
• • • • •
• • • • • • • • •
,; ,; ,;
ECRU - Net operating expenses • • • • • •
• •
• •
•
EBJ!.L - Assessnent for expenses of Boo.rd of Governors •
• • • •
EBER - Cost of Federal Reserve Currency
• •
• • • • •
•
•
;.
Total current expenses· •
EVER
•
• •
EARN - Current net ec.rnings • • • • • • • • •
• • • • •
•
ELBA- Additions to current net earnings
$
ENID
Deductions from current not eo.rnings
Net additions to or deductions
EBID from current net earnings
••••• ••• •
E.AST - Net earnings • • •
• • • • • • • • • • • • •
•• ••
EXIT -Payment to Sec. of Treus, ·(Section 13b). ;, • • • • • •
EYRE - Dividends paid
• • • • • • .. • •
• • • • • ;, ,;• •
ERSE - Transferred to surplus (Section 13b)
•• • •••• •
EVEN - Trc.nsforred to surplus (Section 7)
•
• • •
Total (to agree with item &\ST)
• • • • . •
• • • •
CAPP Paid-in capital January 1 (of new yea.r) • • • •
•
•
TORK - Surplus {Section 7) January 1 (of new year) • •
• • • •
TALC - Surplus (Section 13b) Jo.nuo.ry 1 (of new year) • • • • •
TOOK Reserves for continguncics January 1 (of new your) • •
•
. ----
•
--
.
.
0
. .
-
..
••
•
..
-"
)
..
..
. .. ... ..
.
..
0
..
.
.
••• ••.
.. .
•
.•
.,..
i
( B•1067)
495
41
ANNUAL FRO FIT AND LOSS STATEMENT
A profit and loss statement, prepared in accordance with the attached
forms, should be furnished the Board of Governors not later than
January
15 of ouch yoo.r.
In additi,..,n to Schedules
"A", "B" and "C" the
annual profit and loss stntoment should be accompanied by an analysis and
reconcilement for tho your of all reserves shown on Forn1
34
except those
for F.D.I.C. stock and for depreciation of "Buildings (including vaults)"
and "Fixed machinery and equipment".
The analysis of "Reserves for con-
tingencies" (item TOOK) should show separately reserves established
prior to January
1, 1937, through charges against current net earnings
and reserves established subsequent to January 1,
against Surplus (sec.
1937, through charges
7)•
If an account such as "Difference account", has a not credit balance for
the Head Office and branches combined, it should be shown only in
Schedule "I•"•
In this case o. minus sign should be used to indicate a.
net debit balance for a given office.
Similccr accounts having a net
debit balance for tho Head Office and bro.nches combined should be shown
in like manner in Schedule "B" •
Whore several small profit and loss entries aro mo.do during tho year in a
given account, only tho not debit or credit in tho amount should be
shown us a.n addition to or us a deduction from current not earnings.
END OF YE.:~R BL.LAUCE SHEETS, FOIDfi
34
In addition to tho regular balance shoot (Form 31+) for the lust day of the
calendar your representing tho condition of tho bunk after final closing
of tho books, o. balance shoot should 'bo submitted showing tho condition
of the Reserve bunk nt close of business but prior to tho making of any
your end closing entries.
(B-1067)
•
•
,._
')
FEDERAL RESERVE . BANK OF
PEOFIT "'ND LOS$ ST"cTEEEHT F'-:::O~R:--.;-l-::=:9---------
___________________________
Jl__T~ta~;~-~-e~__B_r_a_n_c_h~~B_r_a_n_c__h~~B_r_a_n_c_h~~B_r_unc~; Brunch
__
Current earnings
Current expenses
Current not earnings
to current not e~rnings:
Profit on United Stutes Government
securities sold -Not (if not loss
show under "Deductions")
.All other (Schedule ":~.")
~dditions
Total additions
Deductions from current net earnings:
Prior service contributions to Retirement
System
Special reserves on bank premises
Charge-offs on banlc premises
Assessment for building for Board of Governors
All other (Schedule "B")
Total deductions
Net additions to (+) or deductions from(-)
current net earnings
Net earnings
Paid U. S. Treasurer (Section 13b)
Dividends paid
Transferred to (+) or withdrawn from (-)
surplus (Section l3b)
Transferred to (+) or withdrawn from (-)
surplus (Section 7)
__.,
497
S-51
Ileg. A-3
(Copies to be sent to all Federal reserve banks.)
December 4, 1937.
Mr.
, President,
JT'edoral Reserve Bank of
-----
---·--·
Jear Mr
Thi.s refers to your letter of' november 1'1, 1937, raunng
two questions with r~::gard to the eEgibil5.ty of paper of finance
companies for discount under Regub.tion A.
Under. the provisions of the re7ised r•:~gulation, a notE• of
a finance company the ~)roceeds of wb ich are loaned to other bo:r•rowcrs
for commercial :mrposes is eligibl0 fol' d:scount b~r a Federnl Rc:serve
bank if the note complies with the ~.l.pplicable requ:i.rements of the
regulation as to maturity 1::md in other respects. In the case considered in the opinion of your counsel which was inclos.el.i with your
letter, it appears that the proceeds of r1 note of a finance comr.an~"
have been used in. discounting for dealers paper evidrmcing the sale
of goods on an installment basis and tllat the note of th0 fina11ce
company at the time of discount has a maturity of ninety days or
lesB. Unless it fatls to comply with the requirement.:; a:s to eli.gibi li ty in som0 other respect, thoreforu, thf! note would 1.1ppear to
be eligible for dj_ scour1 t.
Your cou.nsel indlcates thet hie> -diffj_culty in considerlug the question of eligibi11ty of finenco company paper for discount arises out of the fnct that undAr section 2(c.l) of Hegulation
A o~1ligations of businesses princi])ally •'lng~;_ged in extending credit
on an installment basis and j n substanti ~11 accordanco with the
recommendations contained in the appendix to the regulation are included among tbe preferred classes of collatoral. wbich may be used
ns security for advunees under sectjon 10{ b) of t.tle Federal Reserve
Act. It may be pointed out in this connection, however, that not
all paper of finnnce companies is eligible for discount under section 1 of the regulation. l'~or examplo, if the proceeds of the note
of a finance company are not usud for e commercial purpose or if it
has a maturity at the time it is offered for discount in excesn of
that prescribed by the regulation, it may not be discounted. On
the other hrmd, such paprn· mny in any event be utiljzed us security
• for an advance under section lO(b) if' sr.1tisfactory.to the Federel
Reserve bank.
498
. ''
S-51
Reg. A-3
-2-
.,
Your second questi:"m is whether a certificate from a
finr,nce company whose paper is offered for discount, which states
the use of the· proceeds of such paper and which is corrobo!·ated
by the financial statement of the company, would be sufficilOJnt
evidence of the use of the proceeds of the paper offered for discount.
When a finance company's note ls offered for discount, if
a ccrttficate is obtainr3d from tho compnny that the proceeds of the
note have been used or nre to be used for some commercial purpose
which is npeci:f'j_cally stcted in the certificate, and this is corroborated by the financinl btatemont of thu fim~nce company, 1 t
would seem that the :Bederel Reserve bank, unL';ss it hc.s some rosBon
to believe that the statomBnt in the certificate may not bo correct,
would be ju.Gtifiod in regarding the paper as issuod for an eligi 1)Jc
purpose. With respect to notes of finance com~,1anies the charactur
of whose bustness i.s well known and whose paper is widely distributed, available information obtained from fin2ncial statements or
otherwise may be sufficient to satisf;r the f?eaerv·e bcnk tho-t the
paper offnred is issued for en eltgibJ.E~ ;mrpost>. wj_th:lut the necessity of' obkd.ning a certJ.ficate of the kind r0f'erred to j_n your
letter. As yoll kno·w, Regul~"tion A provides th'~tt "e F'edors.l RcJserve
bank shall tnke such ste-ps r~s may be necesr·m.ry to satisfy i tse1f
as to the eligibility of any paper offered for discount" and, according1y, tbe question of what evidence of eligibility should be
required is one for the determination of the l:',eueral Reser-re bant
in tho light of the cirCUlTiSt~mccs of each case as it arises.
Very truly yo'J.rs,
(Signed)
L. P. Betheo
L. P. Bethec,
Assistant Secretery.
S-52
499
Sec. 21 FRA-4
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
December 22, 1957.
AOORESS
OF"F"ICIAL CORRESPONDENCE
TO THE BOARO
Dear Sir:
The Board of Governors has amended the terms of waiver applicable to reports of affiliates of State bank members, printed on Form
220b, so as to make it unnecessary for such banks to submit and publish reports where the affiliate relationship is based solely on tbe
fact that a majority of the affiliate's directors, trustees, or other
persons exercJ.sJ.ng similar functions are directors of any one member
bank, except where they constitute more than one-fourth of the directors of the member bank. Tho Board has also amended the terms of the
waiver so as to permit any indebtedness of an affiliate to a member
bank fully secured by direct obligations of the United States Government or ~- obligations fully guaranteed by the United States Government to be disregarded in determining whether or not the indebtedness
of the affiliate to tho member bank is in excess of the limitations
prescribed in paragraphs (a} and (b) of tho Board's waiver as now
printed on Form 220b. A note for $10,000 secured by $5,000 par value
of United States Government obligations should be regarded as fully
secured to the 0xtont of $5,000 vd thin tho meaning of tho above exemption. A copy of the amended terms of vraivcr is inclosed and a
supply thereof is being sent yuu under soparate cover.
The amended terms of waiver will become effective as of the
date of the next call made upon State bank members for condition reports pursuant to the provisions of Section 9 of the Federal Reserve
Act. It is suggested, therefore, that each State bank member be furnished with a copy of the new terms of waiver at the time that tho
next call for condition reports is mado. Tho amendments have been
underscored in the complete copy of tho now terms of waiver, a supply
of which is being sent to you.
The Board has been advised that tho Comptroller's office has
decided to adopt corresponding terms of waiver governing reports of
affiliates of National banks, effective as of tho next call made upon
National banks for condition reports.
Very truly yours,
~tn~
Inclosure.
http://fraser.stlouisfed.org/
TO THE PRESIDENTS
Federal Reserve Bank of St. Louis
Chester MorriJ.l,
Secretary.
OF ALL FEDERAL RESERVE BANKS.
S-52-a
Sec. 21 FRA-4
WAIVER REQUIREMENT FOR REPORTS OF AFFILIATES OF STATE BANK MEMBE&S
OF THE FEDERAL .RESERVE SYSTEM
(Adopted by the Board of Governors of the Federal Resexve System on
December 21, 1957, effective as of the date of' the next call for
condition reports submitted by State bank members pursuant to the
provisions of Section 9 of the Federal Reserve Act. These terms of
waiver supersede those printed on "Form 220b, Revieed February 1956".)
Pursuant to section 21 of the Federal Reserve Act, as amended, the
Board of Governors of the Federal Reserve System waives the requirement
for the submission of reports of affiliates (other than of holding company affiliates, as defined in section 2(c) of' the Banking Act of 1955,
as amended) of State bank members of the Federal ResErfVe System, except:
(a) When indebtedness, if any, of the affiliate to the member
bank had been car1·ied for more than 6 months in the 12
months preceding the report date as an asset on the bank's
books at a value in excess of $5,000 or l percent of the
bank 1 s capital and surplus, whichever is the smaller, regardless of whether the affiliate is so indebted on the
r~port date: Provided. that any indebtedness of tbe atfiliate to yhe memb~t bank fully secured bY direct obligations of the United St§.tes Government or by obligations
fully guaranteed b:Y: the United States Government may be·
disregarded in determining whether or not the indebtedness ofthe affiliate is in excess of thelimi'tations
prescribed herein.
(b) When, on the report date, the affiliate is indebted to
the member bank, or the member bank owns obligations of,
or stock or other evidences of ownership in, the affiliate, and the aggregate amount of such indebtedness, obligations, stock, or other evidences of ownership is.
carried as an asset on the bank's books at a value in
excess of $5,000 or 1 percent of .the member bank• s capital
and surplus, whichever is the smaller: Provided,. that any
indebtedness ~f thf affiliate to the member bank fUlly secured by direct ob igations of the United States Government or by obligations tully @aranteed by the United
States Government may be disregard¢ in determinins whe.ther
or not the indebtedness of the affiliate is in excess of
the limitations prescribed herein.
The Board of Governors of the Federal Reserve System also waivee
the requirement for the submission of reports of affiliates in all cases
(l) 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
t~~7 capacity, ex9ept where such shares are held for the benefit Qt
~. 0# a majority of'the stockholders of such member bank, ·109,(~)
rbtre tbe affiliate relationship is ba43ed solely 011 the fact tJat f 1139F'7'
1~ of the affiliate's directors, trustees, or other per§ons exerc1tiA&
simiJ,ar ft.:mctions are directors 9f e.n.v one member Mn!ta except !h!fe ttuv
conttitute lTiore than one-fourth of the director! of the member b&nk,,
The above provisionS with respect to the waiving of the requirements for subaission of reports of affiliates are subject to change whenev.er deemed advisable by the Board of Governo~a of the Federal Reserve
System in order to require the sub~ssion of reports which are necessary
to disclose fully relations between member banks And their affiliates
and the effect thereof upon the affairs of. member banks.
500
•
S-50
Sec. 5136 R.S.-10
BOARD OF GOVERNORS
501
Or THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS Df"f"ICIAL CDRRESPDNDENCE
TD THE BDARD
December 22, 1937.
SUBJEC'r:
Amortization of Premiums on Bonds with
Call Prices under Comptroller's Regulations Regarding Investment Securities.
Dear Sir:
Inclosed for your information are excerpts from
a letter dated December 15, 1937, from 1\'lr. Paulger,
Chief of tho Board's Division of Examinations, to tho
Vice President in charge of the Examination Department
of one of tho Federal Reserve banks regarding the amortization of promituns on bonds with call prices under tho
provisions of the regulatL1ns of the Comptroller of the
Currency governing tho purchase of invostmont securities.
Vory truly yours,
-----L. P. Bethea,
Ass:i.stnn t Secretary.
Inclosure.
TO PRJ;SIDENTS OF ALL FEDERAL RZSERVE BANKS.
502
S-55-a
Sec. 5156 R.S.-10
December 15, 1957.
Mr.
, Vice President,
Federal Reserve Bank of
,
_______,
Dear Mr.
Reference is made to the report of examination of--~--~-'
, as of September 13, 1957, and your letter of
December 2 with respect thereto.
---~---'
* * :* * * .* * * * . *
It is noted, also, that a further violation of section 5156 was
reported qy reason of three issues carried qy the bank at amounts in
excess of the call price of the bonds. Included in tho list, however, was one issue with respect to which the following comment was
made: "Not callable until 1947. Being amortized to call price by
first call date." It appears that the examiner may have been under
some misapprehension with respect to the provisions of the regulations .of the Comptroller of the Currency regarding premium and call
price. .It is understood that the requirement of the regulations
that 11 the security (ir..cluding premium) shall at no intervening date
be carried at an amount in excess of that at which the obligor may
legally redeem such security" refers to the price at which the securit,y may then be redeemed und not to some future call price. Paragraph No. 5 in Bulletin No. 1, dated Jmto 9, 1956, of the Comptroller
of the Currency, which reads as follows, boars specifically on this
point.
"Amortization of premiums on 'investment securities' pur-·
chased by bank. -- Some banks have misunderstood the
amortization requirements of the: regulations as respects
secUrities purchased at a price exceeding par. It should
be made clear that the premium need only be gradually
amortized at regular intervals over the lifo of a security to the end that at its ma turi 17.r the security will not
be carried at an amount in excess of par. If the security
is callable at a given price above par, tho rate of amortization will have to be such as to have gradually extinguished the premium down to call price by the call
date, regardless of whether the security is in fact
called on that date. Thereafter, if not called, amortization shall continue from that point to maturi~ on
the same basis as though the security had bc:en purchased
on the call date at the· call price."
503
-2-
S-55-a
Soc. 5156 R.S.-10
It is suggested that this matter be called to the attention of
the examiners as it has been noted that in some other reports of examination bonds carried in excess of the call price have been listed
as violations, although the bonds were not callable lli~til some time
in the future. You will appreciate, I am sure, that these comments
with respect to premiums are not intended to suggest that in some
cases the elimination of premiums, even if not required by law, may
not be altogether desirable and in accordance with sound banking
practice. These comments aro intended only to guard against the
treating of matters as violations of the law and the Comptroller's
regulations when in fact they are not violations.
Very truly yours,
(Signed)
Leo H. Paulger
Leo H. Paulger,
Chief, Division of Examinations.
S-54
Reg. U-24
JNTERPRETATION OF LAW _OR REGULATION
(Copies to be sent to all Federal Reserve banks)
December 18, 1937.
Mr. _______ , First Vice President,
Federal Reserve Banl: of -------'
Dear Mr.
Reference U· made to your letter of November 19 regarding
the question whC:Jthcr a loan is subject to Regulatirm U if th.e loan
was made to purchase a stoc~{ and tho stock was regist~)red on a na-tional securities exchange at the time thv loan was made but has
since become unregistered.
As you point out in your letter, the ruling contained in
tho Board's lt:Jtter (S-31, R...;:g. U-20) of Snptcmber 2, 1937 and pub-lished at page '395 of th3 October, 1937 Federal Reserve Bulletin
doal t with the converse situation in which a stock h·J.d become regir.tered after trw loan was ronde. That ruling st~::tted thut the ques-tion of whethor or not tne lo&n there in question wu.s mude for the
purpose of purchasing vr carrying a stock "reg.i.~>tered on o. national
securities exchange 11 s!10uld oe determined on tne be. sis of the present stutus of the stock~
The Board. ~.g:rees with your view cc,ho..t, at least under the
existing regulat:.on, the qucJtion now presented should atso be· detGrminoCi. on the basis of the prusent status of the stock and that,
accordingly, in the circumstances described, the loan would not be
subject to the regulo.tion.
Ver;;r truly yours,
(Signed)
L. P. Be thew.
L. P. Bethea,
Assisk~nt
SecrGto..ry.
504
505
S-55
Reg. T-65
INTER?RETATION OF LAW OR REGULATION
(Copies to be sent to all Federal Reserve banks)
December 28, 1957.
TELEGRAM
YOUHG BOSTON
!IARRISON NEW YORK
SINCLAIR PHILADELPHIA
FLEMING CLEVELAND
LEACH RICHMOND
NEWTON ATLANTA
SCHALLER CHICAGO
IVI.ARTIN ST. LOUIS
PEY1'0N MINNEAPOLIS
HAMILTON KANSAS CI'l'Y
McKINNEY DALLAS
DAY S..:lN FRANCISCO
Section 4(b) of Regulation T, as revised effective January 1, 1938,
provides that in a special omnibus acc01mt carried by a member of a national securities exchange for a customer, transactions may be effected
in reliance upon a signed statement which the member has accepted from
the customer in good faith, and a duplicate original of which has been
filed by the member with the secretary of a nationDl securities exch,'mge
of which he is a member, that the customer is a broker or dealer who is
subject to the provisions of Regulation T or has places of business only
in foreign countries. Section 4(b) also provides that in a special omnibus account no security shall have loan value <:l.nd. no short sales of
securities shall be carried except securities and short sales ns to
which the member shall have accepted in good faith a signed skter'Ient
of the customer that he is in turn carry1.ng such securities and such
short sales for the account of his customers other than his .partners.
In order to facilitate the transition from the old regulation to
the revised regulation, the Board hereby prescribes that a member who
on December 51, 1937 was carrying for a customer an account that complied with the provisions of section 3(b) of Regulation T as then in
effect, may, tlnt11 March 1, 1938 or such earlier time as he may be
able to obtain from the customer the statements referred to above, use
in lieu of such strttements of the customer, the member's own signed
statement that he believes the facts to be as they are required to be
stated by the customer in such statements under the revised regulation.
It will be appreciated if you will advise any n1.tional securities
exchanges in your District of the contents of this telegram.
(Signed) S. R. Carpenter
CARPENTER
S-56
506
BOARD OF GOVERNORS
CF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS
OF"f"ICIAL CORRESPONDENCE
TO THE BOARD
December 30, 1937.
SUBJECT:
Meaning of Code Words
MARSOON and MARSOPE
Dear Sir:
There is incloced herewith for youx
information a copy of a reply which the Board
has made to a
lette:J..~
recentl;>r received from
one of the Federal Reserve banks 'with regard
to the meaning of tho code words MAHSOON and
MARSOPE.
Very truly yours,
Chester Morrill,
Sccrutn:cy.
Inclosure.
TO PRESIDENTS OJ!' ALL FEDERAL RESERVE BANKS
S-56-a
507
December 30, 1937.
Mr.
, President,
:Federal Heserve Bank of - - - --~---'
Dear Mr.
'rhts refers to your letter of December 13, 1937, with
rGgard to the scope of the code words MARSOON and :lv'IJ\1\SOPE. You
suggest tl1at, i f it is contemplated that action be takon every
fourteen days with respect to rates on advances under section
10 {b) , section l3b and tho last paragraph of section 1~3 of the
Federal Heserve Act, as well as on rates applicable to discounts
for and advances to member banks under sections 13 and l3a of
the Federal Reserve Act, the definitions of these code words
might be broadened so as to include specifically a reference to
rates of interest.
It has been the Board's understanding that eu.ch Federal
Reserve bank in establishing rates of discount eve~/ fourteen
days pursuant to the provisions of section 14 (d) of the FederGl
Reserve Act has incl].lded in the rates so established rates applicable to transactions under all sections of the law included
in your suggestion and that each Federal Reserve br:ml: has used
the word MARSOON in this sense in advising the Board of estcbltshment without chBnge of rates in existing schedules. In this connection, it ·will be noted that the form of rate schedule which
was inclosed with the Board's letter of September 3, 1937, S-29,
includes rates applicable to rediscounts for and ndv<.mces to member b~mks under sections 13 and 13a, ndvancos to member banks
under sectbn 10 (b), advanc8s to individuals, p2.rtnerships and
corr,orntions secured hy direct oblignti.ons of tbe Uni t:;,d States
under the laE~t paragraph of section 13, and industrial advances
and cmmni tmcmts under section 13b.
The Board's records indicate that in practically everJ
case advnnces made by the :E'ederel Resorve banks under section
10 (b) of' the F'ederal Reserve Act have been on a discount bcsis.
In other words, in transactions under this section interest is
deducttJd in &dve.nce by tl1e res0rve b<.•nk just as in connecti.on
with discou:r1ts for and f.ldv:mces to member b1mkG under sections
13 and l3a. It also appears thnt all advances by Federal Reserve banks under the last paragraph of uection 13 of' the F'ederal
Reserve Act r'lve been on a discount bns:~s and, whilo this has not
been generally true with respect to indust:rial loans under section
l3b, even under this section some transactions have been he.ndled
on a discourt basis.
508
-2-
S-56-a
:Ln view of these circumstances, it is felt that there is
no present necessity for a change in the definitions of the two
code words mentioned.
Very truly yours,
(Signed)
Chester Morrill
Chester MorrHl,
Secretnry.
509
S-57
Reg. T-64
INTERPllliTATION OF LAW OR. REGULATION
(Copies to be sent to all Federal Reserve banks)
TELEGRAM
December 28, 1937.
(Addressed to a Federal Reserve bank)
Retel Docember 23 If customer having special omnibus account under section 4(b) of revised Regulation T
is incorporated securities firm, securities and short
sales of officers, directors or stockholders thereof
need not be denied loan value or oxclucled from the account as thoso of a "partner".
(Signed)
S. R. Carpenter
CARPENTER
510
S·~58
Rog. L-6
INTERPRi~TATION
OF LAW OR REGULATION
(Copies to be sent to all Federal Reserve banks)
December 28, .1937.
Mr.
, President,
Federal Reserve Bank of
---'
---
Dear Mr.
Consideration has been given to Mr.
's letter of November 29, 1957 and the inclosed memorandwn opinion of General Counsel to
your bank and the copy of the letter from Mr. (A), vice.presidont of
The National
Bank of
, regarding the applicability of the
Clayton Act to Mr. (B). Tho question presented is whotrwr Mr. (B) may
continue to serve as a director of the national bank and as a .director
of the
Safe Deposit and Trust Compnny until Febru&ry 1, 1959, in
view of th<~ provision in the Clayton Act thd.: "Until February 1, 1939,
nothing in this section shall prohibit any director ~~ * who is law.fully
serving * ~~- on the date of the enactment of the Banking Act of 1955,
from continuing such service."
From the information before the Board it appears that Mr. (B)
was "lawfully serving" as a director of both the above institutions.on
the date of the enactment of the Banking Act of 1955, under a permit
issued to him by the Board. However, shortly thereafter heresigned
from both institutions because he intended to seek electionas .Governor
of {name of State), and a junior officer was clvcted to take his place
temporarily on the board of the national bank. He was not elected Governor, and in May 1957, a yea.r and a half aftor he had. resigned., he was
reelected a dir~ctor of both institutions.
The Board is of the opinion that the provision .quoted...above is
not applicable in such a case. In construing this provision it is important to remember that the Banking Act of 1935 amended the Clayton
Act so as to prohibit a large number of relationships which had not previously been prohibited. The obvious purpose of the provision was to
prevGnt wholesale r;;:signation;:~ on tho effective date of. the .D.:mandment~
and to give the banks involved a reasonable time within which to make
the rcquiredr60CQu8tments. Since the only purpose of the provision was
to avoid the hai·dship which might result from a resignation, it cannot
be construed as authorizing the resumption of a relationship· which has
already been terminated.
'
511
S-58
- 2 -
Reg. L-6
This conclusion is supported by the lan~1age of the prov~s~on,
which does not say that such relationships shall be lawful until February 1, 1939, but provides merely that the prohibitions of the amended
statute shall not prevent a director from "continuing" the relationships
until that date. This language implies, at least, that the service must
be continuous.
Mr. (A) refers to a ruling made by the Board in 1925 which peld
that the resignation of a director serving under a Clayton Act permit was
tantamount to the abandonment of his permit, but argues that in the circumstances of this case there was no abandonment. However, this question
is no longer involved because the Banking Act of 1935 eliminated from the
Clayton Act the provision authorizing the issuance of permits qy the Board,
and the permit thereupon ceased to have any effect, except as it affected
the question whether he was "lawfully serving" on the dt:tte of the en:tctment of the Banking Act of 1935 within the meaning of tho provision discussed above.
The Board is not unmindful of Mr. (A)'s suggestion that his bank
will lose a valuable director if Mr. (B) is not permitted to serve the
two institutions, but as pointed out above the matter is governed by statute and the Board no longer has power to grant vermits in such cases.
Very truly yours,
(Signed)
S. R. Carpenter
.
S. R. Carpenter,
Assistant Secretary.
S-59
Reg. 0-28
IN'l'ERPRETATION OF LAW OR REGULATION
(Copies to be sent to all Federal Reserve banks)
December 50, 1957.
Mr.
, Vice President,
Federal Reserve Bar~ of -----------'
Dear VIr.
This refers to your lettor of December 6, 1957, cmd its inclosuros, stating that there are several nonmomber banks in (names
of two States) whieh have indicated thcdr desire for membership in
tho SystJm but which have deferred filing formal application duo
to the fact that thu presidont or chairmen of tho board of directors is indebted to the banl-:: in excess of $2,500. You state that
in your opin~_on such banks will not file an cpplica tion for membership unless such inactive officers are permitted to borruw on the
same basis as other directors nnd suggest t.l-J.at the Board reconsider the matter of excluding inactive officers from th8 provisions of Regulation 0 in tho light of recant State legislation.
As you know, the Board ga-..re careful consideration tu this
question at the time Regulation 0 was promulgated, and on several
occasions since then the Board has reconsidered this particular
matter in tl10 light of other suggestions. It has bE:en the Board's
position, however, that lt would not be justified in excluding inactive officers from the provisions of Regulation 0 for the following reasons:
(1) It appears that the principal purpose underlying the enactment of section 22(6) of the Federal Reserve Act was t.o prevent tho ~xcrcise of undue influence by executive officors of member banks in obtaining credit from tho ba..YJ.ks thoy servo and it is tho
~oard's view that tho ux0rcisc of such undue influence
may be prGsont in tho case of inr.ctive or honorary
officers;
(2) Congress did not make a distinctic·n in ::3ection 22(g) between active ar,d inactive officers and
the legislative history of the section indicates that
the chairman of the 'board of directors and the president of a member bank should apprcpriatoly be regarded
as executive officers for the purposes uf tho law in
question oven though they may be inactive;
512
513
-2-
S-59
Reg. 0-28
(3) From tho standpoint of tho public, persons having the usual titlus of oxocutivo officers in member
banks aru considered as cxocutivo officers whether or
nJt they are activo, a.nd tho Board docs not feel that
it should givo encouragement to tho employment in an
inactivG capacity of persons who o.ro given the titles
of executive officers and held out to the public as
such.
It is noted that the banking lo.ws of (no.mes of two States),
referred to in your letter, are applicable only to active executive officers Dnd in this respect such laws differ from section
22(g) wherein no such distinction is made.
The Board appreciates your calling this matter again to its
attention, particularly in the light of the circumstances stated
in your letter, but, after careful reconsideration of the matter,
feels that for tho reasons stated above it would not be just:1_fied
in excluding inactive officers from the provisions of Regulation 0.
For your information in discussions with nonmcmbar State
banks now or hereafter soaking admission to the Federal Reserve
System, the Board considers that loans in any amow1t by such
banks to their executive officers made prior to admission to membership or even prior to June 16, 1933, are not prohibited by
section 22(g) or the provisions of the Board's Regulation 0 from
being renewed or extended after membership or after JW1e 16, 1938.
However, an executive officer of such bank could not obtain additional loans from his bank after it is admitted to membership if
by so doing his total indebtedness to tho bank would be increased
to any amount in excess of $2,500.
Very truly yours,
(Signed)
L. P. Dethea
L. P. Bethea,
Assistant Secretary.
@FedFRASER