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8 BOARD OF GOVERNORS OF" THE FEDERAL RESERVE SYSTEM R-656 WASHINGTON ADDRESS OF"F"ICIAL CORRESPONDENCE TO THE BOARD July 17, 1941 Dear Sir: The Board has been requested both qy the office of the Comptroller of the Currency and bJ one of the Federal Reserve Banks to render an op:).nion on the question Vlhether an officer of a member bank, who is also serving as a director and as a member of the discount committee of the bank, is to be regarded as an executive officer within the meaning of the Board 1 s Regulation 0 as amended effective July 1, 19.39, notwithstanding the adoption of a resolution qy the board of directors providing that he is not authorized to participate in its operating management. Before 1.mdertaking to pass upon this question, the Board will appreciat<> a statement of your views, accompanied by a statement of the views of your Cou.'1.sel, with regard to this matter. Before expressL'1.g your views on the question, you may fi.11d it desirable to consult with some of your member banks and the member of the Federal Advisory Council from your district. For your information in this connection there are enclosed an excerpt from the Federal Reserve Bank's letter on this subject, an excerpt from the letter from the office of the Comptroller of the Currency, and a section of the "General Form of Bylaws of National Banks" relating to the Discount Committee. Very truly yours, Chester Morrill, Secretary. Enclosures 3 TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS R-856-a EXCERP_T FROM A LETTER FROM A FEDERAL RESERVE BANK In connection with the question of whether or not this indebtedness constitutes a violation of Section 22 (g) of the Federal Reserve Act, our examiner submitted the following information: (1) Prior to the examination a resolution had been adopted b,y the board of directors declaring Mr. to be an inactive officer and without authority to participate in the management of the bank. (2) For several years Mr. has been a member of the bank's Discount Committee composed of himself, the president of the bank (who is semi-active in its rr.;a..'1a.gernent), and one other director. The committee does not meet every day, nor on scheduled dates, but only on call of the president. The committee ha.s and exercises authority to grant loans to and fix lines of credit for the bank's borrowing customers. It confines its loan-making activities almost entirely to loe. ns ln excess of $200. (3) All loans made by the Discount Committee are approved by the board of directors at its next regular rneeti.."lg. Our examiner feeJ_s that the making of loans is a function of operating management within the meanutg of that term as used in the definition of an "executive officer", as given in Section 1 of Regulation 0. Accordingly, and upon the basis of the facts recited hereinabove, he is of the opinion that a.ll members of the Discount Committee of the State Bank are "executive officers" of the bank. However, before taking a definite position of agreement or disagreement with the views of our examiner concerning this case, we should like very much to have an expression of the Board's views. We are unable to find any such expression in the Board's published or unpublished rulings, based upon the identical circumstances of the case described herein, although we have noted the Board's interpretation in its letter dated May 4, 1936, X-r-9576, concerning a remotely similar situation. The fact thr:::t the position taken b,y the Board in that case is opposite to ths views expressed by our examiner in the prasent case is one reason why we prefer to obtain 1 s status, instead of a ruling ~J the Board concerning Mr. undertaking to pass on it ourselves. Another reason is the fact that we believe that a number of State member banks in this district use the same administrative macm. nery for their loan-making activities as the bank is using. 9 1._0 H-856-b EXCERPT FH.OM LETTER FI-I.OM THE DF:PUTY COMPTROLLER OF THF; CUHfENCY In its supervision of national banks, this office is occasionally confronted with the question which was raised in the Board's S-letter-210, Reg. 0-39, concerning which no opinion was expressed inasmuch as the vice president mentioned therein resigned as a member of thcl discount committee while the matter was being considered. Following there is a typieal situation; 1. Vice President is an attorney and is also an inactive of.hcer of the bank but receives no salar<J from the bank. He does receive a small fee for ec.ch Board meeting attended, which fee is no grentKc than that po.id to other directors. 2. The directors have passed a resolution that he is not authorized to participate in tbe operatin6 management of the bank. 3. He is a member of the discount committee appointed by the directors in accordance with the provisions of the bank's b~-rlaws, a COP'J of which is enclosed, and fully performs his duties as a member of such committee. 1.1. R-856-c EXCERPT FROM 11 GEHFRAt FOR~i OF BYLAWS OF NATIONP..L BANKS" Sec. 16. There shall be a committee, to be kno~n as the discount committee, consisting of the president, cashier, and directors appointed UJ the board every months, to continue to act until succeeded, who shall have power to discount and purchase bills, notes, and other evidences of debt, and to buy and sell bills of exchange; and who shall, at each regular meeting of the board of directors, ,subr:lit in writing a report of all bills, notes, and other evidences of debt discounted and pm~chased by them for the bank since their last report. The board of directors shall approve or disapprove the report of the discount committee, such action to be recorded i.n the minutes of the meeting.
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