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327,-3 - RELATIONS BETWEEN FRBoard, FKBanka
& MEMBER BANES
(X-9H5, X-9174 & X-9210)
*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
'— ]
Authonty
Form F. R. 131
/
BOARD
□ F GOVERNORS
□ F THE
FEDERAL
RESERVE
SYSTEM
Office Correspondence
Date
July 5, 1956
Subject:
From
Chester Morrill, Secretary
Ca m J
Mr. Broderick has suggested that when the members of the Board
consider the attached draft of a circular letter to all the Federal re
serve banks that your attention be directed particularly to the memoran
da below the attached draft, as he feels that the information they contain
regarding questions which have arisen at certain Federal reserve banks re
cently is very interesting.
iNCH'uuuueu num U1y unciassmea / Declassified holdings of the National Archives
J)Sl.A SSIJJJ f) ~ — 1
Authon!y^ ^ m ^ /
Form F. K. 131
BOARD
OF
GOVERNORS
□ F THE
FEDERAL
RESERVE
SYSTEM
Office Correspondence
To
Governor Broderick
From
Mr, Paulger
Date__June 15, 1956 ♦
Subject:
Special questions raised_____
by members of the official
__________ staffs of the Federal Reserve
Banks of Minneapolis, Chicago,
and Cleveland.
$4rae
In accordance with your request of May 19, 1956, the special questions
raised at conferences with you of the official staffs of the above banks
have, wherever possible, been followed through to a definite conclusion and
the action taken in connection with each is shown below.
1.
Whether a member bank would be required to exhaust its
paper eligible for borrowing under section 15 before
being granted accommodations under section 10 -B.
(Raised by Chicago and Cleveland.)
L
u
*
j
In view of the importance of the question and the fact that there ap
pears to be uncertainty in the minds of officials of other Federal reserve
banks regarding the matter, it was deemed advisable to submit the question
to counsel for consideration and preparation of a letter which it is sug
gested be sent to all Federal reserve banks. Counsel1s memorandum on the
subject, together with a draft of the proposed letter, which it will be
noted requires action by the Board, are attached.
2.
Why it was necessary to continue to obtain periodic
reports on foreign transactions. It was stated that
the necessity for furnishing these reports is fre
quently questioned, particularly by importers and
exporters.
(Raised by Mr. Dawes of Chicago.)
r\ *P
Mr.
T2a c
1
- id / J ■
trn a4 A n
A 'f' P ac ?a o *w a F
<24- a 4
ijf* '
V&U
r
■i
who
prepared a memorandum thereon, which is attached for your information.
You will notice that the reports are made pursuant to an Executive Order
and Treasury regulations thereunder and are not, therefore, required by
the Board although they are said to be extremely useful to the Board in
following international movements of capital. Mr. Dawes directs partic
ular attention in his question to the necessity for requiring the reports
of importers, exporters, and industrial concerns. It appears that such
reports are made only four times a year, which should not involve an undue
amount of labor or trouble.
The contents of Mr. Gardner’s memorandum were explained informally •
by Mr. Koppang, of this Division, to Assistant Agent Young of Chicago
who stated that Mr. Dawes had apparently overlooked the fact that the
reports were being made pursuant to an Executive Order and, furthermore,
that in v i W of their value to the Board no further consideration need be
given to their possible discontinuance. Mr. Young was requested to explain
y1 )
V.
•^
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r
h )
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o
the matter to Mr. Dawes and to invite him to raise any further questions
on the subject that he might have. Mr. Young suggested that the matter
be dropped as he felt confident that the explanation regarding the need
and use of the reports would satisfy Mr. Dawes completely.
3.
Why the reserve banks could not have copies of newly
issued regulations in their possession when the regu
lations are released to the Press by the Board of
Governors, as it was embarrassing to the reserve banks
when inquiries were received to have to advise the in
quirers that the reserve banks had nothing official in
their possession pertaining to the information sought.
(Raised by Mr. Pett of Chicago.)
The question here raised was submitted to Secretary’s office and
Mr. Carpenter has investigated and prepared a memorandum thereon, which
is attached. It is difficult, in the light of the information contained
in Mr. Carpenter's memorandum, to determine which of the regulations Mr.
Pett had in mind. In an informal discussion Mr. Young stated that he
believed Mr. Pett was probably thinking of Regulation U, which he recalled
was not received by the Reserve banks until after it had been released by
the Board to the Press. However, Mr. Carpenter has advised that Regulation
U was sent to all Federal reserve banks by wire on May 25, 1956, and was
not released to the Press until May 26, 1936. In any event, it is not be
lieved there will be any further cause for complaint in this connection in
view of Mr. Carpenter’s statement that, "I have discussed Mr. Pett's comment
with Mr. Thurston and he has agreed that in connection with future releases
or amendments thereto no release should be made to the Press until copies
are in the hands of the Federal reserve banks”.
Mr. Young promised to pass the above information on to Mr. J
4.
Why the order requiring the licensing by the Secretary
of the Treasury of banks admitted to the System had not
been rescinded at least in the case of banks which had
been operating on an unrestricted basis for many years.
(Raised by Mr. Young of Chicago.)
It is understood that the original purpose of the Executive Order
requiring the licensing of member banks was to provide a means of effecting
an orderly opening of sound banks which had been closed as a result of the
President's Proclamation causing the banking holiday. Nevertheless, under
the regulations of the Secretary of the Treasury all State banks are re
quired to obtain a license from the Secretary of the Treasury in connection
with admission to membership and all newly organized national banks are
also required to obtain such a license. In addition to providing for an
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
A u th o rity
orderly reopening, the object of requiring banks to be licensed was to
give the Secretary of the Treasury control over the banks, with partic
ular reference to foreign exchange transactions, the payment or exporta
tion of gold coin, gold bullion, and gold certificates, and it is no
doubt because of the latter activities that the order requiring the li
censing of member banks has not been rescinded. It is understood that
the Secretary of the Treasury has in no case refused to issue a license,
upon the recommendation of a Federal reserve bank, to State banks joining
the System, and, while it would appear that the requirement is at present
largely one of routine form, the matter of control, nevertheless, over
the activities referred to may not be without significance. I do not feel
that it would be proper for the Board or any of the Federal reserve banks
to take the initiative in attempting to obtain a cancelation of the Exec
utive Order at this time, and, in an informal discussion, Mr. Young stated
that he was perfectly willing to drop the matter, that he had, as a
matter of fact, raised the question only because he thought it may have
been overlooked by the Secretary of the Treasury, and that there was
little extra, work or effort involved in forwarding the recommendations
in connection with the few cases of banks joining the System.
The question was also referred to Counsel*s office, and there is
attached a memorandum dated May 28, 1956, which outlines the history and
apparent purpose of the order, prepared by Mr. Cherry.
5.
Reasons for delays a.t the Board* s offices in acting
upon applications for membership.
‘
This question, which was raised by the Federal Reserve Bank of
Cleveland, is phrased as a general question. It is understood, however,
that the question was raised in particular reference to the Geo. D. Harter
Bank, Canton, Ohio, and, to a lesser degree, to the Savings Deposit Bank
and Trust Company, Elyria, Ohio. Each of these cases presented unusual
circumstances, particularly the Geo. D. Harter Bank, which presented a
question of policy. The cases will be discussed more fully later.
During the 11 months' period July 1, 1955 to May 51, 1956, the Board
has acted upon 56 applications for membership.
Four of these cases were held for 50 days or more before approval.
In each case unusual circumstances were presented; two were held for de
termination of matters of policy, one was held in abeyance pending enact
ment of legislation which would render it eligible; and one was held pending
developments in a merger program.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
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The following summary will show the average time between receipt
and final action on the applications for membership received during the
period.
All cases acted on
7-1-55 to 5-51-56
Special cases referred
to above
Other cases acted on
7-1-55 to 5-51-56
Average Ho
of Working
Days until
Approval
Ho.
Average Ho.
Calendar Days
Elapsed
Average No.
of Working Days
in this Division
56
22.4
10 .
17.5
4
70.5
51.1
54.8
52
18.7
8.4
14.5
In cases of urgency or where there is reason for special consideration
and treatment, the Board and the Staff have cooperated in endeavoring to
expedite an application. In this connection it is noted that the applica
tion of the Elyria Savings and Trust Company, Elyria, Ohio, was received
on Monday, May 4, 1956, and approved Monday, May 11, 1956, one week later.
The circumstances regarding the application of the two banks to which
it is understood that the Federal Reserve Bank of Cleveland has specific
reference were as follows:
Geo. D. Harter Bank,
Canton. Ohio_____
Application received March 5, 1956
Application approved May 5, 1956
The long delay before approval of the application of Geo. D. Harter
*Bank was due to the determination of a question of policy regarding
the condition of membership requiring the bank to show separately
the bank* s investment in banking house and other real estate carried
in investments and loans. The same question was under consideration
at the time in connection with the request of the Union Trust Company
of Maryland, Baltimore, for modification of a similar condition of
membership. For the reasons set forth in the memorandum dated March 17,
1956, the Division recommended that such a condition be not prescribed
in the case of the Geo. D. Harter Bank or in other similar cases, feel
ing that it is more properly a general condition to be handled through
the call report than a question of a condition of membership in a parti
cular case.
The matter was discussed informally with Messrs. Broderick, McKee,
Ransom and Morrill. The situation regarding the call report was com
plicated by reason of the differences in opinion which had delayed the
adoption by the Comptroller of the Currency, the F.D.I.C., and the
Board of a revised call report which would be substantially uniform
for the three agencies and which would show such indirect ownership
of banking house and other real estate.
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Following the discussion referred to, the Division of Bank Operations
was requested to suggest a method of showing the desired information
in the Board’s form of call report regardless of whether the Comp
troller's form was revised accordingly, and the application of the
Geo. D. Harter Bank and the request of the Union Trust Company of
Maryland for modification of the condition were held in abeyance
pending a study of such procedure.
Mr. Fletcher was advised informally by telephone of the status of
the bank's application and the reason for its being held in abeyance.
He was also advised that in case of urgency we would endeavor to have
the application acted upon but that we would prefer to hold it until
the question of policy was determined. It was suggested that if he
thought it advisable he could inform the bank that the delay in act
ing upon the application was not due to questions as to the financial
condition of the bank but to a question of policy as to the method of
treating certain accounts. Mr. Fletcher advised that the proposed
procedure would be satisfactory.
Following reference of the question to the Division of Bank Operations,
it seemed impracticable to cover the situation at the time by modifica
tion in the form of the Board's call report. Accordingly, the applica
tion was taken out of suspense and resubmitted with the original recom
mendation of the Division. At the same time the Division recommended
that the condition of membership of the Union Trust Company of Maryland
regarding publication of reports be canceled. The application of the
Geo. D. Harter Bank for membership was thereupon promptly approved and
the condition of membership applicable to the Union Trust Company of
Maryland canceled.
The Savings Deposit Bank and
Trust Company. Elyria. Ohio
Application received March 27, 1956
Application approved April 28, 1956
This bank was a reorganized bank, and, as frequently is true in such
circumstances, the application presented some complications. The
Division had to develop some additional information from Cleveland re
garding the possibility of a merger of the applicant and another bank
which we heard in Washington was under consideration but of which Mr.
Fletcher had not been advised.
The
the
had
the
file was held longer than usual in Counsel's office because of
fact that, in addition to the usual review, Counsel's office
to determine whether a corporation organized in connection with
reorganisation of the bank was a holding company affiliate.
It is intended that the question of delay in acting on membership
applications will be discussed informally with Mr. Fletcher of Cleveland
at the first favorable opportunity.
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— 6—
6.
The matter of uniform allocation of expenses on
functional expense reports. (Raised by Minneapolis.)
You have indicated a desire to discuss this question with Mr. Smead
and me. I shall be glad to do so at any time you may suggest.
7.
The Board’s reason for permitting the renewal of an
interest-bearing certificate of deposit to be dated
as of the maturity of the original certificate if
renewed within ten days after maturity of the original
certificate. (Raised by Minneapolis)
This question, as you have indicated, has been disposed of through
the action taken by the Board as outlined in a letter of May 18, 1956,
(X-9592).
I
shall, of course, be glad to discuss further with you any of the
questions covered in this memorandum at any time.
Summary of Memoranda Attachments
Dated May 25, 1956, by Mr. Vest regarding advances under Section 10(b).
Dated May 26, 1956, by Mr. Gardner regarding necessity for obtaining
3 ?^,/-tf
reports on foreign transactions.
Dated May 21, 1956, by Mr. Carpenter regarding press releases on Regu- aha
lations.
Dated May 28, 1956, by Mr. Cherry regarding the continued licensing of/^Ai
I slM IO.'L
banks.
Dated June 15, 1956, by Mr. Koppang regarding telephone conversation AuivXkueijU,
with Mr. Young of Chicago.
'
J
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Z(Y) 2 fr
Authority
Form F. R. 131
BOARD
OF
GOVERNORS
OF TH E
FEDERAL
RESERVE
SYSTEM
Office Correspondence
Pai-p
June 15, 1956
Subject:.
T o ______ ELles_______________________
F r o m ____ Mr. Koppang
g/dad
During the eearly part of May, 1936, Governor Broderick, at the
time of a visit to the bank, held a conference with members of the of
ficial staff of the Federal Reserve Bank of Chicago, at which time four
special questions were raised which Governor Broderick has requested
this Division to follow through to a definite conclusion, if possible.
\
Certain of the questions were of such nature as to require the consid-
C
eration of other Divisions of the Board and memoranda thereon having
now been submitted as requested by this Division from the Divisions in
terested, I today telephoned to Assistant Agent Young at Chicago and ex
plained to him the contents of such memoranda on the following three
questions which, because of their nature, it was deemed expqdient to
handle in an informal manner.
1.
I
Why the Order requiring the licensing by the
Secretary of the Treasury of banks admitted
to the System had not been rescinded.
read to Mr. Yeung the pertinent parts of Mr. Cherry* s memo-
ran sum of May 28, 1936, on this subject and told him that while we
would be glad to take the matter of obtaining the cancellation of the
Executive Order up with the Treasury Department if he insisted, Mr.
Peulger, as well as other members of the Board*s staff, felt that in
the absence of compelling reasons it would not be feasible to pursue
the matter further at this time.
Mr. Young stated that he was perfectly
willing to drop the matter and that he had, as a matter of fact, raised
the question only because he thought that it may have been en oversight
v
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10 f ) 2 fr
that the Executive Order had not been rescinded*
He said that there was
no particular work or effort involved in forwarding the usual recommenda
tion to the Secretary of the Treasury in connection with the few cases of
banks joining the System and that he did not believe it advisable to have
the Board or any of the Reserve Banks take the initiative in attempting
to obtain the cancellation of the Order at this time*
2. Why it was necessary to continue to obtain
periodic reports on foreign transactions.
if f
)
i
1
hi'
I read to Mr. Young pertinent lines from Mr. Gardner’s memorandum
L iu ) :
f l7)
of May 25, 1956, regarding this subject and was advised that Mr. Dawes,
who raised the question, apparently had overlooked the fact that the re
ports are made pursuant to an Executive Order.
Mr'. Young stated that this
fact, together with the fact that Mr. Gardner feels that the reports are
extremely useful to the Board in following the international movements of
capital, should eliminate any question or thought of their discontinuance
and that he would so inform Mr. Dawes.
I asked Mr. Young to explain to
Mr. Dawes that we would, if he should so request, be glad to consider the
matter further or clarify any additional points regarding the question
that he desired.
Mr. Young requested that nothing further be done in the
matter.
5. Why the Reserve Banks could not have copies of
newly issued regulations in their possession
when the regulations are released to the Press
by the Board.
Mr. Young stated that Mr. Pett, who raised the question, had in
mind the issuance of the Board’s Regulation U which, as he recalled, was
not received by the Reserve Bank until after it had been released to the
Press by the Board.
(NOTE: Mr. Carpenter has advised that Regulation U
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■>
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3 -
was sent to the Reserve Banks by wire on May 25 and released to the
Press on May 26.)
I told Mr. Young that the Board’s staff realized
that it was desirable, whenever possible and to avoid embarrassment
to the Reserve Banks, that copies of all regulations or amendments
thereto be in the hands of the latter before being released to the
Press in Washington, and that I had been advised that in the future
no such releases should be made until copies are in the hands of the
Reserve Banks.
Mr. Young stated that he would advise Mr.
Pett ac
cordingly.
I told Mr. Young that the only other question (whether a member
bank would be required to exhaust its section 15 paper before being
permitted to borrow under 10-B) raised at the Chicago conference had
\
x
yrv
b
received the consideration of the Board’s counsel and that the Reserve
Banks would be advised regarding it in due course.
(NOTE:
0
X
Counsel has
prepared a letter on this subject and it is intended that it will be
sent to all Reserve Banks.)
Mr. Young said that he was glad to receive
the information which had been developed in connection with the questions
raised, that he would pass it on to the officers interested, and that the
questions discussed has been answered to his complete satisfaction.
HOK/deq
J
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
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J
Form F. R. 131
BOARD OF GO VERNO RS
C O P Y
L.
O F THE
FEDERAL RESERVE SYSTEM
Office
Correspondence
All members of the Foard individually and
Date
March 21, 1956,
FE D ER A L RESERVE BOARD FILE
T o Messrs. Yfyatt, Paulger, Smead, Goldenweiser
and Parry
Mr. Carpenter
From
CONFIDENTIAL
_
3
•
- >
3
There is attached, for your information, a copy of a list of the
suggestions made by the Presidents of the Federal reserve banks at the
meeting of the Board with the Presidents on March 17, 1956, in response
to an inquiry whether the Board was doing anything which was making it
difficult for the Federal reserve banks to carry on their work, and
what steps might be taken to improve the relations between the Federal
reserve banks and the Board.
J ilJ L
*
Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority
1.
That the Board give the Federal reserve banks more
latitude in Meeting local situations and support the
banks in the action taken by them in such situations,
2,
That the Board and the members thereof handle probleas
arising in the respective Federal reserve districts
through the Federal reserve banks and not otherwise,
5*
That the Board avoid as much as possible delays In
replies to inquiries made by the Federal reserve banks.
That there be maintained between the Board and the
banks at all times a feeling of mutual confidence.
That the presidents be made to feel that there is a
close direct contact between them and the Board,
That the Board and members of its staff make more
frequent visits to the Federal reserve banks and main
tain a closer contact with their operations and prob
leas.
That there be a greater simplification of the present
personnel classification plans of the Federal reserve
banks.
8 , That minor questions which arise in connection with
membership applications and examinations be left to
the Federal reserve banks to work out with the member
banks.
9,
That the Board delegate to the Federal reserve banks
such duties of supervision as it may legally so
delegate.
10,
That the Board refer persons complaining of the treat
ment given their applications for Industrial loans to
the Federal reserve banks rather than making replies
to such complaints,
11,
That the Board undertake to counteract the propaganda
being disseminated against the Federal Reserve System,
1 2 , That the officers of Federal reserve banks adopt a
definite program of visits to the member end nomaember
banks in their districts.
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15.
IQQ2 &.
That the Board Investigate the possibility of reducing
the number of regulations, memoranda, letters, tele
grams, etc., sent by it to the Federal reserve banks
end the number of reports required by it.
That, in order to retain the active support of the
boards of directors of the Federal reserve banks, the
Board seek to place upon such boards greater responsi
bility and to avoid the possibility of creating the
impression on the part of the directors that there ere
no major problems left for their final decision.
That whenever the Board finds it necessary to overrule
an action taken by the directors, advice of the Board*s
action be accompanied by a full statement of reasons.
16.
That the Board investigate the possibility of having
ell of the examining functions of the Federal Reserve
System carried on at the Federal reserve banks rather
than having the supervision of that work conducted from
Washington.
17.
That the Board should act as a coordinating body rather
than a governing body.
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181
2^
I
BOARD OF GOVERNORS
O F THE
F E D E R A L RESERVE SYSTE M
Office Correspondence
To
Mr. Paulger.
From
odman.
Date
February 15,
Subject: Cornmant,a of Federal Reserve Banks
in reply to Board1s letter of
___ February 6 , 1935 (X-9115) . Warded
S P0
CONFIDENTIAL
In accordance with your request, I have gone over the letters from
the various Federal Reserve Banks in reply to the Board’s letter of Feb
ruary 6 , 1935 (X-9115), which was sent pursuant to comments of Governor
Eccles during an informal meeting of the Governors of the Federal Reserve
Banks with the Federal Reserve Board on February 5, 1935.
It is believed
that you will be interested in the follovfing excerpts from the replies;^
Boston
nIn several instances conditions have been imposed in connection
with the admission of State banks to membership or technical dif
ficulties have been raised which have seemed to the applying banks
to go beyond the requirements of law or to deal with matters which
have been free from criticism in particular cases or to be unneces
sarily burdensome. It is true that in some instances the condi
tions have been modified or withdrawn, but in some cases they seem
to have left an unfavorable impression. Our suggestion is, that
before unusual conditions, that is conditions not required by law
or which may be a serious burden to an applying bank, are imposed
we be given an opportunity to review them and if necessary or desir
able, to discuss them in an informal way with the applying bank.”
nIt is rather difficult to comment to the Board on these matters
because there is a natural reticence on the part of applicants for
I permits about expressing any criticism. We are of the opinion
though, that the matter of permits whether to holding company af'
filiates or under Section 52 or under the Clayton Act is potentially
< the most prolific single cause of criticism on the part of member
banks and others, of the Federal Reserve Board. If the actions of
the Board and its staff seem bureaucratic or impractical or unduly
rigid, we believe it is more apt to be with respect to these matters
than with respect to other regulations or requirements that relate
to member banks.”
Two copies of a digest and summary of the replies were sent to each
Federal Reserve Bank with the Board’s letter of May 15, 1935 (X-9210).
16— 852
Keproduced from the Unclassified / Declassified Holdings of the National Archives
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Memorandum to Mr. Paulger.
-
2
February 15, 1956.
-
New York
"Bank Membership
In the admission of State banks to membership in the Federal
/
Reserve System, there have developed most exacting requirements as
to material to be furnished in connection with the application and
as to conditions to be met by banks prior to admission. This has
reached the point where it constitutes a distinct obstacle to bring
ing many State banks of average or better than average quality into
the Federal Reserve System."
"Voting .permits.
*
*
*
It would also seem that in some instances the dual policy of
the statute has been lost sight of, to wit, to strengthen holding
company affiliates or to terminate the holding company affiliate rela
tionship, the Board having been apparently reluctant to permit the
distribution to its stockholders by a holding company affiliate of
ju
the stocks of less than all of its several subsidiary member banks
notwithstanding that such distribution was a step toward the ulti
mate liquidation of the holding company affiliate. In this connec
tion it might be noted that some of the provisions of the form of
application for a voting permit (F.R.B. Form P-l) are somewhat
broader than the corresponding provisions of the statute.
*
*
*
Finally, we question whether this is not another duty with
respect to which, under existing legislation or by amendment to
the law, the Federal reserve banks could be given greater freedom
of action within the limits of a general policy adopted by the
Federal Reserve Board."
"Granting permission to State member banks to open branches.
We have had two cases in this district where State member banks
have applied for permission to open branches in accordance with the
law of the State. The Federal Reserve Board and the Comptroller of
the Currency have, in these cases, made requirements as to certain
charge-offs and eliminations. This has occasioned resentment as the
banks felt that it was unjust that a request for authority to estab
lish branches of small importance relative to the total of the bank’s
business should be made the occasion of such requirements. This
feeling has been intensified by the fact that national banks which
have opened branches in the State during the same period have not
been made the subject of similar requirements.
It is believed that a more liberal policy might be pursued in
this matter without detriment to the public interest."
fV
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Memorandum to Mr. Paulger.
-5-
February 15, 1956.
Philadelnhia
"The position taken by the Board in construing the Clayton Act
and Section 52 of the Banking Act of 1955, in considering appli
cations for permits to serve on two or more boards of directors,
has disturbed our banks very much; has weakened their boards of
directors by depriving them of the services of able men; and has
excited a feeling of resentment on the part of these men. The
Board*s negative decisions are generally regarded as wrong because
they are not supported by the data submitted to the Board with the
applications•"
"In two cases - that of the Berks County Trust Company of Reading,
and the *Main Line Trust Company* of Ardmore - the Board took po
sitions which indicated a total lack of confidence in the Directors I I
and officers of this bank, and a contempt for their judgment. Indeed, in the latter case, their comments to the Chairman and Governor (
cannot be characterized otherwise than as offensive."
Richmond
"The difficulty of obtaining prompt reply from the Board, or from
the staff of the Board, upon administrative matters arising out of
regulations and rulings is due no doubt to the tremendous pressure
of matters upon both the Board and its staff, and we therefore have
no particular criticism in this connection. But nevertheless we
are often handicapped, and even embarrassed in some instances, by
such delay."
Atlanta
"In connection with our dealings with member banks, and particularly
in the handling of the work of the Federal Reserve Agent, promptness
on the part of the Board in giving rulings and in replying to letters
asking for advice would be of great assistance. This is not said by
way of criticism, since we realize the unusual pressure which has
been put upon the Board in recent years. We might add also that we
now receive rulings and replies to inquiries much more promptly than
was formerly the case. In this bank we have endeavored to reduce to
a minimum requests for rulings and advice.
"We believe that it would be beneficial to the officers of the reserve
banks were the examiners of the Federal Reserve Board at the time of
making examinations of reserve banks to offer constructive and helpful
suggestions. This would bring about frank discussions which would
not only be beneficial, in our opinion, to the officers of the Federal
reserve banks but would also eliminate discussions by correspondence.
Through such constructive suggestions the officers of the reserve
banks might also learn more clearly the viewpoint of the board on
tters, some of which are of relatively small importance and could
e disposed of during the period of examination.
A
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority
“
l()Q 2 fa
#■
Memorandum to Mr. Paulger.
-4-
February 15, 1956.
Atlanta (Continued)
11In your letter you make reference to the possibility that to
some of the member banks the actions of the Board or its staff
may seem •bureaucratic or impractical or unduly rigid1. It is
undoubtedly true that a number of the member banks may have re
garded some of the rulings, decisions and requirements of the
Board as being somewhat harsh and burdensome. We think that we
should say, however, that in many instances this point of view
was the result of a failure to understand that the Board’s ac
tions were required by the Banking Act of 1955 and were not the
result of some arbitrary action taken by the Board itself. In
all such cases we have endeavored to make plain to the banks that
the particular ruling of the Board or some specified requirement
was made or imposed because of provisions of law and not as a reg
ulation originating in the Board."
"As regards the relations between the Board and the Federal re
serve bank we desire at all times the utmost of harmony and coop
eration. It might be well, however, for the Board to take under
advisement the question of whether the expenditure of relatively
small amounts, in cases where there is no specific authorization
by law and the object to be attained is not improper or unlawful,
might perhaps be left to the various Federal reserve banks and
not call for special authority given by the Board.
"The examiners also sometimes criticise unimportant matters involv
ing questions of local management rather than of general policy.
"We are not endeavoring to particularize and are only suggesting
that in so far as minor matters are concerned — matters which in
volve no question of general policy and are of purely local concern—
more of autonomy might be left to the Federal Reserve Banks and
greater latitude be given to its officers and directors for the
exercise of their discretion."
Nashville Branch
"General credit situations
(a)
Are commercial banks doing everything in their power to im
prove the situation?
Generally speaking they are. Some are not on account of so
much red tape and a lack of understanding regarding the rules
and regulations.
(b)
If not, what steps can be taken by the Federal Reserve Banks,
or otherwise, to bring about an improvement?
Examiners’ criticisms have discouraged character loans and in
many cases character loans constitute material benefit to the
community. Better understanding between the Federal Reserve
Banks and their member banks."
1
7
*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority A 'A V )
Memorandum to Mr. Paulger.
l(X)2fc>
-5-
February 15, 1956.
Birmingham Branch
"There is ample opportunity for examiners to make constructive and
helpful suggestions to the officers of the Federal Reserve Banks, as
they often do, and a frank discussion of questions is usually benefi
cial. However, for an examiner to write a criticism in his report,
as is sometimes done, without first discussing the matter with the of
ficers of the bank is hardly fair, and it is not productive of the best
results. In order to put the matter in concrete form, we cite a specific
case: Our guard program at this branch has been carefully thought out
through a period of two years, it had been personally looked into by the
directors and any action of consequence had been approved by them. It is
reasonable to suppose that the conclusions arrived at in this way are
safer to follow that (sic) the conclusions of an examiner, however able,
who is here only a few days and who has little opportunity to study the
situation.
”Near the end of this two-year period an examiner from the Federal Re
serve Board came, and while here he did not even mention our guard sit
uation to the officers, but in his report he wrote a very general crit
icism of it. The fact was that before he came we had plans under way
to greatly strengthen the situation; and these plans were carried out
before we had seen, or heard of, his report. The presumption is that
managements are desirous to improve their program along all lines,
therefore for an examiner to discuss measures with them would be more
helpful than to criticise a situation without first asking what plans
had been made to remedy it. The chief objection to this sort of atti
tude on the part of examiners is not alone that it is unfair, but that
managements may agree to unwise proposals rather than to incur criti
cism.”
Chicago
MToo much detail of management and supervision of member banks handled
by Federal Reserve Board. Better service would be rendered member banks
if Federal reserve banks were given authority to supervise and make de
cisions on matters of policy and operation of member banks in their dis
trict, the Federal Reserve Board acting as an appeal board in the event
of disagreement.”
”It would also seem that the responsibility for not only the administra
tion but the details of examination and supervision of member banks
should be placed on the accredited Agent of the Federal Reserve Board
in each district, such administration to be under policies established
by the Board. It seems imperative, under any form of a central banking
system in this country, of wide area and varied interests, that there
be regional agencies with an understanding and an intimate knowledge
on the ground of communities, conditions and men and it seems obvious
that such an agent should be qualified to administer and to supervise
the member banks more effectively than could be done from a centralized
office.”
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority
y
~
--- :
Memorandum to Mr. Paulger.
... -
■. r
-6 -
■
-■ '
'
~~
'
February 15, 1956.
Chicago (Continued)
,!Under the present system of the review of the minutest details of
each examination of member banks by the staff of the Federal Reserve
Board, there appears to be a duplication of the work performed by the
Federal Reserve Agent’s department. This also applies to the close
study and search which is given by the Agent in formulating recommenda
tions for trust powers, applications for membership, directors and
voting permits, and other similar matters of administration, and from
this dual review of detail, there arises much correspondence and delay
and some inconvenience to member banks in matters which are more tech
nical than important."
"This is not a criticism of the staff itself with whom our relations
have been especially happy and who have beenvery helpful and courteous,
but rather a suggestion of an unnecessary duplication of administra
tion and supervision. It seems to me that the Agent should be allowed
a reasonable discretion in these matters and that his recommendations
should prevail without a complete review of more or less insignificant
details."
"The member banks feel very close and are in continual personal contact
with the Federal Reserve Agent’s Departments, in a relationship of coop
eration and helpfulness, while the Federal Reserve Board is to them
something more or less remote. It therefore seems wise that in so far
as possible, such relationships be conducted by the Agent with the mem
ber banks, rather than direct from Washington."
"The General Credit Situation— it is believed that commercial banks
generally are eager to make good loans. However, the banking catas
trophes of the last few years have tended to put banks in a defensive
attitude, which many of them unwittingly retain. This has not been
heretofore helped by the attitude of many of the examiners. During
these years, bankers have necessarily concerned themselves primarily
with collecting or strengthening the loans already in their portfolios
and their attitude toward any new loans has been a passive one and
waiting for the borrower to come to them."
Minneapolis
"Examination of Banks
1.
It would be desirable to centralize the control of examination
of banks in the hands of a National committee. This Examining Com
mittee would consist of one representative each from the Reconstruction
Finance Corporation, the Federal Reserve Board, the Comptroller of the
Currency and the Federal Deposit Insurance Corporation, who, together
v/ith four men elected by the National Association of Bank Supervisors
of the United States, would elect one additional member. The Examin
ing Committee should control and make all examinations of banks in the
)
>
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority /^A^)
Memorandum to Mr. Paulger,
1(102.(p
-7-
February 15, 1956
Minneapolis (Continued)
United States, all represented organizations to be allowed to use
these examinations as they deemed fit; this Committee to formulate
all procedure and oversee the work."
"Other Relations with Commercial Banks
*
*
*
4.
The Federal Deposit Insurance Corporation should charge for its
examinations so that the non-member banks will have no advantage over
the State member banks in this matter if we begin charging for our
examinations •"
Dallas
"With reference to the relations between the Board and the Reserve
banks, we feel confident that there is no conscious tendency on the
part of the Board to be unduly *bureaucraticf. At the same time,
we recognize that in connection with such matters as applications
for Clayton Act permits, voting permits, fiduciary powers, and State
bank membership, the Board is necessarily handicapped to some extent
by its remoteness from the localities in which these applications
originate, and its lack of the intimate knowledge of local conditions
and other factors which the officers and directors of the Reserve
bank possess and which they frequently find it difficult to convey
adequately in a letter. For these reasons, we feel that the Board
in arriving at a decision in such matters, especially when it feels
that the case involved is of a *border line’ character, could well
afford to rely upon the judgment and recommendations of the Reserve
banks and delegate to them a somewhat larger measure of responsibil
ity in such cases than they now exercise. Such discretionary powers
as might be entrusted to the Reserve banks would be exercised, of
course, within the regulations and in harmony with the policies as
established by the Reserve Board, and, in order that a fair degree
of uniformity might obtain in the several districts, the Board’s
examiners could review the actions taken just as they now inquire
into, or check, other matters of equal or greater importance in the
operations of the banks."
San Francisco
"It would be very helpful if the question of charges for examination
of State member banks would be definitely settled. A few Reserve
Banks charge for practically all examinations; others charge in
special cases, while some make no charge whatever. If charges are
to be made, the conditions under which they are to be imposed, and
the basis of fixing them, should be uniform throughout the twelve
districts. Members, as well as banks contemplating entering the
System, should have a definite understanding as to the System’s
practice."
reproduced tram the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED“
Authority
Memorandum to Mr. Paulger.
-8-
February 15, 1956.
San Francisco (Continued)
nIt is believed that no charge should be made by a Federal Reserve
Bank if the member bank, during the same calendar year, had paid an
examination fee to the State Banking Department or the"Federal De
posit Insurance Corporation. However, banks which are in so unsat
isfactory a condition as to necessitate examinations more frequently
than one annually should pay the cost of such extra examinations con
ducted by the Federal Reserve Bank.”
Matters of suggestion and criticism which applied either directly or
indirectly to the work of this Division in connection with Clayton Act per
mits and voting permits have not been indicated herein,except in certain
pertinent instances, in view of the fact that subsequent to the receipt of
these letters the entire Clayton Act procedure has been changed and the
voting permit requirements have been substantially modified.
References
were made to the feeling on the part of officials of member banks that too
many reppxt^ were required but it is felt that this situation is of interest
to the Division of Bank Operations and the Board at large rather than to the
work of this Division
Reproduced trom the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority
*
10 0 ^
Memorandum Regarding Replies of Federal Reserve
Banks to Board1® letter of February 6 , 1935
Containing List of Questions.
During an informal meeting of the Governors of the
Federal reserve banks with the Board on February 5 1 stated
that it would be helpful to the Board if the reserve banks
would frankly point out any features of relations between the
Board and the reserve banks and member bonks which in their
opinion are unsatisfactory or subject to criticism,with special
reference to regulations, rulings or procedure of the Board.
I also stated that if in any respect the actions of the Board or
its staff seem bureaucratic, impractical or unduly rigid, the
Board desired to be advised fully. In addition I suggested a
number of subjects for discussion by the directors and officers
of the banks. These subjects were incorporated in a list attached to the Boards letter of February 6 , 1955, The replies
received have been summarized and each Federal reserve bank has
been furnished with a copy. In addition, they are undergoing
a study by the members of the Board and its staff with the view
of taking any action that might seem appropriate or desirable
in the light of the suggestions or criticisms received from the
banks.
I wish to express my appreciation of the thoroughness
with which the directors and officers of the banka have studied
these questions and the frank and constructive nature of the re
plies that have been received. In many cases suggestions were
submitted which it is believed offer a helpful basis for re
vision of existing regulations and consideration of changes in
future policies.
Without referring to every subject that was discussed
or attempting to forecast the Board’s action in any way there
are certain matters to which I wish to make reference at this
time.
The activities of the Federal reserve banks and com
mercial banks with respect to industrial loans will be discussed
with you by Mr, Bzyaczak who, as you know, has been giving special
attention to that subject.
With respect to matters affecting admission of non
member banks to the Federal reserve system I note that with the
exception of Richmond, Atlanta, Minneapolis and Kansas City the
reserve banks reported that exchange collection charges are not
an important factor in deterring banks from y a k i n g admission to
M n m i i S
Rcpiuuuieu irum me unciassinea / Declassified Holdings ot the National Archives
DECLASSIFIED
Authority /VA
~
S /T 2 ^-
- £ -
membership, since, generally speaking, non-member banks &r* either
on the per list and derive no income from this source or exchange
collection charges have been superseded by service charges. How
ever, as you may know, the House of Representatives changed the
proposed Banking Act of 1955 so as to eliminate the time limit
prescribed by existing law within which banks must be admitted to
the Federal reserve system in order to retain membership in the
Federal Deposit Insurance Corporation. The Board feels strongly
that unification of the commercial banking facilities of the
country in the Federal reserve system is essential to adequate
supervision and regulation of the banking system and feels that
it will be unfortunate if the requirement for admission to the
system were wholly eliminated as proposed by the House, The Board
adheres to this view but is suggesting that if in the Judgment of
the Congress it is advisable to make some modification of the re
quirement of existing law an exception might be made of banks having
deposits of less than 1500,000, Such an exception would very largely
eliminate the problem of banks with small earnings which may feel
dependent upon exchange collection charges as a source of necessary
revenue and at the same time the banks whose deposits are a material
factor In the banking situation would be required to come into the
system.
The Federal reserve banks made & number of very construc
tive suggestions regarding the conditions of membership customarily
prescribed by the Board for admission of banks to the system and
these have been receiving very earnest and careful consideration.
It is hoped that a satisfactory revision and substantial simplifi
cation of the existing conditions will be formulated for considera
tion at an early date.
The question of admission of banks located in Hawaii,
Alaska and Puerto Rico is receiving the active consideration of a
committee of the Board members and it is believed that a conclusion
as to the Board1 s policy will boon be reached.
With respect to reimbursement of Federal reserve banks by
the Treasury and other governmental agencies for various services
rendered and for space used in Federal reserve bank buildings, I
understand that this subject has received your active consideration
and that progress is being made. f .^4
» A
A survey of the economic research and statistical work done
at the Federal reserve banks is being made under the direction of
Dr, Miller and the Boards division of research and statistics and
the expression of the views of the Federal reserve banks in that con
nection has been very helpful.
nepruuucea rrom me unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority
• 5 -
X believe that there was some misunderstanding of the
thought involved in the reference to the subject of a career system
for personnel at Federal reserve banks* X am told that some of
those who considered the subject supposed that it involved something
in the nature of a civil service system comparable to that of the
government*
Such an idea was not in my mind in suggesting that
subject*
What X had in mind was the possibility that men of un
usual or exceptional ability need not be confined in their oppor
tunities for advancement in the Federal reserve system to the par
ticular banks in which they began their services but that considera
tion might be given to the feasibility of establishing some system
by which ability found among the personnel of a particular bank
■might be recognised when opportunities for advancement in other
banks developed which otherwise could not be met without going out
side of the Federal reserve system*
With respect to interlocking relationships under the
Clayton Act and Section 52 of the Banking Act of 1955 the matter
of clarifying and simplifying these provisions of law has received
the very earnest consideration of the Board and it is submitting
to the Committees in Congress amendments to the banking bill which
are designed for the purpose not only of eliminating entirely the
present permit procedure but also of making plain in the statute
itself exactly what is prohibited and what exceptions are allowed*
One of the provisions of the proposed Banking Act of 1955
would empower the Board to relieve itself of the detailed handling
of many routine matters and enable It to confine itself principally
to the determination of general policies* It is hoped that with
such authority the Board will be able to leave very largely to the
Federal reserve banks the issuance of voting permits, the admission
of banks to the system, and other similar matters under general
policies and regulations established by the Board* In this connec
tion one of the provisions of the Banking Act of 1955 would eliminate
so-called "accidental" holding company affiliates from the voting
permit requirements of the Banking Act of 1955, and would authorize
the Board to waive rejjorts and examinations of affiliates when it
is found that they are not necessary for the information of the
Board as to the relations of such affiliates with member banks*
Every effort is being made to expedite the handling of
the Board1s business and to remove the causes of criticisms for
delays in answering inquiries and Issuing interpretations and
rulings and it is hoped that the service that the Board may be
able to render to the Federal reserve banks in these matters will
be much improved*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority
fJ/V b
Z f lQ 2 f c >
4
1
?
Fe d e r a l R e s e r v e
o f
N
e w
Y
Ba n k
o r k
May 25, 1955.
S i r s :
I have for acknowledgment jyour letter of May 15, 1955 (X-9210)
with which were transmitted two copies of the digest and summary of the
replies of the Federal reserve banks to the Board’s letter of/February
6 , 1955 (X-9115) requesting the views of the directors and officers of
the banks on certain subjects set out in the last-mentioned letter.
In
accordance with the Board’s request, one copy of the digest and summary
has been handed to the governor of this bank for his use.
The digest and summary have been read by me with a great deal
of interest, and I have found them most instructive.
It would seem to me
that a knowledge of the viewpoint of each of the Federal reserve banks on
these important subjects should prove most helpful not only to the Board
but to the banks as well, and I think that the Board has done something
veiy constructive and helpful in soliciting these opinions and summarizing
them and making them available to all the Federal reserve banks.
Federal Reserve Board,
Washington, D. C
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority A / A V )
F E D E R A L
R E S E R V E
OF
BANK
DALLAS
C.C. W A LS H
May 13, 1935
C H A IR M A N O F T H E B O A R D
AND FE D E R A L R E SE R V E AG E N T
, RECEIVED
f e d e r a l r e s e r v e do
W A S H E D T 0 i'l
i * r,y
20
PH
Federal Reserve Board
Washington, D. C#
Gentlemens
ATTENTION:
Mr* Chester Morrill, Secretary
Receipt is acknowledged of your letter X-9210, of
May 15, 1935, accompanied by two copies of digest and summary
of replies from all of the Federal reserve banks and the views
expressed, in response to Governor Eccles* letter of February
6 , 1935, X-9115.
I have retained one copy for my own use, and passed
to Governor McKinney the other copy#
I observe the Board’s suggestion that immediately
following the meeting of the Federal Open Market Committee
which is to be held on Monday, May 27, there be a Governors*
conference for the purpose of discussion of some of the subjects
embraced within the list referred to above#
Very truly yours,
y i& tA / iu M z
Chairman of the Board
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
iQ Q Z fr
Authority _/^A V )
FEDERAL RESERVE tiOARD FILE
3 ^ 7 ,
<5 >v<z:
9)
o
<V> A
</> "•
k
Mr, Chester Morrill, Secretary,
Federal Reserve Board,
Washington, D. C,
<r
$
Dear Mr* Morrill:
Receipt is acknowledged of your letter of
May 15, 1935 (X»9210), with which you transmit ted” two copies
of the digest and summary of detailed replies made hy all of
the Federal reserve hanks to Governor Eccles1 letter of Feb-
ruaiy 6 , 1935 ( S - 9H 5 ) .
One copy of
delivered to Governor Newton
Board 1 3 suggestion that some
be discussed at a Governors1
following the meeting of the
May 27th*
the digest and summary has been
and his attention called to the
of the subjects embraced therein
Conference to be held immediately
Federal Open Market Committee on
Very truly yours,
a
- 3
Reproduced from the Unclassified / Declassified Holdings of the National Archives
/ Ilf ,
/;
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S O F F IC IA L C O R R E S P O N D E N C E T O
T H E FED ERAL RESERVE B O ARD
May 15, 1935.
xtrded
Dear Sir:
It m i l be recalled that there was transmitted with
Governor Eccles’ letter of February 6, 1935, X-9115, a list of sub
jects upon which the views of the directors and officers of the
Federal reserve banks were desired.
The Board has received detailed
replies from all of the Federal reserve banks and the views ex
pressed have been carefully digested and summarized.
There are
transmitted herewith two copies of the digest and summary, one of
which
4L8 for your use and the other for the use of the Governor.
The Board has suggested that immediately following the
meeting of the Federal Open Market Committee which is to be held
on Monday, May 27, there be a Governors’ Conference and it is
likely that some of the subjects embraced within the list referred
to above will be discussed.
Very truly yours,
Chester Morrill,
Secretary.
Inclosures.
TO ALL CHAIRMEN.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S O F F IC IA L C O R R E S P O N D E N C E T O
TH E FED ERAL RESERVE BOARD
X-
s
TO ALL CHAIRMEN:
May 14, 1955.
Dear Sir:
It will be recalled that there was transmitted with
Governor Eccles 1 letter of February 6 , 1955, X-9115, a list of
subjects upon which the views of the directors and officers of
the Federal reserve banks were desired.
The Board has received
detailed replies from all of the Federal reserve banks and the
views expressed have been carefully digested and summarized.
There are transmitted herewith two copies of the digest and sum
mary, one of which is for your use and the other for the use of
the Governor.
The Board has suggested that immediately following the
meeting of the Federal Open Market Committee which is to be held
on Monday, May £7, there be a Governors* Conference and it is
onmtemp^htad that some of the .subjects embraced within the list
referred to above will be ineluded In the.topiea suggested far
chtrien addressed te the-Governors of the Federal reserve banks
w&ich will be sent to them as soon as possible.
Very truly yours,
Inclosure s.
Secretary.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority / X A ^
ZOO
X -
F o r m N o . 131
A 'X r /*•
1
Orhce Correspondence
To
From.
FEDERAL RESERVE
BO
ARD
9 /7 V
rw April 5. 1955.
Mr. Morrill
Mr. Bethea.
\
There are attached a digest and its appendices which
have been prepared in this office of the reports received from
the Federal reserve banks in response to the Board’s letter of
February 6 , 1955 (X-9115).
My conception of the objectives to be attained in pre
paring a digest of these reports was not only to summarize, in
as few pages as possible, the views expressed on each subject,
but to correlate conclusions, to disclose divergent opinions, and
to call attention to individual suggestions or comments.
The appendices were conceived with the idea that members
of the Board and its staff would desire to have some convenient
method of referring to the original comments or views of the re
spective banks, to the text of the standard conditions of member
ship, and to the subjects upon which the Board has issued general
regulations. While the appendices appear formidable in size, it
should be borne in mind that they have been prepared primarily
for reference purposes and as a necessary adjunct to the digest it
self. Inasmuch as the material received from the reserve banks, in
most instances, had been condensed by them as much as practicable,
it has been necessary in several cases to include in appendix A
practically the entire statements made on certain topics.
The reports, which consist of typewritten material equiva
lent to about two hundred and eighty-five double spaced pages, have
been boiled down in the digest to approximately thirty-five pages;
a ratio of about eight to one. It may be added that the last of
the material from the reserve banks in response to the Board’s let
ter X-9115 was received in this office yesterday.
It is assumed that division heads or other members of the
staff who may be vitally interested in the detailed discussions of
one or more of the various subjects will refer, of course, directly
to the original reports, which have been assembled by districts in the
attached file with correspondence pertinent thereto.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
hlXIASSIFIFl)
Authority
If)/)2 (^ ,
V
Digest of Reports Received from Federal
Reserve Banks in Response to Board *8
Letter bated February 6 , 1935
............ o r a u s T -------- -
V - ”-
3 ^ 7 - > 5
During an informal meeting of the governors of the Federal reserve
^
banks with the Federal Reserve Board on February 5, Governor Eocles stated
that it would be helpful to the Board if the reserve banks would frankly
point out any features of the relations between the Board and the reserve
banks and member banks# which in their opinion are unsatisfactory or sub
ject to criticisms, with special reference to any regulations, rulings or
procedure of the Board.
Governor Eccles also stated that, if in any re
spect the actions of the Board or its staff seem bureaucratic, impractical
or unduly rigid, the Board desires to be advised fully so that it may take
such action that may appear desirable to correct and improve the situation.
In addition, Governor Eccles suggested a number of subjects for discussion
by the directors and officers of the Federal reserve banks.
These comments
were incorporated in the Board’s letter of February 6 , 1935 (X-9115),
which also inclosed a list of the subjects to be considered, and the re
serve banks were requested to advise the Board as to their views with re
spect thereto.
In order to facilitate the consideration of the views expressed by
the reserve banks pursuant to the Board’s request, the reports received
are summarized herein under the several topics itemized in the Board’s let
ter.
An appendix to the digest includes, MA" significant excerpts from, or
summaries of, the individual comments of each reserve bank, nBM the text
of the eighteen standard conditions of membership now being prescribed,
http://fraser.stlouisfed.org/
? 7 « W > ^ /5/3
Federal Reserve Bank of St. Louis
S ~ ___________________________________ _______ ________ ________ \
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
lQQ2£l
Authority
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and MC" a list of regulations prescribed by the Board and now in effect.
1.
General credit situation.
(a) Are commercial banks doing everything in their power to im
prove the situation?
It appears that the reserve banks are unanimously of the opinion
that commercial banks are doing everything in their power to make loans
on a reasonably sound basis.
The reserve banks report that with very few
exceptions the banks are making a sincere effort to make credit available
to their customers and, in some localities, they are advertising their
willingness to make loans.
(b) If not, what steps can be taken by the Federal reserve banks
or otherwise to bring about an improvement?
There is a lack of unanimity in the views expressed by the reserve
banks as to what steps should be taken to bring about an improvement in
the general credit situation.
It may be said that in general there is a
feeling that the continuation of industrial loan and public relations ac
tivities and the liberalization of eligibility requirements covering paper
offered for rediscount would be helpful.
However, several of the banks
apparently feel there is little, if any, remedial action which could be
taken at this time.
The Hew York bank has commented at length on this subject, and
its views largely encompass the suggestions made by the other reserve
banks.
Briefly it may be said that New York regards the question as in
volving a whole range of problems, including the ultimate character of
our commercial banking system, the disposition of our savings bank business,
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the provision of intermediate term credit and -working capital for indus
trial enterprises, and the functioning of the long-term private capital
market•
It believes that permanent measures for improvement should be
directed toward those weaknesses in our banking structure which contributed
so heavily to the banking difficulties of the past and that a temporary
step might be the enactment of that section of the proposed Banking Act
of 1935 which would authorize the Board to define eligible paper and au
thorize the reserve banks to make advances to member banks on their promis
sory notes secured by any sound asset.
It feels also that delay in
reopening the private capital market is a critical obstacle to the
progress of recovery, and that it would be desirable to revise the Securi
ties Act of 1933 and the Banking Act of 1933 so as to remove unnecessary
interference with the functioning of the capital market.
Minneapolis suggests that constructive leadership by the Board in
analyzing and interpreting the present business situation would be useful
in restoring confidence.
It also suggests that, if the proposed Banking
Act of 1935 should fail of enactment, the Board might propose to the Con
gress that it vote a special fund to be used by the Federal reserve banks
in discounting long-term loans for the commercial banks of the country.
2.
Interest rates.
(a)
On time and savings deposits of member bankst
It is the consensus that the present maximum limitation of Z^fo on
the rate of interest which may be paid on time and savings deposits of
member banks is satisfactory.
New York does not favor detailed regulation
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of such rates by national action, and indicates that in its judgment
there should be relatively infrequent adjustments of the maximum rate in
accordance with shifts in the trend of long-term rates of interest,
leaving detailed adjustments below this maximum to the individual banks.
It points out that frequent adjustment
of the maximum rate tends to fix
upon the Board the responsibility for continuous control and to take from
the member banks their initiative in such matters.
It is variously suggested that in establishing a maximum interest
rate consideration should be given to the average earnings from this
source for the average bank, allowing a sufficient spread to cover over
head and a reasonable profit5 that the Board should lean toward a rate high
enough to meet the requirements of banks in less fortunate communities;
and that the need of savings depositors for income should not be disre
garded.
Minneapolis submits the suggestion that legislation should be passed
prohibiting insured nonmember banks from paying higher rates of interest
than member banks, and that the Board should endeavor to induce States to
pass laws prohibiting non-insured banks from paying higher rates than in
sured banks.
(b)
On loans of member banks and on industrial advances and com
mitments by Federal reserve banks;
In general the reserve banks feel that the prevailing interest
rates charged on loans by member banks are equitable, although it is
recognized that such Ir.iWb have not kept pace with the decline in the
general level of interest rates and are inclined to vary but little ex
cept in the large centers where prime credit risks receive preferred
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treatment#
Practically all of the reserve banks believe that existing
rates on industrial loans and commitments are justified under present con
ditions#
However, separate detailed reports covering this phase of the
subject are being submitted by the reserve banks in response to the
Board’s letter of February 11, 1935 (X-9122), and a separate digest of
such reports is being prepared for submission to the Board•
3. Matters affecting admission of nonmember banks to Federal reserve
systems
M
Warnings of nomaember banks from exchange collection charges;
With the exception of Pdchmond, Atlanta, Minneapolis and Kansas
City, the reserve banks report that exchange collection charges are not
an important factor in deterring banks from seeking admission to member
ship in the Federal reserve system, since, generally speaking, nonmember
banks are either on the par list and derive no income from this source or
exchange collection charges have been superseded by service charges.
How
ever, nonmember banks located in the Carolines in the Fifth District, the
States comprising the Sixth and Ninth Districts, and Nebraska in the Tenth
District, are reported to refrain from applying for membership in the
System largely by reason of the necessity for relinquishing income derived
from exchange collection charges. More detailed information with respect
to these areas is contained in Appendix A in the comments of the individual
reserve banks affected.
(b)
Present conditions of membership;
While several of the reserve banks feel that the standards of mem
bership should not be lowered and make no specific criticisms of the
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conditions of membership now being prescribed, the weight of opinion is
definitely in the direction of revision and simplification.
The member
ship conditions now imposed are generally criticized because they are too
numerous and, in some instances, overlaps they impose restrictions ade
quately covered by statute; and they are more drastic than those pre
scribed prior to the banking holiday.
The feeling prevails that, so far
as possible, there should be uniform requirements of membership imposed
upon all member banks and that, looking toward ultimate unification of the
banking system, some liberalization in existing requirements may be justi
fied.
Hew York classifies the present membership conditions into three
groupst
viz., (l) those that serve to subject State member institutions
to certain provisions of law affecting national banks to which such State
institutions might or would not otherwise be subject,
(2)
those that are
designed to keep reserve banks and the Board informed as to certain mat
ters affecting their relations with the State member banks, and
(3)
those that serve as reminders to such institutions of certain features of
good banking practice and of certain provisions of the statute which might
otherwise be overlooked.
(See Appendix B for text of eighteen standard
conditions of membership*)
New York regards conditions numbered 7, 8, 9
and 18 as falling in group one; conditions numbered 1, 9, 12 and 14 in
group two; and conditions numbered 2, 3, 4, 5, 6, 7, 8, 10, 11, 13, 15,
16 and 17 in group three.
It points out that the purposes of the several
conditions overlap to some extent, and states that, in its opinion, condi1,
9, 10, 14, 16 and 18 should be retained in their
tions numbered/ 2, 3, 5, 6 and 15jrtw«4pd seem unnecessaryf''and conditions
conditions numbered f
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numbered 4, 11 and 13, which are adequately covered by statute, should
be eliminated.
It suggests also that condition numbered 7 should be
omitted, and that conditions numbered 8, 12 and 17 should be revised.
Of the six present conditions which New York indicates should be
retained in their present form, one or more of the other banks have sug
gested the revision of conditions numbered 1, 10 and 18, which would
leave only three conditions unchanged, i.e., numbers 9, 14 and 16.
How
ever, Minneapolis states that the existing membership conditions are so
voluminous and involved that they frighten the prospective member, and it
recommends that the general conditions of membership be reduced to the
following simple form:
"This bank agrees to abide by the present and
future rules and regulations prescribed by the Federal Reserve Board and
to conduct its business according to sound banking principles’*.
Minne
apolis also suggests that the other matters incorporated in the present
conditions be imposed in the rules and regulations of the Board or speci
fied as special conditions of membership in certain cases.
(c)
Advisability of extension of membership to banks outside the
States and the District of Columbia:
Nine of the reserve banks either make no comment with respect to
this question, state that they are not in a position to offer suggestions
as to the policy which should be adopted, or indicate that they know of
no reason why membership should be denied banks situated in Alaska or in
a dependency or insular possession of the United States.
The views of
the remaining three reserve banks may be summarized as follows: New York
suggests that a general survey be made of economic and banking conditions
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in the areas affected before determining the policy to be followed, St.
Louis believes that banks outside the States should be encouraged to be
come members of the System in furtherance of unified banking, and San
Francisco is of the opinion that banks situated in Alaska and Hawaii do
not appear to need the facilities offered by membership in the System and
that, as a practical matter, it would seem desirable not to admit to mem
bership other than national banks situated in those Territories.
4. Need for continuance of assistance of Reconstruction Finance Corpora
tion in connection with rehabilitation of capital structures of banks.
The reserve banks unanimously report that there is need for con
tinued assistance by the Reconstruction Finance Corporation in connection
with the rehabilitation of capital structures of banks.
There are some
divergent views as to the length of time such activity should continue
which, apparently, is due primarily to the various stages of progress
made in the respective districts toward completion of rehabilitation pro
grams previously undertaken.
The consensus is to the effect that such
assistance will be required at least until July 1, 1937, in anticipation
of nonmember banks seeking admission to membership prior to that date.
On the other hand, New York believes that the Reconstruction Finance Cor
poration should definitely terminate its activities in this field when
the present program has been completed, and Minneapolis says that "assis
tance by the Reconstruction Finance Corporation in providing capital for
banks should be continued until all existing banks are adequately capital
ized".
In other words, Minneapolis believes that there should always be
in existence
an agency to assist banks which are in a weakened condition,
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and that this function of the Reconstruction Finance Corporation should
be continued until the Federal Deposit Insurance Corporation or some
other agency is in a position to take over the work.
5. Adequacy of reimbursement of Federal reserve banks by Treasury and
other governmental agencies for various services rendered and for space
used in Federal reserve bank buildings.
All of the reserve banks indicate that adequate reimbursement is
not being received from the Treasury and other governmental agencies for
various services rendered and for space used in Federal reserve bank
buildings.
It appears that the Treasury reimburses the reserve banks
only for expenses relating to 11new issues” in connection with fiscal
agency activities on behalf of the Department; that no reimbursement
whatever is made for services rendered as depositary, etc.; and that con
tracts are in effect with most of the other governmental agencies Thereby
the banks are reimbursed only for salary and out of pocket expenses.
The
banks are practically unanimous in saying that complete reimbursement
should be obtained for all services, particularly at the present time,
in view of the limited earnings of some of the banks.
This subject is
receiving consideration by a committee of governors, and it is anticipated
that some satisfactory solution to the problem can be worked out.
6. Regulation fixing margin requirements for loans by banks upon equity
securities for the purpose of purchasing or carrying securities registered
on national securities exchanges.
(a)
Circumstances under which regulation should be issued:
The weight of opinion is to the effect that the Board should issue
a regulation fixing margin requirements for loans by banks on equity securi
ties for the
purpose of purchasing or carrying securities registered on
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national securities exchanges prior to the time -when there is an active
demand for credit of this character, and certainly before bank loans of
this type assume large proportions. A large minority feel that it would
be desirable to issue the regulation promptly, by reason of the fact
?^f
dealings in securities at the present time are in such small volume that
any unfavorable reaction to the regulation would produce a minimum of
disturbance and would enable the banks to familiarize themselves with the
regulation before the actual need for it arises.
The majority, however,
would be inclined to delay issuance of the regulation until such time as
a heavy speculative movement is in prospect, in order to allow further
time to observe and study the operation of Regulation T and to avoid
placing further restrictions upon bank lending which would tend to be de
flationary at a time when banks are being encouraged to adopt a liberal
policy in this respect.
Cleveland states that, in its opinion, "Section
7(b) of the Securities Exchange Act of 1934 is impracticable, and until
such time as the law is simplified the issuance of the regulation should
be deferred".
San Francisco draws a distinction between bank loans for
the purpose of carrying equity securities made to customers who are not
dealers and those who are dealers, and says " * * * that regulations
should be promulgated and made effective in regard to loans by banks to
dealers.
Such regulations should be more liberal than those governing
loans by dealers to their customers".
(b)
Vfoether regulation should permit borrower to obtain from
bank more than he could obtain from broker under Regulation T:
There is no unanimity of opinion with regard to whether the proposed
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regulation should permit a borrower to obtain from a bank more than he
could obtain from a broker under Regulation T.
Several of the reserve
banks feel that there is no logical basis for discrimination in favor of
a bank as against a broker in fixing margin requirements and that a bor
rower should not be permitted to obtain more credit of this character from
a bank than he could obtain from a broker under Regulation T.
Others ex
press the view that some liberalization in favor of the banks should be
permitted, particularly in connection with regular customers where loans
are made not solely on the basis of collateral and are not of the "open
market" variety,
lew York and Chicago believe that a different approach
from that underlying Regulation T must be made in determining the charac
ter of regulation to be issued, and that further study should be given to
the question.
Dallas suggests that, if the Board should decide to issue
immediately a regulation applicable to banks, the marginal requirements
included therein should be somewhat more liberal than those now applied to
brokers and dealers under Regulation T, and that this differential should
continue until and unless an era of unusual speculative activity should
occur or seem imminent, at which time such marginal requirements for banks
should be made the same as those prescribed in Regulation T for brokers,
reverting to the modified basis after the emergency has passed.
San Fran
cisco states thatzin any regulation governing loans by banks, a marked
distinction should be made between loans to customers in which the borrower
has used the proceeds to finance the purchase or carrying of equity securi
ties, and loans secured by stocks in which the borrower has used the proceeds
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to finance transactions unrelated to the purchase or carrying of equity
securities.
7.
Economic and statistical divisions of Federal reserve banks*
(a)
Usefulness to directors and officers:
With the exception of Boston, Chicago and San Francisco, the re
serve banks take the position that they could not function as efficiently
without the services of an economic and statistical organization.
More
over, they variously regard the statistical data, charts, etc. which such
a department supplies as "very helpful", "very valuable", "essential", and
"indispensable" to their directors and officers.
The Boston bank seems
to feel that its statistical department should be maintained, although
apparently the department has not been drawn on very heavily for informa
tion by the directors and officers.
Chicago definitely recommends the
discontinuance of its statistical organization with the exception of suf
ficient personnel to supply the needs of the Board.
San Francisco expresses
the thought that much of the data compiled by its division of analysis and
research serves a purpose in a field much larger than that in which reserve
bank officers are immediately concerned in dealing with their credit
granting operations.
It believes that its directors and officers are kept
generally informed as to credit and economic trends through the medium of
the Federal Reserve Bulletin and similar economic reviews.
(b)
Value of Federal reserve bank monthly reviews:
Most of the reserve banks feel that the monthly reviews are of
However, it is
value and their publication should be continued. / the consensus of the
directors and officers of the Chicago bank
that the
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publication of the review should be discontinued,* although Chairman
Stevens personally states that it is widely read and quoted and, in his
opinion, is valuable.
San Francisco is somewhat noncoimnital on this sub
ject but does say that 11As to the direct necessity for statistical in
formation for the conduct of the Federal Reserve Bank of San Francisco,
it could be supplied by a reduced organization.”
The banks, with the ex
ceptions noted, stress the point that, aside from the value of the infor
mation contained in these reviews to their own organizations, they are of
value to member banks and business interests as a medium of information
on current conditions within the districts, and that the reviews generally
create favorable publicity for the reserve banks.
8.
Establishment of career system for personnel of Federal reserve banks.
The reserve banks, generally, favor a system-wide career plan.
However, Chicago says:
”A career system might be advisable as an objec
tive, but as long as our present system of unit commercial banking exists,
it is essential that ’new blood’ be brought in so the System may be kept
in touch with and abreast of the problems of not only banicing but industry
and agriculture, which is largely missed if the personnel has grovm. up
within the System.”
Dallas feels "that transfers should be limited very
largely to employees holding the more technical or specialized positions,
although the transfer of others holding higher or even less important po
sitions should not be precluded” .
San Francisco mentions the fact that
the Board some sixteen years ago approved a policy designed to encourage
a feeling that the reserve banks offer a career in which appropriate
compensation and reward might be received and refers to the Board’s Annual
http://fraser.stlouisfed.org/
* (Note - Chicago
Federal Reserve Bank of St. Louis
executive committee on March 29 voted to discontinue publication.)
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Reports for the years 1918 and 1921 (see Annual Reports 1918 - pp 29,
1921 - pp 366).
The following sentence is quoted from page 29 of the
1918 Annual Report:
"The Board does not believe that the Federal reserve
banks should become training schools for future officers of member banks;
it feels, on the contrary, that sufficient inducements should be offered
by the Federal reserve banks to make service with them attractive as a
career."
A minority expresses doubt as to the practicability of a system-wide
plan, but is thoroughly in accord with the maintenance of a merit system
and the encouragement of promotion within the ranks of the respective bank
organizations.
Cleveland, for example, stresses the importance of long
residence in a particular district and of intimate knowledge of conditions
and affairs in such district as being prerequisites to maximum efficiency.
It, also, together with Boston, Philadelphia and Richmond, questions the
advisability of uprooting officers and employees of long continuous service
in a particular district, thus requiring them to sever ties and social con
nections, in order to transfer to another district.
The thought is ex
pressed that in certain cases these considerations might very well outweigh
any material advantages which might accrue to those individuals by reason
of such a change.
Attention is called to the individual comments of hew
York, Philadelphia, Richmond and San Francisco contained in Appendix A
in regard to this subject.
9« Criticisms of existing regulations or rulings or procedure of the Fed
eral Reserve' Board, with specific recommendations as to changes which*
would correct any unsatisfactory features of the relations between the
Board or its staff and the Federal reserve banks or member banks•
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-15The criticism which has been almost universally made by the re
serve banks relates to -what is regarded as a tendency on the part of the
Board to exercise too close a supervision of the various banks, particular
ly with respect to matters which they regard as peculiarly within their
own jurisdiction, of minor importance or/^urel^ol/^iocal concern.
This
major question is discussed more fully below under the caption "regional
autonomy."
Another matter for which the Board has been subjected to consider
able criticism by the reserve banks is the policy it has followed in regard
to the granting or withholding of permits, including voting permits to
holding company affiliates and permits covering interlocking relationships
under the Clayton Act and Section 32 of the Banking Act of 1933.
In the
opinion of the Boston bank, this policy "is potentially the most prolific
single cause of criticism on the part of member banks and others, of the
Federal Reserve Board."
Other matters of general criticism include:
the policy followed
by the Board with respect to the approval of salaries and minor expendi
tures of the reserve banks; the multiplicity of reports which member banks
are required to prepare; delay in receiving rulings, par lists and replies
to letters written to the Board regarding administrative matters, the need
for revision of many, if not all, of the existing regulations of the
Board; and, the need for a current "digest of rulings" incorporating all
important interpretations of the law and regulations.
The gist of the comments relating to the foregoing general criti
cisms
is as follows:
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Regional autonomy:
New York feels that the Board’s policy in recent years has re
quired the making of an enormous number of decisions and involved the
assembly in its offices in Washington of a vast amount of detailed data
with respect to matters of relatively minor importance, the administration
of which could better be delegated to the individual Federal reserve
banks vdthin the limitations of broad general policies established by
the Board.
The existing procedure, New York believes, has caused multipli
cation of work, delays in taking action, increased expenses of administra
tion, and a separation between those (member banks and others) subject to
administrative control and those exercising the details of that control,
which encourages the growth of bureaucratic methods.
It is New York’s view that nothing would contribute more to the
/
(
J" SfCzt t C 8*j»i»nw.
establishment of satisfactory relations between the Board and the reserve
banlcs than the adoption by the Board of a broad general policy which would
accord to the actions of the boards of directors of the- reserve banks,
with respect to matters of bank administration, district problems, or
other matters concerning which the law gives the directors initial responsi
bility, the presumption that such actions are right and proper unless ob
viously in conflict with general System policies established by the Board,
x\
or with the statutes. It believes that ,in any case where the Board feels
that it must disapprove of the action taken by the board of directors of
a reserve bank, or where it has reasons which it feels justify its over
ruling the presumption in favor of the correctness or wisdom of the action
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talcen by the directors, it would seem to be clearly a matter of good
organization that the reasons for the Board’s disapproval should be trans
mitted to the directors.
Otherwise, New York says, it is difficult to
see how it will be possible to develop and to maintain a wise and harmoni
ous accord between the Board and the several boards of directors in the
conduct of the System’s affairs.
Philadelphia:
” * * * in the earlier years of the System we felt
that the Board realized that the banks were conducting the operations of
the System, and their disposition was to be cooperative and helpful.
Having this feeling, we consulted freely with the Board, or m th individ
ual members, and never failed to get a sympathetic hearing and helpful
advice or suggestions.
We regret to have to say that in later years we
have noticed a changed attitude on the part of the Board.
A disposition
to distrust and criticise seems to have succeeded to the former disposi
tion to help.**
Richmond:
” * * * it has for a long time been the feeling of our
directors that the contacts of the Board and Board members with our di
rectors (individually and collectively) is not as intimate and as close
as is believed to be desirable.
Our directors have felt * * * that in
matters of broad policy they have not at times been made familiar T&th
the views and policies of the Board or the Board members, and it is be
lieved that the coordination of the Federal reserve banks would be pro
moted by more informal and intimate contact and exchange of views between
the Board members (individually and collectively) and the administration
of Federal reserve banks
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"We are * * * only suggesting that in so far as minor
matters are concerned —
matters which involve no question of general
policy and are of purely local concern —
more of autonomy might be left
to the Federal reserve banks and greater latitude be given to its officers
and directors for the exercise of their discretion."
Chicago thinks that "too much detail of management and supervision
of member banks (is) handled by Federal Reserve Board", and that "better
service would be rendered member banks if Federal reserve banks were given
authority to supervise and make decisions on matters of policy and opera
tion of member banks in their district, the Federal Reserve Board acting
as an appeal Board in the event of disagreement."
St. Louis:
"As to relations between the Board and the reserve
banks or member banks, it has been suggested that it would be helpful if
more authority and discretion could be delegated to the directors and
officers of the Federal reserve banks - the men in the field.
The Board
could issue broad general principles for guidance of the reserve banks
and they would handle and carry out the details of specific cases.
The
reserve bank would refer to the Board only borderline cases and those
that involve questions of policy.
It is thought that the extension of
this plan would relieve the Board of considerable detail work, place more
responsibility on the Federal reserve banks, and promote closer relations."
Kansas City:
"As a general policy we believe that all matters of
local Federal reserve bank management not inconsistent with System policy,
should be made the responsibility of the officers and directors of the
regional banks, with the minimum of restrictions and regulations on the
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’jpart of the Federal Reserve Board.”
Dallas:
” * * * we recognize that in connection with such mat
ters as applications for Clayton Act permits, voting permits, fiduciary
powers, and State bank membership, the Board is necessarily handicapped
to some extent by its remoteness from the localities in which these appli
cations originate, and its lack of the intimate knowledge of local condi
tions and other factors which the officers and directors of the reserve
bank possess and which they frequently find it difficult to convey ade
quately in a letter•
For these reasons we feel that the Board, in arriving
at a decision in such matters, especially when it feels that the case in
volved is of a ’border line’ character, could well afford to rely upon the
judgment and recommendations of the reserve banks and delegate to them a
somewhat larger measure of responsibility in such cases than they now
exercise.
Such discretionary powers as might be entrusted to the reserve
banks would be exercised, of course, within the regulations and in harmony
with the policies as established by the Reserve Board, and, in order that
a fair degree of uniformity might obtain in the several districts, the
Board’s examiners could review the actions taken just as they now inquire
into, or check, other matters of equal or greater importance in the opera
tions of the banks.”
(b)
Voting permits:
With respect to the granting or withholding of voting permits,
Boston reports that ”we have had some indication that conditions imposed
have been looked upon as going beyond the requirements of the law or have
been considered too burdensome or impractical of fulfillment”, and it
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believes ’’that it might serve to eliminate causes of criticism if an op
portunity -mere afforded to discuss the conditions with the applicant before
they are definitely imposed.”
Hew York suggests that a broader view might have been taken of the
statute and a more liberal policy pursued.
It points out that the statute
itself seems to indicate that it was intended that such permits be granted
or withheld on broad grounds, and that instead of merely determining
whether it is in the public interest to grant or withhold particular per
mits, it appears that the Board has made each application for a voting
permit a means of bringing pressure to bear, not only on the subsidiary
member banks but subsidiary nonmember banks as well, to make immediate
charge offs or eliminations of estimated losses and depreciation and to
strengthen their capital structures to a degree that could hardly be said
to be required to give effect to the policy of the statute.
It is stated
that in many cases the holding company affiliate has been asked to agree
to do things as a condition to the issuance of a permit to which its di
rectors and officers have conscientiously felt the company could not agree,
resulting in considerable embarrassment and irritation on the part of the
holding company officials and of the subsidiary banks, and difficult and
time consuming negotiations on the part of the officers of the reserve
bank to obtain compliance with the Board’s requirements•
Hew York raises
a question as to whether it is within the fair intent of the statutes or
whether it is necessary or desirable to take the occasion of such applica
tions to hasten desirable actions by banks in the matter of charge offs,
etc., and believes that subsidiary banks and holding company affiliates,
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for the reasons stated, have been subjected to more severe treatment than
have other member banks, both State and national, which are not subsidi
aries of holding company affiliates.
The reserve bank points out that,
notwithstanding the compliance of many holding company affiliates with the
Board’s requirements, only two general voting permits have been issued to
holding company affiliates in its district up to the present time, and it
recommends that the Board consider the advisability of adopting the gen
eral policy of issuing general voting permits in all cases except those
in which it appears that the issuance of such permits would not be in the
public interest and that limited permits be issued only in exceptional
cases rather than as a general practice.
(c)
Clayton Act permits:
With respect to Clayton Act applications and permits, Boston
states that ”while no specific criticism has been received by us, we sur
mise that application forms have been considered unnecessarily broad in
the scope of the personal information requested.”
Boston also believes
that unfavorable reaction resulted from the Board’s practice of commenting
upon the directors’ attendance at meetings of boards of directors of non
member banks, or upon an applicant’s indebtedness to a nonmember bank, as
features to be taken into consideration in granting or withholding a Clay
ton Act permit, and indicates that these considerations may be regarded
(L A S
nbeyond the concern of the Board”•
New York concurs in the feeling expressed in the Board’s letter of
January 9, 1935 (X-9082), that the procedure during the past year in
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connection with Clayton Act applications has not only "been cumbersome
but has not produced entirely satisfactory results.
It has been the r e
serve bank’s experience that this procedure has operated in many instances
to deprive member banks of the services of valuable directors, even where
it has been shown that the institutions covered by the application of a
given individual were not so situated as to be in substantial competition;
that even in instances where permission has been granted to continue inter
locking relationships, the voluminous amount of information required of
an applicant in support of his application and the delay incident to the
disposition of his application has occasioned much irritation among bank
directors and officers and the feeling that they have been subjected to
regulation unnecessarily oppressive in character.
New York reports that
repeated instances have come to its attention in which directors of na
tional banks who were serving at the same time as officers and directors
of other banking institutions have elected to discontinue their services
to one or more of the banks rather than undertake to obtain the permission
of the Board to continue such relationships.
New York feels also that it
was not the intention of the Congress to place upon the Board the responsi
bility of passing upon the general qualifications of applicants for service
as bank directors, and it recommends that the Board give consideration to
6 rV v
the advisability of adopting permanently the policy expressed in the letter
mentioned above, regardless of whether the law remains as it is as present
or whether it is amended by the enactment of the proposed Banking Act of
1935.
Atlanta believes that the granting of a permit in cases where an
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officer or director has manifestly abused his office or has been negli
gent in the discharge of his duties would be incompatible with the public
interest, and that the basis for the granting or vdthholding of a permit
not
should/rest entirely on the question as to whether or not the banks in
volved are in competition. In fact, it regards the question of competition
as of relatively minor importance in the case of banks which are not with
in the prohibitions of Section 8 of the Clayton Act.
(d)
Section 32 of the Banking Act of 1935:
Boston, New York and Philadelphia are of the opinion that the
Board’s denial of permits under Section 32 of the Banking Act of 1933 has
worked a hardship in many cases upon member banks, and Boston states "it
is our impression that the Board’s reasons for denying the permits have
not always been looked upon as convincing’1, and that it believes the
granting of permits in several instances of the kind referred to "would
not have been incompatible with the public interest."
New York states that the practical result of the Board’s inter
pretation of Section 32 has been that a number of member banks have been
deprived of the services of valuable directors and officers, even though
no information was disclosed which would reflect in any degree upon the
desirability of such individuals as directors or officers of the member
banks in question except that the relationships covered by their applica
tions came within the Board’s interpretation of the provisions of that
section*
This has given rise, according to the New York bank, to a
feeling that the Board’s policy with respect to the administration of
Section 32 has been unnecessarily strict and inelastic.
It states,
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hovrever, that in view of pending amendatory legislation it is not offer
ing any suggestions as to a possible modification of the existing policy,
but would like to give further consideration to the question and to have
the privilege of submitting a supplemental report in the event the pro
posed amendment fails of enactment.
(e)
Salaries and expenditures:
The New York bank states that in recent years the exercise by
the Board of its responsibilities with respect to salaries of the officers
and employees of the reserve banks has involved ’’unwarranted encroachment
upon the time of both the Board and the directors of the bank, and has
interfered with the maintenance of a salary schedule * * * which would
give proper recognition to the duties and responsibilities of the individ
ual members of the bank’s staff as well as to an appropriate relationship
between the salaries of different members of the staff”•
New York feels
that the Board should confine itself to broad questions of policy in this
field of Federal Reserve System operation, and should not attempt to con
trol details of intra-bank administration.
It admits that while the
total salary expenditures of a reserve bank properly may be a matter of
concern to the Board, it feels that the division of that total within the
bank involves questions which, by their nature, must be reserved to the
board of directors and officers of the individual banks who are in close
touch with the work of the bank and the participations of various individ
uals in that work*
It suggests that it would seem desirable to extend
the idea underlying the established practice with respect to employees of
the banks in the lower salary ranges with some modifications in form to
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the officers of the hanks and employees in the higher salary brackets.
New York suggests that the Board formulate a general policy for the
guidance of the reserve banks in this connection which should contemplate
leaving the utmost discretion as to individual salaries* as contrasted
with total salary expense* to
the boards of directors of the reserve
banks.
In regard to this subject, Philadelphia states:
"we cannot avoid
the feeling that the close and constant attention paid by the Board to
matters of employment, promotion and compensation comes very close to
operation rather than supervision and indicates a lack of confidence in
the interest and ability of our directors” .
Chicago criticizes the "lack of agreement between our salary com
mittee and Board prior to action of board of directors of this bank” .
Atlanta suggests that "it might be well * * * for the Board to
take under-advisement the question of whether the expenditure of relatively
small amounts, in cases where there is no specific authorization by law
and the object to be attained is not improper or unlavrf'ul, might perhaps
be left to the various Federal reserve banks and not call for special au
thority given by the Board."
(f)
Multiplicity of reports required of member banks:
Atlanta advises that its examiners report that member banks com
plain of the number, variety and extent of reports which they are required
to prepare, and that member banks would welcome a revision of report forms,
a reduction of requests for reports to a minimum, and consolidation of
reports wherever possible.
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Chic ago, St. Louis,
26-
Minneapolis, Kansas City and Dallas all con
cur in the opinion that member banks are burdened with the preparation
of too many reports and urge that further consideration be given to cur
tailing requirements in this respect so far as possible.
(g)
Delay in receiving rulings, par lists and replies to letters:
Richmond:
"The difficulty of obtaining prompt reply from the
Board, or from the staff of the Board, upon administrative matters aris
ing out of regulations and rulings is due no doubt to the tremendous
pressure of matters upon both the Board and its staff, and we therefore
have no particular criticism in this connection.
But nevertheless we are
often handicapped, and even embarrassed in some instances, by such delay."
Atlanta:
"In connection with our dealings with member banks, and
'the
particularly in the handling of/work of the Federal reserve agent, prompt
ness on the part of the Board in giving rulings and in replying to letters
asking for advice would be of great assistance."
St. Louis:
"Our transit department suggests that the par list and
supplements thereto be distributed earlier, if possible about the 8th of
the month of issue.
* * * Frequently as much as a month elapses before
the completed par list or supplement is received, which has led to numerous
inquiries from banks as to the routing of checks."
Minneapolis:
"It would be advantageous to reduce the length of
time consumed in the printing and furnishing of par lists and monthly sup
plements thereto.
Our changes in the par list are always in the Federal
Reserve Board1s office
on the second of the month.
We do not receive the
semi-annual par list until thirty days after the beginning of each semi
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annual period, and the monthly supplements are received from twenty to
thirty days after the date -when they "become effective. * * * This long
our
delay causes misrouting of items by/member banks. The par lists might
be printed in Chicago or St* Louis to shorten mailing time and to elim
inate delays in the Government Printing Office.”
(h)
Need for revision of existing regulations:
All of the Board’s regulations, with the exception of M, N and S,
have been criticized by one or more of the reserve banks, either by
specific reference to a particular regulation or to the substance thereof.
It appears that more of the reserve banks have specifically urged the
revision of Regulations D, H, L and Q than any of the others (see Appendix
C for list of existing regulations showing the alphabetical designations,
series and subject).
Kansas City suggests that the earlier regulations of the Board
(A to L) might well be amended and reissued because of the changes which
have been made in the law since their last revision, and that all regula
tions which have been supplemented by X-letters or interpretations should
be revised and reissued to give effect to such rulings. "While Kansas City
feels that, because of pending legislation, it may not be desirable at
this time to recodify all of the Board’s regulations, it suggests that
jxLfvt—
those regulations which have been issued to interpret the Banking Act of
h
1933 and subsequent legislation should have immediate attention.
Minneapolis, Kansas City and Dallas state that Regulation D
should be revised to avoid the conflict with Regulation Q by eliminating
the requirement that a demand deposit reserve be maintained against time
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deposits -which are payable within thirty days•
Minneapolis states that
such a change -would eliminate much confusion incident to reserve calcula
tions, maintenance of records, etc., in country banks.
It regards this
as one of the most irritating minor matters and states that it causes a
great mass of corrective correspondence.
St. Louis, Minneapolis and Kansas City specifically mention the
necessity for the revision of Regulation Hj bbwever, this view appears to
be practically unanimous in view of the comments made with respect to mem
bership requirements under topic 3-b.
Richmond and Kansas City in particular submit certain questions
having to do with the interpretation of Regulation Q.
Dallas thinks that
it Vv-ould be desirable for the Board to revise Regulations L, P, Q and T in
the light of certain rulings and interpretations which the Board has is
sued in connection with their provisions.
Boston reports with respect to
Regulation T that many nonmember banks, including savings banks, have ob
jected to signing agreement form 1-1 required by the Regulation in order
to qualify under Section 8(a) of the Securities Exchange Act.
Specific suggestions and criticisms are set forth in Appendix A
in the individual comments of the respective reserve banks.
(i)
pretations :
Heed for current digest of Boards rulings, including inter
Minneapolis, Kansas City and Dallas suggest that it would be
helpful to the reserve banks if the Board would issue a revised edition
of its ”digest of rulings”, incorporating therein the various important
rulings and interpretations which the Board has promulgated since the
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existing digest covering the period 1914-1927 was published, thus bring
ing it up to date with respect to recent legislation and the Board1s
interpretations of new laws*
Minneapolis states that a digest of X-letters
which are still in force should be prepared by the Board and submitted for
the use of all reserve banks, since there have been more than 9,000
A
X-letters issued, many of which are obsolete, and it is becoming very
difficult for the banks to keep their operations in accordance with this
volume of instructions.
(j)
Distribution of X-letters to member banks:
Kansas City and Dallas are of the opinion that important X-letters
containing rulings issued by the Board, particularly those which apply to
Federal laws or regulations governing the operations of member banks,
should be given general distribution among the member banks by the reserve
banks•
In this connection, Dallas says: n * * * At present, we are pro
hibited from either furnishing or quoting these X-letters to member banks,
often
which, in our opinion,/creates a situation that is embarrassing to them
in their relations with bank examiners, and tends to give an undue
advantage to the particular bank or banks for whose benefit the rulings
were issued*
This suggestion applies, of course, to those interpretations
which the Board is by law authorized to make in connection vdth provisions
J ./HU ;; M "
'y ^
U
1
— --- / y?
In addition to the criticisms and suggestions discussed above
of the Federal Reserve Act” .
which were made by two or more of the reserve banks* a number of original
comments were contained in reports of certain reserve banks which are set
out below:
/
VUv'v "'
w
f-ips'i"<A>,
V
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New York; "We have had two cases in this district where State member
"Hanks have applied for permission to open branches in accordance with
the law of the State. The Federal Reserve Board and the Comptroller of
the Currency have, in these cases, made requirements as to certain
charge-offs and eliminations* This has occasioned resentment as the
banks felt that it was unjust that a request for authority to establish
branches of small importance relative to the total of the bank’s business
should be made the occasion of such requirements* This feeling has been
intensified by the fact that national banks which have opened branches
in the State during the same period have not been made the subject of
similar requirements.
"It is believed that a more liberal policy might be pursued
in this matter without detriment to the public interest,"
Philadelphia: "In June, 1S32, at the request of President Hoover, vje got
twelve men of local prominence to serve as a ’Banking and Industrial
Committee’• These gentlemen contributed their own valuable time, their
Chairman contributed his Secretary to act as Secretary of the Committee,
a local bank gave them quarters in its building rent-free, and they col
lected a very considerable sum of money from trades benefitted by a
’Renovise’ campaign, which they waged with great success. As we were un
able to contribute to their work either space or personnel, we agreed to
bear, for a limited number of months, the very moderate salaries of two
or three high-grade men they had to employ. Our total expenditures on
account of this Committee were about #3,800. Although the times were
critical and we were all overworked, we were harassed by constant inquiries,
from your Secretary as to these men, their duties, their compensation, and
the date of expiration of their employment* Even after the employment of
the last man had ceased, on the date previously named to him, he inquired
whether it had ceased.
of employees over thirty days,
"* * * We have been in the habit of reporting absences/on ac
count of sickness, to our Executive Committee, which approved extensions.
The minutes of the Executive Committee, including these details, have al
ways been read to and approved by the Board at its next meeting. We can
not see the reason for requiring that the attention of the Board, which
has more important matters to consider, should be taken up with the de
tails of each individual case - character of illness, age, prognosis, etc.
We have, however, been instructed that this must be done.
"In two cases - that of the Berks County Trust Company of Read
ing, and the ’Main Line Trust Company’ of Ardmore - the Board took posi
tions which indicated a total lack of confidence in the directors and
officers of this bank, and a contempt for their judgment. Indeed, in the
latter case, their comments to the Chairman and Governor cannot be charac
terized otherwise than as offensive•
"We deplore the Board’s insistence that all officers and em
ployees of reserve banks must divorce themselves from all civic and
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-31’’community interests. Mr* Austin’s enforced resignation from the Treasur
er ship of the Chamber of Commerce has cut off a valuable contact with the
business interests of the city. The same is true of Mr. Norris’ severance
from the Beneficial Saving Fund Society. Perhaps the most striking illus
tration is the insistence that a clerk in our Currency Department may not
oblige his neighbors by serving them on the School Board of a small
country township. We feel that it is to the interest of the System, as
well as to the interest of the communities in which the banks are located,
that officers and employees should maintain useful business contacts, and
do their duty as citizens, where such contacts and duties create no em
barrassment, and in no wise interfere with the performance of their work*1'
Clevelandi "In this connection, we believe that it might be helpful to
the federal Reserve Board and to the Federal reserve banks if a consulting
committee were set up, composed of operating officials of the reserve banks,
which the Board could consult if it so desired, especially in connection
with the drafting of regulations which involve complicated operating
problems for member banks and Federal reserve banks. A similar arrange
ment might be helpful in connection with the issuance by the Board of in
structions to reserve banks setting up accounting procedures
Atlanta: f,We believe that it would be beneficial to the officers of the
reserve banks were the examiners of the Federal Reserve Board at the time
of making examinations of reserve banks to offer constructive and helpful
suggestions. This would bring about frank discussions which would not only
be beneficial, in our opinion, to the officers of the Federal reserve banks
but would also eliminate discussions by correspondence. Through such con
structive suggestions the officers of the reserve banks might also learn
more clearly the viewpoint of the Board on matters, some of which are of
relatively small importance and could be disposed of during the period of
examination.”
Minneapolis: ’’The Federal Reserve Board should determine and state defi
nitely how far Federal reserve agents are to go in action toward the
removal of bank officers for inefficiency, incompetency, undesirable past
records, and other reasons than criminal procedure.
/other
”The Federal reserve agent should have the power to veto an
application for a national bank charter even though the Comptroller of
the Currency is in favor of granting it. The regional banks understand
local situations and are not subject to influences which might be brought
to bear upon the Comptroller• Past experience has indicated that such
authority in the hands of the Federal reserve agent would have prevented
numerous bank failures in this district.
"The Federal reserve agent should be granted the power to pass
on applications of State bsinks for membership in the Federal Reserve System
without submitting every case to the Federal Reserve Board for final ac
tion. This would give the Federal reserve agent more facilities for
closing a deal with a nonmember bank on the spot when the officials of
the nonmember bank are in a mood to join the System* Also much needless
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11delay and confusion in passing on applications would be eliminated. The
need for this decentralization will be very apparent if the Banking Act
of 1935 is passed, for the Federal Reserve Board will find it very diffi
cult to handle the flood of applications which will be presented to it
for approval.
"If the Banking Act of 1935 is passed, the regulations under
which banks with capital below the present minimum for membership are al
lowed to enter the Federal Reserve System should be formulated after re
ceiving the advice of the Federal reserve agents, who are closely in touch
with the problems in the field.
’"It would be desirable to centralize the control of examina
tion of banks in the hands of a Rational committee. This Examining
Committee would consist of one representative each from the Reconstruction
Finance Corporation, the Federal Reserve Board, the Comptroller of the
Currency and the Federal Deposit Insurance Corporation, who, together with
four men elected bv the Rational Association of Bank Supervisors of the
United States, would elect one additional member. The Examining Committee
should control and make all examinations of banks in the United States,
all represented organizations to be allowed to use these examinations as
they deemed fits this Committee to formulate all procedure and oversee the
work.
"In view of the fact that the Federal Reserve Board grants
trust powers, the Federal Reserve Board should have the power to take
away trust powers, and this power should cover both national and State
member banks, the natural corollary to which would be that the Federal
Reserve Board, through the Federal reserve examining agency, should make
examinations of national as well as State trust companies.
"The Federal Reserve Board should alter the fora of published
bank statement in use by member banks so that such statements vrould give
the actual present appraised values of assets, and so that the titles of
assets would give the public a clearer idea of just what classes of assets
are being carried by the bank such as pledged assets, second mortgages
and contracts, and defaulted bonds.
"If banks are to be permitted to make long-time real estate
loans, it would be desirable for the Federal Reserve Board to initiate a
movement for member banks to issue long-term certificates of deposit for
five or ten years, following the Swiss method. If that system were
adopted, the ratio of mortgage loans for any bank should be limited to
some percentage of the amount of the bank’s long-term certificates out
standing .
"The present method of limiting capital to a certain minimum
ratio to deposits appears to be too rigid and arbitrary to meet all con
ditions. Further study should be made of this matter and the rules
should probably be made more flexible.
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11The Federal Deposit Insurance Corporation should charge for
its examinations so that the nonmember banks m i l have no advantage over
the State member banks in this matter if we begin charging for our ex
aminations •
"Called reports are unnecessarily detailed and contain
several schedules which are probably never used. Yfe suggest that the
present form be modified to eliminate unnecessary schedules, and that
these long forms be required only twice a year. For the intervening two
calls, banks should be allowed to prepare only the short form for publica
tion. Supervising authorities with two complete called reports and two
examinations for each bank, annually, would have sufficient information
for administrative purposes.
"More frequent conferences should be held between representa
tives of the Federal Reserve Board and the Federal reserve banks to plan
procedure in matters of System interest. All Federal reserve banks should
be represented at such conferences by those at interest to avoid unneces
sary correspondence and to permit of a full exchange of experience and
ideas.
"At the next accounting conference of representatives of all
of the Federal reserve banks, we recommend that a review be made of all
accounting reports now made to the Federal Reserve Board, with a view to
eliminating any unnecessary or obsolete reports and to consolidating
other reports to reduce the volume of accounting work in the Federal re
serve banks.
"The Federal Reserve Board should occupy a position similar to
that of the Supreme Court, with pensions for life upon retirement of its
members, to remove the Board entirely from political and economic influ
ences . It would be advisable to alter the pending legislation to give
every member who retires from the Federal Reserve Board, at the comple
tion of the term for which he accepts appointment, a pension for life of
approximately the same salary which he receives as a member of the Fed
eral Reserve Board."
Minneapolis also recommends that, if the proposed Banicing Act
of 1935 is enacted, the Board issue the necessary regulations with regard
to interlocking directorate relationships under the Clayton Act at the
earliest possible time, and that the Board also define the term "executive
officer" in connection with the amendment to Section 22(g) of the Federal
Reserve Act as soon as possible.
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San Francisco: "It would be -very helpful if the question of charges
for examination of State member banks would be definitely settled. A
few reserve banks charge for practically all examinations; others charge
in special cases, while some make no charge whatever• If charges are to
be made, the conditions under which they are to be imposed, and the
basis of fixing them, should be uniform throughout the twelve districts.
Members, as well as banks contemplating entering the System, should have
a definite understanding as to the System’s practice
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. I n f o tri
3SCTI0W
P ^ _ i 2 r i 9 4 2
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in
X-9174
Federal Reserve
Board
OFFICE CORRESPONDENCE
To
Mr. Morrill
From
Mr. Bethea
April 5, 1935.
There are attached a digest and its appendices which have
been prepared in this office of the reports received from the Fed
eral reserve banks in response to the Board's letter of February 6 ,
1935 (X-9115).
My conception of the objectives to be attained in prepar
ing a digest of these reports was not only to summarize, in as few
pages as possible, the views expressed on each subject, but to cor
relate conclusions, to disclose divergent opinions, and to call
attention to individual suggestions or comments.
The appendices were conceived with the idea that members
of the Board and its staff would desire to have some convenient
method of referring to the original comments or views of the re
spective banks, to the text of the standard conditions of member
ship, and to the subjects upon which the Board has issued general
regulations. While the appendices appear formidable in size, it
should be borne in mind that they have been prepared primarily for
reference purposes and as a necessary adjunct to the digest itself.
Inasmuch as the material received from the reserve banks, in most
instances, had been condensed by them as much as practicable, it
has been necessary in several cases to include in appendix A prac
tically the entire statements made on certain topics.
The reports, which consist of typewritten material equiva
lent to about two hundred and eighty-five double spaced pages, have
been boiled down in the digest to approximately thirty-five pages;
a ratio of about eight to one. It may bo added that the last of
the material from the reserve banks in response to the Board's let
ter X-9115 was received in this office yesterday.
It is assumed that division heads or other members of the
staff who may be vitally interested in the detailed discussions of
one or more of the various subjects will refer, of course, directly
to the original reports, which have been assembled by districts in
the attached file with correspondence pertinent thereto.
a
j G
>
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-n
Digest of Reports Received from Federal
section
Reserve Banks in Response to Board1s
1 -P V
Letter Dated February 6 , 1955
v u I 2 ^1942
(X-9115)
—
— f —During an informal meeting of the governors of the Federal reserve
banks with the Federal Reserve Board on February 5, Governor Eccles stated
that it would be helpful to the Board if the reserve banks would frankly
point out any features of the relations between the Board and the reserve
banks and member banks, which in their opinion are unsatisfactory or sub
ject to criticisms, with special reference to any regulations, rulings or
procedure of the Board.
Governor Eccles also stated that, if in ary re
spect the actions of the Board or its staff seem bureaucratic, impractical
or unduly rigid, the Board desires to be advised fully so that it may take
such action that may appear desirable to correct and improve the situation.
In addition, Governor Eccles suggested a number of subjects for discussion
by the directors and officers of the Federal reserve banks.
These comments
were incorporated in the Board’s letter of February 6 , 1935 (X-9115),
which also inclosed a list of the subjects to be considered, and the re
serve banks were requested to advise the Board as to their views with re
spect thereto.
In order to facilitate the consideration of the views expressed by
the reserve banks pursuant to the Board’s request, the reports received
are summarized herein under the several topics itemized in the Board’s let
ter.
An appendix to the digest includes, ”A” significant excerpts from, or
summaries of, the individual comments of each reserve bank, MB” the text
http://fraser.stlouisfed.org/
of the eighteen
Federal Reserve Bank of St. Louis
standard conditions of membership now being prescribed,
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and ’’C” a list of regulations prescribed by the Board and now in effect.
1.
General credit situation.
(a) Are commercial banks doing everything in their power to im
prove the situation?
It appears that the reserve banks are unanimously of the opinion
that commercial banks are doing everything in their power to make loans
on a reasonably sound basis.
The reserve banks report that with very few
exceptions the banks are making a sincere effort to make credit available
to their customers and, in some localities, they are advertising their
willingness to make loans.
(b) If not, what steps can be taken by the Federal reserve banks
or otherwise to bring about an improvement?
There is a lack of unanimity in the views expressed by the reserve
banks as to what steps should be taken to bring about an improvement in
the general credit situation.
It may be said that in general there is a
feeling that the continuation of industrial loan and public relations ac
tivities and the liberalization of eligibility requirements covering paper
offered for rediscount would be helpful.
However, several of the banks
apparently feel there is little, if any, remedial action which could be
taken at this time.
The New York bank has commented at length on this subject, and
its views largely encompass the suggestions made by the other reserve
banks.
Briefly it may be said that New York regards the question as in
volving a whole range of problems, including the ultimate character of
our commercial banking system, the disposition of our savings bank business,
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the provision of intermediate term credit and working capital for indus
trial enterprises, and the functioning of the long-term private capital
market.
It believes that permanent measures for improvement should be
directed toward those weaknesses in our banking structure which contributed
so heavily to the banking difficulties of the past and that a temporary
step might be the enactment of that section of the proposed Banking Act
of 1935 which would authorize the Board to define eligible paper and au
thorize the reserve banks to make advances to member banks on their promis
sory notes secured by any sound asset.
It feels also that delay in
reopening the private capital market is a critical obstacle to the
progress of recovery, and that it would be desirable to revise the Securi
ties Act of 1933 and the Banking Act of 1953 so as to remove unnecessary
interference with the functioning of the capital market.
Minneapolis suggests that constructive leadership by the Board in
analyzing and interpreting the present business situation would be useful
in restoring confidence.
It also suggests that, if the proposed Banking
Act of 1935 should fail of enactment, the Board might propose to the Con
gress that it vote a special fund to be used by the Federal reserve banks
in discounting long-term loans for the commercial banks of the country.
2.
Interest rates.
(a)
On time and savings deposits of member banks:
It is the consensus that the present maximum limitation of
2^% on
the rate of interest which may be paid on tine and savings deposits of
member banks is satisfactory.
New York does not favor detailed regulation
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of such rates by national action, and indicates that in its judgment
there should be relatively infrequent adjustments of the maximum rate in
accordance with shifts in the trend of long-term rates of interest,
leaving detailed adjustments below this maximum to the individual banks.
It points out that frequent adjustment of the maximum rate tends to fix
upon the Board the responsibility for continuous control and to take from
the member banks their initiative in such matters.
It is variously suggested that in establishing a maximum interest
rate consideration should be given to the average earnings from this
source for the average bank, allowing a sufficient spread to cover over
head and a reasonable profit; that the Board should lean toward a rate high
enough to meet the requirements of banks in less fortunate communities;
and that the need of savings depositors for income should not be disre
garded.
Minneapolis submits the suggestion that legislation should be passed
prohibiting insured nonmember banks from paying higher rates of interest
than member banks, and that the Board should endeavor to induce States to
pass laws prohibiting non-insured banks from paying higher rates than in
sured banks.
(b)
On loans of member banks and on industrial advances and com
mitments by Federal reserve banks:
In general the reserve banks feel that the prevailing interest
rates charged on loans by member banks are equitable, although it is
recognized that such rates have not kept pace with the decline in the
general level of interest rates and are inclined to vary but little ex
cept in the large centers where prime credit risks receive preferred
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Practically all of the reserve batiks believe that existing
rates on industrial loans and commitments are justified under present con
ditions.
However, separate detailed reports covering this phase of the
subject are being submitted by the reserve banks in response to the
Board’s letter of Februaiy 1 1 , 1935 (X-9122), and a separate digest of
such reports is being prepared for submission to the Board.
3. Matters affecting admission of nonmeraber banks to Federal reserve
system.
(a)
Earnings of nonmember banks from exchange collection charges;
With the exception of Richmond, Atlanta, Minneapolis and Kansas
City, the reserve banks report that exchange collection charges are not
an important factor in deterring banks from seeking admission to member
ship in the Federal reserve system, since, generally speaking, nonmember
banks are either on the par list and derive no income from this source or
exchange collection charges have been superseded by service charges.
How
ever, nonmeraber banks located in the Carolines in the Fifth District, the
States comprising the Sixth and Ninth Districts, and Nebraska in the Tenth
District, are reported to refrain from applying for membership in the
System largely by reason of the necessity for relinquishing income derived
from exchange collection charges.
More detailed information with respect
to these areas is contained in Appendix A in the comments of the individual
reserve banks affected.
(b) Present conditions of membership:
While several of the reserve banks feel that the standards of mem
bership should not be lowered and make no specific criticisms of the
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contiitions of membership nor/ being prescribed, the weight of opinion is
definitely in the direction of revision and simplification.
The member
ship conditions now imposed are generally criticized because they are too
numerous and, in some instances, overlap; they impose restrictions ade
quately covered by statute; and they are more drastic than those pre
scribed prior to the banking holiday.
The feeling prevails that, so far
as possible, there should be uniform requirements of membership imposed
upon all member banks and that, looking toward ultimate unification of the
banking system, some liberalization in existing requirements may be justi
fied.
How York classifies the present membership conditions into three
groupsj
viz., (1) those that servo to subject State member institutions
to certain provisions of law affecting national banks to which such State
institutions might or would not otherwise be subject,
(??.)
those that are
designed to keep reserve banks and the Board informed as to certain mat
ters affecting their relations with the State member banks, and
(S) those
that serve as reminders to such institutions of certain features of good
banking practice and of certain provisions of the statute which might other
wise be overlooked.
tions of membership.)
(See Appendix B for text of eighteen standard condi
New York regards conditions numbered 7, 8 , 9 and 18
as falling in group one; conditions numbered 1, 9, IB and 14 in group two;
and conditions numbered 2, 5, 4, 5, 6 , 7, 8 , 10, 11, 15, 15, 16 and 17 in
group three.
It points out that the purposes of the several conditions
overlap to some extent, and states that, in its opinion, conditions numbered
1, 9, 10, 14, 16 and 18 should be retained in their present form; that oon
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ditions numbered 2 , 5, 5, 6 and 15, which seem unnecessary, and conditions
numbered 4, J.l and 13, which are adequately covered by statute, should
be eliminated.
It suggests also that condition numbered 7 should be
omitted, and that conditions numbered 3, 12 and 17 should be revised.
Of the six present conditions which New York indicates should be
retained in their present form, one or more of the other banks have sug
gested the revision of conditions numbered 1 , 10 and 18, which would
‘eave only three conditions unchanged, i.o., numbers 9, 14 and 16.
How
ever, Minneapolis states that the existing membership conditions are so
voluminous and involved that they frighten the prospective member, and it
recommends that the general conditions of membership be reduced to the
following simple form:
’’This bank agrees to abide by the present and.
future rules and regulations prescribed by the Federal Reserve Board and
to conduct its business according to sound, banking principles.”
Minne
apolis also suggests that the other matters incorporated in the present
conditions be imposed in the rules and regulations of the Board or speci
fied as special conditions of membership in certain cases.
(c)
Advisability of extension of membership to banks outside the
States and the District of Columbia:
Nine of the reserve banks either make no comment with respect to
this question, state that they arc not in a position to offer suggestions
as to the policy which should be adopted, or indicate that they know of
no reason why membership should be denied banks situated in Alaska or in
a dependency or insular possession of the United States.
The views of
the remaining three reserve banks may be summarized as follows:
New York
suggests that a general survey ho made of economic and banking conditions
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in tho areas affected before determining the policy to be followed, St.
Louis believes that banks outside the States should, be encouraged to be
come members of the System in furtherance of unified banking, and San
Francisco is of tho opinion that banks situated in Alaska and Hawaii do
not appear to need tho facilities offered by membership in the System and
that, as a practical matter, it would seem desirable not to admit to mem
bership. other than national banks situated in those Territories.
4. Need for continuance of assistance of Reconstruction Finance Corpora
tion in connection with rehabilitation of capital structures of banks.
The reserve banks unanimously report that there is need for con
tinued assistance by the Reconstruction Finance Corporation in connection
with the rehabilitation of capital structures of banks.
There are some
divergent views as to the length of time such activity should continue
which, apparently, is due primarily to the various stages of progress
made in the respective districts toward completion of rehabilitation pro
grams previously undertaken.
The consensus is to the effect that such
assistance will be required at least until July 1, 1957, in anticipation
of nonmember banks seeking admission to membership prior to that date.
On the other hand, New York believes that the Reconstruction Finance Cor
poration should definitely terminate its activities in this field when
the present program has been completed, and Minneapolis says that "assis
tance by the Reconstruction Finance Corporation in providing capital for
banks should be continued until all existing banks are adequately capital
ized."
In other words, Minneapolis believes that there should always be
in existence an
agency to assist banks which are in a weakened condition,
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and that this function of the Reconstruction Finance Corporation should
be continued until the Federal Deposit Insurance Corporation or some
other agency is in a position to take over the work.
5. Adequacy of reimbursement of Federal reserve banks by Treasury and
other governmental agencies for various services rendered and for space
used in Federal reserve bank buildings.
All of the reserve banks indicate that adequate reimbursement is
not being received from the Treasury and other governmental agencies for
various services rendered and for space used in Federal reserve bank
buildings.
It appears that the Treasury reimburses the reserve banks
only for expenses relating to "new issues” in connection with fiscal
agency activities on behalf of the Department; that no reimbursement
whatever is made for services rendered as depositary, etc . 5 and that con
tracts are in effect with most of the other governmental agencies whereby
the banks are reimbursed only for salary and out of pocket expenses.
The
banks are practically unanimous in saying that complete reimbursement
should be obtained for all services, particularly at the present time,
in view of the limited earnings of some of the banks.
This subject is
receiving consideration by a committee of governors, and it is anticipated
that some satisfactory solution to the problem, can be worked out.
6 . Regulation fixing margin requirements for loans by banks upon equity
securities for the purpose of purchasing or carrying securities registered
on national securities exchanges.
(a)
Circumstances under which regulation should be issued:
The weight of opinion is to the effect that the Board should issue
a regulation fixing margin requirements for Loans by banks on equity securi
ties for the purpose of purchasing or carrying securities registered on
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national securities exchanges prior to the time when there is an active
demand for credit of this character, and certainly before bank loans of
this type assume large proportions.^ A large minority feel that it would
be desirable to issue the regulation promptly, by reason of the fact that
dealings in securities at the present time are in such small volume that
any unfavorable reaction to the regulation would produce a minimum of
disturbance and would enable the banks to familiarize themselves with the
regulation before the actual need for it arises.
The majority, however,
would be inclined to delay issuance of the regulation until such time as
a heavy speculative movement is in prospect, in order to allow further
time to observe and study the operation of Regulation T and to avoid
placing further restrictions upon bank lending which would tend to be de
flationary at a time when banks are being encouraged to adopt a liberal
policy in this respect.
Cleveland states that, in its opinion, "Section
7(b) of the Securities Exchange Act of 1934 Is impracticable, and until
such time as the law is simplified the issuance of the regulation should
be deferred."
San Francisco draws a distinction between bank loans for
the purpose of carrying equity securities made to customers who are not
dealers and those who are dealers, and says " *
* * that regulations
should be promulgated and made effective in regard to loans by banks to
dealers.
Such regulations should be more liberal than those governing
loans by dealers to their customers."
(b)
Whether regulation shouLd permit borrower to obtain from
bank more than he could obtain from broker under Regulation T:
There is no unanimity of opinion with regard to whether the proposed
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regulation should per,nit a borrower to obtain from a bank more than he
could obtain from a broker under Regulation T.
Several of the reserve
banks feel that there is no logical basis for discrimination in favor of
a bank as against a broker in fixing margin requirements and that a bor
rower should not be permitted to obtain more credit of this character from
a bank than he could obtain from a broker under Regulation T.
Others ex
press the view that some liberalization in favor of the banks should be
permitted, particularly in connection with regular customers where loans
are made not solely on the basis of collateral and are not of the "open
market11variety.
Raw York and Chicago believe that a different approach
from that underling Regulation T must be made in determining the charac
ter of regulation to be issued, and that f'orther study should be given to
the question.
Dallas suggests that, if the Board should decide to issue
immediately a regulation applicable to banks, the marginal requirements
included therein should be somewhat more liberal than those now applied to
brokers and dealers under Regulation T, and that tide differential should
continue until and unless an era of unusual speculative activity should
occur or seem imminent, at which time such marginal requirements for banks
should be made the same as those prescribed in Regulation T for brokers,
reverting to the modified basis after the emergency lias passed.
San Fran
cisco states that, in any regulation governing loans by basks, a marked
distinction should be made between loans to customers in which the borrower
has used the proceeds to finance the purchase or carrying of equity securi
ties, and loans secured by stocks in which the borrower has used the proceeds
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to finance transactions unrelated to the purchase or carrying of equity
securities.
7.
Economic and statistical divisions of Federal reserve hanks.
(a)
Usefulness to directors and officers:
With the exception of Boston, Chicago and San Erancisco, the re
serve "banks take the position that they could not function as efficiently
without the services of an economic and statistical organization.
More
over , they variously regard the statistical data, charts, etc. which such
a department supplies as "very helpful", "very valuable", "essential”, and
"indispensable" to their directors and officers. The Boston bank seems
to feel that its statistical department should be maintained, although
apparently the department has not been drawn on very heavily for informa
tion by the directors and officers.
Chicago definitely recommends the
discontinuance of its statistical organization with the exception of suf
ficient personnel to supply the needs of the Board. San Erancisco expresses
the thought that much of the data compiled by its division of analysis and
research serves a purpose in a field much larger than that in which reserve
bank officers are immediately concerned in dealing with their credit
granting operations,
It believes that its directors and officers are kept
generally informed as to credit and economic trends through the medium of
the Federal Reserve Bulletin and similar economic reviews.
(b)
Value of Federal reserve bank monthly reviews;
Most of the reserve banks feel that the monthly reviews are of
value and their publication should be continued.
However, it is the con
sensus of the directors and officers of the Chicago bank that the
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publication of the review should he discontinued,* although Chairman
Stevens personally states that it is widely read and quoted and, in his
opinion, is valuable.
San Francisco is somewhat noncommital on this
subject but does say that "As to the direct necessity for statistical in
formation for the conduct of the Federal Reserve Bank of San Francisco,
it could be supplied by a reduced organization. 11
The banks, with the ex
ceptions noted, stress the point that, aside from the value of the infor
mation contained in these reviews to their own organizations, they are of
value to member banks and business interests as a medium of information
on current conditions within the districts, and that the reviews generally
create favorable publicity for the reserve banks.
8 . [Establishment of career system for personnel of Federal reserve banks.
The reserve banks, generally, favor a system-wide career plan.
However, Chicago says:
"A career system might be advisable as an objec
tive, but as long as our present system of unit commercial banking exists,
it is essential that ’new blood 1 be brought in so the System may be kept
in touch with and abreast of the problems of not only banking but industry
and agriculture, which is largely missed if the personnel has grown up
within the System."
Dallas feels "that transfers should be limited very
largely to employees holding the more technical or specialized positions,
although the transfer of others holding higher or even less important po
sitions should not be precluded."
San Francisco mentions the fact that
the Board some sixteen years ago approved a policy designed to encourage
a feeling that the reserve banks offer a career in which appropriate
compensation and reward might be recieved and refers to the Board’s Annual
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Federal *(Note-Chicago
Reserve Bank of St. Louisexecutive
committee on March 29 voted to discontinue publication.)
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Reports for the years 1918 and 1921 (see Annual Reports 1918 1921 -
-p 366).
X-9174-a
p 29,
The following sentence is quoted from page 29 of the
1918 Annual Report:
’’The Board does not "believe that the Federal reserve
"banks should "become training schools for future officers of member banks;
it feels, on the contrary, that sufficient inducements should be offered
by the Federal reserve banks to make service with them attractive as a
career.”
A minority expresses doubt as to the practicability of a systemwide plan, but is thoroughly in accord with the maintenance of a merit
system and the encouragement of promotion within the ranks of the respec
tive bank organizations.
Cleveland, for example, stresses the importance
of long residence in a particular district and of intimate knowledge of
conditions and affairs in such district as being prerequisites to maximum
efficiency.
It, also, together with Boston, Philadelphia and Richmond, ques
tions the advisability of uprooting officers and employees of long contin
uous service in a particular district, thus requiring them to sever ties
and social connections, in order to transfer to another district.
The thought
is expressed that in certain cases these considerations might very well out
weigh any material advantages which might accrue to those individuals by
reason of such a change. Attention is called to the individual comments of
Hew York, Philadelphia, Richmond and San Francisco contained in Appendix
A in regard to this subject.
9. Criticisms of existing regulations or rulings or procedure of the Fed
eral Reserve Board, with specific recommendations as to changes which
would correct any unsatisfactory features of the relations between the
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Board
its staff and the Federal reserve banks or member banks.
Federal Reserve
Bank ofor
St. Louis
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The criticism which has "been almost universally made "by the re
serve hanks relates to what is regarded as a tendency on the part of the
Board to exercise too close a supervision of the various hanks, particular
ly with respect to matters which they regard as peculiarly within their
own jurisdiction, of minor importance or of purely local concern.
This
major question is discussed more fully he low under the caption ’’regional
autonomy”.
Another matter for which the Board has heen subjected to consider
able criticism by the reserve banks is the policy it has followed in regard
to the granting or withholding of permits, including voting permits to
holding company affiliates and permits covering interlocking relationships
under the Clayton Act and Section 32 of the Banking Act of 1933.
In the
opinion of the Boston bank, this policy ”is potentially the most prolific
single cause of criticism on the part of member banks and others, of the
Federal Reserve Board.”
Other matters of general criticism include:
the policy followed
by the Board with respect to the approval of salaries and minor expendi
tures of the reserve banks; the multiplicity of reports which member banks
are required to prepare; delay in receiving rulings, par lists and replies
to letters written to the Board regarding administrative matters; the need
for revision of many, if not all, of the existing regulations of the
Board; and, the need for a current ”digest of rulings” incorporating all
important interpretations of the law and regulations.
The gist of the comments relating to the foregoing general criti
cisms is as follows:
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(a)
X-9174-a
Regional autonomy:
Hew York feels that the Board’s policy in recent years has re
quired the making of an enormous number of decisions and involved the
assembly in its offices in Washington of a vast amount of detailed data
with respect to matters of relatively minor importance, the administration
of which could better be delegated to the individual Federal reserve '
banks within the limitations of broad general policies established by
the Board,
The existing procedure, Hew York believes, has caused multipli
cation of work, delays in taking action, increased expenses of administra
tion, and a separation between those (member banks and others) subject to
administrative control and those exercising the details of that control,
which encourages the growth of bureaucratic methods.
It is Hew York’s view that '’nothing would contribute more to the
establishment of satisfactory relations between the Federal Reserve Board
and the Federal reserve banks than the adoption by the Federal Reserve
Board of a broad general policy which would accord to the actions of the
boards of directors of Federal reserve banks, with respect to matters of
bank administration, district problems, or other matters concerning which
the law gives the directors initial responsibility, the presumption that
such actions are right and proper unless obviously in conflict with general
System policies established by the Board, or with the statutes."
It believes
that, in any case where the Board feels that it must disapprove of the ac
tion taken by the board of directors of a reserve bank, or where it has
reasons which it feels justify its overruling the presumption in favor of
the correctness
or wisdom of the action taken by the directors, it would
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seem to tie clearly a matter of good, organization that the reasons for the
Board1s disapproval should he transmitted to the directors.
Otherwise,
Hew York says, it is difficult to see how it will he possible to develop
and to maintain a wise and harmonious accord between the Board and the
several hoards of directors in the conduct of the System1s affairs.
Philadelphia:
” * * * in the earlier years of the System we felt
that the Board realized that the hanks were conducting the operations of
the System, and their disposition was to he cooperative and helpful.
Having this feeling, we consulted freely with the Board, or with individ
ual members, and never failed to get a sympathetic hearing and helpful
advice or suggestions.
We regret to have to say that in later years we
have noticed a changed attitude on the part of the Board.
A disposition
to distrust and criticise seems to have succeeded to the former disposi
tion to help, it
Richmond:
it * * *
has for a long time been the feeling of our
directors that the contacts of the Board and Board members with our di
rectors (individually and collectively) is not as intimate and as close
as is believed to be desirable.
Our directors have felt * * * that in
matters of broad policy they have not at times been made familiar with
the views and policies of the Board or the Board members, and it is be
lieved that the coordination of the Federal reserve banks would be pro
moted by more informal and intimate contact and exchange of views between
the Board members (individually and collectively) and the administration
of Federal reserve banks .«
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Atlanta:
X-9174-a
"We are * * * only suggesting that in so far as minor
matters are concerned —
matters which involve no question of general
policy and are of purely local concern —
more of autonomy might he left
to the Federal reserve hanks and greater latitude he given to its officers
and directors for the exercise of their discretion."
Chicago thinks that '’too much detail of management and supervision
of member hanks (is) handled hy Federal Reserve Board", and that "better
service would he rendered member hanks if Federal reserve banks were given
authority to supervise and make decisions on matters of policy and opera
tion of member hanks in their district, the Federal Reserve Board acting
as an appeal Board in the event of disagreement."
St. Louis:
"As to relations between the Board and the reserve
hanks or member hanks, it has been suggested that it would he helpful if
more authority and discretion could he delegated to the directors and
officers of the Federal reserve hanks - the men in the field. The Board
could issue broad general principles for guidance of the reserve hanks
and they would handle and carry out the details of specific cases.
The
reserve hank would refer to the Board only borderline cases and those
that involve questions of policy.
It is thought that the extension of
this plan would relieve the Board of considerable detail work, place more
responsibility on the Federal reserve hanks, and promote closer relations.
Kansas City:
"As a general policy we believe that all matters of
local Federal reserve bank management not inconsistent with System policy,
should he made the responsibility of the officers and directors of the
regional hanks,
with the minimum of restrictions and regulations on the
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part of the Federal Reserve Board .11
Dallas 2
tt * * * we recognize that in connection with such mat
ters as applications for Clayton Act permits, voting permits, fiduciary
powers, and State hank membership, the Board is necessarily handicapped
to some extent by its remoteness from the localities in which these appli
cations originate, and its lack of the intimate knowledge of local condi
tions and other factors which the officers and directors of the reserve
bank possess and which they frequently find it difficult to convey ade
quately in a letter.
For these reasons we feel that the Board, in arriving
at a decision in such matters , especially when it feels that the case in
volved is of a ^border line 1 character, could well afford to rely upon the
judgment and recommendations of the reserve banks and delegate to them a
somewhat larger measure of responsibility in such cases than they now
exercise.
Such discretionary powers as might be entrusted to the reserve
banks would be exercised, of course, within the regulations and in harmony
with the policies as established by the Reserve Board, and, in order that
a fair degree of uniformity might obtain in the several districts, the
Board *s examiners could review the actions taken just as they now inquire
into, or check, other matters of equal or greater importance in the opera
tions of the banks."
(b)
Voting permits:
With respect to the granting or withholding of voting permits,
Boston reports that "we have had some indication that conditions imposed
have been looked upon as going beyond the requirements of the law or have
been considered too burdensome or impractical of fulfillment", and it
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Delieves "that it might serve to eliminate causes of criticism if an op
portunity were afforded to discuss the conditions with the applicant "before
they are definitely imposed.n
Hew York suggests that a broader view might have been taken of the
statute and a more liberal policy pursued.
It points out that the statute
itself seems to indicate that it was intended that such permits be granted
or withheld on broad grounds, and that instead of merely determining
whether it is in the public interest to grant or withhold particular per
mits, it appears that the Board has made each application for a voting
permit a means of bringing pressure to bear, not only on the subsidiary
member banks but subsidiary nonmember banks as well, to make immediate
charge-offs or eliminations of estimated losses and depreciation and to
strengthen their capital structures to a degree that could hardly be said
to be required to give effect to the policy of the statute.
It is stated
that in many cases the holding company affiliate has been asked to agree
to do things as a condition to the issuance of a permit to which its di
rectors and officers have conscientiously felt the company could not agree,
resulting in considerable embarrassment and irritation on the part of the
holding company officials and of the subsidiary banks, and difficult and
time consuming negotiations on the part of the officers of the reserve
bank to obtain compliance with the Board's requirements. Hew York raises
a question as to whether it is within the fair intent of the statutes or
whether it is necessary or desirable to take the occasion of such applica
tions to hasten desirable actions by banks in the matter of charge-offs,
etc., and believes that subsidiary banks and holding company affiliates,
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for the reasons stated, have been subjected to more severe treatment than
have other member banks, both State and national, which are not subsidi
aries of holding company affiliates.
The reserve bank points out that,
notwithstanding the compliance of many holding company affiliates with the
Board 1 s requirements, only two general voting permits have been issued to
holding company affiliates in its district up to the present time, and it
recommends that the Board consider the advisability of adopting the gen
eral policy of issuing general voting permits in all cases except those
in which it appears that the issuance of such permits would not be in the
public interest and that limited permits be issued only in exceptional
cases rather than as a general practice.
(c)
Clayton Act permits:
With respect to Clayton Act applications and permits, Boston
states that '’while no specific criticism has been received by us, we sur
mise that application forms have been considered unnecessarily broad in
the scope of the personal information requested."
Boston also believes
that unfavorable reaction resulted from the Board’s practice of commenting
upon the directors’ attendance at meetings of boards of directors of non
member banks, or upon an applicant’s indebtedness to a nonmember bank, as
features to be taken into consideration in granting or withholding a Clay
ton Act permit, and indicates that these considerations may be regarded as
"beyond the concern of the Board".
New York concurs in the feeling expressed in the Board’s letter of
January 9, 1935 (X-9082), that the procedure during the past year in
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connection with Clayton Act applications has not only been cumbersome
hut has not produced entirely satisfactory results.
It has been the re
serve bankfs experience that this procedure has operated in many instances
to deprive member banks of the services of valuable directors , even where
it has been shown that the institutions covered by the application of a
given individual were not so situated as to be in substantial competition;
that even in instances where permission has been granted to continue inter
locking relationships, the voluminous amount of information required of
an applicant in support of his application and the delay incident to the
disposition of his application has occasioned much irritation among bank
directors and officers and the feeling that they have been subjected to
regulation unnecessarily oppressive in character. New York reports that
repeated instances have come to its attention in which directors of na
tional banks who were serving at the same time as officers and directors
of other banking institutions have elected to discontinue their services
to one or more of the banks rather than undertake to obtain the permission
of the Board to continue such relationships. New York feels also that it
was not the intention of the Congress to place upon the Board the responsi
bility of passing upon the general qualifications of applicants for service
as bank directors, and it recommends that the Board give consideration to
the advisability of adopting permanently the policy expressed in the Board 1
letter mentioned above, regardless of whether the law remains as it is at
present or whether it is amended by the enactment of the proposed Banking
Act of 1935.
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Atlanta
Federal Reserve Bank of St. Louis
believes that the granting of a permit in cases where an
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officer or director has manifestly aimsed his office or has been negli
gent in the discharge of his duties would be incompatible with the public
interest, and that the basis for the granting or withholding of a permit
should not rest entirely on the question as to whether or not the banks
involved are in competition.
In fact, it regards the question of competi
tion as of relatively minor importance in the case of banks which are not
within the prohibitions of Section 8 of the Clayton A c t .
(d)
Section 32 of the Banking Act of 1933:
Boston, New York and Philadelphia are of the opinion that the
Board’s denial of permits under Section 32 of the Banking Act of 1933 has
worked a hardship in many cases upon member banks, and Boston states "it
is our impression that the Board’s reasons for denying the permits have
not always been looked upon as convincing," and that it believes the
granting of permits in several instances of the kind referred to "would
not have been incompatible with the public interest."
New York states that the practical result of the Board’s inter
pretation of Section 32 has been that a number of member banks have been
deprived of the services of valuable directors and officers, even though
no information was disclosed which would reflect in any degree upon the
desirability of such individuals as directors or officers of the member
banks in question except that the relationships covered by their applica
tions came within the Board’s interpretation of the provisions of that
section.
This has given rise, according to the New York bank, to a
feeling that the Board’s policy with respect to the administration of
32 has
Digitized forSection
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It states,
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however, that in view of pending amendatory legislation it is not offer
ing any suggestions as to a possible modification of the existing policy,
but would like to give further consideration to the question and to have
the privilege of submitting a supplemental report in the event the pro
posed amendment fails of enactment.
(e)
Salaries and expenditures:
The New York bank states that in recent years the exercise by
the Board of its responsibilities with respect to salaries of the officers
and employees of the reserve banks has involved "unwarranted encroachment
upon the time of both the Board and the directors of the bank, and has
interfered with the maintenance of a salary schedule * * * which would
give proper recognition to the duties and responsibilities of the individ
ual members of the bank’s staff as well as to an appropriate relationship
between the salaries of different members of the staff."
New York feels
that the Board should confine itself to broad questions of policy in this
field of Federal Reserve System operation, and should not attempt to con
trol details of intra-bank administration.
It admits that, while the
total salary expenditures of a reserve bank properly may be a matter of
concern to the Board, it feels that the division of that total within the
bank involves questions which, by their nature, must be reserved to the
board of directors and officers of the individual banks who are in close
touch with the work of the bank and the participations of various individ
uals in that work.
It suggests that it would seem desirable to extend
the idea underlying the established practice with respect to employees of
the banks in the lower salary ranges with some modifications in form to
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the officers of the "banks and employees in the higher salary brackets.
2Tew York suggests that the Board formulate a general policy for the
guidance of the reserve banks in this connection which should contemplate
leaving the utmost discretion as to individual salaries, as contrasted
with total salary expense, to the boards of directors of the reserve
banks.
In regard to this subject, Philadelphia states:
"we cannot avoid
the feeling that the close and constant attention paid by the Board to
matters of employment, promotion and compensation comes very close to
operation rather than supervision and indicates a lack of confidence in
the interest and ability of our directors.
Chicago criticizes the ’’lack of agreement between our salary com
mittee and Board prior to action of board of directors of this bank.”
Atlanta suggests that ”it might be well * * * for the Board to
take under advisement the question of whether the expenditure of relatively
small amounts, in cases where there is no specific authorization by law
and the object to be attained is not improper or unlawful, might perhaps
be left to the various Federal reserve banks and not call for special au
thority given by the Board.”
(f)
Multiplicity of reports required of member banks:
Atlanta advises that its examiners report that member banks com
plain of the number, variety and extent of reports which they are required
to prepare, and that member banks would welcome a revision of report forms,
a reduction of requests for reports to a minimum, and consolidation of
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Chicago, St. Louis, Minneapolis, Kansas City and Dallas all con
cur in the opinion that member hanks are hardened with the preparation
of too many reports and urge that further consideration he given to cur
tailing requirements in this respect so far as possible.
(g)
Delay in receiving rulings, par lists and replies to letters:
11The difficulty of obtaining prompt reply from the
Richmond:
Board, or from the staff of the Board, upon administrative matters aris
ing out of regulations and rulings is due no doubt to the tremendous
pressure of matters upon both the Board and its staff, and we therefore
have no particular criticism in this connection.
But nevertheless we are
often 'handicapped, and even embarrassed in some instances, by such delay,”
Atlanta:
”In connection with our dealings with member banks, and
particularly in the handling of the work of the Federal reserve agent, prompt
ness on the part of the Board in giving rulings and in replying to letters
asking for advice would be of great assistance.”
St. Louis:
”0ur transit department suggests that the par list and
supplements thereto be distributed earlier, if possible about the 8 th of
the month of issue.
* * * Frequently as much as a month elapses before
the completed par list or supplement is received, which has led to numerous
inquiries from banks as to the routing of checks.”
Minneapolis:
”It would be advantageous to reduce the length of
time consumed in the printing and furnishing of par lists and monthly sup
plements thereto.
Our changes in the par list are always in the Federal
Reserve Board *s office on the second of the month.
semi-annual par
We do not receive the
list until thirty days after the beginning of each semi-
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annual period, and the monthly supplements are received from twenty to
thirty days after the date when they become effective. * * * This long
delay causes misrouting of items by our member banks.
The par lists
might be printed in Chicago or St. Louis to shorten mailing time and to
eliminate delays in the Government Printing Office.n
(h)
Heed for revision of existing regulations:
All of the Board’s regulations, with the exception of M, IT and S,
have been criticized by one or more of the reserve banks , either by
specific reference to a particular regulation or to the substance thereof.
It appears that more of the reserve banks have specifically urged the
revision of Regulations D, H, L and Q, than any of the others (see Appendix
C for list of existing regulations showing the alphabetical designations.
series and subject).
Kansas City suggests that the earlier regulations of the Board
(A to L) might well be amended and reissued because of the changes xvhich
have been made in the law since their last revision, and that all regula
tions which have been supplemented by X-letters or interpretations should
be revised and reissued to give effect to such rulings.
While Kansas City
feels that, because of pending legislation, it may not be desirable at
this time to recodify all of the Board’s regulations, it suggests that
the regulations which have been issued to interpret the Banking Act of
1933 and subsequent legislation should have immediate attention.
Minneapolis, Kansas City and Dallas state that Regulation D
should be revised to avoid the conflict with Regulation Q by eliminating
the requirement that a demand deposit reserve be maintained against time
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deposits which are payable within thirty days.
Minneapolis states that
such a change would eliminate much confusion incident to reserve calcula
tions, maintenance of records, etc., in country hanks.
It regards this
as one of the most irritating minor matters and states that it causes a
great mass of corrective correspondence.
St. Louis, Minneapolis and Kansas City specifically mention the
necessity for the revision of Regulation H; this view appears to he prac
tically unanimous in view of the comments made with respect to member ship
requirements under topic 3-h.
Richmond and Kansas City in particular submit certain questions
having to do with the interpretation of Regulation Q.
Dallas thinks that
it would be desirable for the Board to revise Regulations L , P , Q, and
T in
the light of certain rulings and interpretations which the Board lias is
sued in connection with their provisions. Boston reports with respect to
Regulation T that many nonmember banks, including savings banks, have ob
jected to signing agreement form T-l required by the Regulation in order
to qualify under Section 8 (a) of the Securities Exchange A c t .
Specific suggestions and criticisms are set forth in Appendix A
in the individual comments of the respective reserve banks.
(i)
pretations :
Reed for current digest of 3oard!s rulings, including inter
Minneapolis, Kansas City and Dallas suggest that it would be
helpful to the reserve banks if the Board would issue a revised edition
of its “digest of rulings” , incorporating therein the various important
rulings and interpretations which the Board has promulgated since the
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existing digest covering the period 1914-1927 was published, thus bring
ing it up to date with respect to recent legislation and the Board’s
interpretations of new laws.
Minneapolis states that a digest of X-letters
which are still in force should be prepared by the Board and submitted for
the use of all reserve banks, since (Minneapolis assumes incorrectly) there
have been more than 9,000 X-letters issued, many of which are obsolete, and
it is becoming very difficult for the banks to keep their operations in ac
cordance with this volume of instructions.
(,j)
Distribution of X-letters to member banks:
Kansas City and Dallas are of the opinion that important X-letters
containing rulings issued by the Board, particularly those which apply to
Federal laws or regulations governing the operations of member banks,
should be given general distribution among the member banks by the reserve
banks.
In this connection, Dallas says: ” * * * At present, we are pro
hibited from either furnishing or quoting these X-letters to member banks,
which, in our opinion, often creates a situation that is embarrassing to
them in their relations with bank examiners, and tends to give an undue
advantage to the particular bank or banks for whose benefit the rulings
were issued.
This suggestion applies, of course, to those interpretations
which the Board is by lav/1 authorized to males in connection with provisions
of the Federal Reserve Act.”
(Note: The prohibition applies only to the
furnishing of the X-letters as_ such, without express authority from the
Board, and also does not prevent using the substance as a basis for com
munications with member banks or others concerned.)
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In addition to the criticisms and suggestions discussed above
which were made by two or more of the reserve banks, a number of original
comments were contained in reports of certain reserve banks which are set
out below:
Hew York:
”We have had two cases in this district where State member
banks have applied for permission to open branches in accordance vzith
the lav/ of the State. The Federal Reserve Board and the Comptroller of
the Currency have, in these cases, made requirements as to certain
charge-offs and eliminations. This has occasioned resentment as the
banks felt that it was unjust that a request for authority to establish
branches of small importance relative to the total of the bankfs business
should be made the occasion of such requirements. This feeling has been
intensified by the fact that national banks which have opened branches
in the State during the same period have not been made the subject of
similar r equi r ements.
”It is believed that a more liberal policy might be pursued
in this matter without detriment to the public interest.”
Philadelphia:
”ln June, 1932, at the request of President Hoover, we got
twelve men of local prominence to serve as a ’Banking and Industrial
Committee’. These gentlemen contributed their own valuable time, their
Chairman contributed his Secretary to act as Secretary of the Committee,
a local bank gave them quarters in its building rent-free, and they col
lected a very considerable sum of money from trades ben©fitted by a
!Renovize! campaign, which they waged with great success. As we were un
able to contribute to their work either space or personnel, we agreed to
bear, for a limited number of months, the very moderate salaries of two
or three high-grade men they had to employ. Our total expenditures on
account of this Committee ?/ere about $3,800. Although the times were
critical and we were all overworked, we were harassed by constant inquiries,
from your Secretary as to these men, their duties, their compensation, and
the date of expiration of their employment. Even after the employment of
the last man had ceased, on the date previously named to him, he inquired
whether it had ceased.
ti* * * W q have been in the habit of reporting absences of em
ployees over thirty days, on account of sickness, to our Executive Commit
tee, which approved extensions. The minutes of the Executive Committee,
including these details, have always been read to and approved by the Board
at its next meeting. We cannot see the reason for requiring that the at
tention of the Board, which has more important matters to consider, should
be taken up with the details of each individual case - character of illness,
age, prognosis, etc. We have, however, been instructed that this must be
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done.
Federal Reserve Bank of St. Louis
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•’In two cases - that of the Berks County Trust Company of Bead
ing, and the ’Main Line Trust Company’ of Ardmore - the Board took posi
tions which indicated a total lack of confidence in the directors and
officers of this "bank, and a contempt for their judgment. Indeed, in the
latter case, their comments to the Chairman and Governor cannot he charac
terized otherwise than as offensive.
”We deplore the Board’s insistence that all officers and em
ployees of reserve hanks must divorce themselves from all civic and
community interests. Mr. Austin’s enforced resignation from the Treasur
er ship of the Chamber of Commerce has cut off a valuable contact with the
business interests of the city. The same is true of Mr. Uorris 1 severance
from the Beneficial Saving Fund Society. Perhaps the most striking illus
tration is the insistence that a clerk in our Currency Department may not
oblige his neighbors by serving them on the School Board of a small
country township. We feel that it is to the interest of the System, as
well as to the interest of the communities in which the banks are located,
that officers and employees should maintain useful business contacts, and
do their duty as citizens, where such contacts and duties create no em
barrassment, and in no wise interfere with the performance of their work.”
Cleveland;
”In this connection, we believe that it might be helpful to
the Federal Reserve Board and to the Federal reserve banks if a consulting
committee were set up, composed of operating officials of the reserve banks,
which the Board could consult if it so desired, especially in connection
with the drafting of regulations which involve complicated operating
problems for member banks and Federal reserve banks. A similar arrange
ment might be helpful in connection with the issuance by the Board of in
structions to reserve banks setting up accounting procedures.”
Atlanta;
”We believe that it would be beneficial to the officers of the
reserve banks were the examiners of the Federal Reserve Board at the time
of making examinations of reserve banks to offer constructive and helpful
suggestions. This would bring about frank discussions which would not only
be beneficial, in our opinion, to the officers of the Federal reserve banks
but would also eliminate discussions by correspondence. Through such con
structive suggestions the officers of the reserve banks might also learn
more clearly the viewpoint of the Board on matters, some of which are of
relatively small importance and could be disposed of during the period of
examination.n
Minneapolis;
,fThe Federal Reserve Board should determine and state defi
nitely how far Federal reserve agents are to go in action toward the
removal of bank officers for inefficiency, incompetency, undesirable past
records, and other reasons other than criminal procedure.
’’The Federal reserve agent should have the power to veto an
application for a national bank charter even though the Comptroller of
the Currency is in favor of granting it. The regional banks understand
local situations and are not subject to influences which might be brought
to bear upon the Comptroller. Past experience has indicated that such
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authority in the hands of the Federal reserve agent would have prevented
numerous hank failures in this district.
’’The Federal reserve agent should he granted the power to pass
on applications of State hanks for membership in the Federal Reserve Sys
tem without submitting every case to the Federal Reserve Board for final
action. This would give the Federal reserve agent more facilities for
closing a deal with a nonmember hank on the spot when the officials of
the nonmember hank are in a mood to join the System. Also much needless
delay and confusion in passing on applications would he eliminated. The
need for this decentralization will he very apparent if the Banking Act
of 1935 is passed, for the Federal Reserve Board will find it very diffi
cult to handle the flood of applications which will he presented to it
for approval.
”If the Banking Act of 1935 is passed, the regulations under
which hanks with capital below the present minimum for membership are al
lowed to enter the Federal Reserve System should he formulated after re
ceiving the advice of the Federal reserve agents, who are closely in touch
with the problems in the field.
”It would he desirable to centralize the control of examina
tion of hanks in the hands of a Rational committee. This Examining
Committee would consist of one representative each from the Reconstruc
tion Finance Corporation, the Federal Reserve Board, the Comptroller of
the Currency and the Federal Deposit Insurance Corporation, who, together
with foui1 men elected by the National Association of Bank Supervisors of
the United States, would elect one additional member. The Examining Com
mittee should control and make all examinations of banks in the United
States, all represented organizations to he allowed to use these examina
tions as they deemed fit; this Committee to formulate all procedure and
oversee the work.
”In view of the fact that the Federal Reserve Board grants
isrust powers, the Federal Reserve Board should have the power to take
away trust powers, and this power should cover both national and State
member banjos, the natural corollary to which would be that the Federal
Reserve Board, through the Federal reserve examining agency, should make
examinations of national as well as State trust companies.
’’The Federal Reserve Board should alter the form of published
bank statement in use by member banks so that such statements would give
the actual present appraised values of assets, and so that the titles of
assets would give the public a clearer idea of just what classes of assets
are being carried by the bank such as pledged assets , second mortgages
and contracts, and defaulted bonds.
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"If banks are to be permitted to make long-time real estate
loans, it would be desirable for the Federal Reserve Board to initiate a
movement for member banks to issue long-term certificates of deposit for
five or ten years, following the Swiss method. If that system were
adopted, the ratio of mortgage loans for any bank should be limited to
some percentage of the amount of the bank*s long-term certificates out
standing,
"The present method of limiting capital to a certain minimum
ratio to deposits appears to be too rigid and arbitrary to meet all con
ditions. Further study should be made of this matter and the rules
should probably be made more flexible.
"The Federal Deposit Insurance Corporation should charge for
its examinations so that the nonmember banks will have no advantage over
the State member banks in this matter if we begin charging for our ex
aminations .
"Called reports are unnecessarily detailed and contain
several schedules which are probably never used. We suggest that the
present form be modified to eliminate unnecessary schedules, and that
these long forms "be required only twice a year. For the intervening two
calls, banks should be allowed to prepare only the short form for publica
tion. Supervising authorities with two complete called reports and two
examinations for each bank, annually, would have sufficient information
for administrative purposes.
"More frequent conferences should be held between representa
tives of the Federal Reserve Board and the Federal reserve banks to plan
procedure in matters of System interest. All Federal reserve banks should
be represented at such conferences by those at interest to avoid unneces
sary correspondence and to permit of a full exchange of experience and
ideas.
"At the next accounting conference of representatives of all
of the Federal reserve banks, we recommend that a review be made of all
accounting reports now made to the Federal Reserve Board, with a view to
eliminating any unnecessary or obsolete reports and to consolidating
other reports to reduce the volume of accounting work in the Federal re
serve banks.
"The Federal Reserve Board should occupy a position similar to
that of the Supreme Court, with pensions for life upon retirement of its
members, to remove the Board entirely from political and economic influ
ences. It would be advisable to alter the pending legislation to give
every member who retires from the Federal Reserve Board, at the comple
tion of the term for which he accepts appointment, a pension for life of
approximately
the same salary which he receives as a member of the Fed
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eral
Reserve
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Federal Reserve Bank of St. Louis
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Minneapolis also recommends that, if the proposed Banking Act
of 1935 is enacted, the Board issue the necessary regulations with regard
to interlocking directorate relationships under the Clayton Act at the
earliest possible time, and that the Board also define the term Executive
officern in connection with the amendment to Section 22(g) of the Federal
Reserve Act as soon as possible.
San Francisco:
»It would be very helpful if the question of charges
for examination of State member banks would be definitely settled. A
few reserve banks charge for practically all examinations; others charge
in special cases, while some make no charge whatever. If charges are to
be made, the conditions under which they are to be imposed, and the
basis of fixing them, should be uniform throughout the twelve districts.
Members, as well as banks contemplating entering the System, should have
a definite understanding as to the System*s practice.n
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Appendix A
Significant Excerpts from, or Summaries
of, the Individual Comments of Each Fed
eral Reserve Bank Contained in Reports
Received in Response to Boards Letter
Dated February 6 , 1935 (x-9115).
1 .
General credit situation.
(a) Are commercial "banks doing everything in their power to improve the
situation?
Boston: “It would * * * appear that commercial "banks are doing everything in
their power to improve the situation * * *".
New York: The reserve hank feels that commercial hanks in the district are ready,
willing and even anxious to extend credit on a reasonably sound basis, as this is
the business of the banks, the reason for
their existence and a sourceof profits,
and that, at the present time, they are under a tremendous pressure to employ
funds, which are in large supply, so as to meet operating expenses and other
charges. It states, however, that most of the questions recently raised with
respect to lending operations of commercial banks have had to do with intermediate
berm, not prime in quality, which usually have been more in the nature of working
capital loans than strictly commercial credits, and that its own experience in
this field has demonstrated that there is
not a very widespread demandeven for
credit of this character which commercial
banks could or should supply. It states
further that commercial banks throughout the district have cooperated effectively
with the reserve bank in making credit of this sort available, but that, in its
opinion, by far the greater part of this lending has been of a character not
suitable for commercial banks operating solely on their own account.
Phi ladelphia reports that few justifiable complaints have reached the reserve bank
concerning the inability on the part of business concerns with proper credit
standing to obtain needed commercial credit, and that most complaints are those
of prejudiced persons or disappointed applicants undeserving of credit, and says
that nthe problem is not one of unwillingness on the part of the banks to lend,
but an unwillingness or inability on the part of business concerns to borrow in
the face of prevailing business and credit conditions."
Cleveland states that, while there is a genuine desire on the part of banks to
make good industrial and commercial loans, and this is being done within the
limitations imposed by law and the restrictions of the supervisory authorities,
banks are not inclined to make loans for a long period of time , particularly in
view of their past experience and in the face of almost certain criticism by
supervisory authorities,
Richmond says that 11the principal argument which the banks make in their own de
fense is that there is a lack of sound customers willing to borrow, brought about
by a feeling of uncertainty, which is believed to be widespread, with respect to
future developments in the political, monetary, and business fields, which makes
both the potential borrower and lender hesitate.,r It believes that the banks are
still timid because of the experiences through which they have recently passed,
but that they are entirely willing to make loans which they believe to be good
and safe according to their own present standards,
Atlanta: The reserve bank is of the opinion that banks are vigorously exerting
themselves to make sound loans, that the principal difficulty is a scarcity of
demand among borrowers who are in a position to use available funds advantageously
and at the same time offer reasonable assurance of repayment. "A number of banks",
it says, "have representatives in the field actively soliciting loans and are also
extensively advertising for loans."
Chicago believes that, while banks are exceedingly anxious to make loans conform
ing to the law and rules of eligibility, some are still following the course of
least resistance in taking only such loans as are applied for.
St, Louis says that,
of their experiences
tionably a desire on
prove the situation,
while some banks are still overly cautious as a consequence
culminating in the banking holiday of 1933, there is unques
the part of the banks to do everything in their power to im
and many are actively putting forth efforts to this end.
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Minneapolis: ’’Commercial "banks are doing everything in their power to extend
credit within the limits of good hanking.”
Kansas City: "The commercial hanks generally are making every reasonable effort
to obtain good loans. Many reserve city hanks are making a direct drive for new
business and are offering to make loans on a liberal basis at very satisfactory
rates.’’
Pallas; "It is our observation and belief that the banks in the Eleventh Federal
Reserve District are doing everything reasonably within their power to bring about
an improvement in the general credit situation. They apoear anxious to make
loans, and many of them are advertising this fact."
San Francisco:
"On the whole , it can be said that commercial banks in the Twelfth
District are desirous of increasing their loans and are making every reasonable
effort to do so. Expectant borrowers have manifested a willingness to obligate
themselves as soon as there is a reasonable assurance that bank credit can be pro
fitably employed."
(b) If not, what steps can be taken by the Federal reserve banks or other
wise to bring about an improvement?
Boston: it * * * no suggestions have yet been made where the Federal reserve banks
can further assist in bringing about improvement."
Rew York:
"Steps which, in the general terms of your question, might be taken to
bring about improvement in the credit situation, involve consideration of a whole
range of problems, including the ultimate character of our commercial banking sys
tem, the disposition of our savings bank business, the provision of intermediate
term credit and working capital for commercial and industrial enterprises, and
the functioning of the long term private capital market, including the market for
mortgage money.
’’Permanent measures for improvement of the general credit situation, we
believe, should be directed toward those weaknesses in our present banking system
which contributed so heavily to the banking difficulties of the past 15 years,
and more, and which have been alleviated, perhaps, but not cured by recent or
proposed banking legislation. Until such problems as unification of the banking
system, the restriction or separation of commercial and savings banking in the
same financial units, the establishment of institutions designed and equipped to
provide intermediate term credits for industry and sound mortgage financing for
construction, and the appropriate uses of branch banking, have been solved, what
ever steps are taken for the improvement of the general credit situation must be
considered as partial or temporary steps.
"Such an intermediate or temporary step might be the enactment of that
section of Title II of the proposed Banking Act of 1935 which would authorize the
Federal Reserve Board, by regulation, to make any definition of paper eligible
for discount by Federal reserve banks subject only to the limitation that such
paper should be commercial, agricultural or industrial paper, and which would ex
tend the authority for the Federal reserve banks to make advances to member banks
on their promissory notes secured by any sound asset. To provide a means of dis
count of all sound assets of commercial banks (at the discretion of and at a
price fixed by the Federal reserve banks) would make it possible to substitute
real standards of soundness for partly fictitious standards of liquidity in our
banking operations , as now conducted, and should encourage the use of credit
wherever such use is justified. The enactment of this provision of the proposed
bill, however, would make it all the more necessary to proceed with the funda
mental reorganization of the commercial banking system and the appropriate treat
ment of savings bank business. The existing pressure of large excess reserves and
the need of the banks for earning assets, combined with enlarged opportunities for
long tern investment, creates a situation which introduces certain elements of
danger into the banking system, unless the presently proposed legislation actually
is viewed as an emergency measure, and a more permanent corrective is promptly
sought.
”In connection with the private capital market there also appears to be
an immediate opportunity for a contribution toward the improvement of the general
credit situation. Delay in reopening the private capital market remains a criti
cal obstacle to such improvement, and to the whole progress of recovery. A re
sumption of private long term financing, with all that it implies in the way of
Topic 1 (b)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority
1?QC¥2J(3—
X-3174-b
replacement of worn out or obsolescent plant, equipment, and housing, and the
promotion of net; enterprises and nets building, still appears to be a necessary
prerequisite to that reduction in governmental expenses and/or increase in govern
mental income which will eliminate the recurring large Federal deficits, and thus
make the most important of contributions to the improvement of the general credit
situation.
"A revision of the Securities Act of 1955 and of the Banking Act of
1955, with a view to the elimination or modification of those sections of these
acts which may unnecessarily interfere with the functioning of the private capital
market, affords an important means of direct attack upon this problem. Allied
to it, however, are all of the questions involved in the future of our currency
unit, of the regulation of business profits, of the attitude of the government
toward the railroads and the public utilities, and the questions raised by those
rigidities in the economic system, such as the costs of certain materials and
the wages of certain labor groups, which hinder the resumption o f .productivity in
such fields as building construction. These are questions which, obviously, can
not be developed within the limits of this memorandum.
"As a minor and temporary contribution to the further improvement of
the general credit situation, the continuance of the present liberal policies of
the Federal reserve banks with respect to their operations under Section 15b of
the Federal Reserve Act is warranted. This has some importance from the stand
point of meeting the demands of borrowers whose command of credit is of question
able validity under present emergency conditions, and in the absence of the proper
financial machinery for this sort of lending."
Philadelphia: "It is our belief that in this district the greater part of un
satisfied credit demand .is represented by the type of credit which would normally
be obtained from private investors or through the securities market."
Cleveland: "We have urged and are constantly urging our banks to consider es
pecially the transactions permitted under the provisions of Section 15b of the
Federal Reserve Act
Richmond: "It is not believed that any specific steps should be taken at this
time to adjust this situation. Something can be accomplished with propriety and
in good reason through the medium of personal conferences with bank officials,
which are continually in process as a part of the regular routine of this bank *"
Atlanta; The head office at Atlanta and its branches at Birmingham and Jackson
ville offer no suggestions with respect bo this subject. However, the Nashville
Branch believes that examiners’ criticisms have discouraged character loans, and
that good will be derived by a better understanding between Federal reserve banks
and their member banks. The New Orleans Branch suggests that "continuation of
Federal reserve banks’ present activity in making industrial loans up to a fiveyear period is desirable * *
Chicago: "Federal reserve banks should furnish leadership in their respective
districts through their officers by contact with member Banks - advancing the
idea that the same effort should be made to develop good loans in each community
as was formerly made to increase deposits; also that the larger part of financing
of various kinds now being cared for through governmental agencies should again
be directed through banking channels."
St. Louis: "We believe that the most practical and effective step that can be
taken by the Federal Reserve Banks to improve the credit situation is to further
emphasize and promote the interest of banks in the making of industrial loans and
commitments under Section 15b of the Federal Reserve Act, We also think that it
would be helpful if all banks would follow the practice of having loans rejected
(as well as those recommended) by the loan officers, reviewed by the Executive
Committee or senior officers. One of the obstacles to be overcome would seem to
be the resentment of bankers to the published charges that they are not doing
their duty, as they think such criticism is unjustified."
Topic 1 (b)
DECLASSIFIED
Reproduced from the Unclassified / Declassified Holdings of the National Archives
I Authority
____________ ______________________ L
X-3174-b
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4
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Fiinneapolis: "Constructive leadership by the Federal Reserve Foard in analyzing
and interpreting the present business situation v-ouId be useful in restoring con
fidence. Commercial banks would be more inclined to make long-term loons and to
assist business to reorganize end refinance if the rediscount- privileges granted .
by the Federal deserve banks were expanded. If the bill tor the banning Act of
1955 should not pass in Congress, the Federal Reserve Foard might suggest that
Congress vote a special fund to be used by the Federal Reserve banks in discounting
long-term loans for the commercial banks of the country. These funds might be
apportioned among the commercial banks on the basis of their capital and surplus
so that every bank would know that /hen it made long-term loans up to the allotted
amount, it would be able to rediscount them at the Federal Reserve bank of the
district, if soundly made."
Kansas City: "Until there is a demand for loans there is little if anything that
the Federal reserve banks may do to improve the situation. Neither the Federal
reserve banks nor the commercial banks can create a demand, and commercial "banks
should not be encouraged to adopt unsound credit policies*
"then the flow of business becomes more normal and the banks' customers
are willing to borrow it might be helpful if the classification of eligible paper
be somewhat broadened. This would, of course, require an amendment to the lav:.
"As nearly all. banks are carrying a substantial amount of government
securities it would be reassuring to them if government securities and government
guaranteed obligations would be accepted at par as security for member bank, notes
at the rate which the government obligation bears, but not in excess of the dis
count rate. This would tend to prevent dumping of governments, and the abuse of
this borrowing privilege might be prevented by stepping up the rate from time to
time."
Dallas; "So far as Federal reserve banks are concerned, while it is possible that
some slight liberalization of eligibility requirements covering paper offered Re
serve banks might be desirable, it should be borne m mind that the same circum
stances which bring about a general increase in business activity automatically
bring about a corresponding increase in the- volume of paper eligible for rediscount
under the present law and regulations. » * -x Re do not believe that there is any
thing which the Federal reserve banks or the Federal Reserve Board can do at this
time to stimulate the flow of credit."
San Francisco s "It would give member banks a. feeling of greater security if the
Federal Reserve Act were amended to liberalize the requirements for the discount of
paper arising from commercial transactions. The so-called 90-day rule for commer
cial paper has eclipsed other important features of commercial credit. During the
recent past, it has been a factor in stiffening credit-granting operations of mem
ber banks because a shrinkage in working capital often resulted in destroying the
eligibility for discount at the Federal reserve bank of paper of solvent borrowers*
"As to what steps can be taken to bring about an improvement, it is
believed that effective steps designed to strengthen the capital structure of weak
banks would promote further confidence and encourage more liberal granting of
credit."
Topic 1 (b)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority
AV)
3
00
X-9174-b
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2.
Interest rates.
(a)
On time and savings deposits of member banks.
Boston: "The interest rate of
now in force on time and savings deposits of
member banks would appear to be satisfactory."
New fork: "In general and on principle, we are not in favor of the detailed regu
lation of such rates by national action. It seems to us that the goal of admin
istration should be relatively infrequent adjustments of the maximum rate of in
terest to be paid on time and savings deposits by member banks, in accordance with
shifts in the trend of long term rates of interest, leaving the detailed adjust
ment of rates, beneath this maximum, to the individual banks. Frequent adjustment
of the maximum rate, by the Federal Reserve Board, tends to fix upon the Board the
responsibility for continuous control over such rates and to take from the member
banks their initiative in such matters. Such a nationally fixed rate obviously
cannot take account of different circumstances of various banks and different con
ditions in various parts of the country.”
Philadelphia: "The executives of the smaller institutions appear to be reluctant
bo calculate the value of the deposit accounts in their institutions and are prone
to pay, either in interest or in services, more than the account is worth, in the
belief that increased deposits are an evidence of growth and success.
"The member banks of the Federal Reserve System in this district have
been greatly benefitted by the reduction in the amount of interest payable on
time accounts. Some of them, however, would be very willing to return to the old
rates, feeling that, it would result in an increase in deposits."
Cleveland: "In considering the rate of interest to be paid on time or savings
deposits, every bank must, of course, take into account the average rate on its
invested assets. The portfolios of earning assets of banks vary, and consequently
the average rate of return varies, and in establishing a maximum rate to be paid
on time and savings deposits, consideration should be given to the average earnings
from this source for the average bank, allowing, of course, a sufficient spread
to cover overhead and a reasonable profit."
Richmond does not comment on the rate of interest paid on time and savings depo
sits of member banks, but directs its remarks on this subject to variations in
practice and misunderstandings with respect to the application of Regulation 0,
which is discussed under topic numbered nine.
Atlanta: "A lower prescribed maximum rate might place member banks at a disad
vantage because of competition of postal savings bonds, and it is believed that
the banks of the country, rural as well as city, are unable at the present time
to pay more than kt per cent."
Chicago: "Interest rates paid by member banks have little effect on volume of
deposits, nor does the rate determine the Dank in which deposit is made."
St. Louis:
" * *
it is our opinion that the maximum rate should not be again
altered until developments clearly indicate that another change is desirable.
Obviously, member banks may pay any lower rate that they may desire. While some
nonmember banks may pay a higher rate, it is not believed that this will cause
much distrubance, and such competition between insured banks will be shortly ad
justed if pending F. D. 1 . C. banking legislation is passed."
Minneapolis: " * * * legislation should be passed prohibiting insured non-member
banks from paying higher rates of interest than member banks can pay. The in
fluence of the Federal Reserve Board should be used to induce the states to pass
laws prohibiting non-insured banks from paying higher rates than insured banks can
pay. In the general matter of fixing maximum interest rates on time and savings
deposits, the Federal Reserve Board should lean toward a rate high enough to
meet the requirements of banks in the less fortunate communities. Bankers in
communities with surplus funds can be counted on to readjust their interest rates
downward below the maximum rates fixed by the Federal Reserve Board."
Kansas City:
"Present maximum rate appears to be satisfactory in this district."
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
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6
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Dallas: "Later on, it might be advisable to give consideration to the desirability
of a gradual reduction of this maximum for the purpose of further encoiiraging de
positors to invest more of their funds in government securities and in homes and
other real estate, and to use them in various other channels of business and com
merce. This, we believe, would bring about a desirably wider distribution of
government securities and a greater flow of funds into real estate activities and
business enterprises than can be accomplished through the investment operations of
the banks in which these funds are now impounded,"
San Francisco: "The rates of interest which banks safely can pay vary according
to the terms of their contracts with depositors and the character of assets. It
would seem, therefore, that when the Board fixes a maximum rate, each bank should
adjust its rates to meet its own peculiar situation.
"Savings depositors’ need for income should not be disregarded when
prescribing a rate adequate to prevent dangerous competition between banks dif
ferently situated.
"Within the maximum prescribed, each bank should pay the highest rates
its condition permits. Should the Board leave no reasonable margin for individual
action, member banks in many cases will be unable to perform a proper obligation
to their depositors."
(b) On loans of member banks and on industrial advances and commitments by
Federal reserve banks:
Boston: "In connection with rates on loans, the tendency of member banks is to
reduce rates, and it would appear that the borrowers were getting proper relief.
"In connection with industrial advances and commitments of Federal re
serve banks, it would appear that it is logical to have differential rates on
these as between Federal reserve districts and between different borrowers in
each district."
New York reports that, while interest rates charged on loans by member banks change
little from year to year, rates on preferred credit risks in financial centers
fluctuate to a considerable extent with the current value of funds in the market,
and says that "if we should have a long period of cheap money which would justify
some downward revision of this established rate, the natural pressure for the
employment of funds, which would characterize such a period, probably would compel
such a revision. Already, there are indications that competition to place funds
advantageously is bringing about a reduction of rates where the credits involved
are of a character to warrant such reduction. It has been our observation in the
past, however, that attempts to hasten this natural action are quite likely to
make more difficult the problem of borrowers whose credit is not of the highest
standard.
"The rate structure of this bank with respect to industrial advances and
commitments appears to us to be satisfactory, both from the standpoint of the
level of rates charged and of the relationship existing between the rates for the
various kinds of loans and commitments."
Philadelphia says that, varying, of course, w ith the risk involved, "in these days
when funds are plentiful, larger banks will 1 oan money to their good customers at
very low rates.,*' With respect to industrial advances which it has made, it states
that, "We know of no instance in which these loans have been made where a sound
commercial, bank would have considered a lower rate". However, it- intends to make
a further study of rates on commitments under Section 13b of the Federal Reserve
Acu, as it regards the hazard which they enta il as one "for which the compensation should be carefully measured".
£l^veiand: "While^in this district there has been a material reduction in the
rate paid on deposits, generally speaking there has been no material reduction
in the rate charged the borrower who is an ordinary credit risk. This situation
has prevailed throughout the life of the Federal Reserve System; in other words,
suen borrowers have been paying a Q% rate, regardless of the rediscount rate in
at the Federal reserve bank. With the present restricted earning power
of banks, a reduction in the rate charged the borrower who is an ordinary credit
risk might materially affect a bank’s earning power to such an extent that its
very^existence might be threatened. Prime credit risks, of course, have always
received tne benefit of favorable interest rates.
Topic 2 (b)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
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7
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"In considering our rates for industrial loans and/or commitments under
Section 13b, it is felt that we must take into account the rate established by our
member banks for loans representing ordinary credit risks, and it is not felt that
our rate should be reduced below the prevailing rate * * *. The commitment rate,
which in effect is a fee for the earmarking of funds, we feel is not unreasonable
Richmond: "We have been advised by senior officials of a number of the member
banks of this district that the tendency is to reduce the rate of interest to the
customer, and that especially is this true in cases where the security offered is
considered ample, and in cases where trie moral risk is thoroughly satisfactory.
"With reference to interest rates charged on industrial advances and
commitments by Federal reserve banks, * * * this matter has been given very care
ful consideration by the officers of this bank, and we feel that the rates charged
on advances and commitments * * * are proper under prevailing conditions."
Atlanta; " * * * the average interest rate increases as banks are farther removed
from financial centers * * * (and) the average rate is more nearly stationary in
the rural sections."
Chicago; "Interest rates charged by banks or the Federal reserve banks have little,
if any, effect on volume or borrowing."
St. Louis: "The low discount rates of the Federal Reserve Banks (St. Louis, 2%)
are an example to the member banks, and should encourage them to make reasonably
low rates to their customers."
Minneapolis: "Interest rates
are held down by competition,
banks have no rediscounts and
serves, there is nothing that
at which banks are lending.
charged on loans by member banks in this district
government lending, and State laws. Since member
the majority of them are supplied with excess re
the Federal Reserve Bank can do to lower the rates
"The rates on industrial advances and commitments, as used by this
Federal reserve bank, are sufficiently low to meet the situation in this district
satisfactorily."
Kansas City: "Bank interest rates have not kept pace with the general trend of
reduced money rates. In this district, however, interest rates are not an im
portant factor in restricting the free use of credit, and any benefits which
might be derived from an effort to get the banks to charge lower rates would be
more than offset by the disturbance of relationships between banks and the public.
Competition between banks will eventually take care of this matter.
"Rates on industrial loans are less than the average prevailing rate
in this district for loans of similar character, and should, if possible, be so
maintained,"
Dallas: "The level of interest rates charged on loans by banks in this district,
although gradually declining, has not kept pace with the decline in the general
level of interest rates. According to information we have received, some banks
in various sections of the district have recently been approached by their cus
tomers for a reduction in their rates. Naturally, some resistance is being made
to such demands both in the larger centers and in the smaller communities. In
the latter, however, the resistance appears to be much greater than in the Reserve
Cities, where the larger banks are said to be gradually yielding to the pressure
for lower rates. In agricultural communities, banks report they have lost to Fed
eral lending agencies a large volume of desirable loans, due bo the lower rates
charged by such agencies. There does not appear to be much disposition on the
part of most of these banks to meet the rates offered by such agencies, although
a number report that they are winning some of this business back even at slightly
higher rates.
"We believe our present rates on industrial loans and commitments are
justified by prevailing conditions. Our rates are no higher than those charged
or\ similar loans by commercial banks and by the Reconstruction Finance Corporation
in this district, notwithstanding the fact that our loans are ordinarily made for
much longer periods of time than those made by the commercial banks."
i
Topic
2 (b)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
- 8-
Scai Francisco; "In the metropolitan centerc (San Francisco particularly) member
banks’ rates to large commercial borrowers having inter-district credit facilities
has reached as low as 1^%. Rates to non-preferred customers have been reduced
about 1% below the level of years past. In outlying cities and rural communities,
no perceptible change has taken place.
"From declining rates, it would appear that there is effective compe
tition throughout the District, except possibly in the rural areas, notwithstandin
the fact that the small banks are feeling the consequences of the credit-granting
operations of the Farm Credit Administration,
"Approximately 9Of of the industrial loans made in the Twelfth District
are costing borrowers Q% and the remainder, 7%. Most of these loans would have
been made at higher rates had not, the reserve ban’: urged a reduction, kith one
o.
t. two exceptions, borrowers have t regarded these rates us reasonable.
"The commitment fee of '?,% on that portion of a credit in which the
Federal Reserve Bank of San Francisco assumes the risk, and 1% on that portion on
which the participating bank assumes the risk, has been a cc e pted favorably,"
Topic
Z (b)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
- 9 -
5.
[fetters affecting admission of nonmember banks to Federal reserve system.
(&)
Earnings of nonmember banks from exchange collection charges.
Boston: "The problem of exchange collection charges is not one that arises in
this district, as all banks pay their checks at par."
New York: "The nonmember banks of this district are not deriving income from ex
change collection charges on checks, and in this respect there is no obstacle to
their becoming members."
Philadelphia: "Earnings of nonmember banks from exchange and collection charges
are a negligible factor in this district. All nonmember banks are on the par
list and hence exchange charges arise only from transactions with correspondent
banks."
Cleveland: "Earnings from exchange collection charges are not a factor in this
district, especially since in a great many instances exchange charges have perhaps
been superseded by service charges inaugurated by the banks. These service
charges are paid by the depositors and it would seem should compensate the banks
for the relinquishment of exchange charges."
Richmond advises that Q0% of the nonmember, non-par banks in the Fifth district
are in the states of North and South Carolina. It says that some of these banks
were organized in isolated sections solely for the purpose of charging exchange,
whereas others were organized with small capital for the purpose of furnishing
normal business in season but depend for steady revenue largely upon such charges.
It says also that the first class of institutions requires the revenue derived
from exchange collection charges in order to keep them alive, whereas the second
class depends on such charges to supplement their seasonal earnings. Consequently,
the Reserve bank believes that the prospect of losing earnings derived from this
source restrains many non-par institutions, which would otherwise be eligible
for membership, from seeking admission to the System.
Atlanta:
"This is a question of considerable importance in the Sixth Federal Re
serve District. A number of nonmember banks, in making inquiries concerning
membership in the Federal Reserve System, have stated that they feel that they
could not forego the exacting of charges for the payment and remission of checks
drawn on themselves. This applies peculiarly to the banks located in the smaller
communities. *
*
"It lias been stated by the officers of some of these institutions that
the revenue from exchange (and by this we mean charges for the payment and re
mission of checks as distinguished from collection charges) will average in a
bank with a capital as small as :15,000 from >.1500 to 01800 per annum. If de
prived of this revenue such banks of necessity would be compelled to liquidate.
Revenue from this source, according to reliable information obtained from nonmem
ber banks, in most instances is sufficient to cover the salary of the Executive
officer in charge of the bank.
"We believe that a large percentage of nonmember banks in the district
would apply for membership if they felt that they might retain the equivalent
of a substantial portion of the exchange charges which are now being made."
Chicago states the matter of exchange collection charges by banks in its district
not on the par list is a negligible factor in deterring banks from taking member
ship in the System.
St. Louis: "Apparently only a few banks in this district are not members of the
Federal Reserve System on account of their unwillingness to forego exchange charges
on checks sent to them for collection. More than 70% of the nonmember banks are
now on the par list, and of those not on the par list 2.7% are in a State that has
legislation preventing the panning of checks by nonmember banks. Moreover, most
of the banks not on the par list are small institutions. * * *Many of the nonmem
ber banks feel that they do not need membership particularly since the insurance
of their deposits. To place all insured banks on a more equitable basis, the Fed
eral Deposit Insurance Corporation might give consideration to requiring nonmember
banks to par checks the same as member banks are required to do if given authority."
Topic 5 (a)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
x -a m -b
- 1 n,
V
Minneapolis: ’’The necessity for nonmember banks to maintain their earnings by
some form of exchange charge is the primary reason why nonmember bunks do not join
the Federal Reserve System. The tendency at the present time is for member banks
to withdraw from the Federal Reserve System so that they may collect these ex
change charges, and this movement would be more pronounced if member banks did not
believe that they would be forced to reenter the Federal Reserve System in 1937
to retain their deposit insurance. As a practical matter, the law should be amend
ed at once to permit aLi banks to levy exchange charges at the rate of l/ 1 0 th of 1
per cent of the face amount of the checks which they are paying. The Federal Re
serve Beard might well conduct an educational campaign leading to the establish
ment of the better practice of making these exchange charges against the drawer
of the check rather than against the payee."
Kansas City: "The exchange charge encourages indirect routing of items, and there
fore hinders commercial transactions. It would be a backward step to permit mem
bers of the Federal reserve system to charge exchange, even though the prohibition
on such charges is doubtless an important factor in keeping many banks out of the
system. Nebraska is the only State in this district in which this matter is im
portant, since all but a few nonmember banks in the other States are voluntarily
remitting at par."
Dallas: "It is our belief that although approximately 180 nonmember banks in this
district are not on our par list, the loss of revenue from this source, when a
State bank joins the Federal Reserve System, is not, in this district, an impor
tant factor among the reasons why State banks do not join the System in larger
numbers. The importance of this factor has been greatly diminished, in our
opinion, by a steady growth in the practice, on the part of banks, of making
'service charges' to their customers, and also by the increasing resistance, on
the part of both the payees and drawers of checks, to the deduction of exchange
charges by the remitting banks. This resistance, together with the influence of
our par collection system, has gradually eliminated exchange charges in practical
ly all of the larger towns and the practice is now confined almost entirely to
banks in very small communities."
San Francisco: "There are 34 non-par State banks in the Twelfth District, hav
ing average resources of 4165,000, the largest bank has 05S3,000 and the smallest,
454,000.
"It is very doubtful whether many of these banks would make desirable
members of the Federal Reserve System.
"Possibly most of them could not or would not accept membership, even
though permitted to cllarge exchange on items forwarded by the Federal reserve bank
for collection."
(b)
Present conditions of membership.
Boston: "So far as we have been able to learn, the conditions of membership
have never been a deterrent to nonmember banks that have felt it was to their ad
vantage to join the Federal Reserve System." Boston states that some objection
has been raised in the district to conditions number 15, 17 and 18, but it makes
no recommendations as to the manner in which these conditions should be modified.
However, it does state in its remarks under topic numbered 9, that "In several
instances conditions have been imposed in connection with the admission of
State banks to membership or technical difficulties have been raised which have
seemed to the applying banks to go beyond the requirements of law or to deal
with matters which have been free from criticism in particular cases or to be un
necessarily burden*ome. It is true that in some instances the conditions have
been modified or withdrawn, but in some cases they seem to have left an unfav
orable impression. Our suggestion is, that before unusual conditions, that is,
conditions not required by Law or which may be a serious burden to an applying
bank, are imposed we be given an opportunity to review them and if necessary or
desirable, to discuss them in an informal way with the applying bank."
New York: "The present revision (June 30, 1955) of the Conditions of Membership
comprises a list of 18 standard conditions. Many of these conditions appear to be
of a desirable character, and banks entering the System have accepted them with
out serious hesitation. Nevertheless, we think that it would be well to review
the conditions at this time in the light of their history and purpose, and the
statutory changes made since the adoption of each.
Topic 3 (b)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
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"Furthermore, State member banks have been admitted to the System over
the course of a number of years, and the conditions to which such banks are sev
erally'- subject differ widely. In considering a revision of the condition, there
fore, we think it would be desirable to endeavor, in so far as may be possible,
to make them uniform, both as to present State bank members and as to State in
stitutions joining the System in the future.
"The conditions, in their present form, are, as we conceive them, of
three general kinds: (1) those that serve to subject State member institutions
to certain provisions of law affecting national banks, to which such State insti
tutions might or would not otherwise be subject and to which it is desirable that
they should be subject5 (£) those that are designed to keep the Federal reserve
banks and the Board informed as to certain matters affecting their relations with
the State member banks; and (5) those that serve as reminders to such institutions
of certain features of good banking practice and of certain provisions of the
statutes which might: otherwise be overlooked.
"Conditions of the first kind, generally speaking, may be said to be
those numbered 7, 8 , 3 and 13; those of the second kind, numbers 1, 9, 1?. and 14;
and those of the third kind, numbers 2, 5, 4, 5, 6 , 7, 8 , 10, 11, 13, 15, 16 and 17.
As will be noted, the purposes of the several conditions overlap to some extent.
"Generally
should be retained
and 15, which seem
adequately covered
speaking, we think conditions numbered 1, 9, 10, 14, 16 and 13
in their present form, and that conditions numbered 2, 3, 5, 6
unnecessary, and conditions numbered 4, 11 and 15, which arc
by statute, should bo eliminated.
"Condition numbered 7, we believe, should be omitted or at least revised,
in view of recent amendments to Section 9 of the Federal Reserve Act and Section
5136 of the Revised Statutes. It would also seem that Section 24A of the Federal
Reserve Act, which relates to national banks only, establishes the standard by
which the Board should be guided in respect of condition .numbered 3, and that this
condition might be revised accordingly.
"We think that consideration should be given to a revision of condition
numbered 17, which should be considered in connection with condition numbered 12.
We construe condition numbered 12 to relate solely to the issuance and sale as a
business of notes, bonds, and mortgages, and certificates of participation therein,
although some time ago, in an informal discussion with one of our member trust
companies, its officers felt that the terms of the condition overlapped those of
condition numbered 17. Condition numbered 17 relates to the investment of trust
funds ’in participations in pools of mortgage bonds or other securities’. * * *
(Detailed discussion of reasons for revision is contained in report of Now fork
bank.)
"We think that attempting to include in the conditions, matters which
are substantially covered by statute, serves unnecessarily to magnify the re
quirements for membership, that, at most, a reference to the applicable statutes
is all that is desirable as a reminder to applicant banks of certain specific
provisions of the laws which will govern their operations as members of the System.
"For some time it has been the policy to admit, as State bank members of
the Federal Reserve System, only banks which can and will eliminate from their
balance sheets all estimated losses, and all depreciation in market value of
securities held, other than those of the first four grades. These requirements
for elimination of lasses and depreciation have been much more severe than any
requirements which it has been possible to apply to banks which are already mem
bers of the Federal Reserve System. There is reason to believe that this has had
the effect of preventing the entrance of a number of banks into the System, whose
condition and management compare favorably with the condition and management of
many banks already members of the System. In view of the desirability of pro
moting unification of the banking system, which is recognized in existing and
contemplated provisions of Section 12b of the Federal Reserve Act, .it would seem
desirable that this phase of System policy, as to the admission of nonmember
State banks, should be liberalized. Such relaxation of requirements as would permit
the entrance into the System of banks in distinctly unsatisfactory or dangerous
conditions, of course, is not suggested."
Topic 3 (b)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
Under topic numbered 9, New York states that,
* # there have developed
most exacting requirements as to material to be .furnished in connection with the
application and as to conditions to be met by banks prior to admission. This has
reached a point where it constitutes a distinct obstacle to bringing many State
banks of average or better than average quality into the Federal Reserve System."
Philadelphia: "From a strictly System point of view, present conditions of1 ‘mem
bership are not considered too severe, although the requirements with respect to
charge-offs have made it impossible for the majority of the nonmember banks in
this district to qualify. Many nonmember institutions have substantial investments
in stocks on which the depreciation is heavy. The state laws still permit banks
and trust companies to invest in stocks, subject to certain limitations.
"Nonmember state banks generally are aware of the closer supervision
and more stringent requirements imposed upon member state banks than those to
which they are subjected by the state supervisory authorities. In most cases the
bankers are willing to admit the desirability of the more rigid regulation, but
they believe that by postponing applying for membership until it is required of
them to retain the benefits of deposit insurance, concessions will be made which
will not demand such drastic action in the matter of charge-offs and other cor
rective measures.
"Uniform condition numbered 17 which prohibits the pooling of trust in
vestments, we believe, has deterred a number of Pennsylvania banks from applying
for membership. The State Banking Code of 1955 prohibits the pooling of invest
ments and the sale of participations to the public with or without the bank’s
guarantee, although pools still are permitted for the collective investment of
trust fundi?, by which means these funds may be invested almost up to the last
dollar, thereby producing a maximum of income for the beneficiaries. In more
prosperous times the pooling practice involved a minimum of risk. The dangers
and difficulties now, however, are apparent to the managements of most of the
trust companies. The provision in condition numbered 17 which prohibits a bank
from owning an interest in a trust pool created for the investment of small bal
ances deprives the pool of the flexibility which is necessary for its successful
operation. If some modification of condition numbered 17 were possible to permit
the banks’ participation in pools created for the collective investment of small
balances which cannot be invested separately to advantage, it would have the effect
of making membership more attractive to the smaller trust companies.
"The power to issue title insurance is the birthright of practically all
trust companies in Pennsylvania. The majority of the nonmember banks are trust
companies, but apparently only approximately 16 per cent of them have exercised
their title powers. Under the provisions of a late Act, it is believed that some
of the companies which heretofore engaged in the issuance of title policies have
since lost the right to do so. It is recognised that title business is not a
proper function for a commercial bank to engage in, but in certain instances it
would impose a real hardship upon banks for them to be forced to abandon their
title business. It is recommended that in such cases some modification of the
Board's usual policy be permitted, in order that these banks may qualify for mem
bership, provided their conditions are otherwise satisfactory.
"Because of the dual supervision by State and Federal authorities to
which state member banks are subject, a number of the nonmember banks have ex
pressed a preference to convert into national banks, rather than to seek mem
bership under their present charters. It is believed that if the Comptroller is
given the discretionary authority provided for in the new banking bill to permit
converting state banks to carry over sound but n on-con forming assets into national
banks, a large number of state banks will seek national charters in preference to
membership under their present state charters."
Cleveland: "Conditions of membership imposed on banks applying for membership
since the banking holiday appeal* to be more drastic than those imposed on banks
which entered the System prior to the holiday, It is our feeling that conditions
of membership should now be of uniform application to all member banks in so far
as practicable."
Richmond suggests that standard condition numbered 8 be eliminated, inasmuch as
the limitation imposed therein is governed by Section3!(a) of the Federal Reserve
Act, and that standard condition numbered 18 "be amended to provide that such
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
- 15 -
portion of trust funds being used by the bank which are not insured (by the
F.D.I.C.) shall be covered by collateral as required of national banks by the
Federal Reserve Act. Section 1.1(k) of the Act has not been amended so as to take
into consideration the insured portion of trust funds on deposit with national
banks . 11 It suggests also that special condition numbered 19, which provides for
annual depreciation on banking houses and furniture and fixtures of not less than
2% and 10% respectively, "in many cases is entirely unreasonable in that it does
not take into account the actual value of the property in its relationship to its
book value. * * *it would be sufficient to require banks to reduce the book
value of their banking houses to a fair value and maintain them on this basis at
all times."
Atlanta: "Laying to one side for the moment questions of capital requirements of
nonmember banks, we give it as our opinion that the conditions of membership
presently being prescribed by the Federal Reserve Board should, not be materially
changed; this for the reason that it is believed that modification of the con
ditions would have a tendency to lower the standards of membership and give
the member banks opportunity to deviate from sound banking principles. Member
banks, almost without exception, regard their membership very highly and would
not appreciate the lowering of standards in order that membership in the System
might be easier of attainment,
"Assuming that the Federal Reserve Board is to be invested with the
right to waive, in whole or in part, the capital requirements of banks apply
ing for membership, we believe that the Board might properly admit to membership
any sound bank having the capital required by State law and be rather liberal
in fixing the time within which the bank would be compelled to bring its capital
requirements up to those set out in Section 9."
Chicago: "Conditions of membership should be revised. A number of them are
now statutory under the banking act or under State laws and may therefore be
omitted. I- (Chairman Stevens) venture to suggest that it might be well to
revise these conditions on the basis of sound principles of banking, rather than
to impose special conditions and explicit prohibitions.
"With the passage of time, changing conditions and practices, many of
the general conditions of membership now established are obsolete. They re
quire modification or complete elimination."
St. Louis: "While these conditions (18 standard conditions of membership) are
considered desirable, in order that they may appear less numerous and thereby
make a better impression on recipients, it is suggested that the number of them
be reduced by consolidating condition No. 2 with No. 1, and conditions Nos. 5
and 6 with No. 5. »
Minneapolis? "The present conditions of membership are so voluminous and in
volved that they frighten the prospective member. We recommend that the general
conditions of membership be reduced to the following simple form, to be passed
by the bank's board of directors:
1 This bank agrees to abide by the present
and future rules and regulations prescribed by the Federal Reserve Board find to
conduct its business according to sound banking principles'. The other matters
incorporated in the present conditions of membership should be incorprated in
the "miles and regulations of the Federal Reserve Board or should be specified
as special conditions of membership in certain cases."
Kansas City: "Present conditions of membership are not a deterrent to membership
except as to condition numbered 1 2 , which forbids direct or indirect participa
tion in the mortgage loan business, and possibly to a slight extent conditions
numbered 10 and 15, which restrict the payment of dividends beyond the legal
restrictions applicable to national banks and to nonmember State banks, and re
quire an agreement to maintain capital and surplus in any amount which the Fed
eral Reserve Board may deem adequate.
"Admitting that the ends sought to be accomplished by conditions num
bered 10, 12 and 15 may be desirable, it is undesirable and inequitable to sub
ject State member banks to general conditions of membership which are not ap
plicable, either by law or by regulation or practice of supervising authorities,
to national banks or to State banks which became member banks prior to the in
auguration of such general conditions. Our view is that conditions of membership
should be confined to special conditions which the situation of the particular
Topic 3 (b)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-917'l-b
- i: bank may make desirable or necessary, and to such general conditions as may be
necessary to bring the operations and practices of State bank members into con
formity with laws and/or regulations applicable to national banks, which com
prise the great majority of member banks, It would be highly desirable, if
practicable to have legislation applicable to all member banks alike, covering
all matters which are sufficiently vital to properly be the subjects of general
conditions of membership, and thereafter to confine conditions of membership
to those special requirements necessary to correct unsatisfactory conditions in
a particular bank.”
Dallas: "r substantial number of State banks in this district are ineligible for
membership because of capital requirements. It is our belief that, in general,
it is undesirable to admit to membership banks which have less than the present
required capitalization. * * *
"We have had no serious complaints in our district concerning any of the
present standard conditions of membership. It is our judgment, however, that with
respect to all of these conditions, particularly Nos. 10, 12 and 15, something
should be done to avoid undue discriminations against State banks in relation to
regulations which control the operations of National banks and of State member
banks which were admitted to the System prior to the promulgation of the present
regulations. It is our belief that, in general, the present regulations are not
onerous or objectionable to well-managed institutions, and that member State
banks generally prize their membership and would dislike to see the standards of
the Federal Reserve System lowered."
San Francisco-: "No conditions of membership are now being imposed which are not
in the interests of good banking. They work no special hardship on banks being
conducted on recognized sound banking principles. Some of the general conditions
may appear superfluous or unnecessary. Often, however, these conditions have
been found, a convincing medium for securing desired corrections and the discon
tinuance of unsound practices. No doubt, many nonmember banks could be induced
to join the System if they were allowed time, following admission, in which to
effect prescribed corrections. This particularly applies to banks having losses
and depreciation in excess of undivided profits, which they hope to eliminate
through expected future earnings. In the light of long experience, however,
it would seem unwise to admit banks on promises that stipulated corrections
will be made."
(c)
Advisability of extension of membership to banks outside the States
and the District of Columbia:
Boston makes no comment on this subject.
New York; "It is our view that, particularly in the light of recent banking
legislation, we should first study the whole question of membership of banks in
dependencies, insular possessions, of parts of the United States outside the con
tinental United States, and determine what our general policy is to be with ref
erence to such banks. * * *
"Beyond this question of policy is the question of method and approach.
Here it is our view that before individual banks can be examined intelligently
for membership in the System, a general survey of economic and banking con
ditions in the areas affected must be made. .The appropriate agencies for making
such surveys, it seems to us, would be the Governmental units charged with the
administration of the dependencies or Insular possessions concerned, with the
possible assistance of representatives of the banking supervisory authorities
and of the Federal Reserve Board and the Federal reserve banks.
" *
following:
* * Such a survey, it seems to us, would have to take account of the
(1 ) The government of the territory, including the nature
and extent of the control exercised by American officials.
(2) The economic organization of the territory and its trade
and financial relationships with the continental United States.
Topic 5 (c)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
- 15
(3) The banking system of the territory, the laws
which govern its operations, the supervision which it re
ceives, and the character of business which it transacts.
(4) The relation of the factors mentioned in the pre
ceding paragraph (5) to successful membership in the Federal
Reserve System (and presumably in the Federal Deposit Insur
ance Corporation), and the general requirements for membership
which should be established.
(5) The possibility of maintaining proper contact with
such banks and an adequate knowledge of their affairs, if and
when they are admitted to membership, and the possibility of
providing them with the services which are supposed to be the
corollary of membership, including such questions as the neces
sity for establishing a branch or agency or currency depot of
this bank in the territory.
(6 ) The general benefits and advantages of membership,
from the standpoint of the individual banks and the people of the
territory on the one hand, and from the standpoint of the Fed
eral reserve banks and the United States on the other."
Philadelphia: "The question of extension of membership to banks outside the
States and the District of Columbia is a matter about which we do not feel com
petent to advise, because we are not familiar with the requirements of such
banks. * * * We believe that membership would make possible uniformly lower ex
change charges and also facilitate the collection of checks and drafts, thus en
couraging business between the United States and its possessions. We presume
that facilities for obtaining cash and rediscounting would be of material bene
fit to such banks. Unless branches of the Federal Reserve Banks were established
in each of the possessions, however, there would appear to be presented many
problems in connection with the maintenance of reserve, etc., which would make
their administration and supervision difficult."
Cleveland: "* * * it seems to us that this question could better be answered by
the Federal reserve banks in the coast cities. It is our view that the benefits
of membership to banks in these remote locations would depend upon the facility
with which they could transact their business with the reserve banks with which
they were affiliated. ' 1
Richmond feels that there would be no objection to the admission to membership
in the System of national banks in Alaska or in a dependency or insular possession
of the United States inasmuch as they are under the supervision of the Comptroller
of the Currency. While it regards supervision as of first importance, it believes
that, where any bank so located can meet the usual membership requirements and
is subject to adequate supervision, there is no basis upon which admission to
membership may properly be denied.
Atlanta: "We know of no reason why the privilege of membership should not be
extended to national banks located in Alaska and in the insular possessions of
the United States."
Chicago makes no comment on this topic.
St. Louis:
"* "x* to carry out the purpose of unification of banking, and in
order that such banks may receive the benefits of membership, we think they
should be encouraged to become members of the System."
Minneapolis: "Inasmuch as we have no volume of business with banks outside of
the United States and the District of Columbia, we have no opinion to offer on
this point."
Kansas City: "We are not qualified by experience to make a recommendation on
this subject. It would seem that the condition of the banks in the outlying
territory and possessions of the United States would be a prime factor, together
with the responsibility of examining these banks after they were admitted to
membership. This problem is one that should be solved by the Federal Reserve
Board in conjunction with the Federal Reserve Banks of the districts to which
these outlying member banks would be attached, and. our lack of knowledge precludes
our making any suggestions."
Topic 3 (c)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-93.74-~b
Dallas; "We know of no reason why membership should not bo extended to banks
outside the States and the District of Columbia, provided they are admitted
upon a basis that will be fair to other banks in the same countries and to mem
ber banks in the United States. We suggest, however, that the Board give due
consideration to the practical problems that would be involved in the admission
of banks in overseas countries, both .in respect to their examination, and
otherwise."
San Francisco; "At the present time it does not appear that, banks situated in
Alaska and Hawaii are in need of the facilities offered by membership in the
Federal Reserve System.
"Laws governing the supervision of banks in those territories are
inadequate. While the reserve bank could regularly examine its own members
and exercise more or less unauthorized supervision, nonmember banks in Alaska
particularly would be a constant menace to member banks.
"When State banks were first being admitted to membership, most of
the States had very weak and. inefficient banking departments. The fairlyefficient state which now prevails is due in no small part to the contacts
arising through supervision over members by the reserve bank. It is almost im
possible for a reserve bank to coordinate with banking departments situated
thousands of miles distant and with which direct contacts are at best infrequent.
"As a practical matter, it would seem desirable not to admit to mem
bership other than national banks situated in Alaska and Hawaii."
Topic 5 (c)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
- 17 -
4. Need for continuance of assistance of Reconstruction Finance Corporation in
connection with rehabilitation of capital structures of banks.
Boston believes there in a distinct need for the continuance of assistance of the
Reconstruction Finance Corporation in connection with the rehabilitation of the
capital structure of banks. It states that, while there is little evidence of such
need at the present time so far as member banks are concerned, it will be impera
tive to have such assistance in the event any great number of nonmemoer banks de
sire to enter the System prior to July, 1957. Moreover, it suggests that there
are some cases where stock purchased by the Reconstruction Finance Corporation
has since become impaired, and it may be necessary for the Corporation to make fur
ther investment in such banks.
New York;
"When the present program of capital rehabilitation has been completed
* * * we believe that the Reconstruction Finance Corporation should definitely
terminate its activities in this field.
"Looking to the future, and so long as the Federal Deposit Insurance
Corporation is in existence, it might be advisable for that corporation to have the
option of making temporary capital advances to banks with weakened capital struc
tures , if it appears likely that such advances would permit the banks so assisted
to be restored to sound condition and to be put in a position to operate profit
ably in the future, a procedure which, it is to be hoped, would result in a smaller
contribution by the Federal Deposit Insurance Corporation to the banks involved,
than if they were permitted to fail. (A suggestion along these lines wss con
tained in the report of the Federal Reserve System Committee on Legislative Pro
gram submitted to the Federal Reserve Board under date- of December 17, 1934). The
expansion of the functions of the Federal Deposit Insurance Corporation to meet
this need would seem to be appropriate, so long as underlying defects in our bank
ing system make possible numerous bank failures, inasmuch as the prevention of
bank failures is much more important and constructive, than the payment of de
positors after a bank has been closed."
Philadelphia reports that there remain a number of banks in Pennsylvania and in
southern New Jersey which will require attention, but that banks in Delaware ap
parently will not need further assistance.
Cleveland: "There arc still banks in this district whose capital structures need
bolstering, and we believe the need still exists for continuation of Reconstruc
tion Finance Corporation assistance in this respect."
Richmond: "From the information obtained from official sources upon this subject,
it would appear that the program of the R. F. C. in this particular is nearing
completion, but that it would be advisable to have the benefit of these facilities
for unfinished and emergency cases throughout the balance of this year."
Atlanta: "It is felt that for several years at least there will be a real need
for the continuance of the assistance of the Reconstruction Finance Corporation in
connection with the rehabilitation of the capital structures of banks. Our con
clusions are based upon the belief that a number of banks which sold preferred
stock will in all likelihood be compelled later on to strengthen their capital
structures, and it does not appear possible for such banks under present conditions
to secure additional capital from private investors."
Chicago: "'Without question, this provision should be continued at least until
July 1, 1957, because we anticipate that a lot of banks which will apply for mem
bership in the System will come to us with inadequate sound capital, and the Re
construction Finance Corporation should be in position to rectify this, if pos
sible, before they are admitted to membership in the System."
St. Louis: "It is our opinion that the assistance of the Reconstruction Finance
Corporation in connection with the rehabilitation of capital structures of banks
should be continued, certainly until July 1, 1957, when all insured nonmember
banks must be members of the Federal Reserve System. Vie feel that its services
are needed to complete the capital rehabilitation of banks, especially nonmembers.
We believe that it will be necessary to strengthen the capital structures of many
nonmember banks before admitting them to membership in the Federal Reserve System."
Minneapolis: "Assistance by the Reconstruction Finance Corporation in providing
capital for banks should be continued until all existing banks are adequately
capitalized. We believe that there should always be in existence an agency to
assist banks which arc in a weakened condition. It would be well for this func
tion of the Reconstruction Finance Corporation to be continued until the Federal
Topic 4
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
- 13 -
Deposit Insurance Corporation or some other agency is ready to take over this
work."
Kansas City; "It is important that the Reconstruction finance Corporation con
tinue to assist in rehabilitating the capital structure of banks, through the
purchase of capital stock, notes, or debentures, until banking and general business
and agricultural conditions become more settled, and the continuance of the R. F.
Co activities is vital to the successful operation of the Federal Deposit Insurance
Corporation."
Dallas; "The need for such aid appears to have been largely satisfied in this
district, but some work still undoubtedly remains to be done, particularly among
nonmember banks, and it would be well for this facility to continue to be avail
able at least during the next two years."
San Francisco;
"The need for Reconstruction Finance Corporation assistance in
rehabilitating capital structure of banks has not passed.
"The current condition of nonmember banks in the Twelfth District is
not known. However, a considerable sum is required to fortify the capital of a
few member banks. It is doubtful whether the amount so needed can be raised with
out the assistance of the Reconstruction Finance Corporation."
Topic 4.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
- 19 5. Adequacy of reimbursement of Federal reserve ben^s by Treasury and other
governmental ame n d e ft for various service? rendered and for space used in Federal
reserve bank buildings.
Boston reports thr.t the Treasury reimbursed the reserve banks for all Liberty Loan
and fiscal agency expenses until July, 1921, but that, since that date, reimburse
ment has been made only for expenses relating to new issues although the redemp
tion , exchange and coupon, operations currently carried on unci in prospect are
much larger in volume than the "new issue" work. Boston indicates that reimburse
ment has never been made for deposit ry services, and feels that, owing to the
present volume of such work, reimbursement should be obtained. It also points out
that the reserve bank obtain, much lower rental, for the space occupied by the
Boston Loan Agency of the Reconstruction Finance Corporation in the Federal re
serve bank building than cor.la be obtained for this space in the market.
Now York; A substantial part of the expenses of the iiev7 York bank as fiscal agent
and depositary of the United States, it says, is attributable to services which it
performs as depositary, such as the payment of government coupons, interest checks,
disbursing officers' checks, and Treasury warrants, The reserve bank reports that
it has never been its policy to seek reimbursement for expenses incurred in lending
such services, which it considers to be of the same character as services which o.
commercial bank performs for its depositors in return for balances maintained with
it.
Hew York states that the general question of obtaining reimbursement for
non-depositary services which it renders the Treasury has been the subject of dis
cussion at frequent intervals since the establishment of the System; that under
date of August a, 1922, the Treasury advised the bank that it, had no funds with
which to reimburse it for services other than those relating to new issues of
government securities and that there was a strong feeling in Congress that the
operations of the reserve banks were sufficiently profitable to enable such banks
to absorb any other expenses connected with fiscal agency operations for the De
partment. Therefore, the reserve bank understands that the Treasury would have
to obtain an additional appropriation from Congress ’
with which to pay all fiscal
agency expenses of the reserve banks other than those relating to new issues, and
it does not recommend attempting to secure such complete reimbursement at this
time. However, it does feel that the reserve banks should seek immediate reimburse
ment for certain of the services which they perform where the Treasury already ap
pears to have adequate authority in law to nay for expenses and services rendered.
New York also states "As a natter of principle, it Is our belief that,
under existing conditions, the Federal reserve banks should be reimbursed by the
Treasury Department for various non-depositary services which they now render for
that department without receiving adequate reimbursement. * -> * While we do not
obtain reimbursement from the Treasury Department on account of rent, light, heat,
power and similar items of overhead expenses in connection with the use of space
in the bank building, we do obtain a nominal payment for space in the bank build
ing which we rant to agencies of the Government other than the Treasury Depart
ment. It is our opinion that the proximity of these agencies to our offices is
i- convenience which warrants the establishment ok smaller than market rentals for
the space which they occupy,
"The ultimate solution of this whole problem seems to us to lie in the
restoration of some form of franchise tax, such as war formerly paid to the
Government by the Federal reserve banks which would justify the establishment of
an appropriate schedule of charges, on a business basis, for all services rendered
by the Federal reserve banks to the Treasury and other governmental agencies, and
for space in Federal reserve buildings used by such agencies."
Philadelphia;
"It is our opinion that the cost of the above expenses (all fiscal
agency and depositary expenses) should be reimbursable, and that no credit should
be allowed for the Government deposit because, in the nature of things, reserve
banks are not expected to invest as closely as member banks, and therefore do not
Lave the same opportunities for using balances to create earnings♦"
Cleveland:
"A study of our own situation with respect to services rendered the
Treasury and other Governmental agencies clearly indicates the inadequacy of the
reimbursement received. This subject is under consideration by ... committee of
Governors of Federal reserve banks."
Topic 5
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-1)
-
20
-
Richmond: ”It is our opinion th&t the Federal reserve "banks should "be reimbursed
"by the Treasury Department and other governmental agencies for all expenses —
general as well as direct — incurred by the banks in connection with fiscal
agency, custodianship, and depository operations, including rent for office and
vault space used in Federal reserve bank buildings.
’’While we have always thought that complete reimbursement should be
made to Federal reserve banks , in years past when the earnings of Federal reserve
banks were large, and particularly at the time when a very large portion of such
earnings, after providing for expenses, dividends and charge-offs, were being paid
to the Government as a franchise tax, there was little or no reason for obtaining
reimbursement from the Treasury for all expenses. During recent years, however,
conditions have materially changed, and at the present time the earnings of a
number of Federal reserve banks are not adequate to meet expenses, dividends and
charge-offs, and the situation has caused the banks considerable concern. It
has been suggested that in order to provide sufficient revenues Federal reserve
banks might be compelled to levy service charges against member banks, and this
would seem to be imminent unless the Treasury Department and other governmental
agencies will agree to reimburse us for the cost of services performed for them.”
Atlanta: ”It is our opinion that a considerable part of these expenditures (for
fiscal agency and depositary expenses) should be reimbursed, and we therefore sug
gest that a careful study be made of all these expenditures with a view to secur
ing for the Federal Reserve Banks adequate reimbursement for items of expenditures
made by them in connection with services rendered exclusively in a fiscal agency
capacity.”
Chicago: ’’The Federal reserve banks should be reimbursed by the Treasury and
other governmental agencies for the cost of the entire fiscal agency function and
also for the cost of all services rendered to other governmental agencies.
’’The present method of attempting to determine and segregate the cost
of fiscal agency expenses for new Government issues is unsatisfactory, and, in
fact it is almost impossible to separate the cost of services for new issues from
the other fiscal agency services. A majority of the Governors in the past has
agreed that all of the fiscal agency expenses for the Treasury Department should
be reimbursed.”
St. Louis: ”An accounting conference of representatives of Federal reserve banks
was held in Chicago on June 27 and 28, 1934, at which recommendations were made
that the reserve banks should be reimbursed by the Treasury and other govern
mental agencies, such as the Reconstruction Finance Corporation, Farm Credit Ad
ministration, etc., for expenses incurred on their account, including use and
rental of space, furniture and equipment, etc. A committee, consisting of Gover
nors Fleming, McKinney and Martin has been appointed to work with Mr. Smead, of
the Board’s staff, in an effort to obtain full reimbursement of such expenses. We
concur in the recommendations of said accounting conference and in the objective
of the committee mentioned.”
Minneapolis: ”0ur reimbursement by the Treasury Department and other governmental
agencies for services rendered is not adequate in a number of respects.” (Specific
items for which Minneapolis feels it should be reimbursed are enumerated in its
report•)
Kansas City: ’’This Federal Reserve Bank has not sufficient earnings to cover its
expenses, dividends and depreciation reserves, consequently, we feel we should re
ceive full reimbursement for all fiscal agency services rendered. * * * It is
suggested that the committee of governors > consisting of McKinney of Dallas,
Martin of St. Louis, and Fleming of Cleveland, together with Mr. Smead, be re
quested to meet and bring in a report on this whole subject of reimbursable ex
pense.”
Dallas: ”We arc quite positive in our conviction that we are inadequately reim
bursed at the present time for space and services furnished certain Federal agen
cies. This fact is clearly shown in our semiannual reports on this subject to
the Board. We are equally confident that other reserve banks are in the same
position. We understand that this problem has been referred to a special committee
of reserve bank governors, and it is our opinion that such a committee is in the
best position to work out a satisfactory solution. We feel that a uniform policy
in this connection, on the part of all the twelve banks, is absolutely essential
Topic 5
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
-
21
-
if justice is to be done to the reserve banks in the matter of reimbursements.
Vfe have good reason to believe that the present lack of uniformity is largely
responsible for the attitude of resistance that lias been displayed by some of
the governmental agencies in connection with this matter who are naturally
anxious to make a good showing in their budget reports, and, for that reason,
have doubtless taken advantage of the opportunity to resist clo.ims made by some
reserve banks on the ground that such claims are not being made by certain other
reserve banks. In view of the importance of a unified policy, we believe that
this matter should be given the vigorous and continuous attention of the present
System Committee with a view of working out, at as early a date as possible, com
plete figures on the subject and a definite program for a uniform policy for all
reserve banks to follow."
San Francisco: "Because Federal reserve banks can utilize existing facilities
they are able to perform services for the Treasury and other governmental agencies
at a much lower cost than would be possible if the Treasury or agencies undertook
xo perform the services themselves. In view of these large savings, it seems
cnly reasonable that the Treasury and agencies should fully reimburse the reserve
banks for all out-of-pocket expenses.
"The ever-increasing activities of the Treasury and governmental
agencies have required and will continue to need additional working area which
might otherwise be rented by reserve banks. At present, the Treasury does not
make reimbursement for expenses in connection with safekeeping of securities or
costs arising from the exchange, transfer and redemption of United States Govern
ment obligations. Neither does the Treasury or governmental agencies make re
imbursement for light, heat and power, nor reimbursement of salaries of administra
tive officers who devote a considerable amount of their time to governmental
operations.
"Obviously, the reserve banks should not be subject to the absorption
of expenditures over which they have no control and which bear relationship to
the needs of the Treasury and governmental agencies rather than to those of the
reserve banks."
Topic 5.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
-
22
6 . Regulation fixing margin requiremerits for loans by banks upon equity securi
ties for the purpose of purchasing or carrying; securities registered on national
securities exchanges.
(a)
Circumstances under which regulation should be issued;
Boston;
"In view of the materially reduced amount of credit now being used for
the purpose of purchasing and carrying securities, and in view of the various pro
visions of the Federal Reserve Act and the Banking Act of 1953, we suggest the
issue of regulations fixing margin requirements for loans by banks be delayed un
til there are indications that there will be active demand for credit of the kind
under consideration.
we do not believe the issuance of regulations is neces
sary in the immediate future. We believe that in so far as it can be done within
the intent of the law, the regulations should bo simple and should apply in the
main to the total credit in use, thereby reducing the costs of examination and
policing."
New York: "In our opinion, inasmuch as the statute does not require the issuance
of such regulations, the Federal Reserve Board should not, at the present time,
issue regulations with respect to bank loans on securities, for the following
reasons;
1.
Regulation T has not been thoroughly digested by
the brokers and others subject to its provisions. In
general the brokerage community has only a limited
knowledge of the regulation and a considerable amount
of explanation and education is necessary before we
can even tell how the regulation will operate. The
present technical difficulties already apparent are
sufficient to demand the Board’s concentration. An
active security market will undoubtedly aggravate the
present problems and uncover further unforeseen diffi
culties. A new set of bank loan regulations for securi
ties even if couched in general terms would cause in
creased confusion and retard the present healthy applica
tion of Regulation T.
The Banking Act of 1955 gives the Reserve System
large powers of control for the whole field of banking,
in so far as speculative credit, or the uses of credit
for ’any other purpose inconsistent with the maintenance
of sound credit conditions’ are concerned. Regulations
covering bank collateral loans under the Securities Ex
change Act, therefore, are unnecessary at this time for
control purposes.
o.
The general recovery program of the country has in
volved encouragement of banks to adopt a liberal lending
policy. Placing further restrictions upon bank lending
at this time would tend to be deflationary and to coun
teract this general program.
4.
A further study of collateral bank loans from a
supervisory standpoint also would seen to be desirable
before additional regulations are promulgated. The ex
perience gained from evasion and circumvention under
Regulation T should supplement our present limited know
ledge of control in this field of banking,"
Philadelphia; "Under existing circumstances, the present appears a desirable
time to issue such a regulation, as dealings in securities are now of so small a
volume that any adverse effect of such a regulation would produce a minimum of
disturbance. Also, if the regulation were issued now, all parties would know the
conditions under which loaning operations in connection with registered securi
ties should be conducted and a future disturbance be avoided."
Cleveland; "It is the opinion that Section 7(b) of the Securities Exchange Act
of 1934 is impracticable, and until such time as the law is simplified the issu
ance of the regulation should be deferred,"
Topic 6 (a)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
-
2?
-
Richmond: ’’The Federal Reserve Board should, in our opinion, interfere as little
as possible with the normal lending by banks by limiting the amount which they may
lend on a given security for the purpose just referred to. For this reason we do
not think the Board should issue rush regulations unless or until it is thorough
ly satisfied that banks generally are aiding in speculation to an unreasonable and
dangerous extent. Until such condition develops banks should have the right to
exercise their own judgment as to how much they will lend on a given security.
There are many factors which enter into the lending on money on securities be
sides the high, low, and present market value of the security.”
Atlanta: ’’The regulation should be issued at such time as the Board may deem advLsable. We believe, however, that its effective date should be fixed at least
fifteen and perhaps thirty days after the date of its release, in order that the
banks may have ample time in which to familiarize themselves with its provisions.
We think also that as to loans held by banks at the time of the effective date of
Lno regulation reasonable time should be given for the bringing of margin re
quirements within the prescribed limits; this for the reason that any unusual
volume of sales occurring within a comparatively short time and occasioned by
the regulation might demoralize the securities market.”
Chicago: ’’There does not appear to be an immediate or pressing need for regula
tions fixing margin requirements for loans by banks upon equity securities. A
further experience with the operation of Regulation T might therefore be advisable
before issuing regulations for banks.
Chicago believes, however, ’’that such a regulation should be prepared
subject to such changes as experience in Regulation T may dictate, but should be
withheld from issuance at this time, when we are seeking to stimulate rather than
restrict banks in extending credits.” It does not feel "that there is danger at
present of banks extending undue credit for speculation purposes.
"In due course, however, such regulations should be issued and this
should be before a heavy speculative movement may prevail, so that banks may be
prepared in advance and any abuses of credit may be forestalled rather than a
change be forced after that may have occurred, with its resulting ill effects on
the markets and on the public interest,”
St. Louis: ”0n September 28, 1954, the Federal Reserve Board issued its Regu
lation T, in regard to extension of credit by brokers, and we believe that it
would be appropriate and desirable for it to issue at this time a similar regu
lation affecting Loans by banks on equity securities.”
Minneapolis: "The Federal Reserve Board should issue a regulation at once gov
erning loans by member banks and nonmember banks on stocks and securities. There
is considerable confusion in the minds of bankers as to margin requirements where
security loans are made to customers for purposes other than carrying or speculat
ing in securities.”
Kansas City: "It seems to be desirable * * * that the regulation be promulgated
at an early date, or at least before bank loans on securities again assume large
proportions."
Dallas: "We believe that although the law was designed, to prevent the undue
use of bank credit in times of speculative activity, it is desirable that the
Board not wait until such an era arrives "before issuing its regulation applic
able to banks. The banks are aware that under the provisions of the law the
Board has been given the responsibility of fixing marginal requirements for banks,
as well as brokers, ana many of them are in an attitude of suspense and inability
to understand why a regulation applying to banks has not yet been issued, in view
of the fact that one dealing with brokers has been promulgated. It is, therefore,
our suggestion that it would have a stabilizing effect upon the situation if the
Board would proceed with the issuance of a regulation governing loans made by
banks, so that they may be in a position to govern themselves accordingly in
making loans on nationally registered securities and become accustomed to the
regulation before the actual need for it arises.”
San Francisco: "Except as to dealers, there does not appear at present any neces
sity for the issuance of regulations governing loans made by banks to customers
for the purpose of carrying equity securities. Regulatory action night well be
deferred until there appears, or threatens to appear, an undue use of bank credit
Topic 6 (a)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
-14-
X-9174-b
for speculative purposes.
11It is felt, however, that regulations should be promulgated and made
effective in regard to loans by banks to dealers. Such regulations should be
more libera], than those governing loans by dealers to their customers.1'
(b) Whether regulation should permit borrower to obtain from bank more than
ho could obtain from broker under Regulation T.
BOvSton: "In order to facilitate the operations of margin requirements we would
suggest that banks be permitted to .Loan, up to some percentage of the market value,
say 75p in the case of brokers. A non--broker borrower is not entitled to pre
ferred treatment from a bank ■'"hen the purpose of the proceeds is for purchasing
and carrying equity securities, and some simplified form of Regulation T should be
worked out applicable to such bank loans. Only the larger banks would be equipped
to handle their collateral loans under regulations similar to those now in force
for members of securities exchanges, and then only at considerable additional ex
pense. Further, such an arrangement would prove unsatisfactory.11
New York: "In our opinion, a new bank regulation, if it should be decided to
issue one, would require a different approach to the problem than that of Regula
tion T. The bank collateral loan is, essentially, a different type of loan from
the broker's loan. The broker looks wholly to the collateral for protection and
promotes the making of collateral loans partly for the sake of commissions on
trades; whereas, the banker should use credit judgment in regard to the character
and worth of the borrower and the collateral becomes in many cases incidental to
the loan. Whether prescribed margin requirements are needed on bank loans is
debatable, when the broker's or dealer's customers are subject to regulation in
the extension of credit. * * * The approach while different from that of Regula
tion T should profit from a further accumulation of experiences with that regula
tion. 11
Philadelphia;
"We feel that restrictions in the Act which apply to brokers should
not apply to a bank in dealing with its own customers other than brokers. Banks'
relations with their customers are such that they should be at liberty to require
such margins as they think are necessary. The Federal Reserve Act gives the Board
power at any time to fix the percentage of bank capital and surplus which may be
represented by loans secured by stocks and bond col. Lateral, should it appear that
too much bank credit is being used for the purpose of carrying securities."
Cleveland;
"In the last analysis, the making of securities Loans resolves itself
into a Question of credits. Aside from the collateral, there are other factors
which must be considered in such cases, such as the purpose of the loan, the char
acter, ability, and reputation of the borrower, and his .financial worth."
Richmond
believes the proposed regulation should permit a borrower to obtain
from bank more than he could obtain from broker under Regulation T, unless, "banks
generally go too far in contributing to dangerous speculation and diverting credit,
from commercial and agricultural channels to that of purchasing and carrying
securities."
Atlanta; "In our opinion there is no logical basis for a discrimination by the
Federal Reserve Board in favor of n bank and against a broker in fixing margin
requirements for such advances."
Chicago suggests that
* * such a regulation should be prepared subject to such
changes as experience in Regulation T may dictate, * *
,
St. Louis: "We are told that in another district a borrower transferred his ac
count from a broker to a bank because of the larger amount that could be borrowed
on securities, and that certain banks had solicited accounts from customers of
brokers, mentioning that advantage. It appears that, for the purpose of purchas
ing or carrying equity securities, a borrower should not be permitted to obtain
more from a bank than from a broker under Regulation T. On the other hand, where
a customer of a bank is in need of funds for his business, and pledges securities,
if the banker is satisfied as to his financial responsibility, it would seem that
he should not be required to adhere to the marginal requirements of Regulation T.
In our opinion, a distinction should be drawn between loans for the purpose of
investment or speculation and borrowings for agricultural, industrial or commer
cial purposes, as the law contemplates * *
Topic 6 (b)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
-25-
X-9174-b
Minneapolis: "At the present time, there is no justification for permitting a
borrower to obtain lower margin requirements at his bank than he could obtain from
a broker under Regulation T, if he is borrowing to purchase or carry securities."
Subsequent to the submission of the report containing the paragraph
quoted above, a letter was received from Mr. Peyton which contained the following:
"Additional communication with our directors indicates that in at least
three cases, two of which reflect the views of the larger banks in this district,
these directors are opposed to imposing the same regulations on bank loans made
with listed securities as collateral as are imposed, in the Federal Reserve Bank's
regulations with regard to broker’s loans.
"The majority of the directors have expressed no opinion on this subject,
principally because loans on securities are not important to the banks in their
communities. As ray original recommendation favored a rigid rule and largely represented'1 my point of view, it seems only fair that this opposite point of view
be considered together with that recommendation."
Kansas City: "The margin requirements for loans by banks should be the same as
for loans obtained from brokers under Regulation T, but such requirements should
apply only to so-called open market loans and to such stock or bond secured loans
as a bank may make to customers or others under circumstances indicating that the
loans were made solely on the basis of the collateral security. It is our opinion
that the requirements of the regulation should not apply to loans made to custom
ers, even though the proceeds, in whole or in part, are or may be used for pur
chasing or carrying securities, unless the loan was made solely on the basis of
the collateral and without consideration of the customer relationship of the
borrower.
"Under this procedure, bank loans which are similar in all respects to
loans obtained from brokers would be subject to similar margin requirements, but
the banks would be left free to follow their own credit practices and policies
with respect to other loans.
"We believe that a regulation along the lines
tent with the credit control purposes of the Securities
provisions would be understood more easily and observed
be the case if the regulation applied to all loans, all
be used for purchasing or carrying securities."
suggested will be consis
Exchange Act, and that its
more generally than would
or a portion of which might
Dallas: "If the Board should decide to issue immediately a regulation applicable
to banks, it is our thought that the marginal requirements included therein should
be somewhat more liberal than those now applied to brokers and dealers in securi
ties under Regulation T, and that this differential should continue until and un
less an era of unusual speculative activity should occur or seem imminent, at which
time we believe the marginal requirements for banks should be made the same as
those prescribed in Regulation T for brokers, reverting to the modified basis after
the emergency has passed. Pending such an era of speculative activity, however, we
feel that the Board can well afford to be quite liberal in the matter of marginal
requirements applied to banks, in view of the fact that they are now making such
loans without any legal restrictions as to margins, a.nd will continue to do so, of
course, until the Board issues such a regulation. The policy herein suggested
would serve as a useful guide to the banks in making future loans on securities$
and, at the same time, would not unduly hamper or handicap them in their relations
with their customers."
San Francisco: "Loans by dealers to customers are afforded better protection than
loans by banks to customers because the dealer has available machinery to watch
and to facilitate the immediate realization upon collateral securities. Although
other factors enter into bank loans, generally speaking security loans are not given
the same degree of professional care by banks as is accorded them by dealers.
"In the event of issuance of regulations governing loans by banks, it is
suggested that a marked distinction be made between loans to customers in which the
borrower has used the proceeds to finance the purchase or carrying of equity secur
ities, and loans secured by stocks in which the borrower has used the proceeds to
finance transactions unrelated to the purchase or carrying of equity securities."
Topic 6 (b)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
-?n _
7.
X-9174-b
Economic and statistical divisions of Federal reserve banks,
(a)
Usefulness to directors and officers;
Boston: The statistical department of the Boston bank apparently has not been
drawn on very heavily for information by the directors and officers. Governor
Young feels, however, that the department should be maintained even though all of
the officers and directors do not use the services continuously.
New York advises that the work of its reports department represents the outgrowth
of fifteen years experience in supplying the needs of the directors and officers
of the reserve bank for statistical information and research concerning matters
related to the credit policy of the bank. It says that one of the most important
functions of the department, in addition to analysing various data on banking and
business conditions, has been to analyze and make available information concerning
all important factors bearing on the money market, including not only the local
supply of and demand for credit, but inter-district movements of funds, the foreign
exchanges and gold movements and related factors, the security markets, and the con
ducting of special studies concerning problems that are almost constantly confront
ing the directors and senior officers. It believes that close contact between the
statistical organization and the directors and officers is essential if the depart
ment is to function successfully. For this reason the officer in charge of the sta
tistical department attends meetings of the directors and officers, and thus keeps
in close touch with their problems and can so direct the efforts of the department
in such a way that it will be definitely useful.
Philadelphia: ’’The directors and officers, in reply to this inquiry, stated that
they find the information contained in these statements useful and dependable, and
very helpful to them in the discharge of their duties. With the confusion and un
certainty which surrounds business at the present time they feel the necessity for
having all such information, and that this Division performs a valuable service.”
Cleveland: ’’The board of directors and officers of this bank have found the sta
tistical data, charts, etc., prepared by the Statistical Department to bo very
valuable. At each board meeting, the head of the Statistical Department presents
to the Board his observations from the statistics accumulated during the month.”
Richmond: ”We do not see how the directors and officers of this bank could intel
ligently operate the bank without having a very large amount of statistical data
which would have to be gathered and tabulated by employees. So long as the work
has to be done, it might as well be handled by a division in the bank. In many
instances the information gathered is indispensable for our own good and absolute
ly necessary in order that we may furnish the Federal Reserve Board from time to
time with the information which it requires.”
Atlanta: ’’The directors and officers of this bank believe that the information
furnished by the economic and statistical division of the bank is of value to them
and they recommend continuance of the service,”
Chicago:
’’Economic and statistical divisions are of very little use to operating
side of this Federal reserve bank. Inquiry among member banks indicates that the
work of these departments is considered of small value, and our recommendation
would be for discontinuance, except for sufficient personnel to furnish necessary
data and records for Board.”
St. houis: ’’The statistical division of this bank, while organized and conducted
with a minimum of help and expense, has from the first been a valuable adjunct to
the institution.* * * Being on the ground, its contacts with the banking and busi
ness community are of a more intimate and confidential character, and through
such contacts it is possible to procure information which would not otherwise be
obtainable readily by agencies outside of the district. We believe that the di
vision performs a .necessary work, and that it should be continued within reason
able limits.”
Minneapolis: "The economic and statistical division of this Federal reserve bank
is essential to our officers and directors.”
Topic 7 (a)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
-27-
X-9174-b.‘"
Kansas City: ’’The directors and officers of the bank benefit from the infor
mation gathered and compiled currently for reports to the Federal Reserve Board
and for inclusion in the Monthly Review, and in addition, have occasion from
time to time to call on the statistical division for special reports on various
matters.”
Dallas: ”0ur directors and officers are of the opinion that our division of
research and statistics performs a useful and essential service. Probably the
chief value of this activity lies in the facilities which it has for collecting
current and comprehensive information regarding business, agricultural and finan
cial conditions in all sections of our district. This information is ouite use
ful to our loaning officers and to our board of directors, as it keeps them close
ly informed as to economic developments and needs of the various and widely sep
arated areas served by our head office and its three branches.”
San Francisco: ’’During the periods of discounting activity, officers of a reserve
bank are of necessity in close touch with the problems confronting banks within
the District. Through these contacts, they are kept intimately informed of the
economic changes which are taking place. Much of the data compiled by the Division
of Analysis and Research ordinarily deal with conditions generally rather than
specifically. General information serves its purpose in a field much larger than
that in which the reserve bank officers are immediately concerned in dealing with
their credit-granting operations.
’’Through the medium of the Federal Reserve Bulletin and similar economic
reviews, directors and officers are kept informed as to credit and economic trends
generally.”
(b)
Value of Federal reserve bank monthly reviews:
Boston: Chairman Curtiss states, as the feeling of Governor Young, ’’that, the pub
lication of the twelve monthly reviews by the Federal reserve banks, together with
the monthly bulletin of the Federal Reserve Board, was in the nature of an extrava
gant procedure,11 and that the best way to ascertain whether the reserve banks
should continue their monthly reviews would be temporarily to discontinue their
publication for a few months and note the reaction of those now receiving the pub
lication, on the theory that if there was a substantial protest to such discontin
uance, the banks would be justified in continuing the publication, even though
there was only a small circulation.
New York: ’’While the primary function of the statistical department of a reserve
bank is to supply information for the use of the bank and the Federal Reserve Board
the department can also serve a useful function in matters relating to public re
lations, including the preparation of reports for publication, the answering of
outside inquiries concerning reserve bank and member bank data, etc. The most im
portant phase of this work is the preparation of the Monthly Review. * * * * As
this publication is devoted more largely than perhaps any other to money market
conditions, it is believed to occupy a rather unique position among publications
of this general character, and, while it has not a voluminous circulation as com
pared with less technical business and financial publications, it is widely dis
tributed and apparently is well regarded among those who are interested in the sub
ject matter with which it deals.
’’For institutions that have so few direct contacts with the public as the
reserve banks, we believe that the expense of preparing and distributing the
Monthly Review is quite justified, provided the publications are in such form that
they are well regarded. All of the material used in the preparation of the Month
ly Review of the New York reserve bank is prepared primarily for internal use, so
that the additional cost of preparing the Review is not very great (the total cost
of the Monthly Review of the Federal Reserve Bank of New York, including salary ex
pense involved in its preparation, as well as printing, postage, etc., less re
ceipts from sales, is not over $12,000 a year). It is questionable how a similar
amount could better be expended from the viewpoint of public relations.1'
Topic 7 (b)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X--9174-b
Philadelphia: ’’The demand for our survey of current business activity in this
district has been especially heavy since 1929, during which period reliable in
formation on business conditions has been eagerly sought for in place of rumors
and press accounts usually based on inadequate facts, biased views, or doubtful
interpretations. The demand for accurate data has been growing persistently.
Our monthly review is undoubtedly regarded as a unique and dependable source
of information. * * * We are convinced that there is a definite need and demand
for such local economic and statistical information, and that there is at pres
ent no other agency in our district that could provide this service for our own.
benefit and for the use of business generally.”
Cleveland: ”It is the view of our board and officers that our Monthly Business
Review should bo continued in view of the wide-spread interest which it has
evoked.”
Richmond: ’’The department preparing our monthly review gathers retail trade
figures which are greatly In demand by merchants, manufacturers, and industries
of various types.
’’Judging from the distribution of our review, we think we are justified
in saying that it is regarded by many as having real value, but we are not able
to appraise the value of the review in relation to its cost.’1
'
Atlanta; ’’The directors and officers also feel that the issuance of the bank’s
monthly review is of general value and that this is demonstrated by the constant
demand for copies.”
Chicago: ’’Would * * * recommend discontinuance of bank monthly reviews, and the
inclusion of any data considered of value in the publication of the Federal Re
serve Board’s Bulletin.”
St. Louis: ”We frequently receive requests for the review, and comments as to its
comprehensiveness and value. It is freely quoted by the press, which not only af
fords favorable advertising for the System, but supplies accurate first-hand in
formation to the public. Apparently the newspapers and the business men of the
district prefer a review that is compiled in the district and deals mainly with
it. We feel that the review serves a useful purpose, and that it should be con
tinued."
Minneapolis: ’’Judging from our large mailing list and the expressed desire of a
large percentage of readers to be retained on that list and the growing number of
people who have asked to receive the Monthly Review, it is evident that this ser
vice is of great value. Certainly, a major part of the information contained in
these reviews could not be secured elsewhere. This is a dignified service that
lends prestige to the Federal reserve banks. Before serious consideration is given
to the elimination of this service, we suggest that our views on the value of the
Monthly Review be confirmed by sending a questionnaire to all persons who are now
receiving it, asking them whether they find the material valuable, what use they
make of it, and how it could be improved.”
Kansas City; "The Monthly Review is an important medium of contact between this
bank and the business, financial, and agricultural interest throughout the Dis
trict. Its purpose is to give these interests and the public a brief and reli
able summary of business and agricultural conditions. The numerous requests for
the Review, the publicity it receives, and the general high regard for the accu
racy and integrity of these reports are indicative of the good will created for
the bank by its publication. Additional evidence of its value to the bank and to
the public is reflected in the excellent cooperation given by reporting firms and
the numerous requests for special information received by the research department.
"The estimated total expense for the year 1935 for o u r statistical de
partment and for the publication of the Monthly Review is approximately $12,000.
Discontinuance of the Monthly Review would not eliminate more than half of this
expense, making the cost of preparation and publication of the Review approxi
mately ^6,000. In our opinion this expenditure is fully warranted.”
Topic 7 (b)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
-29"
Dallas: T,We believe that the monthly reviews issued by the reserve banks serve a
number of important purposes and that they should be continued. While it is true
that there are available to our officers, directors, member banks, and business
institutions a large variety of national economic reviews, these do not, in our
opinion, serve the purpose of a local district publication, which has both the
facilities and the space for publishing important information on economic trends
within the district. The reserve banks have an almost complete monopoly upon the
latter type of reviews, as very few organizations undertake to duplicate what the
reserve banks are doing in this field. Aside from the value of our reviews to our
own officers, directors, member banks, and business interests, as a medium of in
formation on current conditions within the district, we believe these revie?/s
perform a valuable service in the matter of creating favorable publicity for the
reserve banks. Each month the salient facts published in our Review are widely
used in the district by the Associated Press, United Press, and the newspapers in
the district’s leading cities and agricultural centers. This form of publicity,
in our opinion, is of distinct good-will value to the reserve bank and the Federal
Reserve System. Should these reviews be abolished and the publication of informa
tion be concentrated in Washington, it would doubtless continue to receive some
publicity in the newspapers of the various districts, but the newspaper space de
voted thereto, in our opinion, would be greatly reduced, due to the impractica
bility of including in a national review extensive detailed information regarding
particular areas and districts. The fact that our mailing list is continually
increasing is evidence, we think, that the publication performs a useful and worth
while service for business, financial and agricultural interests, as well as for
our own bank. The substitution of a central review issued at Washington and the
relaying of district data from the reserve banks to the Board would tend to further
delay the publication of the facts and figures covering economic trends and would,
to that extent, impair its usefulness and interest to its readers.”
San Francisco: ’’The monthly review is a dependable record of fundamental informa
tion of service principally to numerous institutions seeking or preparing statis
tical data supplementing reviews made for their own guidance. To what extent,
reserve banks are justified in being the source of this information, and to what
extent their publications contain a duplication of information which can be gath
ered from other sources, we are not in a position to say.
’’The cost of compiling and distributing a monthly letter is second only to
the cost incurred in gathering and compiling information for the Board’s use. To
what extent such material for the Board must of necessity (or economy) be collected
through the District office is not known. Dr. Goldenweiser, it would seem, would
be best qualified to supply an adequate opinion.
”As to the direct necessity for statistical information for the conduct
of the Federal Reserve Bank of San Francisco, it could be supplied by a reduced
organization.”
Topic 7 (b)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174~b
-30-
8•
Establishment of career system for personnel of Federal reserve banks.
Boston: 11It has been the policy of the officers of this bank to encourage promo
tion within the bank among its staff. * * * It would not appear to be feasible
to exchange employees between the Federal reserve banks, as most of our male em
ployees are not only married but own their own homes and it would be a hardship
and inconvenient to make such transfer, and most of our female employees live
with their families. Since the bank holiday we have, however, from time to time,
released men for limited periods to the Federal Reserve Board departments in
Washington, and the experience that they have had from this work has proved val
uable to our organization."
dev/ York: wWe are firmly of the opinion that if central banking is to succeed in
this country all possible steps must be taken to build up a central banking tra
dition and to increase the attractions of a central banking career.
’’The art of central banking is not one which can be mastered readily
and quickly by reason of adaptability for and experience in ordinary commercial
pursuits. It involves an attitude of mind which subordinates the profit motive,
and involves knowledge of a technique of credit control for which general busi
ness training, or even commercial banking experience, offers inadequate prepara
tion.
"We believe it would be desirable, therefore, to try to establish some
form of career system for the personnel of Federal reserve banks. The aims of
such a system should be, it seems to us, to provide the stimulus of interesting
work, adequate compensation, and possible non-monetary rewards for the ablest men
who can be associated with the System personnel.
’’While there is interesting work to be done at all of the Federal re
serve banks, it is Inevitable that in general, the most interesting work of the
System, as far as credit policy is concerned, must be done at Washington, D. C.,
by the Federal Reserve Board and its staff, and at New York by this bank. This
situation suggests that consideration be given to the possibility of devising a
system of temporary or permanent transfer (or exchange) of individuals who have
shown special aptitude for work upon the broad problems of credit policy to (or
between) these foci of action with respect to these problems. A start already
has been made in this direction by the calling of men from the Federal reserve
banks to Washington, from time to time, to work with the staff of the Federal
Reserve Board, and by the exchange of men which has taken place between this bank
and the Board. The continuance or renewal of conferences of those engaged in
various phases of the work of the Federal reserve banks, such as the conferences
formerly held at Washington by the Division of Research and Statistics of the
Federal Reserve Board, also is a possible means of widening the interest in em
ployment in the Federal Reserve System,
’’The question of adequate compensation involves the formulation of a
general salary policy which will permit the System to attract the most capable
available men by providing the possibilities of income and security which will
compare favorably with similar possibilities in other lines of endeavour, taking
into account the satisfactions to be derived from the opportunity for public
service which employment in the System affords.
"Finally, the question of non-monetary rewards, which is perhaps but an
elaboration of the idea of a satisfying public service, suggests that the number
of important posts within the System which a career man may aspire to fill be in
creased. This may well be facilitated by greater freedom in the transfer of men
in the System, either temporarily or permanently, from one bank to another or even
between the Federal Reserve Board and the several banks.’’
Philadelphia:
."The possibility of doing this, of course, depends upon how at
tractive the opportunities are for young men and young women of intelligence in
the System.
"If Federal reserve banks are to operate as banks, with the same oppor
tunities of promotion and development of employees and the same monetary return
as may be found in other banking institutions, there is no reason why young people
interested in banking as a career should not be interested in service in the
Federal reserve banks. At the present time, however, there cannot be the same
sense of security they would have if they were employed in a strong, reputable
bank or trust company.y There is the possibility of the Federal reserve banks
being made Government department^,x or that they may meet the same fate as the First
and Second Banks of the United States. The political threat is serious and gives
the officers and employees grave concern.
Topic 8
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X-9174-b
-51-
”As to obtaining officers for Federal reserve banks, unless they can re
ceive salaries comparable to the compensation paid by other hanking institutions,
there is little inducement for a young man to enter the service of the reserve
banks as a career, because if he has intelligence and initiative, his prospects
are better elsewhere. * * *
’’Reserve bank employees know that in the event of their incapacity from
illness, injury or old age, they will not be adequately provided for. The re
tiring allowance for an average faithful employee who has served twenty years
would scarcely be enough to give him or her the barest necessities of life. The
larger banks and other substantial business corporations of this neighborhood
provide much better for superannuated or incapacitated employees.
’’The best thing for the Federal Reserve System would be for it to provide
the same compensation and demand the same intelligence and energy as are required
of employees of other banking institutions. * * *
’’The Board’s objection to officers or employees having outside connec
tions or interests is another deterrent. Persons with active minds and highminded desires can not be confined to the daily tasks in their offices without
dulling their mental and spiritual development. To insist upon their confining
their efforts to their business without outside interests or contacts may de
velop a satisfactory bureau clerk, but will not produce a competent bank officer.
A bank officer is not effective simply because he knows the mechanics of banking.
He must be broad-minded and have a real knowledge of people and their ways. He
needs breadth, as well as acuteness. * * * The man who knows nothing but the job
in which he earns his living is apt to be a very narrow person and it is reason
able to believe that where a man’s life is made up of a variety of activities,
which bring him into contact with various groups and interests, the experience
should make him more valuable to the bank.”
Cleveland; ”A career system within each Federal reserve bank would seem
desirable, but it is not felt that a career system which would involve the move
ment of officers and employees from district to district would be desirable.
’’With the vast territory served by the Federal Reserve System and the
great diversity in industrial, commercial, and agricultural pursuits existing
between districts, it follows naturally that the customs and practices of one
district are not the customs and practices of all, and the problems of one dis
trict are not the problems of all. Thorough knowledge of the problems of a dis
trict can only come through years of residence in the district3 and a man cannot
serve a district to the best of his ability if he is not thoroughly familiar with
its problems.
"From the standpoint of the individual, it is felt that the nomadic exist
ence for employees which might result from a career system which contemplates
the transfer of personnel from district to district might prove unattractive to
men and women who would otherwise constitute a very desirable type of employee,
especially if they were owners of their homes.”
Richmond feels that a system-wide career plan would necessarily involve the
severing in many cases of lifelong ties and the sacrifice of homes and social
connections. The bank believes that these aspects of the matter would largely
offset the material advantages of such an arrangement. However, it has prepared
a special memorandum which goes into the matter quite thoroughly and, among other
things, points out that the establishment of a career system now that the banks
.have been in operation more than twenty years would involve relating it to those
already in the employ of the banks and to the recruiting and training of new em
ployees, and that different considerations would apply to these two groups. The
concluding portion of such memorandum reads as follows;
’’For the reasons indicated, it would seem desirable to broaden the term
so that the proposed career system would embrace all employees up to a very high
level and recognize that they fall into three main groups (l) the ’career men'
specifically; (2 ) others of ambition, capacity, and station who prefer— if they
can do so without prejudice to their interests— to remain with the bank in the
community in which they have become rooted;
(5) others who do the routing work—
Topic 8
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
-32-
a very necessary group. So conceived, such a career system, we take it, would
include (l) freedom from unworthy political influences, inside and outside, as
far as practicable; (2 ) adequate principles and methods of selection, training,
and promotion with the doors to the higher executive positions left open to all
who could qualify therefor instead of being limited strictly to the career men;
(?) such discretion, within broad limits, as respects salary, discipline, dis
charge, promotion, and development of morale as would enable each unit to func
tion properly in the light of its peculiar conditions and thus prevent injus
tices, maladjustments, and dissatisfactions likely to develop under a rigid sys
tem that is under remote control;
(4) a retirement system providing for disability
and old age retirement. The assurance of fair, considerate but firm treatment,
the sense of financial security, and the confidence that promotion will be made
on a merit basis as opportunities offer should go a long way toward making less
urgent the individual1s feeling of the need of personal wealth for survival and
prestige, and consequently should encourage him to devote himself ?/ith the least
distraction, the greatest loyalty, and the most intelligence to serving the nation
through doing his best in his job. It would seem desirable, however, to guard the
proposed career system against developing an unworthy class consciousness, and outof-touch bureaucracy, the unprogressive conservatism of mind and attitude likely
to characterize a strongly entrenched group. Therefore, for the time perhaps, the
injection of new blood (other than career men) from the outside now and then and in
certain positions should be provided for.”
Atlanta; 11 It is the consensus of opinion that there should be established the basis
of a career system for the personnel of the Federal reserve banks. It has been ten
tatively suggested that each Federal reserve bank might furnish the Federal Reserve
Board with the names of junior officers and employees who have demonstrated excep
tional ability and whose services might be employed to better advantage by another
Federal reserve bank because of lack of opportunity for advancement with the bank
of present connections. 11
Chicago: 11A career system might be advisable as an objective, but as long as our
present system of unit commercial banking exists, it is essential that ’new blood’
be brought in so the System may be kept in touch with and abreast of the problems
of not only banking but industry and agriculture, which is largely missed if the
personnel has grown up within the System. To possibly a smaller extent would this
apply to the mechanics and internal operations.
nA merit system within banks, and rotation of junior officers in various
departments of the banks, with promotion from the ranks when possible, is consid
ered desirable. 11
St, Louisr 11Wo believe that the career system for personnel of Federal reserve
banks is highly desirable. It should not be difficult if the personnel is selected
with regard to both efficiency and the ability, as well as the desire, to render
ever? propex* service. So far as possible, we have been following such a system.
We have been training juniors for more responsible positions and advancing them
when opportunity permits, thus reducing the necessity of hiring outside senior
clerks, We have encouraged our employees to attend the evening classes of the
American Institute of Banking, which has helped them materially to qualify for
promotions, 11
Minneapolis: ”A career system for personnel of the Federal reserve banks would be
desirable. In any case, the present system of hiring and promoting employees should
be revamped to introduce a more exact method of basing employment and promotion on
merit. The career system should include the practice of transferring capable of
ficers and employees from one Federal reserve bank to another. There should be in
Washington a System personnel officer whose duties it would be to establish intel
ligence and aptitude tests, uniform methods for hiring employees, uniform salary
schedules (having regard for differences in living costs and responsibilities due
to the size of the Federal reserve banks), recognition of employees and officers
worthy of advancement, and coordination of the personnel activities of the various
Federal reserve banks."
Kansas City: "The Federal Reserve Bank of Kansas City and its branches, has been
operating on something of a career system within its own organization. Our personnel
turn over has been less than in several of the other Federal reserve banks, and the
managing director and other officers in the three branches and the department heads
and officers of the parent bank, with the exception of the Governor and a cashier at
one of the branches, have all worked up from clerkships.
Topic 8
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
- 33 -
•'It would "be helpful if this plan were generally followed hy the
twelve "banks with the extension of it to the system so that if a place was to "be
filled at any one of the harks an opportunity should ho given to the other hanks
to recommend someone for the position."
Dallas:
"So far as this hank is concerned a 'career system' - in the sense of mak
ing promotions as far as practicable from within the ranks of the hank*s organiza
tion - has always been in effect. We assume that the inclusion of the topic in
your letter was prompted largely hy the thought that the career system should he
extended to include transfers from one reserve hank to another. We think that
such a policy is desirable if applied with proper consideration of all factors in
each case. It is our feeling, however, that transfers should he limited very
largely to employees holding the more technical or specialized positions, although
the transfer of others holding higher or even less important positions should not
he precluded. The establishment of the Federal Reserve Retirement System, in our
opinion, makes it particularly desirable for the reserve hanks to emphasize the
principles involved in the career system. Such a system serves a useful purpose
in times of unusual business activity hy tending to hold to a minimum the labor
tiirnover which reserve hanks, as well as other institutions, usually experience
in such periods. It also tends, of course, to give ambitious employees an added
stimulus to train and equip themselves for higher responsibilities, thereby
strengthening the position of the reserve hanks in the matter of being able to
fill vacancies which occur from time to time in executive positions with exper
ienced and well trained individuals."
San Francisco: "Many years ago, it was realized that Federal reserve banks, as
emergency institutions, must maintain a staff sufficiently experienced to enable
the reserve bank to meet effectively extraordinary demands which would be made
upon it from time to time. To this end, efforts have been constant to encourage
a feeling that reserve banks offer a career for which appropriate compensation and
reward might be received. This policy was accorded the official approval of the
Federal Reserve Board some 16 years ago. For further information on this subject,
see Annual Report for 1918, page 29; Annual Report for 1921, page 366; and letter
addressed to the Federal Reserve Board by the Executive Committee of the Federal
Reserve Bank of San Francisco under date of February 15, 1935."
Topic 8
Reproduced from the Unclassified / Declassified Holdings of the National Archives
'
X-9174-b
9. Criticisms of existing regulations or rulings or procedure of the Federal Re
serve Board, -with specific recommendations as to changes which would correct any”
unsatisfactory features of the relations between the Board or its staff" and the
Federal reserve banks or member bank s .
Boston; "In connection with the issuance of voting permits to some holding com
pany affiliates, we have had some indication that conditions imposed have been
looked upon as going beyond the requirements of the law or have been considered
too burdensome or impractical of fulfillment. We believe that in all cases the
requirements of the Board have contemplated the accomplishment of results which
are theoretically desirable. At the same time we recognize the difficulty which
confronts the staff of the Board, in the absence of direct contact with the ap
plicant and its subsidiaries, in imposing conditions which are possible and feas
ible in all cases, and we believe that it might serve to eliminate causes of
criticism if an opportunity were afforded to discuss the conditions with the ap
plicant before they are definitely imposed.
"According to our records, none of the applications by directors and
officers of member banks for interlocking relationships under Section 32 of the
Banking Act of 1933 has been granted, but there have been several instances where
we believe the Federal Reserve Board’s denial of a permit has been looked upon
as working a hardship upon a member bank. We have reference to cases where there
have been practically no dealings between the dealer in securities and the member
bank, and where the services of a director connected with a dealer in securities
have been desired by the member bank because of his special knowledge of the in
vestment business. In all cases where a permit has been denied, we have furnished
advice as to the Board’s decision in the matter as requested by the Board. It is
our impression that the Board's reasons for denying the permits have not always
been looked upon as convincing, and in one case a question was raised as to the
Board's policy with respect to issuing permits under Section 32. We ourselves
believe that in several instances it would have been helpful to a member bank to
have the services of a director who was denied a permit, and that the granting of
'uhe permit would not have been incompatible with the public interest.
"With respect to Clayton Act applications and permits, while no specific
criticism has been received by us, we surmise that application forms have been
considered unnecessarily broad in the scope of the personal information requested.
There is no definite comment which we can report and this is merely an impression.
It has been.intimated to us occasionally that desirable directors have found it
too much trouble to apply for a permit and have preferred to relinquish their
bank connections. In granting some of the permits, the Board has occasionally
commented upon a director's attendance at meetings of the board of directors of
a nonmember bank or upon his indebtedness to a nonmember bank or to another insti
tution and has requested us to bring such comments to the attention of the director
and to endeavor to bring about an improvement in attendance or a reduction of the
indebtedness. Here again we have had no definite reaction that can be quoted,
but we have the impression that the reaction has sometimes been unfavorable and
that the matter of attendance at directors' meetings of other institutions and of
indebtedness to nonmember banks may have been looked upon as beyond the concern of
the Board. Of course we realize that the indebtedness of a director to another
institution is of indirect importance to the member bank and we understand the
purpose of the Board's comment. Whether such comments are correctly interpreted,
especially in cases where the indebtedness has not been the subject of criticism
in reports of examination, is open to question.
"It is rather difficult to comment to the Board on these matters because
there is a natural reticence on the part of applicants for permits about express
ing any criticism. We are of the opinion though, that the matter of permits
whether to holding company affiliates or under Section 32 or under tho Clayton
Act is potentially the most prolific single cause of criticism on the part of
member banks and others, of the Federal Reserve Board. If the actions of the
Board and its staff seem bureaucratic or impractical or unduly rigid, we believe
it is more apt to be with respect to these matters than with respect to other
regulations or requirements that relate to member banks.
"In order to qualify under Section 8 (a) of the Securities Exchange Act,
a nonmember bank must sign agreement Form T-l, the second paragraph of which is
objected to by many nonmember banks, including savings banks, in this district
because of its scope."
Topic 9
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
New York: "It has seemed to us that the Federal Reserve Board’s policy, of re
cent years, has called for the making of an enormous number of decisions, involv
ing the assembly in its offices at Washington of a vast amount of detailed data
with respect to matters of relatively minor importance, the administration of
which could better be delegated to the individual Federal reserve banks, within
the limits of broad general policies established by the Federal Reserve Board.
The existing procedure has caused a multiplication of work, delays in taking
action, increased expenses of administration, and a separation between those
(member banks and others) subject to administrative control and those exercising
the details of that control which encourages the growth of bureaucratic methods.
It is possible that in some periods of the System’s operations, policy may have
lent itself to inadequate treatment of such matters, but in recent years the
tendency seems to have been to go much too far in the opposite direction. Our
views on certain specific matters in this field and in the related field of rela
tions between the Federal Reserve Board and the Federal Reserve Banks, are pre
sented below.
"We concur in the feeling of the members of the Federal Reserve Board
as expressed in the letter of the Board dated January 9, 1935, (X-9082), that
the procedure during the past year in connection with Clayton Act applications
has not only been cumbersome but has not produced entirely satisfactory results.
It has been our experience that this procedure has operated, in many instances,
to deprive member banks in the Second Federal Reserve District of the services
of valuable directors, even where it has been shown that the institutions covered
by the application of a given individual were not so situated as to be in sub
stantial competition; that even in instances where permission has been granted
to continue interlocking relationships, the voluminous amount of information re
quired of an applicant in support of his application and the delay incident to
the disposition thereof has occasioned much irritation among bank directors and
officers and the feeling that they have been subjected to regulation unnecessarily
oppressive in character. Repeated Instances have come to our attention in which
directors of national banks in this district who were serving at the same time
as officers and directors of other banking institutions have elected to discon
tinue their services to one or more of such institutions rather than undertake
to obtain the permission of the Federal Reserve Board to continue such interlock
ing relationships.
"Our view of Sections 8 and 8A of the Clayton Act is that they were
intended to supplement other anti-trust legislation, particularly the Sherman
Anti-Trust Act of 1890, and that it was not the intention of the Congress in
enacting these sections to place upon the Board the responsibility of passing
upon the general qualifications of applicants for service as bank directors•
"For the foregoing reasons we recommend that the Board give considera
tion to the advisability of adopting permanently the policy expressed in its
letter of January 9, 1935, (X-9082), i.e*, that Clayton Act permits will be
granted in all cases except as to banks which are engaged in the same class or
classes of business in the same community and are so located as to be in a posi
tion to compete substantially. We feel that it would be advisable for the Board
to adopt this policy whether the law remains as it is at the present time, or
whether an amendment is enacted such as that proposed by Section 328 of H. R.
5357 (the proposed Banicing Act of 1935), now pending before Congress, and that
the Board then delegate to the Federal reserve banks the execution of this
policy, in so far as is possible.
"In taking action with respect to applications of officers and direc
tors of member banks, submitted under Section 32 of the Banking Act of 1933 and
the Board’s Regulation R, to serve at the same time as officers, directors and
employees of organizations engaged in the business of purchasing, selling, or
negotiating securities, and in rendering decisions in response to requests for
rulings concerning the necessity for making applications for permits under Sec
tion 32, the Board has taken the position that it was the intent of Congress,
in enacting Section 32, to terminate the usual relationships of the types re
ferred to in the section between member banks and dealers in and underwriters
of securities, and the Board has accordingly declined to grant permits authoriz
ing relationships of the kind referred to in that section, and has exercised
its authority to issue permits only in exceptional cases which, though coming
within the letter of the section, are not typical of the relationships commonly
Topic 9
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
-3G~
existing prior to the enactment of the Banking Act of 1955 between banks and
dealers in or underwriters of securities.
’’The practical result of this interpretation of Section 52, in so far
as this Federal Reserve District is concerned, has been that a number of its
member banks have been deprived of the services of valuable directors and offi
cers who were at the same time serving other organizations, such as investment
trusts and brokerage firms, even though no information was disclosed in connec
tion with the applications of such individuals which would reflect in any de
gree upon their desirability as directors or officers of the member banks in
question, except that the relationships covered by their applications came within
the Board's interpretation of the prohibitions of Section 32.
"This has given rise, we believe, bo a feeling that the Board's policy
with respect to the administration of Section 32 of the Banking Act of 1955 has
been unnecessarily strict and inelastic. We appreciate, however, that serious
administrative difficulties would have been involved if the Board had undertaken
to pass upon the question of whether the granting of a permit was or was not in
its judgment incompatible with the public interest in the light of the particular
facts and circumstances in each case.
"Section 306 of H. R. 5557, the oroposed Banking Act of 1955, as in
troduced in the House of Representatives on February 5, 1935, would amend Sec
tion 32 of the Banking Act of 1933 so as to permit the Board to deal with the
subject-matter of that section by general regulation rather than by the issuance
of individual permits. In view of this pending amendment we will not undertake
at this time to discuss the advisability of a review and possible modification of
the Board's policy with respect to the administration of this section as now ef
fective. If, however, the proposed amendment should not be enacted we would like
to give further consideration to this question and bo have the privilege of sub
mitting a supplemental letter if we have any suggestions,
"On the subject of voting permits, Section 5144 of the Revised Sta
tuses as amended by Section 19 of the Banking Act of 1955 provides, in part as
follows!
'The Federal Reserve Board may, in its discretion,
grant or withhold such permit as the public interest may
require. In acting upon such application, the Board
shall consider the financial condition of the applicant,
the general character of its management, and the prob
able effect of the granting of such permit upon the
affairs of such bank.'
The Statute then proceeds to prescribe certain specific conditions on which such
permits shall be granted.
"It would seem that with respect to the granting or withholding of
voting permits a broader view might have been taken of the statute and a more
liberal policy pursued. The statute itself would seem to indicate that it was
intended that voting permits be granted or withheld on broad grounds, i. e.,
'as the public interest may require,' and that the considerations entering into
the determination of the granting or withholding of a permit should be (l) the
financial condition of the applicant, (2 ) the general character of the appli
cant's management, and (5) the probable effect of the granting of the permit
on the affairs of the subsidiary member banks, and Section VI of the Board's
Regulation P so stated. Instead of in general merely determining on the basis
of these considerations whether it is in the public interest to grant or with
hold particular permits, the Board has, as we interpret its policy, made? each
application for a voting permit a means of bringing pressure to bear not only
on subsidiary member banks but subsidiary non-member banks as well, to malte
immediate charge-offs or eliminations of estimated losses and depreciation and to
strengthen their capital structures to a degree that could hardly be said to be
required to give effect to the policy of the statute. In many cases a holding
company affiliate has been asked to agree to do things as a condition to the
issuance of a permit to which its directors and officers have conscientiously
felt that the company could not agree, resulting in considerable embarrassment
and irritation on the part of the officials of the holding company affiliate and
of the subsidiary banks, and difficult and time consuming negotiations on the
part of the officers of this bank to obtain compliance with the Board's require
ments.
Topic 9
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
"It would also seem that in some instances the dual policy of the
statute has been lost sight of, to wit, to strengthen holding company affiliates
or to terminate the holding company affiliate relationship, the Board having
been apparently reluctant to permit the distribution to its stockholders by a
holding company affiliate of the stocks of less than all of its several sub
sidiary member banks notwithstanding that'such distribution was a step toward
the ultimate liquidation of the holding company affiliate. In this connection
it might be noted that some of the provisions of the form of application for
a voting permit (F. R. B. Form P-l) are somewhat broader than the corresponding
provisions of the statute.
"While the Board’s policy with respect to passing upon applications
for voting permits has no doubt had beneficial results in hastening desirable
action by banks in the matter of charge-offs, etc., we question whether it is
within the fair intent of the statutes or v/hether it is necessary or desirable
to take the occasion of such applications to force such action. In this con
nection we think it is true that subsidiary banks of holding company affiliates
have, by reason of the desirability or necessity of obtaining voting permits,
been subjected to more severe treatment than have other member banks, both
state and national, which are not subsidiaries of holding company affiliates.
"Notwithstanding the compliance of many holding company affiliates
with the Board’s requirements, up to the present time, only two general permits
have been issued to holding company affiliates in this district.
"We recommend that the Board consider the advisability of adopting
the general policy of issuing general voting permits to holding company affil
iates in all cases except those in which it appears that the issuance of such
permits would not be in the public interest, and that the question of public
interest be determined primarily on the basis of the factors enumerated in the
statute, i. e., the financial condition of the applicant, the general character
of its management, and the probable effect of the granting of such permit upon
the affairs of the subsidiary bank. This would not of course prevent the Board
from imposing conditions in regard to charge-offs, etc., in exceptional cases.
We suggest also that the Board’s policy with respect to ’limited’ permits be
modified so that such permits will be issued only in exceptional cases rather
than as a general practice.
"Finally, we question whether this is not another duty with respect
to which, under existing legislation or by amendment to the law, the Federal
reserve banks could be given greater freedom of action within the limits of a
general policy adopted by the Federal Reserve Board.
"We have had two cases in this district where State member banks
have applied for permission to open branches in accordance with the lav/ of the
State. The Federal Reserve Board and the Comptroller of the Currency have,
in these cases, made requirements as to certain charge-offs and eliminations.
This has occasioned resentment as the banks felt that it was unjust that a
request for authority to establish branches of small importance relative to the
total of the bank's business should be made the occasion of such requirement.
This feeling has been intensified by the fact that national banks which have
opened branches in the State during the same period have not been made the sub
ject of similar requirements.
"It is believed that a more liberal policy might be pursued in this
matter without detriment to the public interest.
"In recent years the exercise by the Board of its responsibilities
with respect to salaries provided by the Board of Directors for the officers and
employees of this bank has involved an unwarranted encroachment upon the time
of both the Board and the directors of the bank, and has interfered with the
maintenance of a salary schedule at this bank which would give proper recog
nition to the duties and responsibilities of the individual members of the bank
staff as well as to an appropriate relationship between the salaries of dif
ferent members of the staff.
Topic U
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
-38nIt is our view that in this field of Federal Reserve System opera
tion the Board should confine itself to broad questions of policy and not attempt
to control details of intra-bank administration. While the total salary expendi
tures of a Federal Reserve Bank properly may be a matter of concern to the Board,
the division of that total within the bank would seem to involve questions which,
by their nature, must be reserved to the Board of Directors and officers of the
individual banks who are in close touch with the work of the berk and the parti
cipations of various individuals in that work. This is the policy which has been
in successful operation for some years with respect to employees of the banks in
the lower salary ranges, and it would seem desirable to extend the idea under
lying this established practice, although not its form, to the officers of the
banks and the employees in the higher salary ranges.
"We would suggest that the Board formulate a general policy for its
guidance, and the guidance of the Federal reserve banks, with respect to the com
pensation of officers and employees of Federal reserve banks, and that such policy
should contemplate leaving the utmost discretion as to individual salaries, as
contrasted with total salary expense, to the Board of Directors of the Reserve
banks. It is difficult to see how, without such a policy, we can maintain a prop
er relationship between responsibility and salaries of members of our staff, or
expect to encourage the continuance in the service of this bank of employees who
have shown a capacity to develop and assume increased duties and responsibilities.
The establishment of a career system for personnel of Federal reserve banks which
will attract and hold the ablest available men is, in large part, dependent upon
the adoption of such a policy.
"It is our view that nothing would contribute more to the establish
ment of satisfactory relations between the Federal Reserve Board and the Federal
reserve banks than the adoption by the Federal Reserve Board of a broad general
policy which would accord to the actions of the boards of directors of Federal
reserve banks, with respect to matters of bank administration, district problems,
or other matters concerning which the law gives the directors initial responsi
bility, the presumption that such actions are right and proper unless obviously
in conflict with general System policies established by the Board, or with the
statutes. In any case where the Federal Reserve Board feels that it must disap
prove of the action taken by a board of directors of a Federal reserve bank, or
where it has reasons which it feels justify its overruling the presumption in
favor of the correctness or wisdom of the action taken by the directors, it would
seem to be clearly a-matter of good organization that the reasons for the Board’s
disapproval should be transmitted to the directors. Otherwise, it is difficult
to see how it will be possible to develop and to maintain a wise and harmonious
accord between the Federal Reserve Board and the several boards of directors in
the conduct of the System’s affairs.”
Philadelphia: "As to your ninth question we would say that the regulations of the
Board seem to us to have been carefully drawn, and we are, for the most part, in
accord with these regulations and the various rulings of the Board. We feel
some hesitation in replying to the latter part of this question - the relations
between the Board or its staff and the Federal Reserve Banks or member banks but assume that you invite and wish a frank statement of our feeling. It might
be summarized in the statement that in the earlier years of the System we felt
that the Board realised that the banks were conducting the operations of the Sys
tem, and their disposition was to be cooperative and helpful. Having this feel
ing, we consulted freely with the Board, or with individual members, and never
failed to get a sympathetic hearing and helpful advice or suggestions. We regret
to have to say that in later years we have noticed a changed attitude on the part
of the Board. A disposition to distrust and criticise seems to have succeeded
to the former disposition to help. As a result we have refrained from making in
quiries or submitting doubtful questions, except when necessary.
"We have never made any list or memorandum of illustrations of this
changed attitude, and there are probably a number that have passed from our recol
lection. The following are a few that now occur to us:
"1. In June, 1932, at the request of President Hoover, we got twelve men
of local prominence to serve as a ’Banking and Industrial Committee’. These gentle
men contributed their own valuable time, their Chairman contributed his Secretary to
act as Secretary of the Committee, a local bank gave them quarters in its building
Topic 9.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
-5^
rent-free, and they collected a very considerable sum of money from trades bencfitted by a 'Renovize' campaign, which they waged with great success. As we
were unable to contribute to their work either space or personnel, we agreed to
bear, for a limited number of months, the very moderate salaries of two or three
high-grade men they had to employ. Our total expenditures on account of this
Committee were about $5,800, Although the times were critical and we were all
overworked, we were harassed by constant inquiries, from your Secretary as bo
these men, their duties, their compensation, and the date of expiration of their
employment. Even after the employment of the last man had ceased, on the date
previously named to him, he inquired whether it had ceased.
"2 . The position taken by the Board in construing the Clayton Act
and Section 52 of the Banking Act of -1955, in considering applications for per
mits to serve on two or more boards of directors, has disturbed our banks very
much; has weakened their boards of directors by depriving them of the services of
able men; and has excited a feeling of resentment on the part of these men. The
Board*s negative decisions are generally regarded, as wrong because they are not
supported by the data submitted to the Board with the applications.
”5. Fe recognise the duties and responsibilities imposed upon the
Board, but we cannot avoid the feeling that the close and constant attention paid
by the Board to matters of employment, promotion, and compensation comes very
close to operation rather than supervision, and indicates a lack of confidence in
the interest and ability of our Directors. VJe have been in the habit of report
ing absences of employees over thirty days, on account of sickness, to our Execu
tive Committee, which approved extensions. The minutes of the Executive Committee,
including these details, have always been read to and approved by the Board at its
next meeting. VTe cannot see the reason for requiring that the attention of the
Board, which has more important matters to consider, should be taken up with the
details of each individual case - character of illness, age, prognosis, etc.
Be have, however, been instructed that this must be done.
"4. In two cases - that of the Berks County Trust Company of Heading,
and the 1Main Line Trust Company * of Ardmore - the Board took positions which in
dicated a total lack of confidence in the Directors and officers of this bank,
and a contempt for their judgment. Indeed, in the latter case, their comments
to the Chairman and Governor cannot be characterized otherwise than as offensive.
"5. B'e deplore the Board's insistence that all officers and employees
of Reserve Banks must divorce themselves from all civic and community interests.
Mr. Austin's enforced resignation from the Treasurership of the Chamber of Commerce
has cut off a valuable contact with the business interests of the city. The same
is true of Mr. Norris' severance from the Beneficial Saving Fund Society. Per
haps the most striking illustration is the insistence that a clerk in our Currency
Department may not oblige his neighbors by serving them on the School Board of a
small country township. Vie feel that it is to the interest of the System, as well
as to the interest of the communities in which the Banks are located, that officers
and employees should maintain useful business contacts, and do their duty as
citizens, where such contacts and duties create no embarrassment, and in no wise
interfere with the performance of their work."
Cleveland;
"In this connection, we believe that it might be helpful to the Fed
eral Reserve Board and to the Federal reserve banks if a consulting committee
were set up, composed of operating officials of the reserve banks, which the
Board could consult if it so desired, especially in connection with the drafting
of regulations which involve complicated operating problems for member banks and
Federal reserve banks. A similar arrangement might be helpful in connection with
the issuance by the Board of instructions to reserve banks setting up accounting
procedures."
Richmond; "Under a ruling of the Board, Federal reserve banks are permitted to
put up Government securities with the Federal Reserve Agent as collateral to
Federal reserve notes, in accordance with the formula outlined in the Board's let
ter of May 2, 1952, which imposes such conditions and restrictions as to make it
very inconvenient and at times troublesome for this bank to operate under it. The
formula was prescribed almost three years ago and the figures in this bank's bal
ance sheet upon which it was based gave us a margin as specified in the Board's
Topic 9.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
40-
letter of $15,000,000, which was later increased 50 per cent, as were the margins
for all other reserve banks. If the percentages used in the formula were applied
to our balance sheet as of March 5, 1955, this bank's margin would have been in
excess of $27,000,000 instead of $15,000,000, and an increase of 50 per cent
would have given us a. margin of over $40,000,000 instead of the present margin
of $22,500,000. It is our opinion that the limitations upon the amount of Govern
ment securities that may be put up as collateral to Federal reserve notes should
either be abolished or each bank's margin should be recalculated upon its present
balance sheet. As we have stated previously, our margin is far too small for
comfortable operation.
"The difficulty of obtaining prompt reply from the Board, or from the
staff of the Board, upon administrative matters arising out of regulations and
rulings is due no doubt to the tremendous pressure of matters upon both the Board
and its staff, and we therefore have no particular criticism in this connection.
But nevertheless we are often handicapped, and even embarrassed in some instances,
by such delay.
"With respect to the relations between the Board and the Federal re
serve banks, or this Federal reserve bank, it has for a long time been the feeling
of our directors that the contacts of the Board and Board members with our direc
tors (individually and collectively) is not as intimate and as close as is be
lieved to be desirable. Our directors have felt— and have expressed the feeling
— that in matters of broad policy they have not at times been made familiar with
the views and policies of the Board or the Board members, and it is believed that
the coordination of the Federal reserve banks would be promoted by more informal
and intimate contact and exchange of views between the Board members (individually
and collectively) and the administration of Federal reserve banks. It is of
course recognized that the burden both upon the Board and the directors of Federal
reserve banks would be increased and that some greater sacrifice of time would
be involved by this procedure, but this reply to the Board would not be complete
without the expression of this view.
"With reference to the payment of interest on demand deposits by in
direct methods, there is in this district a widedifference of opinion and a wide
difference in practice. This has taken the formof absorption by the bank of
exchange charges Incurred, in the collection of items handled for deposit. Some
banks are refusing to absorb any such charges or indeed any out-of-pocket expenses
in connection with a depositor's account; others are absorbing occasional exchange
charges; still others are soliciting business on the basis of absorbing at least
'a reasonable amount' in exchange and other charges. In our opinion it would be
most helpful if the Board could lay down definite and specific rules even though
it might go to the extent of prohibiting the absorption of any exchange charges
or out-of-pocket expenses in consideration of the size or value of the depositor's
balance. It is probable that in Regulation Q the Board has gone as far in this
direction as it can under existing law. If this is the case, we think that the
Act should be further amended, and we think that in this respect nonmember banks
should be controlled through the F. D. I. C., which should also be given authority
to deal with this situation.
"In Section 5 of Regulation Q we find the following;
Section V.
Interest on Savings Deposits
(a) Definition. — The term 'savings deposit' means
a deposit which consists of funds accumulated for bona
fide thrift purposes and in respect to which —
(l) the pass book or other form of receipt
evidencing such deposit, must be presented to
the bank whenever a withdrawal, is made.
because of the use of the expression 'other form of receipt,' some banks have in
sisted that a certificate of deposit was such other form of receipt end have con
sequently continued to pay such certificates before maturity and without thirty
days written notice. We would not be surprised if this practice was fairly wide
spread among non-member country banks.
Topic 9.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
-41-
•’With reference to savings deposits, there are wide difference of
opinion, and we have no doubt wide difference in practice. Again we realize
the probability that in defining savings deposits as thrift accounts in Regu
lation Q the Board has gone as far as it is warranted by the lav/ as it now
exists. There is in our opinion great need for further classification and def
inition under specific amendments to the Federal Reserve Act or under an amend
ment giving the Board discretion in making distinctions and regulations with
respect to the payment of interest on deposits. In this connection we would
suggest the following for consideration with relation to this topic;
"The amendment to Section 19 of the Federal Reserve Act forbidding
the payment of interest on deposits payable on demand and giving the Board the
right to limit the amount of interest which could be paid on time deposits was
made for the purpose of saving banks from themselves, or rather from a situa
tion into which they had been led by the keen and ruthless competition of recent
years. It was a well known fact that larger and larger percentages of total
deposits were shifting from demand to time, partly because the required reserve
against time deposits was less and partly because competition was forcing the
almost universal payment of interest.
"It is true that with reference to time deposits banks had the right
to require written notice of thirty days or more, but it was also true that to
make such a requirement was often highly dangerous and raised the question of
solvency.
"In our opinion, the only practical way in which complete and accurate
information with regard to practices with reference to absorption of exchange
charges and with reference to the questionable use of certificates of deposit to
represent savings accounts and the improper classification of accounts as savings
accounts could be ascertained, would be by instructing examiners to investigate
these matters as a part of their routine examination of member banks."
Atlanta; "The examiners stationed at this bank often advise the officer in
charge of the bank examinations that the management of our member banks complain
of the number, variety and extent of reports that they are required to prepare.
The banks themselves would welcome a revision of report forms and the reduction
of requests for reports to a minimum. They would also like consolidations of
reports wherever possible.
"The officers and directors of this bank do not recommend the dis
continuance of any reports now required nor the elimination of information sought
to be elicited thereby. We believe that the Federal Reserve Board and the of
fice of the Comptroller of the Currency have from time to time been advised of
the viewpoint of the member banks on this subject and are endeavoring to comply
with the wishes of the banks to the full extent consistent with the gathering
of necessary or important statistical or other data. We do say, however, that
any progress in the direction of the lightening of what the member banks regard
as a burden would be welcomed and appreciated.
"In connection with our dealings with member banks, and particularly
in the handling of the work of the Federal Reserve Agent, promptness on the
part of the Board in giving rulings and in replying to letters asking for ad
vice would be of great assistance. This is not said by way of criticism, since
we realize the unusual pressure which has been put upon the Board in recent years.
We might add also that we now receive rulings and replies to inquiries much more
promptly than was formerly the case. In this bank we have endeavored to reduce
to a minimum requests for rulings and advice,
"We believe that it would be beneficial to the officers of the reserve
banks were the examiners of the Federal Reserve Board at the time of making
examinations of reserve banks to offer constructive and helpful suggestions.
This would bring about frank discussion which would not only be beneficial, in
our opinion, to the officers of the Federal Reserve banks but would also eliminate
discussion by correspondence. Through such constructive suggestions the officers
of the reserve banks might also learn more clearly the viewpoint of the Board on
matters, some of which are of relatively small importance and could be disposed
of during the period of examination.
Topic 9.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
—4:2—
X-9174~b
"In your letter you make reference to the possibility that to some of the
member banks the actions of the Board or its staff may seem *bureaucratic or im
practical or unduly rigid. * It is undoubtedly true that a number of the member
banks may have regarded some of the rulings, decisions and requirements of the
Board as being somewhat harsh and burdensome. We think that we should say, how
ever, that in many instances this point of view was the result of a failure to
understand that the Boardfs actions were required by the Banking Act of 1933 and
were not the result of some arbitrary action taken by the Board itself. In all
such cases we have endeavored to make plain to the banks that the particular ruling
of the Board or some specified requirement was made or imposed because of provi
sions of law and not as a regulation originating in the Board.
’’Some complaint was occasioned by reason of reports made to United States
Attorneys of possible violations of Section 22-G of the Federal Reserve Act, in
cases where it seemed apparent that no actual violation was intended or was at most
technical. This source of possible friction has now been eliminated.
”We believe that no harm would result, from the standpoint of the public
interest or otherwise, were the Board to modify somewhat its requirements in the
granting of permits under the Clayton Act to serve more than one bank as director.
In cases where an officer or director has manifestly abused his office or has been
negligent in the discharge of his duties , we believe that the grant of a permit
would be incompatible with the public interest, and that the sole question of in
quiry should not center around the question of a curtailment of credit facilities
or the lessening of competition. However, technical questions such as the possi
bility of the lessening of competition and restriction of credit in cases of banks
which are not within the prohibitions of Section 8 might be regarded as of rela- '\
tively minor importance.
"As regards the relations between the Board and the Federal reserve bank
we desire at all times the utmost of harmony and cooperation. It might be well,
however, for the Board to take under advisement the question of whether the ex
penditure of relatively small amounts, in cases where there is no specific author
ization by law and the object to be attained is not improper or unlawful, might
perhaps be left to the various Federal reserve banks and not call for special au
thority given by the Board.
"The examiners also sometimes criticise unimportant matters involving
questions of local management rather than of general policy.
"We are not endeavoring to particularize and are only suggesting that in
so far as minor natters are concerned — matters which involve no question of
general policy and are of purely local concern — more of autonomy might be left
to the Federal Reserve Banks and greater latitude be given to its officers and
directors for the exercise of their discretion."
Chicago: "1 . Too many reports.
"2. Lack of agreement between our salary committee and Board prior to
action of board of directors of this bank.
"3. Too much detail of management and supervision of member banks
handled by Federal Reserve Board. Better service would be rendered member banks
if Federal reserve banks were given authority to supervise and make decisions on
matters of policy and operation of member banks in their district, the Federal
Reserve Board acting as an appeal board in the event of disagreement."
St. Louis: "At the Conference of Assistant Federal Reserve Agents and Examiners
in Washington last September, one of the topics on the program was *Analysis of
number of reports required of banks and practicability of curtailment of such
reports.* In the discussion of this subject it was mentioned that some member
banks had complained of the work and expense of compiling reports, and it was
stated that the matter was being given attention by governmental agencies.
"Our Transit Department suggests that the Par List and supplements
thereto be distributed earlier, if possible about the 8 th of the month of issue.
For example, the January Par List bears the date January 1 on its cover, while the
latest information for that list was transmitted to the Board by telegraph on
Topic 9.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
‘4.5-
January 2, Frequently as much as a month elapses before the completed Par List
or supplement is received, which has led to numerous inquiries from banks as
to the routing of checks.
"As to relations between the Board and the Reserve Banks or member
banks, it has been suggested that it would be helpful if more authority and dis
cretion could be delegated to the directors and officers of the Federal Reserve
Banks - the men in the field. The Board could issue broad general principles
for guidance of the reserve banks and they would handle and carry out the de
tails of specific cases. The Reserve Bank would refer to the Board only border
line cases and those that involve questions of policy. It is thought that the
extension of this plan would relieve the Board of considerable detail work,
place more responsibility on the Federal Reserve Banks, and promote closer re
lations ."
Minneapolis; "in reply to this question and the general suggestion made in Para
graph 1 of the letter from Governor ECcles, we have numerous suggestions to make
These suggestions have been grouped under general topics and. appear on the fol
lowing pages.
"A.
Powers of the Federal Reserve Agent
1.
The Federal Reserve Board should determine and state definitely
how far Federal Reserve Agents are to go in action toward the
removal of bank officers for inefficiency, incompetency, unde
sirable past records, and other reasons other than criminal
procedure.
2,
The Federal Reserve Agent should have the power to veto an
application for a Rational bank charter even though the Comp
troller of the Currency is in favor of granting it. The re
gional banks understand local situations and are not subject
to influences which might be brought to bear upon the Comp
troller. Past experience has indicated that such authority in
the hands of the Federal Reserve Agent would have prevented
numerous bank failures in this district.
5.
The Federal Reserve Agent should be granted the power to pass
on applications of State banks for membership in the Federal
Reserve System without submitting every case to the Federal
Reserve Board for final action. This would give the Federal
Reserve Agent more facilities for closing a deal with a nonmember bank on the spot when the officials of the non-member
bank are in a mood to join the System. Also much needless
delay and confusion in passing on applications would be elimi
nated. The need for this decentralization will be very ap
parent if the Banking Act of 1955 is passed, for the Federal
Reserve Board will find it very difficult to handle the flood
of applications which will be presented to it for approval.
4 . If the Banking Act of 1955 is passed, the regulations under
which banks with capital below the present minimum for member
ship are allowed to enter the Federal Reserve System should be
formulated after receiving the advice of the Federal Reserve
Agents, who are closely in touch with problems in the field.
"B.
Examination of Banks
1 .
It would be desirable to centralize the control of examina
tion of banks in the hands of a National committee. This
Examining Committee would consist of one representative each
from the Reconstruction Finance Corporation, the Federal Re
serve Board, the Comptroller of the Currency and the Federal
Deposit Insurance Corporation, who, together with four men
elected by the National Association of Bank Supervisors of the
United States, would elect one additional member. The Examin
ing Committee should control and make all examinations of banks
in the United States, all represented organizations to be al
lowed to use these examinations as they deemed fits this Com
mittee to formulate all procedure and oversee the work.
Topic 9.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
-A.:’.
2,
"C.
In view of the fact that the Federal Reserve Board grants
trust powers, the Federal Reserve Board should have the power
to take away trust powers, and this power should cover both
National and State Member banks, the natural corollary to
which would be that the Federal Reserve Board, through the
Federal Reserve examining agency, should make examination of
National as well as State trust companies.
Other Relations with Commercial Banks
1.
The Federal Reserve Board should alter the form of published bank
statement in use by member banks so that such statements would
give the actual present appraised values of assets, and so that
the titles of assets would give the public a clearer idea of just
what classes of assets are being carried by the bank such as
pledged assets, second mortgages and contracts, and defaulted
bonds.
2,
If banks are to be permitted to make long-time real estate loans,
it would be desirable for the Federal Reserve Board to initiate a
movement for member banks to issue long-term certificates of de
posit for five or ten years, following the Swiss method. If that
system were adopted, the ratio of mortgage loans for any bank
should be limited to some percentage of the amount of the bank1s
long-term certificates outstanding.
5.
The present method of limiting capital to a certain minimum ratio
to deposits appears to be too rigid and arbitrary to meet all con
ditions. Further study should be made of this matter and the rules
should probably be made more flexible.
4.
The Federal Deposit Insurance Corporation should charge for its
examinations so that the non-member banks will have no advantage
over the State member banks in this matter if we begin charging
for our examinations.
5.
Regulation D should be changed to avoid the conflict with Regu
lation Q by eliminating the provision that certain time deposits
must be classified as demand deposits within thirty days of
maturity. The amount involved for reserve purposes as to
each bank is comparatively small. The change would eliminate
much confusion and expense incident to the reserve calculations,
maintenance of records, etc. in country banks. This is one of
the most irritating minor regulations and causes a great mass of
corrective correspondence. (This .change'and several other minor
changes are indicated on a copy of Regulation D, which accompanied
and is filed with the Minneapolis report).
G.
Bankers are burdened with the preparation of too many reports.
For instance, a State Member bank is required to report its
earnings and dividends to the Federal Reserve Bank, to the
State supervising authorities, to the Federal Income Tax De
partment, and the State Income Tax department. While the
banker must necessarily file all such reports, it would seem
that the Federal Reserve Board might make arrangement with all
supervising authorities for the adoption of a uniform set of
figures with reference to earnings and dividends. In this way,
the banker would be required to compile only one set of figures.
In this connection, it would soem proper to change from two semi
annual earnings and dividends reports to one annual report for
both National and State banks. The semi-annual figures are al
most never used except in combinations to provide figures for
the full calendar year.
7.
Called reports are unnecessarily detailed and contain several
schedules which are probably never used. We suggest that the
present form be modified to eliminate unnecessary schedules,
and that these long forms be required only twice a year.
For the intervening two calls, banks should be allowed to pre
pare only the short form for publication. Supervising authori
ties with two complete called reports and two examinations for
each bank, annually, would have sufficient .information for ad
ministrative purposes.
Topic 9.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
8.
"D.
Regulation H regarding conditions of membership should be re
vised and brought up to date.
Relations of the Federal Reserve Board with the Federal Reserve Bank.
1.
It would be advantage-bug to reduce the length of time consumed
in the printing and furnishing of par lists and monthly supple
ments thereto. Our changes in the par lists are always in the
Federal. Reserve Board1s office on the second of the month. We
do not receive the semi-annual par list until thirty days after
the beginning of each semi-annual period, and the monthly sup
plements are received from twenty to thirty days after the date
when they become effective. For example, the supplement for
February 1, 1955 was received on February 20. This long delay
causes misrouting of .items by our member banks. The par lists
might be printed in Chicago or St. Louis to shorten mailing
time and to eliminate delays in the Government printing office,
2.
More frequent conferences should be held between representatives
of the Federal Reserve Board and the Federal Reserve banks to
plan procedure in matters of System interest. All Federal Re
serve banks should be represented at such conferences by those
at interest to avoid unnecessary correspondence and to permit
of a full exchange of experience and ideas.
3.
A digest of X-letters which are still in force should be pre
pared by the Federal Reserve Board and submitted for the use of
all Federal Reserve banks. Something more than nine thousand
X-letters have been issued, many of which are obsolete. It is
becoming very difficult for Federal Reserve banks to keep their
operations in accordance with this volume of instructions.
4.
The Federal Reserve Board should call a conference of repre
sentatives of Federal Reserve banks to decide on a uniform pro
gram of destruction- or maintenance of old records. Tills con
ference should include representatives of the Treasury Depart
ment, since the records of our transactions involving the
Treasury Department constitute the most bulky portion of our
files.
5.
It is understood that a conference will soon be called to
review the present setup and methods of amending Form A dealing
with the classification of employees and their salary schedules.
A revision of Form A is urgently needed.
6 . Under the proposed Banking Act of 1935, Section 8a dealing with
interlocking directorates is amended to give the Federal Reserve
Board the power to remove trifling and nonessential inconvenience
in this matter. We recommend that the Federal Reserve Board is
sue the necessary regulations to put this new change into effect
at the earliest possible time.
7.
The proposed Banking Act of 1955 gives the Federal Reserve Board
the power to define definitely the term ‘executive officer 1 of a
bank. We recommend that the Federal Reserve Board issue a regu
lation making such a definition as soon as possible.
8 . At the next accounting conference of representatives of all of
the Federal Reserve banks, we recommend that a review be made of
all accounting reports now made to the Federal Reserve Board,
with a view to eliminating any unnecessary or obsolete reports
and to consolidating other reports to reduce the volume of ac
counting vfork in the Federal Reserve Banks.
“E.
Relations with the Treasury Department.
Topic 9
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
-4 b.-
Certain expenses and inconveniences in handling fiscal agencyoperations for the Treasury Department appear to be avoidable.
Vie suggest that the Federal Reserve Board discuss these matters
with the Treasury Department. 11 (These matters are described in
attachments which accompanied and are filed with the Minneapolis
report).
Kansas City; "In 1928 there was published a digest of rulings of the Federal Re
serve Board from 1914-1927, inclusive. It is suggested that this digest should be
brought down to date end that there should be excluded therefrom all rulings not
now applicable because of changes in the law. The Banking Act of 1953 and other
recent legislation has made so many changes that it is sometimes difficult to
determine the present status of matters about which inquiries are received from
time to time from member banks.
"It is suggested further that an attempt be made to clarify and sim
plify some of the Regulations and the Board's interpretations thereof. In con
nection with Regulation Q, for example, we find that we have received more than
seventy official interpretations. If these could be digested and indexed in
simplified form, it would be of great value to the officers of the Federal reserve
banks. Likewise, the interpretations of Regulations L, M, S and. T, should be
simplified, digested and indexed, if possible.
Regulation D
"The requirement that a demand deposit reserve be maintained against
time deposits which are payable within thirty days adds to the clerical work of
member banks and leads to errors, intentional or otherwise, in reports of demand
and time deposits, and in reports of condition. It seems to us that the de
finitions in Section 19 of the Federal Reserve Act might be so interpreted as to
permit any time deposit to be classified as a time deposit for reserve purposes
until the date on which it is payable. If not, we believe the law should be
changed in this respect.
Regulation L
"The position recently taken by the Federal Reserve Board, as expressed
in its letter X-9082, dated January 9, 1955, has apparently eliminated the dif
ficulties heretofore experienced in connection with Clayton Act applications. Vre
recommend a shortening and simplification of the application form and the form
for information to be supplied by the banks concerned, and we sincerely hope that
the proposed legislation in this connection may be enacted, and that the Federal
Reserve Board's regulations to be issued thereunder may eliminate the necessity
for permits covering the service of banks which are not directly competitive.
Regulation Q
"Some of the more important questions in relation to Regulation Q andthe
Board's interpretations thereof are as follows;
"There has been a very considerable amount of misunderstanding of the
provisions of subsection (c) of Section III of Regulation Q relating to the maxi
mum rate of interest which member banks may pay on time deposits. While this is
clarified in the Board's interpretation X-9108, issued under date of January 29,
1955, it would appear that the regulation itself might well be amended so that all
banks would fully understand that interest accruing on a certificate of deposit
issued in good faith prior to December 18, 1954, need not be reduced to the rate of
Z'$ per annum, effective February 1, .1955, whether or not a certificate bears a
notation to the effect that the rate of interest may be changed to such extent as
is necessary to comply with the requirements of the Federal Reserve Board from
time to time.
"Likewise, the Federal Reserve Board's ruling of November 18, 1953,
X-7G87, relating to payment of interest on deposits of postal savings funds has
created much confusion in the minds of member bankers and we have had considerable
difficulty in the enforcement of this provision in cases where member banks have
desired to repay postal savings deposits at times other than those specified in
the said ruling and the Postmaster General's Order No. 4420. Furthermore, we have
Topic 9,
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
"47
-
been informed that other Federal Reserve banks have made no attempt to enforce
the provisions of this ruling.
"The above mentioned ruling was later extended to include other de
posits subject to the same requirements as those prescribed in the Postmaster
General1s regulations of October 54, 1955, v/ith respect to postal savings funds.
This extension of the provisions of the ruling, which was made in a letter ad
dressed to the Federal Reserve Bank of Kansas City, makes it possible for banks
to evade the spirit of the law relating to time deposits and the nonpayment of
interest on demand deposits. Since, however, the ruling was made in response•
to a specific inquiry of one of our member banks and does not appear to have been
issued by the Board in the form of an *X* letter, the substance thereof has been
communicated only in three or four cases where inquiry has been made by member
banks. This creates an unfair situation since only a few of the member banks
know of the provisions of the ruling.
"In this connection, we would direct particular attention to the fact
that although the ’X ’ letters issued by the Board contained interpretations which
have the effect of regulations, they are not available to all member banks since
the Board specifically prohibited in its letter of July 15, 1935, the general dis
tribution of its letters interpreting the provisions of the law and its regulations
relating thereto.
"Another instance of a ruling which is confusing and. which is contrary
to the views of counsel for this bank is stated in the Board*s letter of January
9, 1954, addressed to this bank, (but not an *X* letter) wherein the principle
was set forth that in the event a certificate of deposit provides for a definite
maturity date, even though the form also provides that the bank may at its option
require thirty days written notice of withdrawal either before or after maturity,
it is nevertheless a time deposit within the meaning of Regulation Q, and that it
is also a time deposit within the meaning of Regulation D until the deposit is
actually paid.
"The provisions of Section V and VI of Regulation Q relating to savings
deposits are such as to afford a method of withdrawal at any time of deposits which
should not properly be classified as savings deposits, and in this connection,
the Board's interpretation of the term 'bona fide thrift purposes' as contained in
the regulation has caused much confusion in the minds of bankers and bank examiners.
Under this definition the bank examiner may question whether certain deposits are
properly classified as savings deposits, but he is unable to make a definite and
specific ruling in most of such cases. Regulation Q, in a footnote, states that
'the bank must be prepared to show clearly that it is a deposit consisting of funds
accumulated for bona fide thrift purposes,' but there is no way in which the bank
or the examiner can determine definitely how this showing should be made. It is
very important that the regulation be simplified and clarified in this respect.
"There is considerable variation in the idea of banks as to the circum
stances under which a loan to the owner of a time deposit constitutes payment
of the deposit before maturity, and particularly in those cases where the loan is
to be secured by an assignment of tho deposit or other circumstances indicate that
the deposit must bo relied upon, in whole or in part, for payment of the loan.
It would be desirable to change Regulation Q, either by amplifying the footnote
on page 7, or otherwise, to insure a uniform interpretation of the regulation- in
this respect. We believe the regulation might well state that loans made by a
member bank at its regular lending rate, whether or not such loans are dependent
for payment on the proceeds of a time deposit, will, in general, be deemed to have
been made in good faith and not for the purpose of evading the prohibition against
payment of time deposits before maturity.
"The earlier regulations of the Board (A to L) might well be amended
and reissued because of the changes which have been made in the law since their
last revision and all regulations which have been supplemented by 'X' letters of
interpretation should be revised and re-issued to give effect to these letters.
Because of pending legislation it may not be desirable at this time to recodify
all the Board’s regulations, but those which have been issued to interpret the
Banking Act of 1933, and subsequent legislation, should have immediate attention.
Topic 9.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
-4.8-
"In this connection it might be well to consider whether or not the
number, variety, and extent of reports which member banks are required to prepare
could be simplified and reduced and report forms consolidated, and simplified.
"As a general policy we believe that all matters of local Federal. Re
serve Bank management not inconsistent with System policy, should be made the
responsibility of the officers and directors of the regional banks, with the
minimum of restrictions and regulations on the part of the Federal Reserve Board.n
Dallas; "In our opinion, it would be quite helpful if the Board would issue a
revised edition of its ’Digest of Rulings’, incorporating therein the various im
portant rulings and interpretations which the Board has promulgated since the exist
ing Digest was published, and bringing it up to date with respect to recent legis
lation and the Board’s interpretations of new laws. Vie also feel it would be de
sirable for the board to revise its regulations, particularly D, L, P, Q, and T,
in the light of certain rulings and interpretations which it has issued in con
nection with their provisions and which will tend to clarify the requirements
and prohibitions of these regulations. In this connection, it is our opinion
that important X-letter rulings issued by the Board in the future, particularly
those which apply to Federal laws or regulations governing the operations of
member banks, should be given general distribution among the member banks by
the Reserve banks. At present, we are prohibited from either furnishing or
quoting these X-lebters to member banks, which, in our opinion, often creates a
situation that is embarrassing to them in their relations with bank examiners,
and tends to give an undue advantage to the particular bank or banks for whose
benefit the rulings were issued. This suggestion applies, of course, to those
interpretations which the Board is by lav authorized to make in connection with
provisions of the Federal Reserve Act.
"With respect to the relations between the Board and member banks, we
feel that although the number of reports which member banks are now required to
make is doubtless justified, it is desirable that the number be kept, as far as
practicable, at a minimum in the future.
"With reference to the relations between the Board and the Reserve
banks, v/e feel confident that there is no conscious tendency on the part of the
Board to be unduly ’bureaucratic’. At the same time, we recognize that in con
nection with such matters as applications for Clayton Act permits, voting permits,
fiduciary powers, and State bank membership, the Board is necessarily handicapped
to some extent by its remoteness from the localities in which these applications
originate, and .its lack of the intimate knowledge of local conditions and other
factors which the officers and directors of the Reserve bank possess and which
they frequently find it difficult to convey adequately in a letter. For these
reasons, we feel that the Board, in arriving at a decision in such matters, es
pecially when it feels that the case involved is of a 'border line* character,
could well afford to rely upon the judgment and recommendations of the Reserve
banks and delegate to them a somewhat larger measure of responsibility in such
cases than they now exercise. Such discretionary powers as might be entrusted
to the Reserve banks would be exercised, of course, within the regulations and
in harmony with the policies as established by the Reserve Board, and, in order
that a fair degree of uniformity might obtain in the several districts, the
Board’s examiners could review the actions taken just as they now inquire into,
or check, other matters of equal or greater importance in the operations of the
banks.”
Ban Francisco; "It is felt that existing regulations and rulings of the Board
have been as liberal as the law would permit. There does not appear to be any
evidence in the Twelfth District that such rulings have brought about any un
satisfactory relations between the Board or its staff and the Federal Reserve
Bank, or between the Board and its staff and member banks.
"While it is to be expected that new laws calling for a multiplicity
of regulations will irk those who have to conform thereto, it is our experience
that the reaction of member banks depends largely upon the matter in which the
Reserve Bank deals with regulations. For this reason, exceptional care is exer
cised to prevent rulings becoming a means of irritation to member banks.
"It would be very helpful if the question of charges for examination
of State member banks would be definitely settled. A few reserve banks charge
Topic 9.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-b
-49-
for practically all examinations$ others charge in special cases., while some make
no charge whatever. If charges are to be made, the conditions uner which they
are to be imposed, and the bases of .fixing them, should be uniform throughout the
twelve districts. Members, as well as banks contemplating entering the System,
should have a definite understanding as to the System’s practice.
"It is believed that no charge should be made by a Federal reserve bank
if the member bank, during the same calendar year, had paid an examination fee to
the State Banking Department or the Federal Deposit Insurance Corporation. How
ever, banks which are in so unsatisfactory a condition as to necessitate examina
tions more frequently than one annually should pay the cost of such extra examina
tions conducted by the Federal reserve bank."
Topic 9.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-c
-50-
Appendix B
Text of
Standard Conditions of Membership
1,
Except with the permission of the Federal Reserve Board, such
bank shall not cause or permit any change to be made in the
general character of its business or in the scope of the cor
porate power exercised by it at the time of admission to
membership.
2.
Such bonk shall at all times conduct its business and exer
cise its powers with due regard to the safety of its depositors.
5.
Such bank shall maintain its loans within the limits pro
scribed by the laws of the State in which it is located.
4.
The board of directors shall not permit loans to directors,
officers, employees, principal stockholders and/or their in
terests including loans to, or upon the security of stocks
of, corporations in which any of them have substantial in
terests, to assume unduly large proportions or to endanger the
bank’s solvency or the liquidity of its assets, and the board
of directors shall give special attention to all such loans.
5.
Such bank shall maintain adequate credit data in connection
with all unsecured loans.
6.
Such bank shall keep past due paper and overdrafts at a
minimum, and shall not hold any checks .in cash items to avoid
overdrafts.
7.
Except with the permission of the Federal Reserve Board, such
bank shall not purchase or acquire through any device whatever
any stock of any other bank, trust company, or other corporation
of any kind or character except in satisfaction or protection of
debts previously contracted in good, faith; and all stock acquired
in satisfaction or protection of debts shall be disposed of with
in six months from the date on which it was acquired, unless the
time is extended, by the Federal Reserve Board on the application
of such ban it for good cause shorn,
8 . Such bank shall not permit any investment in a bank building
or in a site for a bank building to assume such proportions as,
in the judgment of the Federal Reserve Board, would endanger
the bank's solvency or liquidity or would otherwise be unduly
large or improper, and before any investment is made in a bank
building or a site for a bank building the bank shall refer the
matter to the Federal Reserve Board for consideration.
9.
Such bank shall not reduce its capital stock except with the
permission of the Federal Reserve Board.
10.
Such bank shall not pay any dividends which vrill reduce its sur
plus below an amount equal to at least 20 per cent of its capital
stock, and if at any time its surplus should be loss than 20 per
cent of its capital stock it shall carry to its surplus account
annually, or for any shorter period covered by each closing of
its books, not less than 50 per cent of its net earnings for any
such period after deducting all losses and providing reserves for
depreciation.
11.
Such bank shall reduce to an amount equal to 10 per cent of its
capital and surplus all balances in excess thereof, if any, which
are carried with banks or trust companies which are not members
of the Federal Reserve System, and shall at all times maintain
such balances within such limits.
Membership Conditions.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
-51--
X--9174-C
12.
Except with the permission of the Federal Reserve Board, such
bank shall not, after the date of its admission to membership,
engage in the business of issuing or selling, either directly
or indirectly (through affiliated corporations or otherwise)
notes, bonds, mortgages, certificates, or other evidences of
indebtedness representing real estate loans or participations
therein, either with or without a guarantee, indorsement or
other obligation of such bank or an affiliated corporation.
15.
Such bank may accept drafts and bills of exchange drawn upon
it of any character permitted by the laws of the State of its
incorporation; but the aggregate amount of all acceptances out
standing at any one time shall not exceed the limitations Im
posed by section 15 of the Federal Reserve Act, that is, the
aggregate amount of acceptances outstanding at any one time which
are drawn for the purpose of furnishing dollar exchange in
countries specified by the Federal Reserve Board shall not exceed
50 per cent of its capital and surplus, and the aggregate amount
of all other acceptances, whether domestic or foreign, outstanding
at any one time shall not exceed 50 per cent of its capital and
surplus, except that the Federal Reserve Board, upon the applica
tion of such bank, may increase this limit from 50 per cent to
10 0 per cent of its capital and surplus; provided, however, that
in no event shall the aggregate amount of domestic acceptances
outstanding at any one time exceed 50 per cent of the capital
and surplus of such bank.
14.
The board of directors of such bank shall adopt a resolution
authorizing the interchange of reports and information between
the Federal Reserve Bank of the district in which such bank is
located and the banking authorities of the State in which such
bank is located.
15.
Such bank shall maintain an amount of paid-up and unimpaired
capital and unimpaired surplus which, in the judgment of the
Federal Reserve Board, will be adequate in relation to its total
deposit liabilities, having due regard to the general principle
that a bank’s capital and surplus ordinarily should not be less
than one-tenth of the average amount of its aggregate deposit
liabilities and, in some circumstances, should be more than onetenth of such amount.
*16.
Such bank shall not, after the date of its admission to member
ship, invest trust funds held by it in obligations of the bank’s
directors, officers, employees or their affiliations or corpora
tions affiliated with the bank.
•*17.
Except with the permission of the Federal Reserve Board, such
bank shall not, after the date of its admission to membership,
invest the funds of various trusts held by the bank in partici
pations in pools of mortgage bonds or other securities, and the
funds of all such trusts shall be invested separately from each
other; provided, however, that the Federal Reserve Board will not
object to the collective investment of small amounts of trust fund
where the cash balances to the credit of certain trust estates
are too small to be invested separately to advantage, if the bank
owns no participation in the securities in which such collective
investments are made and has no interest in. them except as
trustee or other fiduciary.
*18.
If trust funds held by such bank are deposited in its banking
department or otherwise used in the conduct of its business, it
shall deposit with its trust department security in the same
manner and to the same extent as i& required of national banks
exercising fiduciary powers.
-(Prescribed only with respect to institutions
exercising trust powers.)
Membership Conditions.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-9174-d
Appendix C
List of Regulations Prescribed by Federal Reserve
Board and. Now in Effect
Regulation:
Series of:
Subject:
"A"
1950
Discounts under Sections 15 and 15a
iign
1950
Open Market Purchases of Bills of Exchange,
Trade Acceptances and Bankers * Ac
ceptances Under Section 14
»C"
1950
Acceptance by Member Banks of Drafts and
Bills of Exchange
»D"
1950
Reserves of Member Banks
"E"
1950
Purchase of Warrants
iipn
1950
Trust Powers of National Banks
”G"
1952
Rediscount of Notes Secured by Adjusted
Service Certificates
HH n
1950
Membership of State Banks and Trust Com
panies
nj tt
1950
Increase or Decrease of Capital Stock of
Federal Reserve Banks and Cancellation
of Old and Issue of New Stock Certi
ficates
nju
1950
Check Clearing and Collection
"K"
1950
Banking Corporations Authorized to do
Foreign Banking Business Under the
Terms of Section 25(a) of the Fed
eral Reserve Act
"L"
1955
Interlocking Bank Directorates and Other
Relationships under the Clayton Act
1955
Open Market Operations
”0 "
1915
Regulations for the Guidance of Federal Re
serve Agents in the Matter of Issuance.,
and Redemption of Federal Reserve Notes
ttpn
1955
Holding Company Affiliates Voting Permits
MQU
1955
Payment of Interest on Deposits
"R"
1955
Relationships with Dealers in Securities
"S"
1954
Discounts, Purchases, Loans and Commit
ments by Federal Reserve Banks to
Provide Working Capital for Established
Industrial or Commercial Businesses
fi^n
1954
Extension and Maintenance of Credit by
Brokers, Dealers, and Members of Na
tional Securities Exchanges
Regulations.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
SiVA>-
FEDERAL RESERVE BOARD
u
WASHINGTON
A D D R E S S O F F IC IA L C O R R E S P O N D E N C E T O
T H E FED ERAL RESERVE BO ARD
X-9115
February 6 , 1935.
During an informal meeting of the Governorp„jpf thje..-F.e.d- ,
eral reserve banks with the Federal Reserve Board on February 5,
_jn»nrmTi
I stated to the 'Governors that it would be helpful to the Federal
Reserve Board if the Federal reserve banks would frankly point out
any features of the relations between the Federal Reserve Board and
the Federal reserve banks and member banks that in their opinion
are unsatisfactory or subject to criticism, with special reference
to any regulations or rulings or procedure of the Board.
If in
any respect the actions of the Board or its staff seem bureaucratic
or impractical or unduly rigid, the Board desires to be fully ad
vised so that it may take any measures that seem desirable to cor
rect and improve the situation.
In addition, I suggested a number of subjects which it
seemed to me it would be desirable for the directors and officers
of the Federal reserve banks to discuss.
There are inclosed two
copies of a revised list of these subjects, which the Board would
like to have considered in the manner suggested, and to be advised
reproduced from the Unclassified / Declassified Holdings of the National Archives
•
( I'fSi
<—
-
2-
&
X-9115
as to the views of your bank within thirty days, treating each
subject separately.
Upon receipt of the replies from the Federal
reserve banks they will be analysed and studied and an endeavor will
be made as promptly as possible to advise you as to any conclusions
that the Board may reach regarding them.
Very truly yours,
Inclosures.
TO ALL CHAIRMEN.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
^igf
X-9115-a
The following is a list of certain subjects which were
brought to the attention of the Governors on February 5 by Governor
Eccles with the suggestion that these subjects be discussed by the
directors and officers of the Federal reserve banks and that the
Board be advised as to their views within thirty days, treating
each subject separately:
1.
General credit situation
(a)
Are commercial banks doing everything in their
power to improve the situation?
(b) If not, what steps can be taken by the Federal
reserve banks or otherwise to bring about an
improvement?
2.
Interest rates
(a)
(b)
3.
On time and savings deposits of member banks.
On loans of member banks and on industrial ad
vances and commitments by Federal reserve banks.
Matters affecting admission of nonmember banks to Federal
reserve system.
(a)
(b)
(c)
Earnings of nonmember banks from exchange
collection charges.
Present conditions of membership.
Advisability of extension of membership to
banks outside the States and the District
of Columbia.
4.
Feed .for continuance of assistance of Reconstruction
Finance Corporation in connection with rehabilitation
of capital structures of banks.
5.
Adequacy of reimbursement of Federal reserve banks by
Treasury and other governmental agencies for various
services rendered and for space used in Federal reserve
bank buildings.
6 . Regulation fixing margin requirements for loans by banks
upon equity securities for the purpose of purchasing or
carrying securities registered on national securities
exchanges =
Reproduced from the Unclassified / Declassified Holdings of the National Archives
©
©
-
2-
X-9115-a
(a)
Circumstances under which regulation should be
issued.
(b) Whether regulation should permit borrower to
obtain from bank more than he could obtain from
broker under Regulation T .
7o
Economic and statistical divisions of Federal reserve banks
(a)
(b)
Usefulness to directors and officers.
Value of Federal reserve bank monthly reviews.
Establishment of career system for personnel of Federal
reserve banks.
Criticisms of existing regulations or rulings or procedure
of the Federal Reserve Boards with specific recommenda
tions as to changes which would correct any unsatisfactory
features of the relations between the Board or its staff
and the Federal reserve banks or member banks.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
S
y
T US'
U
Proposed Letter to Chairman of each Federal reserve bank
During an informal meeting of the Governors of
the Federal reserve banks with the Federal Reserve coard
on February 5, I stated to the Governors that it would
be helpful to the Federal Reserve Board if the Federal
reserve banks would frankly point out any features of
the relations between the Federal Reserve Board and the
Federal reserve banks and member banks that in their
opinion are unsatisfactory or subject to criticism,
with special reference to any regulations or rulings
or procedure of the Board.
If in any respect the ac
tions of the Board or its staff seem bureaucratic or
impractical or unduly rigid, the Board desires to be
fully advised so that it may take any measures that
/
Reproduced from the Unclassified / Declassified Holdings of the National Archives
- 2 -
seem desirable to correct and improve the situation.
In addition, I suggested a number of subjects which it
seemed to me it would be desirable for the directors and officers
of the Federal reserve banks to discuss.
There are inclosed two
copies of a revised list of these subjects, which the Board would
like to have considered in the manner suggested, and to be advised
as to the views of your bank within thirty days, treating each sub
ject separately.
Upon receipt of the replies from the Federal re
serve banks they will be analyzed and studied and an endeavor will
be made as promptly as possible to advise you as to any conclusions
that the Board may reach regarding them.
Very truly yours,
If. S. Eccles,
Governor.
Inclosures.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
The following is a list of certain subjects which were
brought to the attention of the Governors on February 5 by Governor
Eccles with the suggestion that these subjects be discussed by the
directors and officers of the Federal reserve banks and that the
Board be advised as to their views within thirty days, treating
each subject separately:
1.
General credit situation
(a)
(b)
2.
Interest rates
(a)
(b)
5.
Are commercial banks doing everything in their
power to improve the situation?
If not, what steps can be taken by the Federal
reserve banks or otherwise to bring about an
improvement?
On time and savings deposits of member banks.
On loans of member banks and on industrial ad
vances and commitments by Federal reserve banks.
Matters affecting admission of nonmember banks to Federal
reserve system
(a)
(b)
(c)
Earnings of nonmember banks from exchange
collection charges.
Present conditions of membership.
Advisability of extension of membership to
banks outside the States and the District
of Columbia.
4.
Need for continuance of assistance of Reconstruction
Finance Corporation in connection with rehabilitation
of capital structures of banks.
5.
Adequacy of reimbursement of Federal reserve banks by
Treasury and other governmental agencies for various
services rendered and for space used in Federal reserve
bank buildings.
6.
Regulation fixing margin requirements for loans by banks
upon equity securities for the purpose of purchasing or
cariying securities registered on national securities
exchanges.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
©
©
€)■
-
(a)
(b)
7.
X~
f
2-
Circumstances under which regulation should
be issued.
Whether regulation should permit borrower to
obtain from bank more than he could obtain
from broker under Regulation T.
Economic and statistical divisions of Federal reserve banks.
(a)
(b)
Usefulness to directors and officers.
Value of Federal reserve bank monthly reviews.
8.
Establishment of career system for personnel of Federal
reserve banks.
9.
Criticisms of existing regulations or rulings or procedure
of the Federal Reserve Board, with specific recommenda
tions as to changes which would correct any unsatisfactory
features of the relations between the Board or its staff
and the Federal reserve banks or member banks.
!/
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X
5
2 ^ - 3
X-9113
The following is a list of subjects which are to be
brought to the attention of the Governors with the suggestion that
upon their return to their banks they discuss these subjects with
their directors and the other officers of their banks and within
thirty days advise the Board as to their views, treating each sub
ject separately:
1.
General credit situation
(a)
(b)
2.
Direct loans to industry
(a)
(b)
3.
On time and savings deposits of member banks.
On commercial and industrial loans.
Matters affecting admission of nonmember banks to Federal
reserve system
(a)
(b)
(c)
5.
Should Federal reserve banks continue this
activity?
If not, should it be transferred to RFC?
Interest rates
(a)
(b)
4.
Are commercial banks doing everything in their
power to improve the situation?
If not, what steps can be taken by the Federal
reserve barks or otherwise to bring about an
improvement?
Earnings of nonmember banks from exchange
collection charges»
Present conditions of membership.
Advisability of extension of membership to
banks outside the States and the District
of Columbia.
Need for continuance of assistance of Reconstruction
Finance Corporation in connection v/ith rehabilitation
of capital structures of banks•
X - 9/
/
- a r
the Unclassified / Declassified Holdings of the National Archives
>
X-9113
6 . Adequacy of reimbursement of Federal reserve banks by Treasury
and other governmental agencies for various services rendered
and for space used in Federal reserve bank buildings.
7.
Regulation fixing margin requirements for loans by banks upon
equity securities for the purpose of purchasing or carrying
securities registered on national securities exchanges.
(a)
(b)
Circumstances under which regulation should
be issued.
Whether regulation should permit borrower to
obtain from bank more than he could obtain
from broker under Regulation T .
8 . Economic and statistical divisions of Federal reserve banks.
(a)
(b)
9.
Usefulness to directors and officers.
Value of Federal reserve bank monthly reviews.
Advisability of declaring a policy on the part of the Federal
reserve banks that officers and employees should not acquire
ownership of stock of banking institutions.
@FedFRASER