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418 A. meeting of the Board of Governors of the Federal Reserve SYsten was held in Washington on Friday, April 15, 1938, at 10:30 a. m PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Davis Draper Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Wyatt, General Counsel Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Snead, Chief of the Division of Bank Operations Mr. Dreibelbis, Assistant General Counsel Mr. Vest, Assistant General Counsel Reference was made to discussions which Chairman Eccles had had with the President, conferences which. Messrs. Eccles and Ransom had held with the Secretary of the Treasury and others, and informal scussions of the members of the Board of Governors with respect to 4cti°fl by the Board of Governors to reduce reserve requirements of member banks as a part of a program to be adopted by the Government for the en couraganent of economic recovery. It was stated for the record that as the result of these discussions the members of the Board had /agreed informally that Chairman Eccles should state to the President that the Board would be willing to reduce reserve requirements by 4.19 4/15/38 -2- ePproximately 050,000,000, with the understanding that it would be a Part of the program referred to above. The program adopted by the Administration was announced by the President in a message which was sent to Congress on April 14, 1938. A copy of the President's message has been placed in the Board's files. At the request of the Board, Mr. Smead discussed the various Percentages by which reserve requirements of the different classes of Member banks covering demand and time deposits might be reduced and it was agreed to reduce the required reserves of central reserve and reserve city banks on demand deposits by the amount of the increase which became effective on May 1, 1937, the required reserves of country banks on demand deposits to 12 percent of such deposits, and the required reserves of all classes of banks on time deposits to 5 percent of such dePosits. Thereupon, Mr. Ransom moved that the following supplement to Regulation D be approved and adopted to became effective as of the opening of business on April 16, 1938: "SUPPLEMENT TO REGULATION D "Effective as to each member bank at the opening of business on April 16, 1938 "Reserves required to be maintained by member banks with Federal Reserve banks "Pursuant to the provisions of section 19 of the Federal Reserve Act and section 2(a) of its Regulation D, the Board of Governors of the Federal Reserve System hereby 420 4/15/38 r4. "prescribes the following reserve balances which each member bank of the Federal Reserve System is required to maintain on deposit with the Federal Reserve bank of its district: 5 per cent of its time deposits plus-12 per cent of its net demand deposits if not in a reserve or central reserve city; 17A- per cent of its net demand deposits if in a reserve city, except that if located in an outlying district of a reserve city or in territory added to such city by the extension of the city's corporate limits such bank may, upon the affirmative vote of five members of the Board of Governors of the Federal Reserve System, be permitted to maintain 12 per cent reserves against its net demand deposits; 22-3/4 per cent of its net demand deposits if located in a central reserve city, except that if located in an outlying district of a central reserve city or in territory added to such city by the extension of the city's corporate limits, such bank may, upon the affirmative vote of five members of the Board of Governors of the Federal Reserve System, be permitted to maintain 12 per cent or l?c per cent reserves against its net demand deposits. "The supplements to Regulation D which have previously been Issued are hereby revoked and superseded." Mr. Ransom's motion was put by the chair and carried unanimously. There was presented a draft of a statement prepared by Mr. Thurston for release to the Dress with respect to the above action. Certain changes were suggested in the statement following which it was approved unanimously in the form set forth below, with the understanding that it would be released to the press this afternoon for publication in the morning newspapers of April 16 and that copies of the revised supplement to Regulation D and the press statement would be sent by wire to all Federal reserve banks with a request that copies of the supplement and press statement be mailed to all member banks as promptly as possible: 421 4/15/38 -4- "As a part of the Government's program for encouragement of business recovery, the Board of Governors has reduced reserve requirements on all classes of deposits for all member banks, effective at the opening of business on April 16, 1938. By this action excess reserves of member banks will be increased by about 4;i750,000,000. "Reserve requirements in effect prior to April 16, 1938, and thereafter are shown in the following table: Classes of member banks and of deposits Demand deposits: Central reserve city banks Reserve city banks Country banks Time deposits: All classes of member banks Prior to April 16 0 Beginning April 16 26 20 14 22-3/4 17-1/2 12 6 Mr. Ransom moved that Mr. Goldenweiser prepare for consideration by the Board, with a view to publication in an early issue of the Federal Reserve Bulletin if approved for that purpose, a statement setting forth a factual history of member bank reserve requirements. Mr. Ransom's recommendation was approved unanimously. Mr. Ransom moved that the Division of Research and Statistics be requested to study all of the phases of member bank reserve requirements and that Mr. Goldenweiser be requested to submit to the Board for consideration not later than November 1, 1938, any recommendations that the Division might wish to make as the result of its study with respect to changes in the existing provisions of law or regulations relating to member bank reserves. Mr. Ransom's recommendation was approved unanimously. 5" 422 4/7_5/38 -5There were presented telegrams to Mr. Thomas, Chairman of the Federal Reserve Bank of Kansas City, and Mr. McKinney, President of the Federal Reserve Bank of Dallas, stating that the Board approves the establishment by the Federal Reserve Banks of Kansas City and Dallas of a rate of 21-r% per annum on advances to individuals, partnerships or corporations secured by direct obligations of the United States under the last paragraph of section 13 of the Federal Reserve Act) effective on the first business day following that on which approved by the Board, and the establishment by the banks on April 14, 1938) without other change of the rates of discount and purchase in their existing schedules. Approved unanimously. There were also presented telegrams to Mr. Young, President of the Federal Reserve Bank of Boston, Messrs. Kimball, Post and Hays, Secretaries of the Federal Reserve Banks of New York, Philadelphia and Cleveland, respectively, Mr) Leach, President of the Federal Reserve Bank of Richmond, Mr. McLarin, Vice President of the Federal Reserve Bank Of Atlanta, Messrs. Stewart and Powell, Secretaries of the FedReserve Banks of St. Louis and Minneapolis, respectively, and Mr. Stewart ) Chairman of the Federal Reserve Bank of San Francisco, stating that the Board approves the establishment without change by the Federal Reserve Bank of San Francisco on April 12, by the Federal Reserve Of New York, Philadelphia, Cleveland, Richmond, St. Louis and 423 4/15/38 -6- M inneapolis on April 1/1, and by the Federal Reserve Banks of Boston and Atlanta on April 15, 1938, of the rates of discount and purchase in their existing schedules. Approved unanimously. At this point Messrs. Thurston, Wyatt, Goldenweiser, Smead, Dreibelbis and Vest left the meeting and consideration was then given to each of the matters hereinafter referred to and the action stated with respect thereto was taken by the Board: The minutes of the meeting of the Board of Governors of the Federal Reserve System held on April 13, 1938, were approved unanimously, Letter to the Federal Deposit Insurance Corporation, reading as follows: "Pursuant to the provisions of section 12B of the Federal Reserve Act, as amended, the Board of Governors of tae Federal Reserve System hereby certifies that 'The Union Bank of Commerce Company', Cleveland, Ohio, became a member of the Federal Reserve System on April 13, 1938, and is now a member of the System. The Board of Governors of the Federal Reserve System further hereby certifies tnat, in connection with the admission of such bank to membership in the Federal Reserve System, consideration was given to the following factors enumerated in subsection (g) of section 12B of the Federal Reserve Act: 1. The financial history and condition of the bank, 2. The adequacy of its capital structure, 3. Its future earnings prospects, 4. The general character of its management, 5. The convenience and needs of the community to be served by the bank, and 6. Whether or not its corporate powers are consistent with the purposes of section 12B of the Federal Reserve Act." Approved unanimously. 424 4/15/38 -7Letter dated April 14, 1938, to Mr. Hill, Vice President of the Federal Reserve Bank of Philadelphia, reading as follows: "This has further reference to your letter of March 8, 1938, with inclosures, receipt of which was acknowledged on March 14, 1938, concerning an inquiry from Mr. Sohn C. Knox, Vice President and Trust Officer, National Bank of Germantown and Trust Company, Philadelphia, Pennsylvania, relating to the provisions of section 6 of Regulation F requiring the review of actions of trust department committees by the directors of a national bank. "It appears that the trust investment committee of National Bank of Germantown and Trust Company (which also acts upon the acceptance and closing out or relinquishment of fiduciary accounts) keeps extensive minutes and that it is the practice to read such minutes at meetings of the board of directors and to have the directors approve any and all actions of the committee. However, the directors feel that too many details are being brought to their attention for their approval and that too much time is being consumed in that manner. 14r. Knox inquires how far it is necessary to go in order to comply with the requirements of Regulation F. "Section 6(b) of Regulation F provides, in part, as follows: 'The board of directors is responsible for the investment of trust funds by the bank, the disposition of trust investments, the supervision of the trust department, the determination of the policies of such department and for the review of the actions of all committees al22inted 12y the board of directors for the conduct of the trust department.' (Underscoring added.) The underscored provision contemplates that the directors Shall take such action as is necessary to inform themselves concerning the manner in which the committees are performing their duties and the policies which are being pursued by the committees. However, while it definitely places Upon the directors the responsibility for the review of the actions of all committees, it does not require that the directors read all minutes of all committees and formally approve each and every action taken by the committees. Various methods may be pursued in the proper discharge of this responsibility; that which is feasible 425 4/15/38 -8- "for one bank may not be for another and the action which should be taken depends upon the particular circumstances involved. Since the regulation applies to all national banks, the Board feels that it should not destroy the intended flexibility of this provision by a precise statement concerning the action necessary to constitute compliance, but that this should be left to the exercise of sound judgment by individual banks. "It appears that Mr. Knox has in mind that his bank's trust investment committee might shorten its minutes in order to meet the directors' objections. Section 6(c) of Regulation F requires that the committee 'keep minutes of all its meetings, showing the disposition of all matters considered by and passed upon by it' and, after providing for periodic reviews of assets of each fiduciary account by the committee, it requires that 'a report of all such reviews, together with the action taken as a result thereof, shall be noted in the minutes' of the committee. While the regulation thus requires that the committee keep a record of all of its activities, it does not attempt to describe the manner in which the record should be kept. Clearly, it is not necessary to record verbatim everything Which is said and to incorporate copies of all memoranda and other documents considered. However, there is a vast range between minutes containing unwarranted detail and those which are so sketchy as to be virtually worthless. Where the line should be drawn between these two extremes is a question which also must be left to the sound judgment of each bank. In deciding this question, however, it should be borne in mind that the minutes serve purposes other than to make information currently available to the directors. , they should provide an adequate record for future reference, e.g., in the event the bank is called upon to explain action directed by the committee. "It appears that both Mr. Knox's letter and your proposed reply perhaps contemplate that the committee approval of the acceptance of trusts properly may be subsequent to the actual acceptance of the trusts by the bank. Section 6(b) of Regulation F provides that 'the acceptance of all trusts shall be approved by the board of directors or a committee appointed by such board, and the closing out or relinquishment of all trusts shall be approved or ratified l Il ine, of directors or a committee appointed by such board , It is believed that this provision clearly requires approval by the directors or the appropriate committee prior to the acceptance of a trust. 426 4/15/38 -9- "Since the advice contained in this letter differs in same respects from your proposed reply to Mr. Knox, it is suggested that such reply be appropriately modified. The suggestion that your trust examiner will be glad to discuss the matter informally seems desirable and, if this suggestion is made, you may find it possible to eliminate from Your reply some of the general discussion of directors' responsibilities under Regulation F which goes beyond that Which is necessary to answer Mr. Knox' specific inquiry." Approved unanimously. Letter to Mr. Neely, Chairman of the Federal Reserve Bank of Atlanta, reading as follows: "Reference is made to the report of examination of the Federal Reserve Bank of Atlanta, as of January 28, 1938, a copy of which was left for your information and the information of the other directors. A copy was also furnished President Newton. After the report of examination has received the consideration of the board of directors of the Federal Reserve bank, the Board will appreciate advice as to any action taken or to be taken with respect thereto, and to other significant matters which may have been discussed with the management during the course of examination." Approved unanimously. Memorandum dated March 31, 1938, from the Division of Examinetic'he, submitting a draft of a proposed letter to the Presidents of all Federal reserve banks requesting them, for the reason stated in the proposed letter, (1) to prepare promptly an initial list of their Plac/blem and near problem cases of State member banks; (2) to furnish the Board with a concise summary of the situation of each bank so lessed and the corrective action planned or being taken; (3) to subnil.t e ubsequent reports on developments every 30 days with respect to 427 4/15/38 -10- Problem cases and every 90 days with respect to near problem cases; and (4) to advise the Board of any problem or near problem cases newly developing since the previous report. Mr. McKee had attached a memo- randum to the file recommending that action by the Board on the proposed letter be deferred for the present. Mr. McKee's recommendation was approved unanimously. Letter to Mr. Thomas, Chairman of the Federal Reserve Bank of Kansas City, reading as follows: "Mr. Worthington, First Vice President of your bank, has suggested that, in view of the arrangement under which the nonstatutory functions of your office as Federal Reserve Agent have been transferred to the .eederal Reserve bank, the bond covering you in such capacity should be reduced. As a result of his suggestion, the Board is requesting the views of the Chairmen and boards of directors of the other Federal Reserve banks as to the desirability of reducing the amounts of the bonds covering not only the Federal Reserve Agents but also the Assistant Federal Reserve Agents, the Alternate Assistant Federal Reserve Agents and the Federal Reserve Agents' Representatives. A copy Of the letter dispatched in this connection is inclosed, and it will be appreciated if, in the light of the comments contained therein, you will forward your views, together with the views of the board of directors of your bank, regarding this matter. Please forward also a copy of the bankers' blanket bond which is in effect at your bank." Approved unanimously, together with a letter to the Chairmen of all other Federal reserve banks, reading as follows: "The Board now requires an individual surety bond in the amount of 40.00,000 from each Federal Reserve Agent and in the amount of 450,000 from each Assistant Federal Reserve Agent, Alternate Assistant Federal Reserve Agent and Federal Reserve Agent's Representative. In view of the arrangement which has been established at each Federal Reserve bank 428 -11"under which the nonstatutory functions of the Federal Reserve Agent have been transferred to the bank, an officer of one of the Federal Reserve banks has suggested that the amount of the bond furnished by the Federal Reserve Agent Should be reduced. "It is understood that the bankers' blanket bond which has been obtained by each Federal Reserve bank specifically covers the acts of the Federal Reserve Agent and his assistants. Accordingly, the Board is giving consideration to the desirability of reducing to $10,000 the amount of each individual bond covering the Federal Reserve Agents and the Assistant Federal Reserve Agents, the Alternate Assistant Federal Reserve Agents and the Federal Reserve Agents' Representatives. However, before taking any action on this proposition, the Board would appreciate an expression of your views, together With the views of the board of directors of your bank, as to the desirability of such a change. In this connection, your attention is invited to the Board's letter of Iune 11, 1924 (X-4083). Please forward a copy of the bankers' blanket bond which is in effect at your bank." Thereupon the meeting adjourned. Chairman.
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