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rrl 17. 47 A meeting of the Executive Committee of the Federal Reserve Board was held in Washington on Tuesday, April 17, 1934, at 3:15 p. m. r'RESENT: Mr. Hamlin, Presiding Mr. Thomas Mr. Szymczak Mr. Morrill, Secretary Mx. Carpenter, Assistant Secretary Mr. Bethea, Assistant Secretary The Committee considered and acted upon the following matters: Memorandum dated April 13, 1934, from Mr. Goldenweiser, Director the Division of Research and Statistics, recommending that the tempo- zary 4PPointment of Lirs. E. Louise Gardner as a clerk in the division be e)ctend, for a period of three months from :ay 12, 1934, with salary at e Pl'esent rate of ,1,440 per annum. b v The recommendation was approved ft Our members of the Board on April 16, 1934. Approved. Telegram to Mr. Case, Federal Reserve Agent at the Federal Re- serve Ballk of New York, reading as follows: . "Your letter April sixteenth. Board approves temporary apintment of the sixteen men to be borrowed from Guaranty Trust t°mPanY and National City Bank as assistant examiners in Federal ssrve Agent's department your bank at their present salary rate ective upon assuming duties. Please advise effective dates." Approved. Letter dated April 16, 1934, approved by four members of the 41ircl) t TJ ° -r. Stevens, Chairman of the Federal Reserve Bank of Chicago, - as follows: "In its letter of March 16, 1934, with regard to salaries of -tatn officers of the Federal eserve Bank of Chicago, the Board eel at ac"ed that it would endeavor to work out some practical course of 1.eti°11 by which proposed changes in salaries of officers of Federal 8ervs banks might be considered somewhat informally in advance of 1052 4/17/34 "the submission of definite recommendations of the boards of directors of Federal reserve banks, so that the Board on the one hand might be informed more adequately as to the views and reasons of the directors of the Federal reserve banks, and on the other hand the directors might have an opportunity to ascertain the reasons which would impel the Federal Reserve Board to its conclusions with respect to their recommendations. "Since the date of the letter above referred to, the Board has given careful consideration to this matter, and the plan which it now has in mind would provide that at some time before important changes in salaries of officers are made, which ordinarily take Place as of the first of the year, the directors of the bank would c°nsider informally what action they desire to take and arrange to have either the chairman of the board or a committee of the direct°rs call upon the Board's committee for the Chicago district and co over the matter with a view to arriving at an understanding, subject, of course, to the Board's formal action in the usual way when the regular schedule of salary rates for the succeeding year 18 submitted. Such a conference might well be arranged late in November so as to allow ample time for the further consideration c)f adjustments that might seem advisable as the result of such a conference. "It will be appreciated if you will bring the above plan to the attention of the directors of your bank and advise the Board whether they have any comments or suggestions to make with regard thereto., Approved, together with a similar letter, also dated April 16, 1934, and approved by four members of the Board, to the chairmen of all other Federal reserve banks except New York. Letter dated April 16, 1934, approved by five members of the 13()E11,. to Lr, Austin, Federal Reserve Agent at the Federal Reserve Bank or. ladelphia, reading as follows: ) r . "In accordance with the telephone request of P:r. Penner, the 1,41es of the report of examination of The Pennsylvania Company Lives and Granting Annuities, Philadelphia, as Of Insurances on ,une 17, 1933, which were submitted in connection with the apcation of the bank for permission to establish branches at darlore and in Upper Darby Township, are returned herewith. It understood that these are the only copies which you had, and -at they are needed in connection with the review of the condi°11 of the bank and in connection with the next examination of t e institution. These reports became a part of the records of 4e Federal :deserve Board when submitted with the application, T J j V17/34 ••• "and you are requested, therefore, to retain these reports with Your records as Federal Reserve Agent, and to keep them available to the Board at any time." Approved. Letter dated April 16, 1934, approved by four members of the 13°4rd, to r. Stevens, Federal Reserve Agent at the Federal Reserve tiatk of Chicago, reading as follows: "This refers to Dir. young's letter of March 15, 1934, in connection with the amount of Federal Reserve bank stock held by The Peoples National Bank of Lawrenceburg, Lawrenceburg, Indiana. , "The Board's examiners state that when this matter was discussed the recent examination of your bank, Mr. Young was advised that while the holding of the stock by The Peoples National Bank of _ .alvrenceburg might be in order, there was not sufficient information 0 determine the procedure by which The Peoples National Bank of 14wirenceburg absorbed the Dearborn Naticnal Bank, that the matter ns discussed informally and the suggestion made that such informalon be obtained, and if there was then any question as to the right °I ihe Peoples National Bank of Lawrenceburg to continue to hold the !xcess amount of stock in the Federal Reserve Bank, the subject be referred to the lederal Reserve Board. , "You were advised by the Board on April 6, 1931 that 'The Board in receipt of information from the Comptroller of the Currency that der the Act of November 7, 1918, as amended February 25, 1927, the '2-',-.0Ples National Bank of Lawrenceburgh, Lawrenceburg, Indiana, No. with capital stock of :125,000 and the Dearborn National flank, La ' ":"renceburg, Indiana, No. 7909, with capital stock of ,50,000, were ' t lnsolidated on April 4, 1931, under the charter of The Peoples Na1, °Ilal Bank of Lawrenceburgh, No. 2612, and under the title of "The e°Ples National Bank of Lawrenceburg", with capital stock of 3175,000.' "In the circumstances, therefore, The Peoples National Bank Wet3 , not required to surrender any of its holdings of Federal eserve uatl, stock. It is assumed, however, that in accordance with the cedure outlined in the Board's letters of November 1, 1923, X-3874, tlxcl of January 9, 1925, X-4239, the bank has been advised that it has "e option of surrendering the excess holdings of such stock." Approved. Letter dated April 16, 1934, approved by four members of the t0 Mr. Walsh, Federal Reserve Agent at the Federal Reserve Bank le , reading as follows: 4/17/34: -4- "Reference is made to your letters of January 16, 1934, and February 3, 1934, relative to the assumption as of December 29, 1933, of the deposit liabilities of the Riverside State Bank, Riverside, Texas, a nonmember bank, by the Huntsville Bank and irust Company, Huntsville, Texas, a member bank. "In view of the statement contained in your letter of January 1°, 1934, to the effect that the deposit liabilities thus assumed were offset in full by cash deposited with the Huntsville Bank and Trust Company, which information has subsequently been confirmed by an inspection of the bank's books by one of your examiners in connection with an examination as of February 24, 1934, and that, cordingly, it would appear that the transaction has resulted in 110 change in the character of the assets of the Huntsville Bank and . Trust Company, or broadening in the functions now exercised bY it, within the meaning of the general condition under which it 17as admitted to the Federal Reserve System, the Board interposes 1.10 objection to the transaction provided, of course, that it has been approved by the Cammissioner of Banking for the State of Texas. "It has been noted from information submitted with your let!" of February 3, 1934, that your Counsel is satisfied with the 'agal aspects of the absorption contract and that in Counsel's °Pinion the transaction has resulted in no change in the corporate e41 stence of the Huntsville Bank and Trust Company which might affect its membership in the Federal Reserve System." Approved. Telegram to Mr. Newton, Federal deserve Agent at the Federal aerv 6 Bank of an Francisco, reading as follows: "Refer your telegram April 14, 1934. Board grants extension to May 13, 1934 within which 'First Trust and Savings Bank r Pasadena', Pasadena, California may accomplish its admission to Mem bership." Or time Approved. Letter to Mr. O'Connor, Comptroller of the Currency, reading "In accordance with your recommendation, the Federal Reserve BeEt,,,a approves a reduction in the common capital stock of 'The ' 4 rst National Bank of IVIarathone, Marathon, New York, from50,000 25,000, pursuant to a plan which provides that the bank's capit° ; sal shall be increased by ?v25,000 Class 'A/ preferred stock to be °1d to the"feconstruction Finance Corporation and :,25,000 Class '131 1 1055 -5"preferred stock to be sold locally, and that the released capital, together with such portion of the surplus and/or undivided Profits as you may require, shall be used to eliminate estimated 1°8ses and securities depreciation, all as set forth in your memorandum of April 10, 1934." Approved. Letter to Er. O'Connor, Comptroller of the Currency, reading "f°110Ws: "Receipt is acknowledged of your supplemental memorandum of APril 10, 1934, with reference to your memorandum of January 24, 1934, in regard to a proposed reduction in the common capital °t 'The Fulton County National Bank and Trust Company of Gloversville', Gloversville, New York, from c1500,000 to :250,000 and the of 300,000 of preferred stock to the Reconstruction Finance ' °rPoration, which was approved by the Board on January 31, 1934. "It has been noted that the Reconstruction Finance Corporation 4as agreed to purchase only ,1b0,000 of preferred stock in the apPlicant bank, and that you now recommend that the bank be permitted "3 reduce its common capital stock from „;500,000 to y350,000, pursllant to a plan which provides for the sale of 150,000 of preferred stock and for the use of the released capital to reduce the book value of the bank's bond account. "In accordance with your recommendation, the Federal Reserve Board approves the amended plan, all as set forth in your suppleMental memorandum of April 10, 1934." Anproved. Letter to Er. O'Connor, Comptroller of the Currency, reading as tQliows: "Receipt is acknowledged of the memorandum of Actin Compof the Currency Await dated April 9, 1934, in regard to Ire Proposed reduction in the capital stock of 'The 1anufacturers cl )ti°11a1 3ank of Troy', Troy, New York, which was approved by the Illsd on December 30, 1933, in accordance with the plan as set f , 'Iqh in your memorandum of December 22, 1933. "1". Await advises that another examination was made of the ha* ` ss ut the close of business 1,ebruary 15, 1934, and submits ,,r the Board's consideration an amended plan on the basis of the "report of examination. "In accordance with r. Lwalt's recommendation, the Board 6cm 15rend2 its previous approval of the proposed capital reduction to Vide for the transfer of .0500,000 from the bank's surplus to troll 1056 4/17/34 -6- "undivided profits and for the use of such funds, together with the released capital and such portion of the reserve for contincncies as may be necessary, to eliminate the estimated losses and depreciation in securities in the lower grades as classified by Your examiner in his report of examination of February 15, 1934, it being understood that the other provisions of the plan of capital reduction remain unchanged." Approved. Letter to Mr. O'Connor, Comptroller of the Currency, reading 48 follows: "In accordance with your recommendation, the Federal Reserve i-°ard approves a reduction in the common capital stock of 'The I rls National Bank of Fhiladelphia', Philadelphia, Pennsylvania, from c500,000 to y300,000 pursuant to a plan which provides that 6110 bank's capital shall be increased by ,200,000 of preferred stock to be sold to the Reconstruction Finance corporation, and that the released capital shall be used to eliminate substandard assets and securities depreciation in the amount of approximately Y140,000 and to increase the surplus and/or undivided profits "counts by approximately ;t30,000, all as set forth in your letter of April 10, 1934, and the accompanying files." Approved. Letter to 1..r. O'Connor, Comptroller of the Currency, reading as 1101 ow a: "In accordance with your recommendation, the Federal Reserve Board approves a reduction in the common capital stock of the 'First 'Iati°n.al 'rank of Lawrenceville', Lawrenceville, Georgia, from 45°,000 to ,25,000, pursuant to a plan which provides that the capital shall be increased by 25,000 of preferred stock sold to the Reconstruction Finance corporation, and that the ?11,D00 : leased capital shall be used to eliminate approximately , z "- unsatisfactory assets and to increase the bank's surplus by PProXimately ',14 000 all as set forth in your letter of April 11, b34.„ Approved. Letter to Er. O'Connor, Comptroller of the Currency, reading as to llows: 1057 4/17/34 -7- "In accordance with your recommendation, the Federal Reserve Board approves a reduction in the common capital stock of The First National Bank of Dundee', Dundee, Illinois, from 50,000 to $25,000, pursuant to a plan which provides that the bauk's capital shall be increased by ,25,000 of preferred stock to be sold to the Reconstruction Finance Corporation, and that tile released capital shall be used to eliminate unsatisfactory assets, all as set forth in your memorandum of April 9, 1934." Approved. Letter to Mr. O'Connor, Comptroller of the Currency, reading Els follows: "In accordance with your recommendation, the Federal Reserve B?ard approves a reduction in the common capital stock of 'The First National Bank of Gibson', Gibson City, Illinois, from .t:80,000 35,000, pursuant to a plan which provides that the bank's capial shall be increased by the sale of c:25,000 of preferred stock t° the ileconstruction Finance Corporation, and that the released caPital shall be used toeliminate approximately :.,42,700 of un84tisfactory assets and to augment the surplus account ,:2,000, al1 as set forth in your memorandum of April 9, 1934." Approved. Letter to Yr. O'Connor, Comptroller of the Currency, reading t011ows: "In accordance with your recommendation, the Federal Reserve LoarA ,4 approves a reduction in the common capital stock of 'The ,I rSt National Bank of Peterson', Peterson, LI--wa, from ,:50,000 to i451000, pursuant to a plan which provides that the bank's capit41 shall be increased by ,25,000 of preferred stock to be sold e° the Reconstruction Finance Corporation, and that the released bz1Pital, to:Tether with a part of the undivided profits of the nk and a contribution of 5,000 to be made locally, shall be ed to eliminate substandard assets in the amount of approximately 2)555, all as set forth in your memorandum of April 9, 1934. "In considering the plan under which the proposed reduction 1, capital is to be effected, it was noted that your examiner the bank's management a.: incompetent and unsafe and states that in his opinion any corrections made in this bank that did ' o Itt include an improvement in management would be a wasted effort. is assumed that whenever it is feasible to do so you will re`'lre such changes as may be practicable." j 4 Approved. ' -8Letter to Mr. O'Connor Comptroller of the Currency, reading as rollows: "In accordance with your recommendation, the Federal Reserve p,oard approves a reduction in the common capital stock of 'The .balrmont National Bank', Fairmont, Minnesota, from :i50,000 to 20,000, pursuant to a plan wLich provides that the bank's capital shall be increased by ,i,;30,000 of preferred stock to be sold to the Reconstruction Finance Corporation, and that the released Capital shall be used to eliminate unsatisfactory assets which will remain the property of the bank, all as set forth in your m emorandum of April 9, 1934." Approved. Letter to Mr. O'Connor, Comptroller of the Currency, reading as t011ows: "In accordance with your recommendation, the Federal Reserve BOarA '4 approves a reduction in the comraon capital stock of 'The ?-j,)gebic National Bank of Ironwood', Ironwood, lachigan, from '-400,000 to )50,000, pursuant to a plan which provides for the ,"le of 4,150,000 preferred stock to the Reconstruction Finance Corvoration, and provides also that cr25,000 of the released capital !ill be used to eliminate unsatisfactory assets and y25,000 used 6° set up a reserve for contingencies, all as set forth in your me morandum of April 9, 1934." Approved. Letter to Mr. O'Connor, Comptroller of the Currency, reading as rqlow8 "In accordance with the recommendation of Acting Comptroller t Qr i the Currency Await, the Federal Reserve Board approves a reduc,14°4 in the common capital stock of 'The 1 hitesborO National Bank', Ivi teaboro, Texas, from :50,000 to':.25,000, pursuant to a plan e-lch provides that the bank's capital shall be increased by 125 000 of preferred stock to be sold to the Reconstruction Finance no_' rPoration, and that the released capital shall be used to elim0!"e or reduce undesirable assets, all as set forth in the Acting ' unlPtroller's letter of April 5, 1934." Approved. Letter to Mr. Walsh, Federal Reserve Agent at the Federal Reserve 1059 VIya4 -9 * of Dallas, reading as follows: ' 88 "Reference is made to your letter of Larch 6, 1934, your telegram of Larch 30, and the Board's letter to you of April 4, 1934, relative to the agreement signed by 'H. Kempner' in connection with the issuance or a limited permit to vote the stock of The United States National Bank of Galveston', Galveston, Texas, and to the plan of rehabilitation of the capital structure of such bank. "The agreement which the Board required the applicant to execute as a condition precedent to the issuance of the limited Permit was based upon the condition of the bank as indicated by the report or examination by W. W. l'ierce as or January 30, 1934, ')ad his criticisms relative to certain practices which are indicated On 'Sheet 1 to page 11' and 'Sheet 1 to page II'. 'Under date of April 4, 1934, the Board forwarded a letter to the Comptroller or the Currency, a copy of which was forwarded You, amending its previous approval of the proposed capital reduction to provide for the use of the released capital to eliminate aPProximately 482,000 of undesirable assets, the balance of apPl'oximately J8,000 to be credited to a reserve for contingencies, 11.1 as set forth in a letter of the Comptroller or the Currency under date of March 31, 193/1, it being understood that the other Provisions or the plan of capital reduction remain unchanged. "The agreement which the applicant executed contained the followinc: 'That the undersigned applicant will cause the United States National Bank of Galveston, Galveston, Texas, to make such corrections as shall be requested by the Federal Reserve ACent at the Federal Reserve Bank of Dallas, and within such Period or periods as he rany prescribe, in order to remove the cause of any criticism relating to any feature of its Practices, policies, management or financial condition which has been made by the appropriate supervisory authorities.' National Bank , "When the applicant has caused The United ,itates with the accordance in structure °I Galveston to adjust its capital letter Board's the in to referred !Illended plan of capital reduction a 1934, 4, April of date under 0 the Comptroller of the Currency Howwith. complied been have e°rtion or the above agreement will P comprehensive tver, the above mentioned agreement was made sufficiently 1 to page 'Sheet on examiner the by 12 include the criticisms made namely: '2. be Credit Files: Current financial statements should of borrowers and directors from required worth reflect to lines large unsecured and and indicate ability to pay credit granted. 4/17/34 -10111 3. '4. Bonds & Securities: Depreciation set up in loss column places these in satisfactory condition, however stocks should be disposed of, also bonds that have no listed market value should have attention to remove from assets. Loans & Discounts: Have substantial amount of slow paper with small amount of doubtful, warranting attention to collect.' and on 'Sheet 1 to page Bt, namely: 'Policies of this bank are shaped by the Kempner family who own 5937 of the 1000 (should be 10,000) shares of stock and have apparently conducted the business more for their personal interests than has been beneficial L-o the bank. ihere is now in the loans 370M to them and interests in which I. H. Kempner is largely interested. The Stcarland Industries has loss estimated, Vice President R. Lee Kempner assures the examiner that there Will be a very substantial reduction in this line during this Year. 'The worth of the 1:empner brothers is an unknown quantity, no statement is furnished by the individuals and one furnished of H. Kempner, a "trust" estate in which they are all interested, ls not current and consists of such assets, that value is indeterminable and shows involved condition. The large line of the Imperial Sugar Co., a Kempner interest is believed to be secured and under conditions handled, safe, however, is probably larger than this bank should undertake.' These criticisms are of such nature and importance that they merit careful consideration. "You are requested to call these nntters to the attention of the aPPlicant with a view to determining to what extent the causes of such criticisms have been corrected and require that any l'emaining causes of these criticisms be entirely removed at the earliest practicable date." Approved. Telegram dated April 16, 1034, approved by four members of the 41141t01 + ") the Federal reserve agents at all Federal reserve banks, read14e. " follows: "Referring Board's letter of April 11, all state bank members Whic,„ " on April 30 are operating under license issued by the Secretary 4/17/34 —11— "Of the Treasury should be required to submit reports on Form 231.” Approved. Letter to the Federal reserve agents at all Federal reserve reading as follows: "The Federal Reserve Board has received from the Secret Service Division of the t'reasury Department the following memorandum: 'The Secret Service has received information to the effect that tellers in some banks throughout the country are converting to their own use gold coins surrendered to their bank by customers. 'It is therefore requested that officials of banks be circularized and asked to warn their tellers that this Practice is in violation of law.' "You are requested to bring this matter to the attention of 411 of the State member banks in your district." Approved. Telegram dated April 16, 1934, approved by three members of the to :Ix. Case, Federal ,;eserve Agent at the Federal leserve Bank of 11°17 York, reading as follows: e "Betel April 12. In accordance with your recommendation Board 04tends for thirty days frun April 13, 1934, time within which ortral Farmers Trust Company of , est Palm Beach, Florida, mint tein and file agreements of its holding company affiliates on Form P-5." Approved. 44q c Draft of a letter to Senator Fletcher, Chairman of the Banking 14'rencY Committee of the Senate, prepared for the signature of the el'et Of (14te I the Treasury in accordance with a request received under °t L:111rch 28, 1934, from Hr. William H. McReynolds, Administrative —' to the .;ecretary of the Treasury. The letter, which was ap- bY four members of the Board on April 16, 1934, read as follows: , Pt, 1 4/17/34 -12- "Reference is made to the letter from the Acting Clerk of Your cammittee, dated Larch 21, 1934, inclosing a copy of S. 3101, A Bill to provide for the creation of credit banks for industry, and for other purposes', and requesting a report thereon. "This bill was prepared in the offices of the Federal Reserve Board and incorporates the conclusions of the Board which were reached after careful consideration of the present credit needs ef industry and commerce. "In the judgment of this Department, there exists an undoubted need for credit facilities for industry and commerce beyond those that are now being supplied through the commercial banks or that CO,n be supplied through the ordinary operations of the Federal 'Ileserve System acting within the limitations of the Federal Reserve Act. In brief, the need is for loans to provide working capital .for commerce and industry, and such loans necessarily must have a -Loncer maturity than those rediscounted by _ederal reserve banks. It Is believed that this type of credit requirement can best be met through organizations associated with the Federal reserve banks and operating under the general direction and supervision of the , , Iederal Reserve Board. With that thought in mind, Bill S. 3101 was `Lrafted, and, in the opinion of this Department, would meet the requirements of the situation. "As you know, since 3.3101 was introduced, a substitute mealre has been proposed by senator Glass which has had the consideraion of your committee." Approved. Letter dated April 16, 1934, approved by four members of the 110111 'us to Honorable Duncan U. Fletcher, Chpirman of the Committee on and Currency of the United States Senate, reading as follows: "This refers to the letter of April 9, 1934, from the Acting of your Committee, requesting a report on S. 3304, entitled 4 Bill To amend section 51 of the Judicial Code'. The bill would end said section 51 to permit a stockholder to institute suit 4 behalf of a corporation, when such corporation is a necessary , t4 'rtY defendant, in any district in which suit might have been relight by such corporation for the same purposes. the ."It does not appear that the matter is one which comes within Jurisdiction of the Federal Reserve Board and, in view thereof, 0"e Board does not feel that it should undertake to express any i, 1,141-on with respect to the desirability of the amendment proposed S. 3304." 01 r Approved. -13Letter dated April 16, 1934, approved by four members of the Boa ' 4) to Honorable Duncan U. Fletcher, Chairman of the Committee on 8C111killE and Currency of the linited States 3enate, reading as follows: "This refers to the letter of April 9, 1934, from the acting Clerk of your Committee, inclosing a copy of S. 3316, entitled ,A Bill To postpone until Tune 16, 1935, the operation of section 1(a)(2) of the Banking 2c..t of 1933', and requesting a report thereon "Section 21, paragraph (a), subdivision (2) of the Banking ACt Of 1933- makes it unlawful, after ,Tune 16, 1934, for any per• firm, corporation, association, business trust, or other staailar organization, other than a financial institution or private banker subject to examination and regulation under State or .. .ederal law, to engage in the business of receiving deposits, un-teas the individual or organization shall submit to periodic examination by the Comptroller of the Currency or by the Federal reserve bank of the district and shall make and publish periodic fePorts of its condition. It appears that the prohibition upon 4he acceptance of deposits will not be applicable to any person or ssoeiation which submits to periodic examination and which makes Ild publishes periodic reports of its condition, and, in view Ilere, the Board knows of no reason why the operation of these 31'evisions should be postponed. However, if your Committee be▪ eves it is desirable to postpone the ef:'ective date of these 2 1 revisions, the Board offers no objection to the enactment of the uill S. 3316. "Your attention is invited to the fact that the provisions • subdivision (2), paragraph (a) of said Section 21 are somewhat Illacertain as to meaning. It is not clear whether a person or °rgsnization desiring to submit to periodic examination has the cicht l' to select for such purpose either the Comptroller of the ' relleY or the Federal reserve bank of the district, or whether 11411 is the intent of the law that the Comptroller of the Currency ?In the Federal reserve bank shall determine which of such authores shall be selected by a person or organization desiring to s1.111mit to examination thereunder. It should also be noted that Illeither the Comptroller of the Currency nor the Federal reserve o llk has the right to take any action to require the correction aflY irregularities which may be disclosed by such an examina1°11, or to exercise any regulatory pcxiers over a person or orallization so submitting to examination, and that no penalty is r°17ided for publication of a false report. In view of the fore! IZ I3.11 , the Board respectfully suggests that your Committee consider desirability of making such amendments to Section 21, paragraph ( '1), subdivision (2) as may be necessary to clarify its provisions Z 1064 -14"and to provide an effective means of supervising and regulating enY person or organization submitting to examination as provided t herein." Approved. Letter to Mr. Stevens, Federal Reserve Agent at the Federal Re411% Bank of Chicago, reading as follows: "On April 11, 1934, Li% C. S. Young, Assistant Federal Reserve Agent of your bank, left with r. DuBois, an assistant counsel to the Board, a letter dated April 9, 1934, from lames F. Toy, President Of The Toy National Bank and the Farmers LoAn and Trust Company, both of Sioux City, Iowa, to ICI.. Dunn, General Counsel of your bank, a letter from Er. Toy to Mr. Young dated April 2, 1934, and a copy of a Deed of Trust, dated May 28, 1932, by and between Er. Toy as party Qf the first part and the Farmers Loan and Trust Company, as party °I the second part, creating an irrevocable trust to be known as the Jellies F. Toy Bank Stock Trust. Under this Deed of Trust 1.1r. Toy ti'ansferred shares of stock of certain banks to the Farmers Loan and ! rust Company, as trustee, to be held in trust for the purposes set forth, It is understood that a ruling of the Board is requested as 0 whether by reason of the Deed of Trust any organization is a hold' le company affiliate, as defined in :;ection 2(c) of the Banking Act 1936, of one or more of the banks, the stock of which is now held in this trust. "Section 2(c) of the Banking Act of 1933 defines a holding corny affiliate as a corporation, business trust, association or other 711m1lar organization which is in a position to exercise controlling filluence over a member bank in any one of certain ways specified in definition. No 'business trust, is created by the Deed of Trust, the Farmers Loan and Trust Company is a corporation and the ques, 4 is therefore raised whether by reason of its position as trustee : 4cter this Deed of Trust it falls within the scope of the statutory e finition. ti "The Attorney General of the United States in answer to a clues,O propounded by the Secretary of the Treasury has stated in an 'Pinion that 1 'it does not seam objectionable to say that I Perceive the force of your S-Aicitor's conclusion that ownership and control through majority stockholding does not include a holding by a bank merely as executor or in some other such fiduciary or representative capacity, subject to control by a court, or by a beneficiary or a principal, and without the incentive enQ opportunities which might arise from a holding of the stock by the bank as its own property'. 4/17/34 -15- "Under the terms of the Deed of Trust here considered the corporate trustee holds the stock constituting the corpus of the trust as trustee and without the incentive or opportunity for Private profit, but it determines the manner in which such stock is to be voted and in so doing apparently is not subject to control by any court, beneficiary or principal. It is therefore the opinion of the Board that if it holds under the Deed of Trust more than 50 per centum of the outstanding number of shares Of the stock of any member bank or more than 50 per centum of the nUmber of shares of the stock of any such bank voted for the election of directors at the preceding election, the Farmers Loan and Prust Company is a holding company affiliate of such bank or banks and the stock of such bank or banks owned or controlled by it, either in its capacity as trustee or otherwise, may not validly be voted unless it first obtains from the Board a voting permit under authority of Section b144 of the P,evised Statutes of the United States, as amended. "The Board is not in possession of sufficient facts to rule definitely that no other organization is a holding company affiliate ?I anof the member banks whose stock is held in this trust, but lt is believed that the foregoing ruling is determinative of the doubt which prompted the inquiry submitted by :a.. Young. You are fequested to advise Mr. Toy of the Board's conclusion and to furnish he Farmers Loan and Trust Company with a copy of the Board's Regulation P and copies of the Board's printed form of application for E voting permit. The two letters from Er. Toy referred to in the of this letter are returned to you herewith." paragraph °Peal-n.0 Approved. Letter to Lir. T. W. Wray, rJanager of the Consolidated Finance C°1To l'ation, Delta, Colorado, reading as follows: "Your letter of March 6, 1934, addressed to the Comptroller a-eneral, requesting to be advised whether a member State bank would violatin,-7 any provision of law by maintaining a separately inrPorated automotive and industrial finance concern within the of the bal°1cinZ quarters of the bank, and managed by the officers 81alc, has been referred to the Federal Reserve Board for reply. , "It does not appear that there is any provision of the law eLer which State banks are admitted to membership in the Federal i serve System which would prohibit the maintenance of a separately rPorated automotive and industrial finance concern within the b anicing quarters occupied by a member bank. The Federal Reserve rird feels, however, that it is not in accord with sound policy Or a depositary banking institution to share its banking quarters "ltn other corporations; and it is the practice of the Board, in adulitting banks to membership, to require as a condition precedent r r 2 1066 4/17/34 -16- "to membership that the offices of any corporation located in the same quarters with the bank be removed therefrom within a reasonable time. "It has been noted that the automotive and industrial finance concern is managed by the officers of the bank, but sufficient information has not been furnished to enable the Board to determine whether the automotive and industrial finance concern is an affiliate or the member bank and subject to the provisions of law applicable to affiliates of member banks and the Board has not attempted to pass UPon that question. "You have not referred in your letter to any particular member bank) and, if you desire more definite advice on the basis of the facts involved in the particular case, it is suggested that you communicate with the Federal Reserve Agent, the Board's local representative, at the Federal Reserve Bank of Kansas City, furnishing him with riall information as to the facts involved." Approved. Telegram to aovernor 13alkins of the Federal Reserve Bank of an reading as follows: "In view of statements contained in your wire of April 13, Board will offer no objection to your continuing to carry temporarily sPecial trust accounts for the five named California nonmember state tElnks now in conservatorship." Approved. Letter to Newton, Federal Reserve :gent at the Federal Re- Bank of San Francisco, reading as follows: "This refers to 1,ir. Sargent's letter of March 22nd, 1934, with closure, and your telegram of April 12, 1934, making certain inquiries with regard to the Crocker Axst Federal Trust Company of in is Francisco. "It is understood that this trust company at the present time conducting both a banking and trust business but that it has in c311templation a plan under which all of the banking business will e transferred to the Crocker 2irst National Bank, also of San fl'ancisco, with the result that thereafter the trust company will ;I'Elnsact a trust business exclusively. Mr. Sargent's first inquiry t whether the trust company could qualify for membership in the ' liederaldeserve System after this plan has been consummated. "It is understood further that all of the stock of the trust bank and that °,rallanY is owned by the stockholders of the national at the stockholders 'der the provisions of a trust created by such 1067 It 4/17/34 -17- "time of the organization of the trust company, their interests therein are evidenced by an indorsement on the outstanding stock certificates of the national bank. Mr. Sargent's second innuiry is whether in the event that the trust company is not admitted to Membership in the Federal Reserve system prior to June 16, 1934, a special permit could be obtained from the Federal Reserve Board Permitting such a stock relationship to remain undisturbed, in view of the provisions of Section 5139 of the Revised Statutes Of the United States, as amended by Section 18 of the Bankinn Act Of 1933. "In connection with 1:r. Sargent's first inquiry, Section 9 of the Federal Reserve Act provides in part as follows: 'Any bank incorporated by special law of any State, or organized under the general laws of any State or Of the United States, including Llorris Plan banks ana ()tiler incorporated banking institutions engaged ln similar business, desiring to become a member of the Federal Reserve System, may make application to the Federal Reserve Board, under such rules and reulations as it may prescribe, for the right to subscribe to the stock of the Federal Reserve bank organized within the district in which the applying bank is located.' "Section 1 of the Federal Reserve Act contains the following definition of the word 'bank': 'Therever the word "bank" is used in this Act, the word Shall be held to include State bank, bankin:± association, and trust company except where national banks or Federal reserve banks are specifically referred to.' "Inasmuch as the institution in question after the transfer of its 1, banking business to the Crocker First National Bank would still be a State Trust company, it would come within the definition of lLO word 'bank' contained in the first section of the Federal Reserve Act "In passing upon applications by State banks for membership in the Federal Reserve system, however, the Federal Reserve Board ' erc ' required by Section 9 to consider, among other things, whether the 0rate powers exercised are consistent with the purposes of the te(leral Reserve Act. In view of that provision, the Board in cer11 circumstances has heretofore declined to permit a State trust : raPanY to become a member of the Federal Reserve system when it apired that such trust company was not doing a banking business in e Usual sense. Nhile the Board, of course, in the absence of an Plication cannot undertake to pass finally upon the question whether Crocker Zirst Federal Trust Company should be admitted to membership, T J 068 _IL -. 4/17/34 -18- "if the plan referred to above is put into consummation, there would at least be a substantial doubt as to whether the corporate Powers exercised by the trust company and the character of its business would be consistent with the purposes of the Federal Reserve Act and the Board would not be inclined to approve the admission of the institution to membership in the Federal Reserve System. "With regard to 1:;r. Sargent's second inouiry, Section 18 of the Banking Act of 1933 amending Section 5139 of the Revised Statutes 01 the United States, provides as follows: 'After one year from the date of the enactment of the Banking _let of 1933, no certificate representing the stock of any such association shall represent the stock Of any other corporation, except a member bank or a corporation existing on the date this paragraph takes effect engaged solely in holding the bank premises of such association, nor shall the.ownership, sale, or transfer of any certificate representing the stock of any such association be conditioned in any manner whatsoever upon the ownership, sale, or transfer of a certificate representing the stock of any other corporation, except a member bank'. "You will observe that this requirement is mandatory and since the Board is given no discretion nor power in the premises, it has authority to issue a permit permitting a relationship of the find described between a member bank and a non-member institution continue in effect after Tune 16, 1934. The understanding of 111". Avenali that such a permit has been issued by the Board in ancase is mistaken." Approved. Letter dated April 16, 1934, approved by four members of the to z T. Nilson Dayton, The Bayside National Bank, New York, 4hryo reading as follows: "Your letter of November 2, 1933, addressed to the Deputy Cota ptroller of the Currency, has been referred to the Federal Re?1've Board for reply. You ask whether the service of one of the l'ectors of your bank as a director of the Nassau-Suffolk Bond L:ortgage Guarantee Company at Linneola, Long Island, is proAx lbited by the Banking Act of 1936. Your inquiry evidently has ererence to the provisions of Jection 32 of that Act. "You describe the business of that company as consisting tia +, wae making of mortgages on real estate and the selling of such 1 10C9 4/17/34 -19- "mortgages, as well as certificates of participation issued in series against pools of such mortgages held in trust, to its customers, with its guarantee, deducting a part of the interest as its compensation. "Section 32 of the Banking Act of 1953 prohibits certain relationships between member banks and organizations engaged in the business of purchasing and selling 'securities'. The answer to Your question therefore depends upon whether such mortgages and participation certificates are 'securities' within the meaning of that section. "One of the principal purposes of the Banking Act of 1933 was to effect a separation of commercial and investment banking, and it appears that jection 32 of that Act was designed to aid in the accomplishment of this purpose. Although there may be m°rtgage notes of a kind which should be classified as 'securities' re the purposes of Section 32, the Federal 2eserve Board is of the opinion that mortgage notes arising out of the ordinary type of direct loan on real estate are not 'securities' within the intendment of Section 32, and that neither such notes nor the mortages securing the same should be classified as 'securities' in cie termininP; whether an organization engaged in dealing in such °hligations comes within the scope of Section 32. "The Board has further reached the conclusion that it is 1°t possible to lay down any general rule as to whether certificates of participation based on mortgages are included, or are not included, within the term 'securities' in Section 32, since such certificates of participation vary so widely in character. Itccordingly, if you desire a ruling on this question with respect anY particular certificates, it is suggested that there be , s_ 4mitted a sample copy of the form of certificate of participalon employed, as well as a detailed description of the manner in which such participations are created and issued, and information aa to the maturity of the obligation, whether it constitutes part an 'issue', the total amount of such issue, if any, and the 411m-her and size of the units, the manner in which the certificates ° distributed and sold to investors, the purpose for which the al ' .°Isrtificates are issued, whether they are designed to be more or ' jea3 actively traded in, whether they are in form negotiable, Wthether they are 'registered' and transferable on the books of , 1 11e 153uer, and whether they are commonly 1:nown as 'securities' ' 17 Persons dealing therein. "It is requested hat such information be submitted to the deserve Agent at the Federal deserve Bank of your district order that he may transmit it to the Federal Reserve Board with 415 comments. "Your attention is called to the fact that Section 32 refers to organizations which are engaged 'primarily' in the business of PIllichasing, selling, or negotiating securities, and it may be that 107C 4/17/34 -20- "even if the corporation to which you refer is engaged in that type of business it is not engaged 'primarily' in such business. ! The question is essentially a question of fact which must be decided on the basis of all the facts and circumstances of each Particular case; and no fixed rule based on percentages of busiflees transacted or income received can be laid down for deciding Whether or not an organization is engaged 'primarily' in the ?usiness referred to. If you desire a ruling upon this question in connection with the corporation named in your letter, it is slIggested that you furnish the Federal Reserve Agent at the Federal Reserve .ank of your district with a full description of the various types of business transacted and of their relation to each other, and, for each of the past three years, a statement of the gross and net profits derived from each type, of total 'rose and net profits, of the total volume of transactions in each type of business, and of total volume of business.” Approved. Letter to 1,.r. McClure, Federal :.eserve Agent at the Federal '_-e*//e Bank of Kansas city, reading as follows: i_cAdams' letter of February , "Receipt is acknowledged of c4) 1934, with inclosures as stated, relating to the applicability Section 32 of the Banking Act of 1933 and of Section 8A of the -laYton Act, as amended, to the services of Messrs. H. M. Langw° ,rthY and Joseph F. Porter as directors of Union National Bank °I Xaneas City and of Midwest Industrial Mortgage-Loan Company. From the information submitted, the following facts appear: , "From -Lhe was organized by certain individuals in Kansas City so-called mortgage loan company in order that it might be el-lCible to borrow from the Reconstruction Finance Corporation , 111der Section 5 of the Reconstruction Finance Corporation Act. der its plan of operation, it will lend on a secured basis to ec'eal industries which will be required to purchase stock in the ycImPanY. As security for such loans, the company will receive a T,41sletY of collateral including mortgages on real and personal 4J°PertY and, in some cases, stock or bond collateral. To obtain r"e funds for the loans to such industries, the company will borrow ccal the Reconstruction Finance Corporation in each case the amount ! t be loaned to each industry. Each such loan will be secured by oie. note of the company's borrower, the security thereto, and ,:41eations of the United States purchased with the proceeds of 411e borrower's stock subscription. "On the basis of the information submitted, the Federal Ren 've Board concurs in the opinion of your counsel on both of the it?stions presented. In the opinion of the Board, Midwest Indus].al Mortgage-Loan Company is not 'engaged primArily in the business r j 1071 4/17/34 "'Of purchasing, selling, or negotiating securities', but rather in the business of loaning money. Therefore, Section 32 does not Prohibit Messrs. Langworthy and Porter from continuing to serve at tile same time as directors of the company and as directors of the bank. "However, it is the opinion of the Board that, if the company actually makes any loans after January 1, 1934, to others than its own subsidiaries, secured by stock or bond collateral, the services of lilessrs. Langworthy and Porter at the same time as directors of the company and of the bank will be unlawful under the Provisions of Section 8A of the Clayton Act, as amended. Since, as You know, the Board's authority to issue permits covering relation. ,)1111)5 within the prohibitions of the Clayton Act is limited, under iection 8 of that Act, to the issuance of permits covering relation81111)2 between banking organizations of certain types, the Board is Without authority to issue permits exempting the services in question from the provisions of section 8A, if Midwest Industrial MortCompany is not a banking organization within the meaning Of the Clayton Act." Approved. Letter to Mr. Walsh, Federal Reserve Agent at the Federal Re8erve 8"-k of Dallas, reading as follows: "Receipt is acknowledged of your letter of April 10, 1934, regarding the applicability of the Clayton Act to the service of Sam Taub as director of the Houston branch of your bank. t. "It appears that Taub is not connected with any organiza1°11 making loans secured by stock or bond collateral, although !!le of the firms with which he is connected has made such loans in 11;fle past and still has a few such loans outstanding. It appears, ,c3wever, that that firm does not contemplate making any further eans of that character. As stated in the Board's letter of Decemr 19, 1933, x-7721, Section 8A of the Clayton Act has reference ilY to organizations which 'shall make' such loans after the ef! t ctive date of the section, January 1, 1934. It therefore appears ,uat Section BA of the Clayton Act is not now applicable to E - r. service as a director of the Houston branch." T r T Approved. Nra Letters dated April 16, 1934, approved by four members of the ' to applicants for permits under the Clayton Act, advising of IT-- of their applications as follows: Vf ) . 4/17/34 -22- Frank Kirchman, for peimission to serve at the same time as a director of The Lawndale National Bank of Chicago, Chicago, Illinois, and as a director of the /estern State Bank, Cicero, Illinois. Yr R. E. Lilligan, for permission to serve at the same time as a director and officer of the State Bank of Bement, Bement, Illinois, and as a director and officer of the First National Bank of Ivesdale, Ivesdale, Illinois. Mr. E. W. filling, for permission to serve at the same time as a director and officer of The First National Bank of Iletcher, Fletcher, Oklahoma, and as a director and officer of the Farmers State Bank, Sterling, Oklahoma. Mr. Nelson .".orris, for permission to serve at the same time as a director of The Mid-City National Bank of Chicago, Chicago, Illinois, and as a director of the Drovers National Bank in 1Cansas City, Kansas City, Lissouri. 1:r L. B. blast, ror permission to servo at the same time as R director and officer of The Stone Fort National Bank of 14acogdoches, Nacogdoches, Texas, and as a director of The First National Bank of CusLing, Cushing, Texas. Approved. There were then presented the following applications for orig- trlea or additional stock or Federal reserve banks: A , 4-cat1on3 Shares for ORIGINAL Stock: . pi triet 1,1o. 5. I;ational Bank at Salem, kc-Ialera, West Virginia 36 N-. 8. First National Bank at Paris, Arkansas 1 1131111 Iern National Bank, -4"tliern, Arkansas 36 The A Ali bi;:&cations for LDP,ITIONAL Stock: -, 4rict No. 2 ilileArY Schroder Trust Company, York, New York * .11.et No. G. -rational Bank of Hattiesburg, liatti esburg, Mississippi Oti 33 Total 66 102 210 210 132 132 1073 4/17/34 -23- A „ 14 cations for ADDITIONAL Stock: (Continued) 444ItISI_No. 7. The Pirif-Manbal Bank of Elgin, mu Illinois 'Lusa First National Bank of Denison, Denison, Iowa . 1 .11411_ 1o." 148GraffEETalonal Bank, Grafton, North Dakota Shares 120 9 129 9 9 District No. 10. et"Ic7ards National Bank of South Omaha, rp. South Omaha, Nebraska Virst National Bank of Fairbury, Pa irbUry, Nebraska "Ile Hastings National Bank, liestings Nebraska ati°1181 Bank of Commerce of Lincoln, Lincoln, Nebraska 249 30 42 60 Total 381 861 Approved. Thereupon the meeting adjourned. 'et/YR:414,5A T1A .k SeTcretary. Chairban, Executive Committee.
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