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522 A meeting of the Board of Governors of the Federal Reserve SPA em was held in Washington on Friday, April 19, 1940, at 2:30 p.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak 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. Smead, Chief of the Division of Bank Operations Mr. Dreibelbis, Assistant General Counsel Mr. Vest, Assistant General Counsel Mr. Wingfield, Assistant General Counsel Mr. Boothe, Technical Assistant in the Division of Bank Operations Mr. Ransom referred to the discussions at the meetings of the Board on April 2 and 9, 1940, with respect to a suggested amendment to the Investment Company Act of 1940 and stated that he had been follow- the matter at M. McKee's request during the latter's absence. At 4r. Ran 8°m's suggestion, Mr. Wingfield stated that, as a result of furthe , cascussions by him and Mr. Cagle, Assistant Chief of the Division Of kv.„.._ '411-111at1011S, with representatives of the Securities and Exchange Commis 81°n, it now appeared likely that the Securities and Exchange Commi_80 . would agree to an exchange of correspondence with the Board -44-ch the Securities and Exchange Commission would address a letter _ the Board stating that the Commission was prepared to recommend to the sub -committee of the Banking and Currency Committee of the Senate to 523 4/19/40 -2- before which hearings on the bill were being held, that the bill be amended to exclude expressly from the definition of "investment company", bank holding company affiliates which hold general voting permits issued by the Board and which are primarily engaged in bank holding company activities, and upon receipt of this letter a reply would be addressed to the Commission by the Board which would read as follows: "This refers to your letter of April 18, 1940, advising that, in accordance with conversations between representatives of the Board and members of your staff, the Securities and Exchange Commission is prepared to recommend to the subcommittee of the Banking and Currency Committee of the Senate, before which hearings are being held on the investment company 1?111 (s. 3580), that the bill be amended in certain respects 111 order to avoid additional duplication of supervision by -Federal agencies of banks and holding company affiliates of bank3. he Board considers apIxopriate the suggestion that holding affiliates of member banks which obtain and uing permits issued by the Reserve Board under the proh?idVoting visions of the Banking Act of 1933 and which are priLlarily engaged in the business of holding the stock of and managing Or controlling banks be exempted from the provisions of the Proposed investment company act, since these companies are subject to examination and supervision by the Reserve Board. oyou know, from the information which has been subTittedAZ representatives of your Commission during the conferences which have been held with members of the Board's staff, , ere are a number of holding company affiliates of member Irks which now hold voting permits issued by the Reserve rd hen it granted these permits, the Board, pursuant to authority co given in the statute, in effect determined that such anrcTanies were engaged as a business in holding bank stocks managing and controlling banks. If the Board should be 2quired to make a determinati on in these cases, it would, nthe.facts now in its possession, determine that they are 11111-maily engaged in the business of holding bank stocks and th,r_ gtrti,gw:lcontrolling banks. Accordingly, the Board feels involve unnecessary consumption of time and p, e2ensboth to the Federal Government and the holding cornaffiliates, and would not serve any useful purpose, for '" a determination to be made in each of these cases. For rp 524 4/19/40 -3- "these reasons, the Board suggests that these holding companies, a list of which has been furnished to your staff, which now hold voting permits and are therefore under supervision and examination by the Beard be exempted from the provisions of the proposed investment company act by the terms of the act itself. The Board believes that such an exemption would be in conformity with the suggested orinciole under thich only companies Which hold voting permits and are primarily engaged in holding the stock of and managing or controlling banks would be exempted from the provisions of the proposed investment company act. (In addition to the holding company affiliates to which reference is made above, there are a few banks which control other banks and hold voting permits issued by the Board. However, these are already exempted from the provisions of the bill under exceptions relating to banks.) In order to accomPlish the exemption which the Board has in mind, it is slIggested that section 3(c) of the bill S. 3580 be amended by adding an additional paragraph as follows: "Any holding company affiliate, as defined in the Banking Act of 1933, which is under the supervision of the Board of Governors of the Federal Reserve System by reason of the fact that such holding company affiliate holds a general voting permit issued to it by such Board prior to January 1, 1940; and any holding comPany affiliate which is under such supervision by reason of the fact that it holds a general Voting Permit thereafter issued to it by the Board of Governors and .which is determined by such Board to be primarily engaged, directly or indirectly, in the business of holding the stock of, and managing or controlling, banks, banking associations, savings banks, or trust companies. The Commission shall be given appropriate notice prior to any such determination and shall be entitled to be heard.' will observe that under this proposed amendment any afT, holding company affiliate of a member bank which here130_er desires to obtain a voting permit from the Reserve mZd and be exempted from the provisions of the investCompany, act must, after your Commission has had an 8Zrtunity to be heard, be affirmatively determined by the d to be engaged primarily in the business of holding k of and managing or controlling banks. It is believed .this procedure would effectively prevent evasion of "' investment company act by investment companies Zt 525 4/19/40 -4- "which might attempt to evade it by using a relatively small portion of their assets to acquire control of two or three banks. "It is understood from your letter that the Commission will recommend such amendment as may be necessary to exempt from the "investment adviser" provisions of the bill those holding company affiliates which are exempted from the provisions of the bill relating to investment companies. It is also understood that the Commission will recommend that an appropriate amendment be made to section 26(a) of the bill to make it clear that at least in the case of any trustee which is a member bank of the Federal Reserve System the statem ent of the trustee's combin ed capital and surplus in its most recent publis hed report of condition shall be conclusive. "As representatives of your Commission were advised by members of the Board' s staff, the Board has felt for some time that the statutes relating to the , s_upervision of holding company affiliates of member °auks should be streng thened. The Board feels that it would be more approp riate to consider these matters in ' .f°11nection with a broad investigatio n of banking and redit matters such as that which Banking and Curthe rency Committee of the Senate has been authorized to '4Liclertake under the provisions of Senate Resolu tion 125. "The Board and its staff appreciate cooper the ation n the representatives of your Commission in working out Lnis problem." F°110wing receipt of this letter, Mr. Wingfield said, the Com4114144 w°uld address another letter to the Board in which it would 4gl'ee that all of the holding companies which hold voting permits from the B arc 'are primarily engaged in bank holding compan activi y ties, With a Possible exception of Transamerica Corpor ation and Shawmut Assoeiation P but that inasmuch as the Board had reached the conclusion that 811ch c(.1„, -Panies are primarily so engaged the Commission would accept that 44,1 rec °mIllend to Congress that the amendment recommended in the Board's letter be adopted. Mr. 44ingfie1d added that the reason for this suggested 526 4/19/40 Procedure was that the Securities and Exchange Commission was reluctant to recommend the amendment on its own initiative but was willing t° agree thereto if recommended by the Board. the He also said that if exchange of correspondence with the Securities and Exchange Com- raission takes place the Board might give consideration to sending a letter to Senator ..agncr, Chairman of the Senate Committee on Banking and C urrency, reading as follows: "This refers to your letter of :arch 15, 1940, requesting a rleport from the Reserve Board on the bill E. ?580 relating to the registration and regulation of investment companies. The Board is advised that the evidence submitted to Your Committee discloses the desirability of legislation which will provide for adequate regulation of investment companies in the interest of the public and in the interest °f Investors. It is understood that representatives of the Securities and Exchange Commission and of investment .ctompanies are submitting detailed comments to your Commit. 4 !e with respect to the various provisions of the bill, and L'Ile Board will not undertake to comment on all of these pr ovisions. "The Board has noted that enactment of the bill in 1 868 Present form might result in duplication of Federal Pervision of banks and holding company affiliates of .k .s• The Board feels that such duplication of supervall _1810n should be avoided and to that end representatives tLLe Board have discussed the matter with representaBlves of the Securities and Exchange Commission, and the aoard and the Securities and Exchange Commission are in grseement that certain amendments should appropriately be : ritte l .bill to avoid such additional duulication of O 4 "These amendments are described in some detail in ,n attached copies of correspondence between the Board ;ad the Securities and Exchange Commission and are to the owing effect: . "Amend section 3(c) of the bill by adding an additional paragraph as follows: "Any holding company affiliate, as defined in the Banking Act of 1933, which is under the supervision of the Board of Governors of the 527 4/19/40 —6— "Federal Reserve System by reason of the fact that such holding company affiliate holds a general voting permit issued to it by such Board prior to January 1, 1940; and any holding company affiliate which is under such supervision by reason of the fact that it holds a general voting permit thereafter issued to it by the Board of Governors and which is determined by such Board to be primarily engaged, directly or indirectly, in the business of holding the stock of, and managing or controlling, banks, banking associations, savings banks, or trust companies. The Commission shall be given appropriate notice Prior to any such determination and shall be entitled to be heard.' "Make such amendment as may be necessary to exempt from the 'investment adviser' provisions of the bill those holding company affiliates which are exempted from the provisions of the bill relating to investment companies. "Make an appropriate amendment to section 26(a) of the bill to make it clear for the purposes of such section that at least in the case of any trustee which is a member bank of the Federal Reserve System the statement of the trustee's combined capital and surplus in its most recent published report of condition shall be conclusive. "The Board recommends that such amendments be made to the bill." Mr. Ransom stated that the proposed exchange of correspondence had be en considered by Mr. McKee before he left Washington on April 17 ' e lld that the procedure was agreeable to him. Upon motion by Mr. Davis, the proposed Procedure under which the exchange of correspondence with the Securities and Exchange Commission would take place was approved unanimously with the understanding that Ur. Ransom was authorized to approve any changes of form in the letters set forth above as may appear to be necessary and that when the exchange of letters with the Securities and Exchange Commission had been completed the letter to Senator Wagner would be sent. 528 4/19/40 -7MT. Wingfield left the room at this point. There were then presented telegrams to Mr. Sanford, Assistant Secretary of the Federal Reserve Bank of New York, Mr. Post, SecretarY of the Federal Reserve Bank of Philadelphia, ix. :ecLarin, First Vice President of the Federal heserve Bank of Atlanta, Mr. Dillard, Secretary of the Federal Reserve Bank of Chicago, Jr. Gilbert, President of the Federal Reserve Bank of Dallas, and Mr. Hale, Secretary °f the Federal Reserve Bank of San Francisco, stating that the Board aPProved the establishment without change by the Federal 1=,eserve Bank, of New York, Atlanta, Chicago, Dallas, and San Francisco on April 18 1940, and by the Federal Reserve Bank of Philadelphia today, °f the rates of discount and purchase in their existing schedules. Approved unanimously. Mr. Draper stated that in accordance with the action taken lit the meeting of the Board on April 10, 1940, there had been preoared a draft of reply to the letter received from Congressman Ford Of California Opinion under date of April 9, 1940, inquiring whether, in the Of the Board, Bill 8.3343 which would amend in certain re- ePect 8 Section 13b of the Federal Reserve Act relating to industrial would accomplish in any important degree the purposes sought to he achi , r -lied; that the draft had been circulated among the members of the Bo arc 'and a question had arisen as to whether the report should be sent Or Whether Chairman Eccles should discuss the matter with .904gress that Ford over the telephone; and that he (Mr. Draper) felt ecision should be reached as to the action to be taken. • 529 4/19/40 -8In a discussion of the matter it was stated that a bill (11•13;s8536) identical with 3.3343 had been introduced in the House of Repr esentatives on February 19, 1940, and Chairman Eccles expressed the °Pinion that, inasmuch as the Board could not undertake to answer 411 inquiries that might be made of it by individual members of the Senate and the House of Representatives, the suggestion might well be taade to Congressman Ford that a request for a report be made by the committee on Banking and Currency of the House of Representatives Which is the usual and most effective procedure. At the request of the Board Mr. Morrill read a revised draft ' r eP3-37" to Congressman Ford's letter and there was a discussion of Secti -°n 13b of the Federal Reserve Act as it would be amended by the bjj Mr. Ransom pointed out that the amendment would remove from the elieting law the provisions which (1) limit to five years the term 4, 4or which such loans could be made, (2) limit advances for workcapital purposes only, and (3) authorize loans only to established -gess concerns, and stated that, although upon further study he ietit eh -ange his position, he would be opposed at the moment to broad ening the authority of the Federal Reserve Banks in this field Of dir ect loans, and if a decision had to be made at the present time he woulA Prefer the alternative of having Section 13b repealed. Messrs. Eccles, Szymczak, Davis, and Draper indicated that they were in general agreement with the proposed amendment to Section 13b and it was agreed unanimously that Chairman Eccles should call Congressman 530 4/19/40 -9Ford on the telephone and state to him that it would be a more desirable procedure if a request for a report were sent to the Board by the Banking and Currency Committee, that a majority of the members of the Board are in general agreement with the bill) and that it was probable that a favorable report would be made on the bill in response to a request from the Banking and Currency Committee. At this point Mr. Boothe withdrew from the meeting. Mr. Ransom said that the suggestion had been made to him by certain outside parties that the provisions of the bill H.R.960 with respect to the extension of the classified civil service might be reas a mandate to the President to place the Board's employees in the classified service, but that it was his opinion that from a Practical standpoint the bill did not materially change the existing 8ituation and that no action should be taken by the Board in the matter at this time. The provisions of the bill that might be applied to the Board were considered and it was agreed unanimously that no action should be taken by the Board in the matter at the present time. There was presented an undated letter from President Day of the Federal Reserve Bank of San Francisco, submitting salaries fixed bY. the board of directors for the officers of the bank, effective May 1, 194° '48 follows: 531 4/19/40 -10- Name Wm. A. Day Ira Clerk W. M. Hale 'R. B. Vest C. E. Earhart C. D. Phillips H. N. Mangels E. C. Mailliard j. M. Omer H. F. Slade R. T. Hardy F. H. Holman Title President First Vice President Vice President Vice President Cashier Assistant Cashier Assistant Cashier Assistant Cashier Assistant Cashier Assistant Cashier Assistant Cashier General Auditor Annual Salary 25,000 18,000 15,000 10,000 10,000 6,300 7,000 5,500 5,500 5,200 5,200 7,500 Los Angeles Branch W. H. M. L. N. Ambrose M. Craft McRitchie C. Meyer Managing Director Assistant Manager Assistant Manager Assistant Manager 10,000 7,500 5,500 4,800 Portland Branch D. L. Davi S. A. J. P. MacE:chron Blanchard Managing Director Assistant Manager Assistant Manager 8,500 5,300 4,500 Salt Lake City Branch .!11. L. L Partner M. n M. eisner Scott Managing Director Assistant Manager Assistant Manager 8,500 5,400 3,900 Seattle Branch C. R. Shaw F. C. Bold B. A. . E. Russell Everson Managing Director Assistant Manager Assistant Manager Acting Assistant Manager 8,500 5,500 4,800 4,200 - 532 4/19/40 -11Mr. Szymczak stated that he had discussed the proposed changes in salaries of officers of the San Francisco Bank with Mr. Day in Chicago earlier this week and that it was his (Ir. Szymczak) recomMendation that the salaries as fixed by the board of directors for the Year beginning May 1, 1940, be approved by the Board. There was a brief discussion of the question whether the increase of $1,000 each in the salaries of Managing Directors Davis, Partner and Shaw were justified at this time, at the conclusion of which the salaries as fixed by the board of directors of the Federal Reserve Bank of San Francisco were approved unanimously for the period from May 1, 1940, to April 30, 1941, except that the salaries for the President and First Vice President were approved for the remainder of their present terms of office. There was also presented a memorandum dated April 18, 1940, from Mr Szymczak submitting the salaries fixed by the board of direc- tors „, °I the Federal Reserve Bank of Minneapolis for the officers of the " 41K for the period of one year beginning June 1, 1940. The prosalaries included increases for five officers as follows: Netia Title 0, s. t, 0, ro rt. OWell sivan. son A: w. C j • lerSon tir First Vice President Vice President and Secretary Assistant Cashier Assistant Auditor Assistant Cashier (Helena) Present Salary Proposed Increase $12,000 9,000 5,500 4,500 3,600 $3,000 1,000 500 500 400 8 qineZak I s memorandum recommended approval of the salaries as 533 4/19/40 -12- fixed by the board of directors for the officers of the bank with the exception of the salary proposed for r. Powell and suggested that the increase proposed for him be considered by the Board. In the discussion that followed the opinion was expressed that salarj advances approved for Powell in recent years had been relativ ely large and that an increase of as much as 25 per cent in his present salary should not be made at this time unless there were special reasons therefor. Accordingly, it was agreed unanimously that Mr. Szymczak should discuss the matter With iAr. Peyton, and Er. Szymczak was authorized, if in the light of such discussion he thought it advisable, to advise Er. Peyton that the Board would prefer an increase of from 0.,500 to .,21000 for !4r. Powell at this time but if there were special reasons therefor the Board would approve an increase of UP to 3,000 per annum in Er. Powell's salary. There was also presented a draft of letter to Er. Leach, ?resident of the Federal Reserve Bank of Richmond, which had been Prepared In accordance with the action taken at the meeting of the Boal,A " 4 on April 15, 1940, and which read as follows: lett "The Board has given careful consideration to your er • of March 29, 1940, and to the data transmitted t"e—• co 1-with regarding the proposed transfer of a number of of ties in North Carolina from the territory of the Head it'lce to that of the Charlotte Branch, and feels that ac w°111d be desirable for you to come to It'lashington to 0,Tlaint it more fully with respect to the proposed 14,17.ge before taking action thereon. Accordingly, it be a PPrecia ted if you will come to vashington for this Purpose On April 24, 1940, at 11:00 a.m., if this 534 4/19/40 -13- "date is convenient to you." Approved unanimously. (Secretary's note: The date set for Mr. Leach to come to liiashington for a discussion of the above matter was subsequently changed to Friday, April 26, 1940, at 11:00 a.m.) At this point Messrs. Thurston, Idyatt, Smead, Dreibelbis, Vest left the meeting and the action stated with respect to each of the Matters hereinafter referred to was then taken by the Board: The minutes of the meeting of the Board of Governors of the Federal iieserve System held on April 18, 1940, were approved unaniMOusly. Memorandum dated April 16, 1940, from Mr. Goldenweiser, Director °f the Division of Research and Statistics, recommending, for the l'es°118 stated in the memorandum, that he be authorized to complete rleg°tiati°ns with the Federal Reserve Bank of San Francisco for the Servi ee8 of Mr. N. Merritt Sherman, Assistant Chief of the Division ytes earch of the San Francisco Bank, for a period of four months in the /3 °ard t s Division of Research and Statistics in connection with the SYstem -is retail trade renorting services, with the understanding that the 14, d will reimburse the Federal Reserve Bank of San Francisco for Of 41% h 1*Q"Imlan's salary at the rate of .00 per month, and will pay his t'114813°rtation expenses and provide him with a per diem allowance of Per day for the period he is absent from the bank in connection 535 4/19/40 -14- With this work. Approved unanimously, with the further understanding that the Board would also reimburse the San Francisco Bank for its usual contributions to the Retirement System for Mr. Sherman during the period. Memorandum dated April 15, 1940, from Mr. Goldenweiser, Director of the Division of Research and Statistics, recommending, t°1* the reason stated in the memorandum, that the salary of Ray R. Foster, to Junior Economist in the Division, be increased from $3,600 ,„ &+,400 per annum, effective at the same time as other salary changes which had been recommended by Li-. Goldenweiser and are now efcre the Board, are approved. Approved unanimously. Memorandum dated April 17, 1940, from Mr. Goldenweiser, 1rec4. °r of the Division of Research and Statistics, submitting the res. ation of Andrew M. Kamarck as a junior economist in the DivisiOx effective at the close of business on April 15, 1940, and l'ec°Iniriending that the resignation be accepted as of that date. Approved unanimously. Letter to Mr. Hitt, First Vice President of the Federal Reeerite Bank of St. Louis, reading as follows: Palo-"This refers to your letter of April 12, 1940, to Mr. -ser, regarding Sandborn Banking Company, Sandborn, lana, an uninsured bank which has indicated an interest i;om embership. You report that the bank ASS organized in has a capital of $25,000, and is located in a town he to ,"g a population of 641, and ask whether it would have ' e examined by the Federal Deposit Insurance Corporation 536 4/19/40 -15- "in order to be admitted to membership in the System. In submitting the question, you refer to the fact that prior to the admission of Farmers Bank, Clay, Kentucky, to member8114 last year, it was considered necessary for the Federal Deposit Insurance Corporation to make an examination of Farmers National Bank, which was to be succeeded by the newly organized Farmers Bank. "As your counsel has correctly pointed out, the two cases are not comparable, the distinction arising from the fact that Farmers Bank was organized subsequent to June 16, 1933, and Sandborn Banking Company was organized prior to that date. In order to be eligible for member8114, it was necessary for Farmers Bank to be entitled to the benefits of insurance under section 12B of the Federal Reserve Act at the time of its admission. That is not required in the case of Sandborn Banking Company and, thus, while it was necessary for Farmers Bank to 4c:,x11PlY with the orovisions of subsection (f)(2) of sect-Lon 12B under which a State nonmember bank may become insured bank 'upon application to and examination by re (Federal Deposit Insurance) Corporation and approval y the board of directors', Sandborn Banking Company may , ° ,e admitted to membership without action by the Federal uePosit Insurance Corporation. "Although there is no necessity for action by the Fed —, 7-uul Deposit Insurance Corporation except in the ililMited class of cases like that of Farmers Bank, the F°ard has consistently endeavored to cooperate with the anieral Deposit Insurance Corporation in acting upon 2Plications for membership by noninsured as well as -,-Zsured banks. In this connection, reference is made in fircular letter 5-10 of June 26, 1937 (F.:Z.L.5.71 6477). was6he case of Sandborn Banking Company, since the bank be at one time an insured bank but withdrew, it would 1,,,„xpected that the information submitted to the Board flthe application would contain full information conImifig the circumstances involved." n Approved unanimously. Letter to Mr. Sinclair, President of the Federal Reserve Bank Or Philaaelphia, reading as follows: response to your letter of April 8, 1940, you Re- advised that the Board of Governors of the Federal serve System has approved the payment to your Counsel, 537 4/19/40 -16- 4MacCoy, Brittain, Evans & Lewis, of a fee in the net amount of $4,0001 in addition to the annual retainer °f le'2,500, for the legal services covered by the memorandum included in your letter. The Board understands from your letter that the payment of this additional fee has already been approved by your board of directors." Approved unanimously. Thereupon the meeting adjourned. 1 1j ' A2 ' e 24tiasIt ' LL11 0 Secretary. Chairman.
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