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833 A meeting of the Board of Governors of the Federal Reserv e System 1448 held in Washington on Tuesday, April 21, 1936, at 10:30 a. m. PRESENT: Mr. Mr. Mr. Mr. Eccles, Chairman Szymczak McKee Ransom 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. Parry, Chief of the Division of Security Loans Mr. McKee referred to a letter received from the Federal Reserve Agent at the Federal Reserve Bank of St. Louis under date of April 10, 1936 1 transmi tting the request of Mr. A. WagenfUehr, Vice President of The Boatmen's Nation al Bank of St. Louis, for an expression from the Board as to whether units of trust shares representing listed stocks are to be c onstrued as registered equity shares for the purposes of Regula— tjon u", Loans by Banks for the Purpose of Purchasing or Carrying Stocks Re gistered on a Nation al Securities Exchange. A draft of reply had been Pl'ePal'ed in which it was stated that certificates or other evidences of beneficial interest in shares of stock registered on a national securities e oh ge and held in a fiduciary capacity are not stocks registered on a tiet1°4111 securities exchan ge within the meaning of Regulation "U" if the e"tificates or other evidences of interest are themselves not registered on a national securities exchange. Both Mr. McKee and Mr. Ransom had ex— Pr'eseed the opinio n that, while the proposed reply appeared to be a correct teelulical interpretati on of the lar, such a ruling might permit evasion 834 4/21/36 -2-"he regulation and that the matter should be given careful consideration. At the conclusion of a discussion of the matter, during which it was pointed out that it did not appear from the Federal reserve agent's letter that the inquiry was based on anything more than a hypothetical case, it was agreed that the Federal reserve agent should be requested to obtain additional information concerning the facts surrounding the inquiry and that the matter should be reconsidered by Mr. Parry and Counsel's office on the basis of the additional information thus obtained. At this point Mr. Parry left the meeting. There was then presented a letter dated April 16, 1936, signed by ""e directors of the Federal Reserve Bank of San Francisco, requesting reco . „"Blderation of the action taken by the Board on April 3, 1036, in ning to approve salaries at the rates of e50,000 and el5,000 per for Mr. Tilliam A. Day as President and Mr. T. M. Hale as Vice Pl'eBident, t23,000 q those respectively, and in approving for them salaries at the rates and e14,000 per annum, if fixed by the directors of the bank rates. After a discussion of the considerations Upon which the Board's action was based, the Secretary was requested to prepare for the consideration of the Board a draft of reply stating briefly the Board's reasons for not approving the salaries fixed by the directors for Messrs. Day and Hale. Reference was made to the excess reserves of member banks and there f°11owed a discussion of various aspects of the situation which 84ge8ted the desirability of the Board reaching a conclusion on the cIlleqi°n whether action should be taken by it in the near future to in- 835 k 4/21/36 crease reserve requirements. It was stated that certain members of the Board had planned to be absent from Washington later in the week and during the following reek and that, therefore, it would be advisable to consider the matter as promptly as possible. Accordingly, it was agreed unanimously that a meeting of the Board should be held tomorrow afternoon at 2:30 p.m. for the purpose of considering the problem of excess reserves. It was also agreed unanimously that the Chairman should invite Mr. Landis, Chairman of the Securities and Exchange Commission, to be present at the meeting to present any views that he might have with regard to the subject of excess reserves and that Mr. Harrison, President of the Federal Reserve Bank of New York, and Messrs. Burgess and Williams, Vice Presidents of the bank, should also be invited to be present. In connection with the above action, it was understood that arrangements would be made for the members of the subcommittee of the special committee of the American Bankers Association appointed to confer with the Board on Regulation rU" to meet with the Board at 10:00 a. in. tomorrow morning, instead of at 2:30 p. in. as was agreed upon at the meeting on April 17. In connection with this matter, Chairman Eccles referred to the fact that at the meeting of the Federal Open Market Committee on March 19, 1936 s it had been agreed that there should be another meeting of the -fluttee on April 30 with the understanding that this would not prevent the e ailing of an earlier meeting, and stated that he had discussed the ter Yesterday with President Harrison, Vice Chairman of the Committee, Who 1, "4C1 r()1. concurred in Chairman Eccles' opinion that there was no necessity 4 meeting on that date. Mr. Morrill stated that President Fleming c)f the Federal Reserve Bank of Cleveland, a member of the Federal Open M kt Committee, had talked with him on the telephone and had said that 836 11 4/21/36 -4- it would meet with his approval if the meeting were deferred. Chairman Eccles suggested that in these circumstances he be authorized to address a letter to the four Federal reserve bank members Of the Federal Open Market Committee which would state that the members the Board were in agreement that it was not necessary to hold a meeting of the Committee on April 30, and that, in the absence of objection on the Part of the Federal reserve bank members of the Committee, the meeting Will be postponed with the understanding that it will be called by the Chairman for some date during the month of May. Chairman Eccles' suggestion was approved unanimously. % Mr. Morrill stated that Mr. Goldenreiser, Director of the bivi 64.0n of Research and Statistics, had suggested that, in order that • the latest information with regard to the possible effects of e change in l'eeerve requirements of member banks might be available to the Board, a telegram be sent to the Federal reserve banks requesting them to send to the t5oard immediately information regarding average reserve balances of tetuber banks with the Federal reserve banks and average balances with thel 'banks for the period from March 1 to March 15, inclusive. The Secretary was authorized to send a telegram to the Federal reserve banks in accordance with Mr. Goldenweiserts suggestion. The minutes of the meetings of the Board of Governors of the Fedel'el Reserve System held on April 15 and 16, 1936, were approved unanimously .4114 the actions recorded therein were ratified unanimously. 837 II 4/21/36 -„At this point Messrs. Thurston and Wyatt left the meeting. There was then presented a draft of letter to Mr. O'Connor, N Ttroller of the Currency, reading as follows: "This refers to Deputy Comptroller Gough's letter of March 9, 1936, requesting advice as to whether a loan made to an executive officer of a member bank prior to June 16, 19Z:3, which has been extended by resolution of the board of directors of such bank even though secured by marketable collateral sufficient to liquidate the loan, can be considered to have been properly extended in view of the requirement of section 22(g) of the Federal Reserve Act that the board of directors must be satisfied that the officer has 'made reasonable effort to reduce his obligation'. Advice is also requested on the same question, with the additional facts included that a part of the loan has been charged off and the marketable collateral to the loan is 81.1fficient to liquidate the remainder. The applicable provisions of section 22(g) are as follows: 'Provided, That loans wade to any such officer prior to June 16, 1933, may be renewed or extended for periods expiring not more than five years from such date where the board of directors of the member bank shell have satiefied themselves that such extension or renewal is in the beet interest of the bank and that the Officer indebted has made reasonable effort to reduce his obliption, these findings to be evidenced by resolution of the board of directors spread upon the minute book of the bank: * * *r. "'LOU will observe that the law requires that the board of 'irectors of the member bank shall be satisfied as to the TE'tters prescribed by the law before extending or renewing a t°an of the kind under discussion, and that, in addition to Ltetcrmin ing Ilether the officer 'has made reasonable effort to reduce his obligation', the board of directors must also be i ll isfied that the extension or renewal 'is in the best uerest of the bank'. It seems clear, therefore, that the Primary responsibility for the extension or renewal of lo such a an is placed by law upon the board of directors of the member bank involved and that it is contemplated that in retching a determination in the matter the board of directors 111 consider all of the facts and circumstances in the ' articular case. It is the view of the Board, therefore, 838 4/21/36 -6- "that the fact that a loan of the kind under discussion Is Secured by marketable collateral in an amount sufficient to liquidate the loan would not of itself show that an extension Of the loan was not in conformity with the requirements of section 22(g) but that all of the facts in the particular case would have, to be given consideration in determining this question. The fact that a part of the loan had been charged off and the marketable collateral would liquidate the remainder would not change such conclusion. Of course, in any case rhere it appears that a loan. may have been extended Tlthout a proper regard for the provision of law quoted above, it rould be desirable for the bank examiner, in connection with his examination of the bank, to give particular consideration to all the facts involved in the case in order to determine whether or not the directors have acted arbitrarily in extending the loan." Approved unt.nimously. Thereupon the meeting edjourned. Chairman.
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