The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
773
1/
A meeting of the Board of Governors of the Federal Reserve System
was held in Washington on Wednesday, April 8, 1936, at 11:30 a.
m.
PRESENT: Mr. Broderick, Chairman pro tern
Mr. McKee
Mr. Ransom
Mr.
Mr.
Mr.
Mr.
Morrill, Secretary
Bethea, Assistant Secretary
Carpenter, Assistant Secretary
Clayton, Assistant to the Chairman
Consideration was given to each of the matters hereinafter reis"red to and the action stated with respect thereto was taken by the
Board:
Letter to Mr. Preston, First Vice President of the Federal ReBerlre Bank of Chicago, reading as follows:
"Referring to your letter of March 31, 1956, the
Board approves the temporary employment of electricians
ic
gtr with the installation of your air conicl
iltaT
stem at the prevailing union rate which, on
an annual basis, is about $200 in excess of the maximum
Salary provided for electricians in the personnel classification plan."
Approved unanimously.
Letter to the board of directors of "The Charlevoix County State
844k", Charlevoix, Michigan, stating that, subject to the conditions of
raerthership numbered 1 to 5 contained in the Board's Regulation "H", and
the folloting special conditions, the Board approved the bank's application,
lor membership in the Federal Reserve System and for the appropriate
4111°144 of stock in the Federal Reserve Bank of Chicago:
"4. Such bank shall make adequate provision for depreciation in its banking house.
(74
4/8/36
As soon as practicable, and in any event Tithin one
year from the date of admission to membership, such
bank shall reduce all loans which are in excess of
the limits prescribed by the laws of the State of
Michigan to amounts Titbin such limits.
As soon as practicable, such bank, if it has not already done so, shall stamp in legible form on each
certificate of stock of the bank outstanding and not
pledged with the trustees for the benefit of the
waiving depositors, and, so long as the agreement is
in force, shall stamp on any other certificates of
stock which, by reason of transfer or otherwise, may
subsequently be outstanding and unpledged with the
trustees for the waiving depositors, a legend reading
substantiafly as follows:
'All earnings available for dividends on the
stock represented by this certificate have
been waived for a period in favor of the
trustees for the waiving depositors of the
Charlevoix County Bank in accordance rith
the terms of the creditors' agreement of
such bank, a copy of which is on file with
The Charlevoix County State Bankl."
Approved unanimously, for transmission to
the bank through the Federal Reserve Agent's
office at the Federal Reserve Bank of Chicago.
Letter to Mr. Curtiss, Federal Reserve Agent at the Federal Feserve Bank
of Boston, prepared at the request of Mr. Ransom pursuant to
action
taken at the meeting on March 10, 1936, and reading as follows:
"This refers to your letter of December 5, 1935, with
further reference to the following condition of membership
Which The Southington Bank and Trust Company, Southington,
eonnecticut, is subject:
'If trust funds held by such bank are deposited
in its banking department or otherwise used in
the conduct of its business, it shall deposit with
its trust department security in the same manner
and to the same extent as is required of national
banks exercising fiduciary powers.'
"You have advised that, under the laws of the State of
CO
nnecticut, The Southington Bank and Trust Company is not
775
4/8/56
"authorized to deposit collateral in its trust department
to secure trust funds deposited in its banking department
and have submitted a request of The Southington Bank and
Trust Company that the requirements of the condition of
membership be waived to the extent that trust funds deposited in the banking department of that institution are
insured under the provisions of section 12B of the Federal
Reserve Act.
"The Board has given consideration to the circumstances involved in the request of The Southington Bank
and Trust Company but does not feel that it should grant
that request at this time. However, the entire matter is
being given further careful consideration. Please advise
the trust company accordingly."
Approved unanimously.
In connection with the above matter there was also presented a
letter to
Mr. O'Connor, Comptroller of the Currency, reading as follows:
"It has been the practice of the Board for some time
to prescribe for State banking institutions applying for
membership in the Federal Reserve System the following condition of membership:
'If trust funds held by such bank are deposited
in its banking department or otherwise used in
the conduct of its business, it shall deposit
with its trust department security in the same
manner and to the same extent as is reauired of
national banks exercising fiduciary powers.'
"A member State banking institution subject to such a
condition has advised the Board that, under the laws of the
State in which it is located, it is not authorized to dePosit collateral in its trust department to secure trust
funds deposited in its banking department, and has requested that
it be exempted from the requirement of the condition of membersip to the extent that trust funds deposited in its banking
department are insured under the provisions of section 12B
of the Federal Reserve Act.
"Section 12B(h)(9) of the Federal Reserve Act provides
in part that 'Trust funds held by an insured bank in a
fiduciary capacity whether held in its trust or deposited in
allY other department *** shall be insured in an amount not to
!xceed g5,000 for each trust estate ***'. Therefore, the
board has given consideration to the question whether it should
776
I/
1
-4--
44"6
exempt the member State banking institution which has made
the request and also other member State banking institutions
subject to the condition quoted above from the requirement
of that condition to the extent that trust funds deposited
in the banking departments of such institutions are insured
under the provisions of section 12B of the Federal Reserve
Act. It would seem that, if such an exemption is made as to
member State banking institutions subject to the condition,
section 11(k) of the Federal Reserve Act should be amended so
as to make a corresponding exemption applicable to national
banks exercising fiduciary powers.
"The Board will appreciate your consideration of the
general question involved. The matter has been referred by
the Board to Mr. Ransom for consideration, and he would like
to discuss the matter with you.
"For your information, there are inclosed copies of correspondence out of which the request for the exemption above
referred to arose, and a copy of that part of a memorandum
Prepared by an Assistant General Counsel of the Board which
discusses the problem involved. The previous correspondence
referred to in the inclosed copy of the letter from the
Board's Assistant Secretary to Mr. Curtiss of October 8,
1935, does not liave a bearing on the question here involved
and, therefore,rcopies of such previous correspondence are
not inclosed."
Approved unanimously, together with a
letter to Mr. Merrell P. Callaway, President,
Trust Division, The American Bankers Association, New York, New York, reading as follows:
"It is the practice of the Board to prescribe for State
4 _ lang institutions exercising fiduciary powers and apply"""g for membership in the Federal Reserve System the following
condition of membership:
'If trust funds held by such bank are deposited
In its banking, department or otherwise used in
the conduct of its business, it shall deposit
with its trust department security in the same
manner and to the same extent as is required of
national banks exercising fiduciary powers.'
"A State banking institution which is subject to such condition and which is located in a State the laws of which do
n°t permit it to deposit collateral in its trust department to
secure trust funds deposited in its banking department has requested that the requirement of the condition of membership be
waived to the extent that trust funds deposited in its banking
777
4/8/36
naepartment are insured under the provisions of section 12B
Of the Federal Reserve Act. Section 12B(h)(9) of the Fed—
eral Reserve Act provides in part that 'Trust funds held by
an insured bank in a fiduciary capacity whether held in its
trust or deposited in any other department *** shall be in—
sured in an amount not to exceed $5,000 for each trust
estate **""The Beard has been giving consideration to the question
Whether it should exempt the member State banking institution
Which has made the request and also other member State bank—
ing institutions subject to the condition quoted above from
the requirement of that condition to the extent that trust
funds deposited in the banking departments of such institutions
are insured under the provisions of section 12B. If such an
exemption should be made as to member State banking institu—
tions subject to the condition, it would seem that section
1-(k) of the Federal Reserve Act relating to the exercise of
fiduciary powers by national banks should be amended so as to
make a corresponding exemption applicable to national banks
exercising fiduciary powers.
"The Board will appreciate advice as to the views of the
Trust Division of the American Bankers Association on the
general question involved. The matter has been referred by
the Board to Mr. Ronald Ransom for consideration, and if you
or other representatives of the Trust Division should desire
to discuss the entire matter before submitting definite advice
as to your viers, Mr. Ransom will be glad to confer with you
at a time which is mutually convenient.
"For your information, there are inclosed copies of cor—
respondence out of which the request,for the exemption above
referred to arose, and a copy of that part of a memorandum
Prepared by an Assistant General Counsel of the Board which
discusses the problem involved. The previous correspondence
Bred to in the inclosed copy of the letter from the
I]osrd's Assistant Secretary to Mr. Curtiss of October 8, 1935,
?oes not have a bearing on the question here involved and,
therefore, copies of such previous correspondence are not in—
Letter to Mr. Young, Assistant Federal Reserve Agent at the Fed—
‘Ti
eral T,
aeserve Bank of Chicago, reading as follows:
"This refers to the application of 'The Citizens
National Bank of Marshfield', Marshfield, Wisconsin, for
Permission to exercise fiduciary powers under the pro—
visions of section 11(k) of the Federal Reserve Act. After
778
4,8,36
ii
-6-
careful consideration and discussion of the information
submitted to it with regard to this application, the Board
has decided to defer taking any action on the applicetion
at this time.
"In its consideration of the application, it was not
apparent to the Board that the bank has available a
auffioiently well trained and experienced trust officer.
The gentleman who has been selected as trust officer has
had only a limited experience in the administration of
trusts as an assistant trust officer
with The American
National Bank of Marshfield, and it is not clear to what
extent he participated in the administration of the trust
department of that bank or the extent to which he is
responsible for the policies and activities of that
department.
In this connection, your office has recommended that the bank be granted authority to act only in
the court trusts of executor, administrator and guardian
Of estates, which would
indicate that you feel that the
trust department will not be equipped to administer trusts
except under the safeguard of supervision by a court.
"The Board has noted that, while a letter from the
institution to you seems to stress the probable earnings
from trust business rather than service to the community,
Jour trust examiner has stpted that the prospective business is ethereal and not immediate and that the bank hopes
at some future time to have trust business through wills.
These statements would not indicate that the bank contemtt
te:n;he building up of an active trust department or
substantial volume of trust business can be developed by the bank at the present time. While it appears
that The Citizens National Bank of Marshfield is at this
time the only bank in Marshfield, which has a population
?f something over 8,000 inhabitants, it also appears that
the institution
's predecessor, The American National Bank
°f Marshfield, had developed a trust department with total
assets amounting only to approximately Z200,000 at the time
2f its closing in June 1933, although it had been granted
Lirust powers in 1926. It is stated in the information submitted to the Board that reasonable profits resulted to The
American
National Bank of Marshfield from the operation of
l.ts trust
department, but the amount of such profits from
Ihe time of
the opening of the trust department ofthat bank
60 the time of its closing and the basis of the computation
°f the profits are not stated.
, "Unless information is submitted which would overcome
4
"e unfavorable aspects indicated by the facts referred to
ab°17e, the Board does not feel that it would be warranted
779
-7"in taking favorable action on the application of The
Citizens National Bank of Marshfield, and you are requested
to advise the bank accordingly."
Approved unanimously, together with a
letter to Mr. O'Connor, Comptroller of the
Currency, reading as follows:
"There is inclosed herewith for your information a
Copy of a letter which the Board has addressed to the
Assistant Federal Reserve Agent at the Federal Reserve
Bank of Chicago with regard to the application of The
Citizens National Bank of Marshfield, Marshfield, Wisconsin,
for permission to exercise fiduciary powers under the provisions of section 11(k) of the Federal Reserve Act. The
Board will be glad to receive any information or comments
having a bearing on the application of The Citizens
National Bank of Marshfield which you may feel it is desirable to submit in view of all the circumstances involved
after the next examination of that bank. Mr. Ransom has
advised me that he has mentioned this application to you,
has discussed it over the telephone with Mr. Folger, and
in person with Mr. Wilson."
Letter to Mr. Raymond Bill, President, National Conference of
Business
Paper Editors, New York, New York, reading as follows:
"Your letter of February 270 1936, addressed to
Governor Szymczak with respect to direct loans to industry
has been read with much interest by members of the Board.
"The Board is interested in the conclusions set
forth in your letter and is desirous of doing whatever it
Can to bring to the attention of commercial and industrial
enterprises which have been unable to obtain needed working
capital funds from usual sources, the facilities which
Congress has authorized the Federal Reserve banks to make
available to them and, as you are aware, has on a number of
Occasions asked the Federal Reserve banks to do what they
can to bring to the attention of prospective borrowers the
possibility of obtaining accommodation at the Federal Reserve
banks. You are also aware that the Board feels that wherever
Practicable such accommodation should be extended through
local banking institutions under commitments from or in
12art1cipation with the Federal Reserve banks. In furthering
'his program the Board has asked the Federal Reserve banks
to communicate with financing institutions in their districts
780
4/8/36
-8-
"urging such institutions to bring to the attention of the
Federal Reserve banks any instances where worthy enterprises
in need of working capital have been unable to obtain it.
The most recent letter of the Board asking the Federal Reserve banks to send out such communications was dated
January 41 1956.
"With respect to the survey which you suggest be made,
preliminary survey of the probable demands for working
capital loans was made prior to the enactment of Section
13b of the Federal Reserve Act, and something over a year
ago such a survey was made for the Subcommittee on Small
Industries of the Business Advisory and Planning Council for
the Department of Commerce, reference to which was made in
your letter. The initial survey brought forth information
which proved to be quite unreliable, and the conclusions
contained in the report of the survey conducted for the
Business Advisory and Planning Council did not prove helpful.
The Viner-Hardy report on the Availability of Bank Credit in
the Seventh Federal Reserve District, which was based for
the most part upon data obtained through personal interviews
With applicants for loans, concluded that in terms of the
existing law the Federal Reserve Bank of Chicago was doing
efficient work in administering the provisions of Section
13b.
"It is realized, of course, that the questionnaire
You propose to send out is in such form as to bring in a
substantial amount of valuable information. Even with
ansters to such questions, however, it would be very difficult to draw worthwhile conclusions for the reason that
information
given by prospective borrowers is usually highly
colored and greatly exaggerates the possibility of making
Sound loans. As an instance of this kind we have before us
now a case in which the applicant for an industrial loan
stated that his loan application had been disapproved by the
Federal Reserve bank notwithstanding the fact that he offered
collateral ten
times the amount of the loan requested. On a
preliminary examination it looked as if the loan could be
"lade, but upon checking into the collateral offered it was
Iound that it was neither adequate nor desirable and that
the Federal Reserve bank could not make the loan on a sound
and reasonable basis as required by law.
"Such information as has come to the Board indicates
that in most cases small enterprises which are in need of
additional funds to operate their business need fixed capital
ather than working capital, and, as you know, the Federal
"eserve banks are not authorized to make loans to commercial
and industrial enterprises for the purpose of supplying
l
781
-9"capital funds as distinguished from working capital funds.
In view of the above, the Board does not believe it desirable for it to sponsor a survey of the kind you suggest
at this time. In case, however, you or any of your associates in the National Conference of Business Paper Editors
know of any particular instances in which you feel that a
Federal Reserve bank can be helpful by extending credit
under the provisions of Section 13b, or if any such
instances hereafter come to your attention the Board will
greatly appreciate your bringing such cases to its attention."
Approved unanimously.
Memorandum dated April 4, 1936, from Mr. Smead, Chief of the
Division of Bank Operations, stating that informal advice had been received that the office of the Comptroller of the Currency was amending
the form of semi-annual report of earnings and dividends of national
banks so as to provide for reporting separately the amount of (1) rent
received
on banking house and other real estate, (2) fees paid to
directors and members of executive, discount, and advisory committees,
and (3) real estate taxes, and recommending that the Board authorize
the same changes to be made in its Form 107, Report of Earnings and
kvidends of
State Member Banks.
Approved unanimously.
Letter to Mr. Case, Federal Reserve Agent at the Federal Reserve
nk of New
York, reading as follows:
"Reference is made to your letter of February 28,
1936, requesting the opinion of the Board as to whether
exception numbered (5) of section 8 of the Clayton Act,
as amended, is applicable to the proposed services of
Mr. Charles A. Luce, Amityville, Ner York, as vice president of The First National Bank of Lindenhurst, Lindenhurst,
New York, while serving at the same time as director of
782
4/8/36
—10—
"that bank and as director and officer of First National
Bank and Trust Company of Amityville, Amityville, New York.
"It is noted from your letter that the towns of
Amityville and Lindenhurst are separate and distinct
villages, that their corporate limits at the nearest point
are approximately one mile apart, that an unincorporated
Part of the town of Babylon, known as Copiague, is situated
between them, and that you have no reason to believe that
any substantial conflict of competitive interest exists
between the banks situated in the two villages, in view of
Which it is your opinion, concurred in by counsel for your
bank, that these towns are not 'contiguous or adjacent'
Within the meaning of those terms as set forth in footnote
numbered (8) of the Board's revised Regulation L, effective
January 41 1936.
"In the circumstances, the Board sees no reason to
differ from the conclusions reached by you and your counsel
in this matter; accordingly, it appears that the proposed
services of Mr. Luce as vice president of The First National
Bank of Lindenhurst, Lindenhurst, New York, while serving
at the same time
as director of that bank and as director
and officer of First National Bank and Trust Company of
Amityville, Amityville, New York, come within exception
numbered (5) of section 8 of the Clayton Act, as amended."
Approved unanimously.
Thereupon the meeting adjourned.
)Thi
(7
Secretary.
APPI'oved:
/7
)
(")
(/
/4--
(./LA (4/L
„Chairman pro tem.
@FedFRASER