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869 A meeting of the Federal Reserve Board was held in Washington ollTuesday, April 9, 1935, at 11:30 a. m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Governor Thomas, Vice Governor Hamlin Miller James Szymczak Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary The Board acted upon the following matters: Telegram to Mr. Strater, Deputy Governor of the Federal Reserve Bank of Cleveland, reading as follows: " Jour telegram and letter. Board approves for your bank +?11°wing schedule of rates on industrial advances, effec'1-ve immediately: Advances direct to industrial or .et°111nleroial organizations: 4 1/2% to 6% per annum. Advances w2,financing institutions: 3 1/2% per annum on portion for iliJ.ch institution is obligated and 4% per annum on remaing Portion. Commitments to make advances 1% per annum, , sle new rate to apply to future commitments and future PVmants on commitments to direct borrowers already out- j Approved. Memorandum dated April 4, 1935, from the Committee on Salaries €trici enditures submitting: a letter dated April 3 from Mr. Sinclair, 13eilltY Governor of the Federal Reserve Bank of Philadelphia, which rebarik. ertain changes in the personnel classification plan of the The memorandum stated that the Committee had reviewed the pro- Dostad Changes and, with the exception of the increase in salary range tc*the P"ition of "Chief Clerk", Reconstruction Finance Corporation, e°11ecti°n Division, they appeared to be reasonable and not in conflict 870 4/9/55 —2— with the principles set forth in Governor Eccles' letter of January 5, 455) and recommends that they be approved. The memorandum also stated tilat While the Personnel classification plan of the bank shows a salary range of $204042520, established in February 1932, for the position of ftchief Clerk", Reconstruction Finance Corporation, Collection Division, the B, 'ard's records show a range of $1680-: 4 1980, that the Committee is "the ()Pinion that the salary range of $204042520 for such position is .L. ;qv-, ^ ovnable and recommends that it be approved. Approved. Telegram to Mr. McAdams, Assistant Federal Reserve Agent at the ?ederal Reserve Bank of Kansas City, reading as follows: "Your letter April 4. Board approves use temporarily of the fourteen employees of Denver Branch to lend clerical assistance to your regular examiners in examinations of State member banks• If Approved. Memorandum dated April 5, 1935, from the Committee on Salaries arid enditures, submitting a letter dated March 27 from Mr. Coleman, i)ePlit3T Governor of the Federal Reserve Bank of Dallas, which requested a chlinge in the Personnel classification plan of the El Paso Branch to Pronie _or 1a The niernorandumreduction in the salary range for the position of "Guard". stated that the reduction is to bring the salary range T811n11 Position into line with that for the same position at the °tiler branches of the bank, and that the Committee recommends that 13 atPr°ved. Approved. 871 4/9/35 -3Letter to the "United States National Bank in Johnstown", jc3hlist0'nly Pennsylvania, reading as follows: "The Federal Reserve Board has given consideration to your application for permission to exercise fiduciary Powers, and grants you authority to act, when not in con travention of State or local law, as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assiznee, receiver, committee of ?states of lunatics, or in any other fiduciary capacity ,-11 which State banks, trust companies or other corporations which come into competition with national banks .:,re permitted to act under the laws of the State of ' tennsylvanial the exercise of all such rights to be subject 10 the provisions of the Federal Reserve Act and the regulations of the Federal Reserve Board. "This letter will be your authority to exercise the fidn • powers granted by the Board. A formal certificate eoverinv, such authorization will be forwarded to you in due course." Approved. Letter to Mr. Peyton, Federal Reserve Agent at the Federal Reaelte Bank of Minneapolis, reading as follows: "Reference is made to your letter of March 12, 1955, which was transmitted the application of 'The Miners, First National Bank of Ishpeming', Ishpeming, gn:higan, for permission to act as executor, administrator, iltdrdian of estates and committee of estates of lunatics, te: authority of Section 11(k) of the Federal Reserve mit "Consideration has been given to the information subwhit2d bY you and by the Comptroller of the Currency, from sai?' it appears that the applicant bank is in a generally sefactory condition although its active management is ,Pet to some criticism. It further appears, however, (11:; the bank's officers, including the proposed trust thj eery are lacking in experience in fiduciary matters; as the bank does not have any real need for trust powers, haZ denced by the fact that the predecessor bank although th,Vg trust powers apparently did not exercise them, and 131,4 ,the area, population and business interests of the "4's trade territory do not evidence any probability of 872 4/9/35 -4— suPplying a volume of fiduciary business which would be Profitable to the bank or enable it to employ an experienced trust officer, especially as trust services are available in nearby cities. In view of the foregoing situation and Of Your adverse recommendation, in which the Comptroller ?S the Currency concurs, the Board is unwilling to grant Ilduciary powers to the institution at this time. "You are reauested, therefore, to advise The Miners' First National Bank of Ishpeming, Ishpeming, Michigan, .tthat the Board has denied its application, but in the event any time in the future changing conditions modify tilatat e conclusions as set out in the preceding paragraph, it will be glad to reconsider the matter." Approved. Letter to "The National Deposit Bank in Owensboro", Owensboro, Kentucky, reading as follows: "The Federal Reserve Board has given consideration to Your aPlplicption for permission to exercise fiduciary ;Powers, and grants you authority to act, when not in contraof State or local law, as trustee, executor, admin.ator, registrar of stocks and bonds, guardian of 7 .states, assignee, receiver, committee of estates of lonl, e.tics, or in any other fiduciary capacity in which State trust companies or other corporations which come into +1,-,Petition with national banks are permitted to act under :'J'e laws of the State of Kentucky, the exercise of all such '-ghts to be subject to the provisions of the Federal Reserve Act and the regulations of the Federal Reserve Board. rid !This letter will be your authority to exercise the catuclary powers granted by the Board. A formal certifie covering such authorization will be forwarded to you -14 due course." Approved. Letter to Mr. Clark, Assistant Federal Reserve Agent at the Fed1441- Re serve Bank of Atlanta, reading as follows: tr, "Reference is made to your letter of March 29, 1935, the request of the Bank of Canton, Canton, for a further extension, to April 1, 1936, of the -'e within which it may, in accordance with the require- 873 4/9/35 -5"ments of membership condition numbered 17, dispose of the remainder of its holdings of stock of the Canton Cotton Hills, consisting of 110 shares and carried in the bank's investment account at $150 per share. The Board has Previously granted extensions from January 1, 1934, to October 1, 1954, and subsequently to April 1, 1935, within which the provisions of membership condition numbered 17 might be complied vdth and it is noted that the bank has disposed of only 10 shares of the stock in question since Its admission to membership. "It has been noted that the directors of the bank have reported that the committee appointed by them to dispose of the stock has been unsuccessful, although diligent efforts this connection have been made, and that the bank feels (a sale of its holdings at this time could be thamade Only at a price less than the actual value of the stock and would result in a needless loss to the bank. "In view of all the circumstances, including your reco of mmendation, and the fact that the State Superintendent Banks has granted the institution permission to carry he stock until April 1, 1936, the Board extends to April 1, the time within which the Bank of Canton may comply 144.Tal the provisions of membership condition numbered 17 and is requested that you advise the bank accordingly. It rs been observed that the directors of the institution are r$31 accord with the Board's views with respect to the investment of banks' funds in corporate stocks and that every efort1 will be made to dispose of the stock in question :!Icre April 1, 1936. The Board trusts that the committee 1.4t1 ' be successful in its efforts within the time now allotted." Approved. Letter to Mr. Austin, Federal Reserve Agent at the Federal Re- &terve Bank of Philadelphia, reading as follows: "Receipt is acknowledged of your letter of March 28, / advising the Board, merely for its information, with ti, , gard to a possible situation which might arise in connecp with the rehabilitation of the Bank of Auburn, Auburn, ! 71. 1,rania, which was effected in the latter part of 1929 or 144 ci:,-; IrlY part of 1930. It has been noted that you are be' 11-4Y of the opinion that the charges which it appears may lip Preferred against Mr. Hill, Assistant Federal Reserve ' ent, are absolutely unfounded. It has also been noted that 4 874 4/9/35 -6-"the matter has been referred to the counsel for your bank, who has been in communication with representatives of the State Banking Department, and that it is apparently the view of that Department that there is nothing to be done with regard to the matter. It is assumed that you will keep in touch with the State Banking Department with regard to this matter and will advise the Board if there should be anY further developments." Approved. Letter to Mr. Walsh, Federal Reserve Agent at the Federal Reserve Bank of Dallas, reading as follows: "This refers to your letter of March 4, 1935 regarding the a legality of the payment of interest by a member bank on -emand deposits of the McAllen Independent School District d certain Water Control and Improvement Districts of the 0 Texas. A copy of the opinion of your counsel on the uae subject was submitted with your letter. The right of a member bank to pay interest on demand dePosits of Water Control and Improvement Districts of the State of Texas is the subject of your letter of February 27, ' 35 and of the Board's reply thereto dated March 13, 1935. 0 The Federal Reserve Board has carefully considered the ini°11 of your counsel that it is not lawful for a member t°Pay interest on demand deposits of independent eeh.°01 gu districts in the State of Texas. From the statutes in, c,4ed ) , in your counsel's memorandum, it appears that in arIrPendent school districts of more than 150 scholastics in all independent school districts created by act of the halr legislature prior to January 1, 1920 in counties that t, e a population of less than 3,340 'the treasurer o sitorY) of the school fund shall be that person or 0 , rP°ration who offers satisfactory bond and the best bid 4. interest on the average daily balances'. se "In accordance with previous rulings by the Federal ReopliZ * Board upon similar statutes of other states, it is the Art:;'?11 of the Board that the above quoted provision of the e 2832, Vernon's Annotated Texas Statutes, requires PaYment of interest upon demand deposits by independent Liool districts of the kind described above. rea "It is noted that your counsel states that he is cox:r,lebly sure that the McAllen Independent School District a-Lns more than 150 scholastics. Accordingly, on the r e 875 4/9/35 -7.n assumption that such is the fact, the Board is of the °Pinion that a member bank may lawfully pay interest on deposits of the McAllen Independent School District which !re payable on demand. No opinion is expressed by the Board regarding the payment of interest upon funds of Independent school districts to which the provisions of Article 2832 are not applicable." Approved. Letter to Mr. Austin, Federal Rqserve Agent at the Federal Re13e1 Bank of Philadelphia, reading as follows: "The Board was recently advised informally that you hair e a representative in the Discount Department of your bank whose sole duties are to maintain joint custody with bank of all notes and acceptances pledged c2, secure Federal Reserve notes and to maintain a record 0-L such collateral. "Such information as is available at the Board's Ices indicates that in accordance with the Board's aetter of August 9, 1917 (X-312), all other Federal Reserve _gents have designated employees in the Discount Departto represent them in maintaining joint custody of ;°11ateral pledged with them as security for outstanding : ere]. Reserve notes and that when such employees are not corged on work in connection with maintaining custody of 0,,,lateral for the Federal Reserve Agent they perform wlernwork in the Discount Department. If the advice received by the Board is correct it will be a be Ppreciated if you advise the Board rhether it would not theractical to designate some employee to act for you in connection who would devote his time to other work 1711e8 c_ n his services were not required in receiving and releasing ' llateral and maintaining a record thereof." r Approved. Memorandum dated March 29, 1935, from Mr. Parry, Chief of the 4ision - of Security Loans, referring to his memorandum of December 19, 19t 4) With regard to margin requirements on daylight trades of a clalists and floor traders, upon which action by the Board was still Perldit ' C and recommendinq that, in vier of developments since the date 876 OAS -8-- the earlier memorandum, the matter be referred back to the staff Presentation to the Board at some later date in case action by the 8°8-1.1 Should be requested by the Securities and Exchange Commission. Approved. Letter dated April 8, 1935, approved by five members of the Board, -Lu' to Mr. C. B. Eilenberger, Third Assistant Postmaster General, l'eading as follows: "This refers to your letter of March 12, 1935, MO-M, with inclosures, regarding losses of certain postmasters !Elle to abrasion upon shipments of gold coin made by them u.'() Federal Reserve banks. At the suggestion of the 'c)mptroller General of the United States that the matter reimbursement on account of such losses would appear to A e for consideration under the provisions of the Emergency 1RPropriation Act, fiscal year 1935, approved June 19, B0341 you have referred the matter to the Federal Reserve 2,rd With a request that the postmasters involved be re441011rsed from the appropriation cited. tu ."Inasmuch as the appropriation referred to is under X.Ourisdiction of the Treasury Department and any for reimbursement on account of losses sustained idue to abrasion of gold coin must be settled by that b4artment, your letter, with inclosures, is this day 0 rig referred to ' the Secretary of the Treasury for his onsideration•" r Approved. Letter to Mr. Case, Federal Reserve Agent at the Federal Reserve "New York, reeding as follows: ellbm "Consideration has been given to the information theul : Ated With your letter of March 29, 1935, regarding 1g3., -PPliosbility of section 32 of the Banking Act of or ,i11,0_th? service of Mr. Curtis E. Calder as a director aria ationai City Bank of New York, New York, New York, o/ ' ono .f United States & International Securities1; N1=ti 877 4/9/35 -9appears that United States & International Securiles Corporation is engaged in investing and reinvesting Its funds and that purchases and sales of securities in the COr-puration's portfolio amounted to the following percentages of total assets, taken at cost, for the following years: Year 1930 1931 1932 1933 Average for period Purchases 20.99 18.97 17.53 43.43 Sales 17.33 19.43 A. 28.15 24.89 21.65 "It appears that the securities in the corporation's Portfolio as of June 30, 1934 had been held for the following Periods in the following percentages: Held Held Held Held Held less than 6 months 6 to 12 months 12 to 18 months 18 to 24 months 24 months and over 5 7 10 ONO 78 100 "It also appears that no shares or other securities of the have been sold since 1928. During each of the past e years, the corporation has purchased in the open market a4c1 retired a portion of its first preferred stock. t_ "Since its organization the corporation has engaged in ,irelve transactions involving the issue, underwriting or ' ' tic ribution of securities. The Board feels that such transse l°ns, rhen not entered into for the purpose of acquiring ase4ritie8 at a discount for investment, should not be regarded merely incidental to the business of keeping assets invested to the of best advantage, but, on the contrary, are characteristic he Principal type of organization which the Congress had in in enacting section 32. However, it appears that the 'Oration engaged in no transactions of this kind in 1931 or s11,;, in only two such transactions in 1952, and in only one pril transaction in 1934; and that the latter resulted in a t6,0001 °f which was equal to less than 1 per cent of thnt di ..4noome received by the corporation during 1934 from co:ldends and interest. Of course, if the activities of the theP°ration in this connection should increase materially in uturey a further question as to the applicability of secj 1°11 32 might be raised. corporation hre 878 4/9/35 -10"On the basis of the above information, the Board does not believe that United States & International Securities Corporation should be deemed to be engaged primarily in the business of purchasing, selling, or negotiating securities : 1 1tala the meaning of section 32, and it rill be apprecieted lf you will advise Mr. Calder accordingly." Approved. Letter to Mr. Case 11611 Federal Reserve Agent at the Federal Reserve of New York, reading as follows: 4 "Consideration has been given to the additional informa-on forwarded with your letter of March 26, 1935 in conneci°n with the application of Mr. Bayard F. Pope under the Provisions of section 32 of the Banking Act of 1933 for a rermit to serve as director and chairman of the Advisory of The Marine Midland Trust Company of New York, New Trr York, New York, and as director of Selected Industries V'eorporated, Jersey City, New Jersey. It is noted that, on he basis of the information which has now been submitted, 211 and counsel for your bank are of the opinion that section should not be regarded as applicable to the relationships -La question. "It appears from the information which has been subat Selected Industries Incorporated is a so-called flnvestment trust' engaged in investing and reinvesting its 1,114d8 in securities. A statement of its investment policies been submitted, accompanied by an analysis designed to ; o rr that only such changes are made in its investment portas are required by a sound and conservative investment c01,1?Y and that the corporation has not cared to attempt, nor ma-T_idered itself equipped to attempt, to take advantage of 4 l'et fluctuations to obtain speculative profits. It iPears that purchases and sales of securities by the corporazCylilleIng the past five years, omitting purchases and sales States Government securities and of the corporac, °11 s own shares, were equivalent to the following pervntages of its total assets. V K J Year 1930 1931 1932 1933 1934 Average for period Purchases 32.42 28.52 21.88 35.30 25.03 Sales 16.41 34.30 15.37 36.37 27.06 28.63 25.50 879 4/9/85 -11. "It further appears that the securities in the corporaPortfolio as of December 31, 1933 had been held for the following periods in the following percentages: Held Held Held Held less than 6 months 6 to 12 months 12 to 24 months over 24 months 23.54 7.35 9.28 59.83 100.00 "It also appears that during the year 1934 the corporation took four syndicate participations. However, although each of these participations resulted in a profit, the total profit was equal to less than 4 per cent of the income of the corpora' j.1.0h from dividends, interest, etc., during that year. Although the amount of such transactions in 1934 was small, a further question as to the applicability of section 32 might, of °course, be raised if the volume of such transactions should inrease materially in the future. "It also appears that during the past tDo years the corporation has not purchased or sold any of its own shares or other securities and that such purchases and sales in 1932 were negligible in amount. "As you know, the Board stated in its letter of October 20, 1934 that, on the basis of the information which had then been .., submitted, the provisions of section 32 were apparently ;1)131j-cable to the relationships covered by this application. t,c matters particularly referred to in the Board's letter were ,r relatively high rate of turnover in the corporation's !,'''erfolio„ the absence of definite information regarding the rars during which securities had been held in the corpora8 °11 s portfolio, and the fact that the corporation engaged in hrdioate operations. As stated above, definite information now been received regarding these last two matters. With respectha to the rote of turnover, the revised figures which e been submitted are considerably lower than those which were the basis of the Board's earlier consideration. It cg!ars that the difference results (a) from the inclusion co„."he year 1934 in the five-year period covered, and the pu;responding omission of the year 1929, during which the elleses representing initial investment of the corporation's fund of s were made, (b) from the omission of purchases and sales od States Government securities, which were manifestly otUnitr serjurohased for speculative purposes but in order to con(c) idle funds awaiting investment in other securities, and fromm the fact that the previous figures were calculated 4 880 4/9/35 -12n on the basis of the average value of the corporation's assets at the beginning and end of the respective years, Whereas the revised figures are calculated on the basis of the cost of the portfolio. In view of the great decline in the general market value of securities, this last change has produced a considerable difference in the percentages Shown, but it appears that, even if this change in basis had not been made, a rate of turnover of less than 50 per cent per year would have been shown. "On the basis of the additional information which has been submitted, the Board is of the opinion that section 32 of the Banking Act of 1933 is not applicable to the ele+„4onships described in the first paragraph of this letter. Of course, this conclusion is equally applicable ,to Messrs. Curtis E. Calder, Eugene V. Stetson, and Harold Talbott, Jr., who have filed applications covering their services to Selected Industries Incorporated and various lember banks. It will be appreciated if you will advise the aPplicants accordingly." Approved. Letter to Mr. Hoxton, Federal Reserve Agent at the Federal Re— ee Bank of Richmond, reading as follows: "This refers to Mr. Fry's letters of February 16 and PabruarY 21, 1935, regarding certain directors and/or 1 national banks in your district who are serving s,105. Rappahannock Trust Company, Front Royal, Virginia, tPParently in violation of section 8A of the Clayton Anti— Act and/or section 32 of the Banking Act of 1933. „ "In his letter of February 21, 1935, Mr. Fry states 14v,lat the State Banking Department has advised you that the rre1141 , aPpahannock Trust Company has surrendered its banking 0-1.:r er as of February 16, 1935, and since that date is 4,:fiE_tting as a mortgage company. However, it is not clear v,..._-uner or not the trust company will make loans secured i;J: stock or bond collateral within the meaning of section 4rof the Clayton Antitrust Act and whether it will sell tgage bonds or other securities of the kinds referred to secttion 32 of the Banking Act of 1933. 4.141,01_l it appears from Mr. Fry's letters that the parties i,,,,o-Lved have not been willing to furnish you with necessary -:nation in response to his letters. Horever, it may be ;1_11133.e for you to obtain information from the State Banking :hmie 881 4/9/35 HDepartment regarding the powers which may be exercised by the trust company under the provisions of the charter under which it is now operating and as to whether it appears from lt_he informtion in the possession of the State Banking Department whether or not the trust company now makes loans secured by stock or bond collateral or issues bonds in series against mortgages held in pools or deals in securities . !1° any extent. If you do not obtain the necessary information ln this manner, you may deem it advisable to have a repres centative of your office call upon the persons or the trust °R1PanY involved for the purpose of obtaining the necessary in formation. "When you have obtained such 'additional information in this matter as is practicable, please advise the Board, fter Consideration considerction of the matter by your counsel, as to het it appears that there are any violations of section !A of the Clayton Antitrust Act or section 32 of the Banking cr 1933 1953 and give the Board your recommendation as to what should be taken by the Board." : Approved. Letter to Mr. Peyton, Federal Reserve Agent at the Federal Re- 4a-tre nank of Minneapolis, reading as follows: nl!.eference is made to your letter of March 27, 1935, a letter dated March 25, 1935, from Mr. C. P. Klein, 1--)ka, lannesota, requesting an amendment to his Clayton 4cl, permit. nn to s_241 January 21, 1935, Mr. Klein was granted permission r, e at the same time as director and officer of The ',,trst National Bank of Chaska, Chaska, Minnesota, and as Wector of The Klein National Bank of Madison, Madison, and it is noted that he is now serving as president malcIt as well as director of The Klein National Bank of iscn and requests that his permit be amended accordingly. he Board has approved the request of Mr. Klein and are inclosed the original and copies of an amended gmit covering his present services as director and el,-a icer of The First National Bank of Chaska and as director pe1, 4(3fficer of The Klein National Bank of Madison, for the --1 ending January 14, 1956, for transmittal by you to "-Lein and the banks involved and a copy for your files. . it "In view of the Board's letter of April 9, 1934 (X-7856) 18 assumed that you are satisfied that Mr. Klein is not Van°sing a A 4elbe 882 4/9/35 -14-Serving any organization other than those which he listed in item 12 of F.R.B. Form 94 in his previous application and that no such organizations other than those indicated therein (item 13) make loans on stock or bond collateral; but it will be appreciated if you will advise :the Board regarding this matter in order that its files may be complete. However, if Mr. Klein is serving any organizatlon other than those listed in his previous application, Please advise the Board regarding the matter and hold the Permit pending further advice from the Board. i "Mr. Klein and the banks involved were advised upon the ssuance of the previous permit dated January 21, 1955, se to the reason for the issuance ,of the permit so as to expire at the close of January 14, 1936." Approved. Letters to applicants for Clayton Act permits advising respecJ, of the issuance of permits by the Board as follows: Mr. , V• Hodges, to serve at the same time as a William V. dire of The United States National Bank of Denver, tenver, Colorado, and as a director of The First National Of Fort Morgan, Fort Morgan, Colorado, for the period ending January 14, 1936. Mr. K ennedy, to serve at the same time as a director and off Kennedy, ;-' leer of the National Bank of Commerce in Pawhuska, Oklahoma, and as a director and officer of the •Diearnsdall State Bank, Barnsdall, Oklahoma, for the period riding January 14, 1956. Approved. Thereupon the meeting adjourned. Approved: Governor.