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U44 A meeting of the Board of Governors of the Federal Reserve 4stem was held in Washington on Monday, August 16, 1937, at 11:30 • PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Davis Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary • Consideration was given to each of the matters hereinafter re41.1,e4 t° and the action stated with respect thereto was taken by the 130rizsci: The minutes of the meeting of the Board of Governors of the Peserve System held on August 14, 1937, were approved unani- Telegram to Mr. McKinney, President of the Federal Reserve 441c Of 111:1011.t .e Dallas, stating that the Board approves the establishment chenge by the bank today of the rates of discount and pur- ,1 its existing schedule. Approved unanimously. illo* Memorandum dated August 12, 1937, from Mr. Morrill recommend- -aPpointment of Mr. Bertram C. Dedman, Jr., as a page in the (1111-ee c'r the Secretary, with salary at the rate of 41,080 per annum, "r'"tive as of the date upon which he enters upon the performance of 44dlitiea after having passed sati8factori1y the usual physical 111111tation. Approved unanimously. 114 8/16/37 -2here was submitted a recommendation from Messrs. Spurney and 40PPang that Mrs. Blanche V. Harrington, who had been selected in accordance with the authority granted by the Board on July 12, 1937, and who had passed a satisfactory physical examination, be appointed as s charwomen in the Board's new building, with salary at the rate of 5(4 Per cu', effective as of August 16, 1937. Approved unanimously. Letter to Mr. Wood, Vice President of the Federal Reserve Bank ()t St. . Qtlls, reading as follows: 19 "Reference is made to the Board's letter of March 18, c 3?) and previous correspondence, in regard to the applimZti°11 of the 'Manchester Bank of St. Louis', St. Louis, ciss°11rip for permission to exercise certain of the fidubrY powers granted it under State law. "The Board has given further consideration to the 1,lication in the light of the report of examination as t-0;fune 15, 1937, from which it appears that the bank has ter material progress in reducing the amount of its capi011 4imPairment. The Board, however, has deferred action at "he aPPlication until the impairment has been eliminated, c_ which time it will be glad to give the matter further tu ill8i deration. Such action is in accordance with the posica° recently taken by the Board with respect to the appliw! lon of the Jefferson-Gravois Bank of St. Louis for perto exercise the fiduciary powers granted it under nder law.” Approved unanimously. Letter to Mr. Kettig, Chairman of the Federal Reserve Bank of Atla nta, r "ding as follows: zicivi "Reference is made to your letter of July 9, 1937, Of j ing of the submission to your board of directors bank e report of survey of the Auditing Department of your tors'. The Board has noted the action taken by the direcin,_,'11 aPpointing an Auditing Committee and also authorize President to transfer duties of an operating nature 1.146 8/16/37 -3"fl'am the Auditing Department to operating departments of the bank. "With reference to the matter covered in the latter Part of your letter, it is noted from a brief review of the l'ePort of examination of the Federal Reserve Bank of Atlanta July 10, 1926, that the recolumendation by the then ..vederai by the Reserve Examiner that expense vouchers be approved General Auditor before payment was apparently made a means of preventing recurrence of certain practices :14elt were criticized in that report. The recommendation "1th respect to expense vouchers made by Examine rs Jones ) 1,.114(1 CaEle in the report of survey referred to above was 0-sd on a resolution adopted by the Conference of Auditors l!rthe Federal Reserve Banks held in Washington in November, : 66 , to the effect that the auditing departme nt of a Fedreserve bank should refrain from or avoid participation the operatin g work of the bank. Since the particular eltuation which gave rise to the recommendation of the FedReserve Examiner in 1926 apparently no longer exists the e" ms that there should be no longer any necessity for AUditing Department to approve expense vouchers before e231,nt, and it is assumed that your directors gave consid4:cation to the existing situation in authorizing the change Procedure mentioned in your letter. en "It is believed that the recommendation s of the ConferAuditors constitute sound principles for the perof the auditing function of the Federal reserve and while it is apparent that a strictly uniform Re-cedure of auditing might not be feasible for all of the at:rye banks, it is felt that, where changes in present enl a ti ne Procedure can be made to conform to these recomth;81"s1 such changes should be made, provided, of course, oefore adopting a recommended procedure, due considergiven to the particular needs of the bank in the " 11 1011 where the change is contemplated." 1 Approved unanimously. Letter to Mr. Max L. Honke, President, First Nationa l Bank, Butte, 1(1, reading as follows: zun 7hi5 refers to your letters of April 16, 1937 and ? 1937 regarding the question whether, under theprote! Is of the Board's Regulation Q, your bank may pay in' 8I at the rate of 3 per cent per annum for the period 1, 1935 to February 11, 1937 on a deposit of 11427 8/16/3? -4"Indian funds carried in the name of Gabe E. Parker, Superintendent of the Winnebago Indian Agency, Winnebago, Nebraska. This matter was referred to the Commissioner of Indian Affairs and we are now in receipt of a letter from that office regarding the matter. "It is understood that the funds in question were car' lied in a time deposit, open account pursuant to an agreeraeht dated December 29, 1933 which provided for the payment °II interest semiannually on the deposits at the rate of 3 Per cent per annum. This agreement also provided that it raight be modified at any time to conform to any law, governnts1 ruling, or regulation affecting the same, and might • enceled by either party upon thirty days' written notice. : I e also understood that your bank paid interest on these at the rate of 3 per cent per annum until July 1, or 5 and thereafter paid interest on such funds at the rate 2-1/2 per cent per annum until January 1, 1937, and that ° i nterest on such funds has been paid since that date. "As You know, at the time of the execution of the above :!1"eelAent, Regulation Q permitted the Payment of interest on rTla deDosits, open account at the rate of 3 per cent per vinilm, but effective February 1, 1935 the regulation was rede : ed 80 as to reduce the permitted rate of interest on Each larl'°sits to 2-1/2 per cent per annum. The new regulation ma ed that 'every member bank shall take such action as coy be necessary, as soon as possible consistently with its delltractual obligations, to bring all such certificates of siP 2ei t or other contracts into conformity with the proviIla of this regulation.' mu "It does not definitely appear from the information thech has been presented to the Board of Governors whether Ilidiagreement between your bank and the Commissioner of so an Affairs should be considered to have been modified sts% t° Provide for a rate of 2-1/2 per cent per annum in193-5-4 3 per cent per annum for the period from July 1, el? to February 11, 1937. However, in view of all of the ho °11 ,"letfInces of the case, the Board of Governors will offer rat°uJection to the payment by your bank of interest at the to f 3 Per cent per annum for the period from July 1, 1935 Febur ' uarY 11, 1937. this "If You should have any further questions regarding e0„,_ Matter or any similar matter, it is suggested that you -ulaurt ,i oity, cate directly with the Federal Reserve Bank of Kansas Z Approved unanimously. Telegram to Mr. Young, Vice President of the Federal Reserve 11,48 8/16/37 -5_ 44Ic lpf Chicao, reading as follows: "Reference your letter of August 10, 1937, regarding dclessification of deposits of school districts as savings ,ePcsits, Board has no objection to your advising State memusr banks substantially as stated in your letter." Approved unanimously. Letter to Mr. C. E. St. Tohn, Bristol, Tennessee, reading as rpliows: "Reference is made to your letter of July 16, 1937, relates to margin requirements under the Securities c change Act of 1934 and which the Securities and Exchange °P1mission has referred to the Board. "While the details of tne transactions as to which you a;!ilre are not entirely clear, it is understood that you re- Interested in the provisions of the margin regulations ae,guiring the combining into a single account of certain 'counts carried with a broker by the same person. It is understood that on July 6th you purchased th : u the firm of Abbott,Proctor & Paine certain regisca.'''. securities costing ‘4;2500 and that on July 7th you sold yortain other registered securities at a price of 42,450. y: state that you received a margin call the next day which ma;had expected, but that when you attempted to meet this hapn call by transferring funds from an account which you rromcarried with the firm and considered to be separate cw;Y°ur other account, the firm advised you that this a not be done since the account which you had considered re eParate account must be treated for the purposes of the ion as a part of your general account. When you did not tailisUPPlY the margin requested, the firm liquidated certion securities, and you inauire as to whether the regulau, required the firm to combine the accounts in the manner ' - cribed, iati : F(1r Your information there is inclosed a copy of Reguyour-ri T which the Board has issued on this subject, and whiebattention is invited to section 2(d) of the regulation 4 reads as follows: ti 'The term "combined account" means the combinat °n of all accounts (except "special accounts") beany creditor and any customer, or any group of 31ners acting jointly, to or for whom such creditor - extending or maintaining any credit, directly or 1149 8/16/37 -6"'indirectly, on registered securities (other than exempted securities) for the purpose of purchasing or carrying securities.' The same principle also is stated in the next to the last sentence of section 3(f) of the regulation which reads as f ollows: f* * * In case a customer has more than one account (other than special accounts) with a creditor, his adjusted debit balance and the maximum loan value of the securities in his account shall be calculated, for the purposes of this regulation, on the basis of hi8 combined account, taking into consideration all accounts between such customer and such creditor except special accounts.* * *' for "You will note that the term special account is defined the purposes of the regulation in section 2(e) so that, ,the basis of the facts presented, the account which you ",011 treated separately would not qualify as a special account. , "In view of these facts it will be seen that Abbott, pr „tor & Paine correctly construed the regulation as reall of your accounts with the firm to be treated a single account. wh "With respect to the question which you raise as to t ether it would be possible to purchase certain securi' by 8 on one day and meet the requirements of the regulation youSelling certain other securities several days later, roj attention is invited to the rule, reading in part as chnt°1", which has been adopted by the New York Stock Ex° and certain other securities exchanges: n 'No such member or firm shall permit a customer :e '3- a practice of effecting transactions requirln - * * margin and then furnishing such margin by bhe -Liquidation of the same or other commitments * * "You will note that the aeneral effect of this rule is to ao4revent persons from making, a practice of effecting transin° the manner which you describe." tO Approved unanimously. or Letter to Mr. Clark, Vice President of the Federal Reserve Bank kqp„ reading as follows: YOU. "Reference is made to your letter of August 3, in which ]aleatre ,,c°mmend that the Board of Governors waive the require'or the publication of a report in accordance with Form 1150 8/16/37 -7" 1.220a, as of June 30, 1937, of Miller Bros. Realty Company, ;!'11C., an affiliate of the Lake Charles Bank & Trust Company, Lake Charles, Louisiana. "It is noted that the bank did not file and publish a report of the affiliate because of the fact that it was of the opinion that Miller Bros. Realty Company, Inc., was not etrictlY an affiliate even though the entire capital stock thereo fl is owned by the bank; that when the bank took legal title to the stock of the Realty Company such acquisition as coupled with an agreement that the bank would re-sell : the stock to the former owners for i,61,500; and that the bank Probably decided that, in view of the amount of the indebted. 1ese to it of the Realty Company (06,000 on June 30, 1937, c°rding to Schedule 0), there would be no impropriety in its taking ovPr all of the stock of the company so that c Could deduct, when making returns of the value of its stock for tax purposes, the entire indebtedness of the uale Realty Company. It is further noted that the bank was 04mitted to membership on May 20, 1937; that you are of the inion that the failure to make the report of the affiliate °13 due either to a misapprehension of the law or to an honest belief that the Miller Bros. Realty Company was not tilterfiliate as that term is usually used; and that you do ' pll believe it would serve any useful purpose to require ulication now of the report of the affiliate as of June 1937 the "In tne circumstances and in view of your recommendation, : or Board of Governors waives the requirement for publication rePort in accordance with Form 220a as of June 30, 1937 0.4 Miller Bros. Realty Company, Inc., an affiliate of Lake &series Bank & Trust Company, Lake Charles, Louisiana. It aaasumed that reports of the affiliate will be submitted lid the Published as of subsequent call dates unless waived by terms of waiver printed on the Board's Form 220b." of Approved unanimously. teecnize 1/1enlarandum dated August 12, 1937, from Mr. Wyatt, General Counsel, 4ding that the Secretary be authorized to take such steps and in6,4eh exPense as may be necessary for the printing of 5,000 bound the revised edition of the Board's Digest of Rulings recently Q()14151et d e- 'Y. Counsel's office and 500 additional punched copies for use 14 1.008 1 e eaf binders in connection with the Federal Reserve Loose 1151 8,116,137 -8eatService approved by the Board on July 30, 1937. The memorandum commended that the Secretary be authorized to determine a able Price at which copies of the new edition may be offered for to the public at large, it being contemplated that copies of the 4141est would be distributed free of charge to the Federal reserve banks, to , 4‘ors and Congressmen, and to interested Government o ganizatiote. Approved unanimously. Thereupon the meeting adjourned. Chairman.
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