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1152 A meeting of the Board of Governors of the Federal Reserve "Itelli was held in Washington on Tuesday, August 17, 1937, at 10:30 a. m. 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 Mr. Thurston, Special Assistant to the Chairman Mr. Wyatt, General Counsel Mr. Paulger, Chief of the Division of Examinations Mr. Dreibelbis, Assistant General Counsel Mr. Wingfield, Assistant General Counsel Mr. Baumann, Assistant Counsel Mr. Hostrup, Federal Reserve Examiner There was presented the memorandum which was addressed to Mr. 14c4sebY Mr. Paulger under date of April 17, 1937, and on which action 11413 deferred at the meeting of the Board on May 21, 1937, with respect to th e tr eatment of securities depreciation in reports of examination. After a discussion, consideration of the memorandum was again deferred until mich time as Mr. McKee might wish to bring it up for further discussion by the Board. At this point Mr. Bradley, Assistant Chief of the Division of ty Loans, joined the meeting. Reference was made to informal discussions which had taken "Lee wit h respect to the installation of a news ticker service and th -goers present expressed agreement that the service was desirable 141c1 that 'instead of being located in the Division of Security Loans, 1153 M/A7 -2it Eh ould be installed in one of the rooms adjoining Mr. Thurston's office. Mr. Bradley withdrew from the meeting at this point. Mr. Davis then submitted memoranda dated August 10 and 11, 147 , 4 ''rom the Personnel Committee recommending that the Chairman of the Federal Reserve Bank of Atlanta be requested to indicate to each ofthe f ollowing persons that the Board is considering him for appointraerit 48 a director of a branch of the Federal Reserve Bank of Atlanta 48 ellc)/57.1 below, and to ascertain and advise the Board by wire whether hs w°111d be willing to accept the appointment if tendered: Branch W. E. ClYde For unexpired portion of term ending December 31: MeEwen Nashville 1939 Austin Nashville 1938 Birmingham 1937, and at the end of the year, for the succeeding three year term. Edward L. Norton Mrs Davis also submitted a memorandum dated August 17, 1937, tret the .v ersonnel Committee recommending that the Chairman of the Fed- 04,e:serve Bank of Kansas City be requested to indicate to Mr. ee Roberts that the Board is considering him for appointment as &tree 4,14n Cr of the Oklahoma City branch of the Federal Reserve Bank of be itY for the unexpired portion of the term ending December 31, and , to ascertain and advise the Board by wire whether he would g to accept the appointment if tendered. 1154 8/17/37 -3Mr. Davis moved that the recommendations of the Personnel Committee be approved. Carried unanimously. Attention was called to a letter received under date of July 6' 1937) from Vice President Sargent of the Federal Reserve Bank of 8111"11111ciaco inclosing a copy of a letter received under date of July 2) 1937, r_ora r Mr. John M. Grant, President of Transamerica Corporation, Stin Fran cisco, California, and to a letter addressed to the Board by Mr. Grant under date of July 23, 1937, with respect to the violation c)tSecti°11 20 of the Banking Act of 1933 by member banks in the Transkaerice group by reason of their affiliation with Bankamerica Company, a securiti es Company. At the conclusion of a discussion of the matter, Mr. McKee moved that the Board approve a letter to Mr. Sargent reading as follows: ti "This refers to your letter of July 6, 1937, transmitbellg a copy of a letter of July 2, 1937, addressed to Mr. tlY bY Mr. John M. Grant, president of Transamerica Corpora1a°!1) requesting that the Board review the circumstances reto the violation of section 20 of the Banking Act of wit3 bY certain member banks by virtue of their affiliation is h Bankamerica Company, a securities company. The Board in receipt of a letter of July 23, 1937, from Mr. ei'Llit relating to the same matter and a copy thereof is in(Is for your information. "In the letter addressed to Mr. Day, Mr. Grant sug6;e itst” that, on the basis of the information contained thereth' It would be within the discretion of the Board to waive r, e Penalties provided by section 20 for at least one year Ilam the date when the affiliation of the member banks with z;onnaerica Company became effective as a result of the disof Inter-America Corporation on June 28,, 1937, and th e of its assets to Transamerica Corporation. 1155 8/17/37 "With respect to this question, it is the Board's view that while it may exercise discretion with respect to the assessment of penalties for violations of section 20, it has no authority to exempt particular cases from the application of that section or to authorize or consent to the continuance Of r elationships which are in violation of the law. "In the letter addressed to the Board you will observe that Mr. Grant's position is that where an affiliation rethrough common control by a holding company affiliate sults the Provisions of section 5144 of the Revised Statutes of the States, instead of those of section 20, apply and that Ihe the affiliate relationship need not be terminated prior to ifivel Years from the date the holding company affiliate files . , b 8 application for a voting permit. However, as you were advised in the Board's telegram of July 1, 1937, the Board lias already ruled with respect to that question and you are . 1dvised that, after reconsidering the matter, it sees no 'eason to alter its views. "Mr. Grant also stated that Bankamerica Company would seam to have been a securities company affiliate of the banks question ever since the passage of the Banking Act of and that in permitting such affiliate relationships to rhtinue long after June 16, 1934, the Board had obviously i°11°Ived the theory that the provisions of section 5144, t1 ):1: 1 !ead of those of section 20, control. He also suggested aS a practical matter, the dissolution of Inter-America Crporation and the transfer of its assets to Transamerica 'rPoration made no change in the relationships. "In this connection, however, you will recall that in a 1,104 involving loans by Bank of America National Trust ' Savings Association to a corporation controlled by TransCorporation, the Board held that, since Transamerica turporation only owned the stock of a corporation which in nol t*n owned stock of the bank, Transamerica Corporation was 2(bl a 'shareholder' of the bank within the meaning of section co /(2) of the Banking Act of 1933, and hence the borrowing ganc)ration was not an affiliate. By the same reasoning of"raerica Company was not technically an affiliate of any Ame b1,16 member banks in question. The dissolution of InterCorporation and the transfer of its assets to Transin rice Corporation, of course, changed this situation, mak11,11 the latter corporation a shareholder of each of the banks poref ahY construction of the law. Thus, Transamerica Corte ;a'ion and its subsidiary banks lost the benefit of the Clinical ruling which had protected them theretofore. With respect to Bank of America National Trust and '-us Association, Mr. Grant apparently recognized that, 1 Z 1156 8/17/37 -5Under the letter of the law, the distribution of a majority of the shares of its stock to the shareholders of Transamerica C3rPoration would not in itself, terminate the affiliate relEttionship between that bank and Bankamerica Company. However, YOU Will observe his comment to the effect that 'it seems obvlous tnat it was not the intent of the Banking Act to include within the term "affiliate" a relationship based upon ! he ownership by large number of individuals of stocks of uwo different institutions, where the disposition of either i c)r both of such stocks by such individuals is not restricted any Way.' However, the provisions of law defining the sFm.'affiliate' make no such express exception and, in the °P141on of the Board, afford no justification for so limiting 411e nleaning of the words by implication. 'In conclusion, you are advised that if, in the light of the nme views herein expressed, any member banks of the Transgroup are now violating section 20 as a result of afstion with Bankamerica Company, the Board will expect such nv,lolations to be terminated within a reasonable time and that -usransamerica Corporation will take such action as may be fecesOn its part to bring about such temination. Meanwhile, t, 61 the view of affording Transamerica Corporation an oppor7 111tY to comply with law, the Board, pending receipt of adWith respect to the steps which are being taken to comply (; th the law, will defer any action concerning the assessment _Penalties. Please advise Transamerica Corporation accordingly T:( the Board will appreciate your keeping it currently inrgled regarding the matter." Carried unanimously. At this point Messrs. Wyatt, Paulo:.er, Dreibelbis, Wingfield, 141.11114n 4 and hostrup left the room. t] Mr. Davis presented a memorandum dated August 16, 1937, from Personnel Committee regarding the selection of a Class C director °I' the liederal Res David erve Bank of Philadelphia to succeed Mr. telli) resigned. The memorandum suggested for consideration in this Ilecti°11 Mr. Thomas B. McCabe, President of the Scott Paper Company, elleSter, pennsylVania2 ek 8.̀ Company0 and Mr. Lessing Rosenwald, Chairman of Sears 1151 8/17/37 -6After a review of the consideration which the Personnel Committee had given to the matter, Mr. Davis moved that the Board indicate to Mr. McCabe that it is considering him for appointment as a Class C director of the Federal Reserve Bank Of Philadelphia for the unexpired portion of the term ending December 31, 1939, and ascertain whether he would be willing to accept the appointment if tendered. Carried unanimously, with the understanding that Mr. Davis would take the necessary steps to ascertain whether Mr. McCabe would be willing to serve. At this point Mr. Thurston left the meeting and consideration th en given to each of the matters hereinafter referred to and the Retiola stated with respect thereto was taken by the Board: The minutes of the meeting of the Board of Governors of the Reserve System held on August 16, 1937, were approved unanitOusiy. Teleo.rans to Messrs. Stewart and Sargent, Secretaries of the ''141 Reserve Banks of St. Louis and San Francisco, stating that the IIPPr"es the establishment without chance by the respective banks t(3cir °I' the rates of discount and purchase in their existing schedules. Approved unanimously. clue, 'or 141,. emerandum dated August 13, 1937, from Mr. Thanes, Assistant the Division of Research and Statistics, recommending that Ir. Drury, who has been working on a part-time temporary ' , In the storeroom of the Division since October 1, 1935, be P4eed e to n full time temporary basis for the period from August 17 , ePt%ebe, - 00, 1937, both dates inclusive, and that his present 11158 -717, at the rate of 000 per annum, be changed accordingly to the rate or k1,600 per annum. Approved unanimously. Letter to Mr. Leach, President of the Federal Reserve Bank of reading as follows: "Reference is made to the application of 'The Citizens Bank in Gastonia', Gastonia, North Carolina, for fiduciary powers, which was transmitted to the Board h Mr. Fry's letter of July 21, 1937. "The Board has given consideration to the application ajgd to the information available in relation thereto. It ?Pears that the bank has immediately available one large InntarY trust; that it has other trust business in pros'; and that the population and business activity of the -„;!' Z'Y of Gastonia and its trade territory are such as to war' allt the belief that a corporate fiduciary in Gastonia would entually be able to develop a satisfactory volume of trust cusineas, particularly as there is said to be at present no °I*Porate fiduciary in Gastonia or the county of Gaston. It appears further, however, that while the applicant batk . is in a generally satisfactory condition, Mr. Sims, the ?oPosed trust officer, has had but little practical experi,ce or training in fiduciary matters, and that his conduct t_ the trust department of the predecessor bank was subject critm by the national examiner, although it is recog114 :d that the business of that departme nt was limited in Ura and volume and the criticisms related mainly to insquate books and records. tic, "It has been noted also, that the report of investiga444 bY a national examiner, made in August, 1933, of the the 4-eation to organize the applicant bank, reveals that examiner regarded Mr. Sims as being overly optimistic, N407?ulatively inclined and hopelessly involved financially. rit ormation is available here as to Mr. Sims' present tioencial status, but the foregoing comments raise a cluesn Of doubt as to his qualifications and fitness to act a trust officer. is t it is the view of the Board that, if a national bank Where be authorized to exercise trust powers in Gastonia, 4s , the importance of the city and its trade territory a g field for trust business warrant the assumption that silbstantial amount of such business could eventually be Nt r 4 1159 8/17/37 -8"developed, such bank should have available the services of 44 experienced and competent trust officer. "The Board, therefore, has deferred action on the fiduei417 application of The Citizens National Bank in Gastonia until such time as the bank can show that its proposed trust otticer is qualified by training and experience to handle Properly the volume and types of fiduciary business which 44 would be likely to acquire." Approved unanimously. Thereupon the meeting adjourned. Chairman.
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