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1085 A meeting of the Board of Governors of the Federal Reserve 83retern vtras held in Washington on Friday, August 2, 1940, at 10:30 8..ta. PRESENT: Mr. Mr. Mr. Mr. Ransom, Vice Chairman Szymczak McKee Davis Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Wyatt, General Counsel Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Dreibelbis, Assistant General Counsel Mr. Williams, Assistant Counsel There were presented telegrams to Mr. Young, President of the ?ecieral Reserve Bank of Boston, Mr. Sanford, Secretary of the Federal Reaerve Bank of New York, Mr. Catanach, Acting Assistant Secretary of the r, rederal Reserve Bank of Philadelphia, Messrs. Hays, Dillard and Stew -r6, Secretaries of the Federal Reserve Banks of Cleveland, Chicago alicl St. Louis, respectively, Mr. Caldwell, Chairman of the Federal Reelave Bank of Kansas City, and Mr. Hale, Secretary of the Federal Rea"lre Bank of San Francisco, stating that the Board approves the esta-blishment, without change by the Federal Reserve Bank of San Francisco Ori klY 30, by the Federal Reserve Bank of St. Louis on July 31, by the Federal Reserve Banks of New Cleveland, Chicago, Kansas City 4" Sall Francisco on August 1, 1940, and by the Federal Reserve Banks or 13c)st°n and Philadelphia today, of the rates of discount and purchase 111 the' -1r existing schedules. Approved unanimously. 1086 8/2/40 -2There was a discussion of the consideration which had been given to the proposed amendment to existing law to permit the assignment of claims against the United States and Mr. McKee, after referto the action taken by the Board of Governors on June 4, 1940, ilullaired whether the Board desired him to do anything further in connection with the matter. It was agreed unanimously that Mr. McKee should discuss the proposed amendment with Messrs. Brown and Fraser of the Federal Advisory Council as the Council had recommended the amendment and that Mr. Szymczak should also discuss it with Mr. Brown when he (Mr. Szymczak) is in Chicago next week. Mr. Ransom reported briefly on the status of the legislation now Pending before Congress relating to foreign accounts with Federal Reserve Banks and it was agreed that no action by the Board was called rcn' at this time. At this point Messrs. Wyatt, Dreibelbis and Williams left the rneeting. Under date of Ally- 23, 1940, Mr. Goldenweiser submitted a °1'a41CitllIl 11 Of 4M MEM— to the Board recommending, for the reason stated therein, that H. Glazier be appointed as an economic assistant in the Division Re search and Statistics, with salary at the rate of $2,000 per annum, tfective as of the date upon which he enters upon the performance of hi 011144 after ha • g passed satisfactorily the usual physical exami- tlatio 11. then the recommendation was submitted inquiry was made by Mr. 108'1 8/2/4o IleiCee with respect to Mr. Goldenweiser's plans relating to further increases in his staff for the purpose of carrying on the regular wcIlk of the Division, following which Mr. Goldenweiser prepared a "cond memorandum under date of July 29, 1940, in which he referred t° hi-3 memorandum of November 30, 1939, on the same subject and stated that the section on member bank and Federal Reserve credit of his Oivio4 in which Mr. Glazier would work, has a considerable amount Ot work in handling current statistics and current inquiries and, in addition, was working on plans for changes in reserve requirements and Other banking legislation, that the section was definitely understaffed, and that he would like to have in it an additional economist With c onsiderable experience whom he had not yet been able to find. The M emorandum also stated that there were vacancies in the Division t°r tw ° Junior economists in the domestic business and capital market "i°ne and that the filling of these vacancies would be recommended When sat isfactory persons could be found. At the request of Mr. McKee, Mr. Goldenweiser discussed with the 10 1)(lard his plans for further additions to the staff, at the con- cin8i0t1 of which Mr. McKee stated that he had no objection to the ap15°41tInent of Mr. Glazier, but that it should be recognized that the 'lee(' of the Division for seasoned men is not net by the continued adto the staff of men without substantial experience. Upon motion by Mr. Ransom, the appointment of Mr. Glazier was approved unanimously. 1.088 8/2/40 —4-. Thereupon Mr. Goldenweiser left the meeting. There was presented a memorandum dated July 26, 1940, from MI's Morrill referring to the installation in the Board's telegraph °race of automatic relaying equipment which will reduce the number of o perators required in the office and recommending that W. S. Pool, tel operator, be transferred to the Building Operation and Main— tenance unit of the Secretary's Office as a guard, with salary at the rate Of 61 c.4,500 per annum, to fill the vacancy created by the resigna— tion of Clair M. Aldrich. Mr. Pool's salary as a telegraph operator was at the rate of t1,860 per annum and Mr. McKee raised for considera— ti°11 the question what, in the circumstances, should be the policy of the B °ard with respect to such a reduction. The action taken by the Board with respect to salaries of tele graph operators, since the installation of teletype equipment was first aPProved in 1936, was reviewed and it was recalled that when the st aft' of the telegraph office was reduced in 1937 three operators Were transferred to the guard force at the maximum salary rate for guards, that another operator was retained for clerical duties in the telegraph °trice with a reduction to the same salary rate as that of the guards, that reductions were made in the salaries of other operators, and that re the c°mmendation with respect to Mr. Pool was in accordance with the8 e earlier actions. It was also stated that in two or three weeks, When the operators had become familiar with the new equipment, it was 1_089 8/2/40 -5- expected that another operator would be available for other duties because there would be no work for him to do in the telegraph office. At the conclusion of the discussion, it was agreed unanimously that Mr. Morrill's recommendation should be held in abeyance for a month, during which time the entire matter should be reviewed by the Secretary's Office and that thereafter it should be placed on the docket for consideration at a time to be determined by the Board. The action stated with respect to each of the matters hereinafter referred to was then taken by the Board: The minutes of the meeting of the Board of Governors of the Pede Reserve System held on August 1, 1940, were approved unani- 111011sly. Memorandum dated July 30, 1940, from Mr. Goldenweiser, Director of the n. -lvision of Research and Statistics recommending that, for thereason stated in the memorandum, Miss Maxine E. Glad be appointed a8 a clerk in that Division, with salary at the rate of ,1.144.0 per 411111111 'effective as of the date upon which she enters upon the perr°111nance of her duties after having passed satisfactorily the usual 131.V.sical examination. Approved unanimously. Letter to the board of directors of n The Farmers Bank", Shreve, 014 0, stating that, subject to conditions of membership numbered 1 to 3 . "Leaned in the Board's Regulation H, the Board approves the bank's 1090 8/2/40 -6- 11Plaication for membership in the Federal Reserve System and for the elP riate amount of stock in the Federal Reserve Bank of Cleveland. Approved unanimously for transmission through the Federal Reserve Bank of Cleveland. Letter to the board of directors of the "La Salle State Bank", LaSalle, Illinois, stating that, subject to conditions of membership 'lumbered 1 to 6 contained in the Board's Regulation H and the follow/4g special conditions, the Board approves the bank's application for flienther ---LP in the Federal Reserve System and for the appropriate ana°1111t of stock in the Federal Reserve Bank of Chicago: 117. " 8. Such bank shall increase the number of its directors to not less than five, the minimum number required in the case of all member banks under the provisions of Section 31 of the Banking Act of 1933, as amended. Prior to admission to membership, such bank, if it has not already done so, shall charge off or Otherwise eliminate estimated losses of g2,308, as shown in the report of examination of such bank as of July 8, 1940, made by an examiner for the Federal Reserve Bank of Chicago." Approved unanimously, together with a letter to Mr. Schaller, President of the Federal Reserve Bank of Chicago, reading as follows: tera"The Board of Governors of the Federal Reserve Sys— approves the application of the 'La Salle State Bank', La sal _, le Illinois, for membership in the Federal Reserve eatern, subject to the conditions prescribed in the enletter which you are requested to forward to the Boa ,.. rd of Directors of the institution. Two copies of ' 110/1 letter are also enclosed, one of which is for your 1091 8/2/40 -7- "files and the other of which you are requested to forward to the Auditor of Public Accounts for the State of Illinois for his information. "If practicable, the increase in the number of directors required by condition of membership numbered 7 should be effected prior to admission of the bank to membership. However, the Board will not object to the admission of the bank with only four directors, with the understanding that "Pe will be taken promptly to increase the number to flve. Incidentally, attention is called to the fact that tlie stockholders' resolution filed with the State authoritlee 1911 increased the prescribed number of directors to seven and it does not appear from the organization apers submitted that appropriate action subsequently has een taken to reduce the number. . "It has been noted that the bank has a relatively low capital position. That matter is commented upon by the ! (auPervising examiner for the Federal Deposit Insurance rporation, who also expressed some reservations with reFard to the management, although he reported that recently there had been some improvement in the policies with re!pect to investments and loans. He suggested, therefore, that if the bank is admitted to membership, the Reserve ank exercise close supervision to insure, if possible, the continuance of sound policies on the part of the manIt is assumed that the Reserve Bank will follow 'he situation closely to see that the favorable trend is c°ntinued, that earnings are conserved, and that, if the ! Ilticipated strengthening of the capital does not materialtze through earnings and recoveries, appropriate steps will be taken to increase the capital from other sources." c Letter to "The National City Bank of Marion", Marion, Ohio, d as follows: i "This refers to the resolution adopted on January 24 '4.939, by the board of directors of your bank, signifythe bank's desire to surrender its right to exercise lduciarY powers heretofore granted to it. „ The Board, understanding that your bank has been .-J.-scharged or otherwise properly relieved in accordance the law of pll of its duties as fiduciary, has isued a formal certificate to your bank certifying that 1092 8/2/40 -8- "it is no longer authorized to exercise any of the fiduciary powers covered by the provisions of section 11(k) of the Federal Reserve Act, as amended. This certificate iS enclosed herewith. "In this connection, your attention is called to the fact that, under the provisions of section 11(k) of the Federal Reserve Act, as amended, when such a certificate has been issued by the Board of Governors of the Federal Reserve System to a national bank, such bank (1) shall no longer be subject to the provisions of section 11(k) of the Federal Reserve Act or the regulations of the Board of Governors of the Federal Reserve System made pursuant thereto, (2) shall be entitled to have returned to it any securities which it may have deposited with the State or similar authorities for the protection of private or court trusts, and (3) shall not exercise any of the powers conerred by section 11(k) of the Federal Reserve Act except with the permission of the Board of Governors of the Federal Reserve System." Approved unanimously. Letter to Mr. Fry, Vice President of the Federal Reserve Bank (4 Richmond, reading as follows: "This refers to your letter of May 4, 1940, and pre1.11°us correspondence, relative to the question -whether !the Norfolk Savings and Loan Corporation, Norfolk, Virginia, IL8 a 'bank' within the meaning of section 8 of the Clayton 't since, if the Corporation is not a 'bank', the statute ts not applicable to the services of Mr. Paul S. Huber who 38 serving as a director of the Corporation and as a director of the Seaboard Citizens National Bank of Norfolk. "It is understood that the Corporation is organized 7, 11; 11?Pcrating under Chapter 16A, Sections 4168(1) to 4168 ' -"--z)e of the Code of Virginia relating to savings and loan ?sociations; and that, although it is subject to examina,lon by the State Corporation Commission through the Com74.ssioner of Banking and Insurance, it is not classified "a bank by the State Commissioner of Banking and Insurance which classification, in the opinion of counsel for "lir Bank, is correct since it appears to him that the CorP°ration is operating strictly in accordance with the State Z 1093 8/2/40 -9- "law relating to industrial loan associations. "From the information contained in your letter of . JanuarY 30, 1940, which has now been supplemented by the . 34formation submitted with your letter of May 4, 1940, lt.is also understood that the Corporation sells fully pald investment certificates in denominations of fifty dollars and over; that the amount which it is authorized t? issue to any one person, firm or corporation is unlimited but the amount which it will issue depends largely on the amount of funds needed for lending purposes; that such certificates are negotiable and the Corporation may and does redeem such certificates on demand upon their Presentation properly endorsed, although it reserves the right to require at least 60 days' notice in writing and limit withdrawals to fifty per cent of the amount of lts regular receipts should the withdrawal demands exceed the amount in the Corporation's treasury; that the CorPoration issues what are termed installment investment certificates evidenced by an account book which provides that the certificate may be cashed at any time subject to the.right of the Corporation to require 90 days' written n0t1ce of such withdrawal and to limit withdrawals in any 2ne month to the amount of cash receipts for the preceding days; that the customer does not contract to purchase 1-11,-17 Paid investment certificates or to make payments of 7 . definite amount periodically, being allowed to exchange Installment investment certificates for fully paid investment a t certificates when a fixed amount has been accumulated he is not required to do so, and may continue to ?Posit funds therein, as is done in a savings account, ° such extent as the Corporation may be willing to accept; .hat, although it permits withdrawals from such installment ..11vestment certificate accounts, the customer may not draw such account by check but must present his installment rtificate account book and sign a special form of withrallal slip; that in the payment of amounts withdrawn the 0/Toration issues its own check drawn on its bank of dethat the Corporation makes no use whatever of counter cuecks or other checks to effect withdrawals; that the CorI..?ration pays interest on both fully paid and installment !fnvestment certificates, the interest on fully paid invest:ent certificates being payable at six-month intervals and evidenced by coupons payable to bearer and attached to Ilch certificates, and interest on installment investment r Z r 1_094 8/2/40 -10- "certificate accounts (which begins to run from date of receipt of funds by the Corporation) being payable upon request of the customer either by check or by credit to the installment certificate account; that the daily average Of withdrawals and receipts for the year 1939 on investment accounts not pledged to the Corporation as collateral for loans was ti;431.20 and $487.16, respectively; that the Corporation receives Christmas Savings deposits under a Plan similar to that used by banks in the community but such funds are not subject to withdrawal except as they are payable by the Corporation by check shortly before Christmas, the total amount of such funds received by the Corporation during the year 1939 aggregating approximately $18)400 as compared with approximately one million dollars of such funds received by the Norfolk banks for the same Period; that the major portion of the Corporation's business is the making of installment loans and the receipt Of Paymnnts thereon, the average daily number of loans made being 23 and the average daily number of payments on loans being 301; that the average daily number of payments on installment investment certificate accounts is not over fifteen and the average daily number of withfrom such accounts is not over four; that during period of one month from January 15, 1940, to February 1940, five fully paid investment certificates were Isaued and five redeemed; that the daily cash on hand carried in the Corporation's office amounts to $4,000 °r g5,000, all of which is used in connection with lend▪ transactions since certificates are redeemed by check (341Y; that the receipt and payment of funds involving investment certificates requires an average of less than ( .?_s hour per day of one employee's time; that the Corpora610/1 does not issue cashier's checks or drafts, such checks : a t 8 it issues being drawn on the bank in Norfolk where it t L7.8 deposit accounts; that the Corporation does not mainany form of so-called checking account service other :f• an the withdrawal service on installment investment cerlficate accounts; that the Corporation has no authority transact and does not transact any trust business; that does not offer safety deposit facilities to the public; 141at it transacts no escrow or agency business for the , , P1Tlio; that it does not buy and sell securities for the :lio; uu that it is not a member of any Clearing House as°0ciation; that its business hours are not the same as 1095 8/2/40 -11- "those of banks in Norfolk, its hour of opening being one hour ahead of the opening hour of such banks and its hour of closing extending one hour on Saturday, four hours on Monday and three hours on the other week days, beyond the closing hour of such banks; that the Internal Revenue Department has ruled that the corporation is not a banking institution; that, although it is subject to the supervision of and examination by the State Corporation CommisSion through the Commissioner of Banking and Insurance, SO also are building and loan associations, credit unions, and amall loan companies; and that the general public regards the Corporation as a lending corporation operating Primarily in the installment lending field and not as a bank of deposit. , "As the Board stated in its letter of October 19, 1739,(8-189-a), the question whether or not a particular institution is a 'bank' within the meaning of section 8 of the Clayton Act is often a perplexing one, and in view of the great variety of financial institutions in this country there must necessarily be cases where even slight !ariations in the facts will produce different results. It is for this reason that the facts have been set forth in detail in this letter. "From the foregoing, it appears that the powers and a ctivities of the Norfolk Savings and Loan Corporation are essentially the same as those described in the Board's letter of October 19, 1939 (8-189—a). Accordingly, on the basis of the facts set forth above, it is the opinion Of the Board that Norfolk Savings and Loan Corporation, 2rfolk, Virginia, is not now a 'bank' within the meaning of section 8 of the Clayton Act. ult is noted from your letter of May 4, 1940, that the Board's ruling in this case will enable you to decide number of similar cases which are now pending. In this a connection, there are enclosed a copy of a memorandum and +21113Plem.ental schedule prepared in the consideration of ""Is case which may be helpful to you." Approved unanimously. Letter to Mr. Worthington, First Vice President of the Federal Ileeerve Bank of Kansas City, reading as follows: "Reference is made to your letter of June 26, 1940, 1096 8/2/40 -12- "With enclosures, relative to the Clayton Act status of Messrs. E. S. Kassler, Sr., and C. A. Kendrick, and presenting for the consideration of the Board in this connecLion the question whether the First Industrial Bank of Denver, Denver, Colorado, is a 'bank' within the meaning Of section 8 of the Clayton Act. "Apparent1y the First Industrial Bank was organized as the Denver Morris Plan Company under the general corporation laws of the State of Colorado, with the power of lendmoney and carrying on an investment business; subsequent17, after the passage of an act providing for the organization and operation of Industrial Banks, the institution was converted into an industrial bank and is operating under what are now known as 1935 Colorado Statutes Annotated, Va. 2 - Chapter 18 - Article 5, Section 150-157. "From the information which has been submitted it appears, among other things, that the institution receives savings accounts, evidenced by a pass book, under the rules and regulations stated in the pass book, a specimen of which waS enclosed with your letter. The rules and regulations pverning_ such savings accounts appear to be substantially . /1.e same as those used by commercial banks receiving saydeposits, The cover of the book contains the words ,avings Department', and before the place where 'Withdrawand 'Deposits' are entered is the statement that 'This 12 .?k is accepted and all deposits are made subject to the 'Iles and Regulations of the Bank as herein printed and Made a part of this savings contract.' Rule 3 of the Rules !!..121,Regulations recites that 'Deposits of 11.00 and upwards "j_.-4-1 be received'. Rule 9 provides that 'Deposits may orIly be withdrawn at will....' but that the Bank may -ts option require certain notice or repay deposits in -Lns tallments. Rule 10 reads as follows: As interest bearing deposits must be loaned or invested, it is not anticipated that savings accounts will be used as general checking accounts, therefore the number of withdrawals permitted Without charge in any one month is limited to four; a charge of ten cents will be made for in each withdrawal in excess of that number.' t ,reP1Y to question 10 of your questionnaire regarding lara operations of the institution, Mr. Sorensen, Executive President of the Bank, stated that 'Our Corporation make use i;s of counter checks to effect withdrawals in its offlking rooms but only in connection with the presentation Pa88 book.' Although no statement of condition of the 1_097 8/2/40 -13- "institution was submitted with your letter, a statement of its condition, contained in the September 1939 edition of Polk's Bankers Encyclopedia, showed demand deposits of $652,000 and time deposits of 55,000 out of total liabililes of 0_,280,000; and the amount of time required daily 'Y. employees in connection with the receipt and payment of funds involving deposits and investment certificates is estImated by Mr. Sorensen to be approximately five hours four hours for the regular teller and one hour for the relief teller. These facts seem to indicate that the receipt and payment of funds involving deposits constitutes c- considerable portion of the institution's business, although Mr. Sorensen states their belief 'that while our corporation does receive deposits this activity must be regarded as an incidental feature of the business of the co rporation.' , "As the Board indicated in its letter of January 8, t94O, S-198, one of the most significant elements in de'ermining whether a financing institution should be classifled as a bank within the meaning of the Clayton Act is the receipt of deposits. Since it appears that a very con!lderable portion of the business of the First Industrial bank of Denver, Denver, Colorado, is the receipt of deposits flder a plan substantially the same as that employed by .e--s receiving savings deposits, the Board is of the opinion that the institution is a 'bank' within the meaning of section 8 of the Clayton Act; and it is unnecessary to give Consideration to the additional information which you have submltted regarding its other activities." Approved unanimously. Thereupon the meeting adjourned. 41 • *1411&.i Se retary. Vice Chairman.