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te n A meeting of the Board of Governors of the Federal Reserve Sys- „_ ,„"0 held in Washinaton on Lonr'ay, August 23, 1943, at 11:00 a.m. PRESENT: Mr. Mr. Mr. Mr. MT. Eccles, Chairman Ransom, Vice Chairman Szymczak Draper Evans 11r. Mr. Mr. Mr. Morrill, Secretary Bethea, Assistant Secretary Carpenter, Assistant Secretary Clayton, Assistant to the Chairman The action stated with respect to each of the matters hereinEltter referred to was taken by the Board: The erq. minutes of the meeting of the Board of Governors of the Fed- Reserve System held on August 20, 1943, were approved unanimously. The minutes of the meeting of the Board of Governors of the Fed- er a 48erVe System ' held on August 21, 1943, were approved and the actions Coed therein were ratified unanimously. Mem°randum dated August 20, l'ector or 1943, from Mr. Goldenweiser, Di- the Division of Research and Statistics, recommending that Mrs. Tapp be appointed as a clerk in that Division on a temporary "18 for an indefinite period, with basic salary at the rate of a,680 Der arlraiz, effective as of the date upon which she enters upon the peror her duties after having passed satisfactorily the usual physieel e)'aMirlation. Approved unanimously. L.4 ')`3'' AWd 8/23/43 -2Letter to the board of directors of "The Farmers Bank", Sun1)1117/ °1110, stating that, subject to conditions of membership numbered to 1 ▪ contained in the Board's Regulation H, the Board approves the bank ' , • aPPlication for membership in the Federal Reserve System and for the , a 145r0Priate amount of stock in the Federal Reserve Bank of Cleve- Approved unanimously, for transmission through the Federal Reserve Bank Of Cleveland. Telegram to Mr. Day, President of the Federal Reserve Bank of Sah xrancisco, reading as follows: 'Relet August 20. In view of your recomaendation and the J:urcrmation submitted, Board approves the establishment and Alerstion of an additional branch in Stockton, California, by v eil-call Trust Company, San Francisco, California, in connec°4 with the proposed purchase of assets and assumption of 14Pcsit liabilities of The First National Bank of Stockton. la understood that the establishment of the proposed branch : e u 18 been approved by the appropriate State authorities and that peunsel for the Reserve Bsnk is satisfied as to the legal asth:ts involved. It is understood also that within one year 13_ proposed new branch will be consolidated with the existing 1-anch in Stockton." 4 Approved unanimously. Letters to "The Wolf Bros. State Bank, Centreville, Michigan", Centreville, Ilpta, Michigan, and the "Peoples Bank and Trust Company", Sunmp, reading as follows: "The Board is glad to learn that you have completed all arra_ _ Res l'eements for the admission of your bank to the Federal : 1 ve System and takes pleasure in transmitting herewith a to,! -14t97 certificate of your membership. 04, "It will be appreciated if you will acknowledge receipt 1 this certificate." Approved unanimously. _A oo-pel 8/23/43 Letter proposed to be sent to Honorable Preston Delano, Comptr°11er °f the Currency, in accordance with the procedure referred to by ' ' 11". Pa nsom at the meeting of the Board on August 6, 1943: "This refers to previous correspondence between your Of-°a and the Board, regarding the question whether the absorpLl°11 or exchange charges by National Bank of Commerce of Lincoln, A ne°1n, Nebraska, constitutes a payment of interest on demand ''ePosits in violation of section 19 of the Federal Reserve Act and of the Board's Regulation q. "Your Office has submitted detailed reports of your ex; i ner with respect to the relevant facts in connection with 4 4418 matter. The report of examination as of March 22, 1943, ;11dieates that during the year 1942 the subject bank absorbed exchange charges in the amount of .fl8,576.22 out of $25,187.15 j icheLngs charges paid, and that during 1943 up to the date of 16 e/examination such charges were absorbed in the amount of TIZ1015.80 out of $5,506.81 paid. It appears thnt the subject has absorbed exchange charges in hundreds of instances numerous depositors, principally with respect to balances raaintai aA 1.— by correspondent banks; and that the practice has exiSted over a period of years. As of April 20, 1938, the report 17 eXamination of the bank indicated that during 1937 the bank '40Ltabsorbed exchange charges in the amount of $14,953.68 out 24011 621 charges paid; that such charges had been ab 14.85 exchange c in amounts ranging from 10 cents to $160 for more than eh, c°rrespondent banks; and that, in some instances, the exabsorbed for particular banks amounted to as much as 2 or 3 Per cent of their balances with the subject bank. tie_ The Board's Regulation Q defines interest as 'any payto or for the account of any depositor as compensation the use for4 of funds constituting a deposit.' This definition "4riantended merely as a declaration of the general law. Acare inglY, the questions to be determined in the present case ew. first, whether the absorption of exchange charges by the seelect bank, as above described, constitutes a 'payment', and, ' rid) whether such payment is made as compensation for the use °r funds constituting a deposit. cha "There can be no doubt that the absorption of each exchange demrge by the bank results in a 'payment'. In any such case, the wir,seitor receives a pecuniary benefit which he would not otherreceive. For example, if a check for 0.,000, drawn on a °11-Par bank which imposes an exchange charge of 1/10 of 1 per centje - paying checks drawn upon it, is deposited with the subC u ba, 0- and 'La-) is forwarded to the drawee bank for collection, f4 Zt 4234 8/23/43 -4"the non -par bank would remit to the subject bank 099 in payOf the check. If the subject bank then credits its depositor in t,_ ue amount of $1,000, thus absorbing the 1 exchange Charge, the depositor clearly receives a 'payment' in an amount equivalent to the exchange charge. In, "From the facts in the present case it appears that the 'payresulting from absorption of exchange charges are made by the it subject bank for the purpose of soliciting and augmenting 8 demand deposit accounts; in other words, as 'compensation' O the use of funds constituting deposits. No other reason for e absorption of such charges is apparent. wh "The bank's correspondent bank deposits, with respect to thich exchange is regularly absorbed, have increased from less ion $7 million at the end of 1941 to nearly WA million in lune It is significant that during this period the ratio of .'_"0-nis bank's correspondent bank deposits to its total demand deits has , been much higher than at Reserve city banks as a whole, its district and throughout the country, notwithstanding 147! ',sI fact that Lincoln is located only a short distance from Omaha, "lohit is a much larger financial center. tank That the absorption of exchange charges for depositing th„8,13 in consideration for balances maintained by them is fursul-34: indicated by the fact that in at least one instance the haltlelc,t bank has advised a depositing bank that, since the bank's -e in a particular month was negligible, exchange charges coul; 4-t4 not be absorbed for such bank because the subject bank woUld t hsve no wy il- of making it back'. Moreover, it appears ' e : the subject bank, on occasion, has written to its correspondretub , anks suggesting that they par items sent to such banks in trom'n for the parring by the subject bark of items received toZ SUCh bankes posi : While the practice exists principally with respect to deone: 8 of correspondent banks, it is understood that, in at least pet4 allstance, a corporate account formerly carried with a emits-1 ' 4g national bank was obtained by the subject bank because of a sorption of exchange charges. Gove In the circumstances, it is the opinion of the Board of ebo , rn°rs, on the basis of the facts here presented as outlined or e s that the absorption of exchange charges by National Bank Of i ( 1). 11! "1811 "of Lincoln, Lincoln, Nebraska, constitutes a 'payment fore test, within the meaning of the general law and is thereseoti a PeYment of interest on demand deposits in violation of the g4l a?soLg tll i .F tliiico ttuReserve Act and of the provisions of Approved unanimously, with the understanding that Mr. Morrill would advise Mr. 1235 _5_ Crowley, Chairman of the Federal Deposit Insurance Corporation, by letter thAt the letter to Mr. Delano was being sent. Memorandum dated August 20, 1943, from Mr. Paulger, Chief of IheDtVision of Examinations, submitting the travel expense vouchers of 118•' I cad T. Krug and Charles Eaton, Assistant Federal Reserve Examiners, covering the period August 1 to 15, 1943, and recommending that, because to other acc ammodations were procurable at the time and it was necessary kt'thez to accept whatever space was available in order to proceed to their next assign/Tient Ittat% and the payment of additional expenditures by Messrs. Eaton covering the difference in the price of standard lower berths etd. roomettes be approved. Approved unanimously. Thereupon the meeting adjourned. Secretary. DProveci: Chairman.
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