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A, meeting of the Board of Governors of the Federal Reserve SYStein WES held in Washington on Wednesday, August 3, 1938, at 9:30 PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Davis Draper Nh.. Morrill, 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. Leonard, Assistant Chief of the Division of Examinations Reference was made to a memorandum dated July 19, 1938, from 14r* WYatt suggesting that a conference of counsel of all Federal reserve banks be held in Washington at some convenient date during the rlic91th Of September or October. The memorandum stated that the last c°4terence of counsel was held in Slily 1936 and that there were several legel Problems affecting the entire Federal Reserve System which it s felt could be discussed profitably at a conference this year. WYett Mr. emPlified the statement contained in his memorandum by the l'irther statement that while it was not urgent that the conference be Called it was felt that a conference at the time suggested would be be neficial and that, if a conference is not held this fall, the ‘111e.1 Press of matters during the winter might make it impractical to 8/3/38 bcila -2- a conference until after the adjournment of the next session of C ongress. It was agreed unanimously that inasmuch as there was no special occasion for calling such a conference at this time the matter should be laid on the table with the understanding that it would be given further consideration whenever requested by a member of the Board or by Counsel. At this point Mr. Cagle, Assistant Chief of the Division of Examinations, joined the meeting. There was presented a draft of letter to Mr. Diggs, Acting Comptroller of the Currency, in reply to a letter received from Deputy Ccl:Vtrcller Oppegard under date of Stine 22, 1938, with respect to the ab801'Pti3n of exchange charges by the National Bank of Commerce of Lille01n, Nebraska. The draft of letter was considered in the light Of '446 t circumstances which resulted in the amendment of Regulation Q 111'r,.., de that any payment to or for the account of any depositor as ecrre% vensation for the use of funds constituting a deposit shall be consiet"ed interest, and it was agreed that it was desirable that before l'e4ch1 ng a decision in this case the Board be in possession of addi- ti°11a1 facts. Certain changes were made in the letter after which it was approved unanimously in the following form: "This refers to Mr. Oppegard's letter of Tune 22, 19 .L 38 with inclosures, setting forth in considerable de' 41-1 information with regard to the absorption of exchange 799 8/3/38 -3- "charges by the National Banl-, of Commerce of Lincoln, Nebraska. It is apparent on the basis of the information furnished that it is the practice of this bank to absorb in substantial amounts out-of-pocket charges which it has lflcurred in the collection of checks for its customers, and it is noted that the examiner is of the opinion that this practice is engaged in as a means of soliciting the business of country banks. "The Board feels that before undertaking to formulate anY conclusion with respect to whether this practice constitutes a violation of the law prohibiting the payment of interest on demand deposits, it should have before it comPiste information with respect to all aspects of the situation. Although the information which has been furnished is detailed, it does not cover fully certain points which the Board would like to have developed for consideration. "Therefore, it will be of material assistance to the Board in reaching a conclusion in this matter if you will Obtain and furnish the Board with the following additional i nformation: (1) A statement by the National Bank of Commerce of its practices and policies in absorbing exchange charges for depositors Including a statement of the reasons for the absorption of such charges and whether they are absorbed as compensation for or in consideration of the use of funds on deposit. (2) Copies of any documents or letters reflecting or indicating any agreements or understandings, express or implied, between the bank and its demand depositors covering the absorption of exchange charges, together with any other information showing or tending to Show the reasons for the absorption of such charges and whether they are absorbed as compensation for or in consideration of the use of funds on deposit. (3) Whether exchange charges are absorbed by the National Bank of Commerce only where both the persons forwarding or delivering the checks to the bank for collection and the banks on which the checks are drawn maintain deposits in the national bank or whether exchange charges are also absorbed when the forwarders are, but the drawee banks are not, depositors in the national bank or when the drawee banks are, but the forwarders are not, depositors in the national bank. 8/3/38 -4- "If feasible to obtain it, it would also be helpful to have specific information as to the average daily demand deposits for the year ending .Tune 30, 1938, or some similar Period, of each of eight or ten depositors for whom the largest amounts of exchange charges were absorbed by the bank during the period, stating the amounts absorbed and what percentage such amounts were of average daily demand deposits of each such depositor, and indicating whether each each depositor is a bank or what the nature of its business is. "While not essential, in order that the Board may have full knowledge of the possible violations of the law or the regulation which may be involved at this bank, it would also be desirable to have information as to whether or not substantially the same practice is followed in absorbing exchange charges on time and savings deposits as is followed in connection with demand deposits, and if so, whether or not the bank pays the maximum rate of interest prescribed bY the Board in its supplement to Regulation c on time and Savings deposits in addition to the absorption of exchange charges." Reference was then made to a memorandum dated May 23, 1938, the Division of Examinations recommending, for the reasons stated thel ' ein, that, if the Board and its counsel were of the opinion that 15. PrePar interpretation of Section 8 of the Clayton Act would permit, the 8°ard amend Regulation L, Interlocking Bank Directorates Under the Clayton Act, to permit a director, officer, or employee of a membel 'bank who was lawfully serving as such end also as a director, officer, or employee of one or more other banks on August 23, 1935 (4to of approval of the Banking Act of 1935) to continue to serve slleh member bank and not more than one of the other banks after Feb11 1939, the date fixed in Section 8 of the Clayton Act upon wbieb the exemption of such relationships now contained in the Act 8/3/38 IMO will expire,, The memorandtur also stated that during March 1938 let- ters were received from the Federal Reserve Banks of New York and Chicego suggesting the consideration of an amendment of the regulation. In this connection it was stated that some of the members of the oard had received requests from interested bankers that the Board ' 4mend the regulation. There was attached to the file a memorandum dated May 26, 1938, from Mr. Wyatt expressing the opinion that the BolIrd had legal authority to adopt the proposed amendment end that the question before the Board tas whether or not it should do so as a matter of policy. During a discussion of the reasons stated in the memorandum fli at the Division of Examinations for the proposed amendment it was Pointed out that the present law had been in effect since August 27, 1935) that individuals affected thereby had had ample opportunity to brillg their relationships into conformity with the provisions of the bY February 1, 1939, or to petition Congress for an amendment to the law, that the situation has not changed since the enactment of the ' - 41ng Act of 1935, and that, therefore, there did not seem to be -d-LY reason why the Board should permit the continuation of relation111158 which Congress had indicated should be terminated not later than eblAlary 1, 1939. At the conclusion of the discussion, Mr. Davis moved that the Board address a letter to all Federal reserve banks stating 802 8/3/38 -6that the Board sees no reason for extending the time fixed by Congress for the termination of the interlocking directorates referred to and requesting that the Federal reserve banks advise interested parties in their respective districts accordingly. Carried unanimously. Mr. Ransom presented for consideration the following draft of latter to Mr. Robertson Griswold, President of the Trust Division of the American Bankers Association: "This refers further to your letter to Governor 1117asom of June 28, 1938, and to the subsequent discussion in Governor Ransom's office during which it was suggested that it might be desirable for the Board to make an exPlanatory statement with reference to the ruling printed on page 440 of the Federal Reserve Bulletin for June 1938 to the effect that, under the provisions of section 6(1)) of the Board's Regulation F, the directors or the ePPropriate committee of a national bank must approve the acceptance of new trusts by the bank prior to their acceptance rather than subsequent thereto. You indicated that same banks feel that it may be difficult for them to oPerate under such a requirement. "Section 6(b) of the Board's Regulation F reads in Part as follows: * * * The acceptance of all trusts shall be approved by the board of directors or a committee appointed by such board, and the closing out or relinquishment of all trusts shall be approved or ratified by the board of directors or a committee appointed by such board; and such committee or committees shall be composed of capable and experienced officers or directors of the bank. Any such approval or ratification she].) be recorded in the minutes of the board of directors or of such committee as the case may be.' "It may be noted in passing that this provision of the regulation conforms to the principle contained in the 8/3/3e "Statement of Principles of Trust Institutions' approved by the American Bankers Association in 1933 to the effect that the responsibility for the investment of trust funds should not be reposed in an individual officer or employee, but all investments should be made, retained, or sold only upon the authority of a committee composed of capable and experienced officers or directors of the institution. The question whether or not a particular trust should be accepted by a bank is a matter of such importance that the Board feels that this principle of collective judgment should be ePplied in such a case as well as in the case of investment of trust funds. If such collective judgment should not be exercised until after a new trust has been accepted, it might be embarrassing and in some instances impractical for the bank to relinquish the trust. It was on the basis Of these considerations, therefore, that the above quoted Provision was incorporated in the Board's regulation. "As a matter of practical operation, attention is called to the fact that the board of directors of a bank, if it so desires, may designate a special committee for the Purpose of passing on the acceptance of new trusts and it is not necessary that such committee be composed Of directors of the bank. In fact, under the regulation, the committee may be composed exclusively of capable and experienced officers. "FUrther, the Board considers it to be consistent with the Provisions of the regulation for a new trust to be accepted by a bank upon written approval of a majority of the members of the appropriate committee without a meeting of the committee, provided such action is promptly reported to the committee and the report incorporated in its minutes. It is understood, of course, that at the time the acceptance i8 aPproved in writing all of the available members of the committee would be given an opportunity to pass on the acceptance. The Board's position in this matter is similar to that taken in a ruling published on page 391 of the Federal Reserve Bulletin for May 1937 with reference to actions of the trust investment committee provided for in subsection (c) of section 6. "It should also be noted that the Board heretofore ruled that alternates might be appointed for members of the trust investment committee provided for in subsection (c) of section 6 of Regulation F and when the regulation was amended effective December 31, 1937, a footnote containing the following statement was included: '*** alternates appointed by the board of directors may serve in place of 804 8/3/38 -8- '"regular members of the committee who are unable to serve on account of vacations, illness, or other good and sufficient reasons if the minutes of the committee show the reason for the service of such alternate in place of the regular member'. The Board has not heretofore had occasion to make a similar ruling in connection with the committee Provided for in subsection (b) of section 6, but it is of the opinion that the appointment of alternates may properly be made for that committee under the circumstances described in the language just quoted. "In view of the latitude contained in the regulation and the Board's rulings, it would seem that individual banks should be able, as a practical matter, to apply the requirements of the regulation to the circumstances of their particular cases. The Board has requested me to advise you that if you feel that the above statement will accomplish the Purpose you have in mind it will be glad to publish a statement to this effect in an early issue of the Federal Reserve Bulletin." Upon motion by Mr. Ransom the letter was approved unanimously. Mr. Morrill related for the information of the members of the 4/ard the recent developments (as set forth in memoranda which he had PrePared under date of July 22 and August 1, 1938) relating to the 48continuance of the Havana Agency of the Federal Reserve Bank of At4nte which resulted in the receipt by Chairman Eccles of the fol1"ing letter from Under Secretary of State Sumner Welles under date August 2, 1938: "I enclose a copy of a letter which I wrote on July 30 l orz to Mr. Chester Morrill with regard to the con' sideration that the Board has been giving to the closing Of the Habana agency of the Federal Reserve Bank of Atlanta. This letter was delivered yesterday to Mr. Morrill lanta.y Mr- Duggan of this Department. "As a result of the considerations set forth by Mr. Morrill on that occasion, I desire to state my deep apPreciation of the generous attitude that the Board has 8/3/38 "taken many times in the past by continuing the Habana agency of the Federal Reserve Bank of Atlanta. Although I had been aware that the maintenance of the agency was an expense to the Federal Reserve Bank of Atlanta, I admit to having been surprised to learn the extent of that cost and likewise the unimportant role which the Bank has been Playing in facilitating commercial interchange. "Nevertheless, from this Department's point of view, I continue to believe that it would be desirable that the agency be continued until such time as the Cuban Government has made the proposed changes in its financial structure which were elaborated by officials of the Cuban Government in consultation with officers of this Government. It may be that as a result of Cuban action there Will be even less of a role for the agency to perform than at present; but the contrary might be true, in which case it would be far easier for the United States to lend its effective cooperation if the agency were still to be operating. "Moreover, although it is unquestionably true that conditions in Cuba today are more stable than in recent Years, public opinion in Cuba is highly sensitive to action affecting Cuba taken by this Government. There is a Possibility that the termination of the agency at the present moment might give rise to unfortunate speculation and misunderstanding. "I realize, of course, that the Board cannot be expected to continue indefinitely the agency if it does not Perform a more vital and useful function than at present. It seems probable that the Cuban Congress at its next !easion will act upon the financial measures designed to Improve the banking and currency structure, and I strongly Ii that the Board will reconsider its decision to close he agency and will permit it to continue until the Congress 4as acted. If no action has been taken by the Congress by December 31, 1939, I would agree that the desirability of continuing the agency in anticipation of action by the Congress at a later date would be very questionable." Mr. Morrill stated that, as set forth in his memorandum of St 1, he had advised Mr. Duggan, Chief of the Division of American 4es of the State Department, when the latter called OD August 1 to di, -cuss the matter, that the total revenues for the Havana Agency 8/3/38 -10- for the six months period ending June 30, 1938, had amounted to only 4)929 as against expenses of $16,884, that during the period since jalillerY 1, 1938, transactions had been affected for American banks in enlY two instances, that the amounts of all transactions were small, 8-nd that during many weeks there had been no transactions of any kind. The members of the Board concurred in the opinion that in view r the circumstances related it was clear that the Agency was not l'endePing any substantial service and that, since the request of the State DePartment did not present a sufficient reason for the continilatio n of the Agency at a considerable expense to the Federal Reserve Systems the Agency should be discontinued. Thereupon Mr. Draper moved the adoption of the following resolution: "WHEREAS the Federal Reserve Bank of Atlanta has maintained and operated an agency in Havana, Cuba, for a number °f years past and is now operating the said agency pursuant to a resolution of the Federal Reserve Board (now the Board of Governors of the Federal Reserve System) adopted January 27, 1927, as modified by subsequent action of the said Board, and under the terms of an agreement between the Federal Reserve Bank Of Atlanta and the other eleven Federal Reserve banks which became effective on rune 1, 1935; and "WHEREAS the Board ef Governors of the Federal Reserve SYstem, in the light of the volume of business, °Perating expenses, and other factors involved in the maintenance of such agency, has determined that the necessity desirability for the continuance of the agency no longer exists; and 'WHEREAS the board of directors of the Federal Reserve of Atlanta adopted resolutions under dates of June 8, 8/3/38 -11- "1934, February 14, 1936, and September 11, 1936, requesting that the bank be authorized to discontinue the operation of the agency at Havana, Cuba; and "WHEREAS it is the opinion of the Board of Governors that the operation of such agency should be discontinued and that the request of the board of directors of the Federal Reserve Bank of Atlanta should be granted; "NOW, THEREFORE, BE IT RESOLVED: "(1) That the Federal Reserve Bank of Atlanta be and said bank hereby is authorized and directed to discontinue the maintenance and operation of the said agency at Havana, Cuba, as soon as practicable and in no event later than the close of business December 31, 1938, except to the extent necessary to wind up and liquidate any business or commitments theretofore acquired or entered into; "(2) Upon the discontinuance of the operation of the said agency pursuant to the terms of this resolution, the Federal Reserve Bank of Atlanta shall no longer be authorized to exercise through the said agency any of the powers which it has heretofore been authorized to exercise by the Board of Governors of the Federal Reserve System, except that it shall have and retain all such powers as may be necessary and appropriate to wind up and liquidate the business and affairs of the said agency as provided in the Preceding paragraph of this resolution; "(3) That the Federal Reserve Bank of Atlanta is directed to proceed diligently with the liquidation and winding up of the outstanding business and commitments of the said agency to the end that the affairs of the said agancY may be finally concluded at the earliest practicable date." Carried unanimously, with the understanding that a copy of the resolution would be sent to the State Department with a letter stating the Board's reasons therefor and that after reviewing all of the circumstances the Board had concluded that the Agency should be discontinued. It was also understood that the letter to the Federal Reserve Bank of Atlanta transmitting a copy of the resolution should state that, if the bank feels that it is necessary to make a public statement regarding the discontinuance of the Agency, it is desired that the statement be submitted to the Board before it is released. 808 8/3/38 -12Messrs. Draper and Thurston left the meeting at this point. Mr. Eccles stated that following the action taken at the meet- ing of the Board on Slily 20, 1938, he had sent the following letter to *. Crowley, Chairman of the Federal Deposit Insurance Corporation, exid a similar letter to Mr. Diggs, Acting Comptroller of the Currency, "eePt that the last two paragraphs were not included. He also said that copies of both letters had been sent to Assistant Secretary of the Treasury Taylor for his information and that since the letters were sent nothing further had been heard from the Treasury Department, the Comptroller of the Currency, or the Federal Deposit Insurance Cor poration: "Attached are copies of certain proposed revised schedules of the examination report form used by the Federa]. Reserve banks in the exsmination of State member °auks. These schedules have been revised in accordance With our understanding of the changes in policy expressed the recent agreement announced by the Secretary of the reasury. As you know, members of the Board's staff who have been engaged in the revision of the form of report or examination have discussed the details of the schedules with representatives of your staff, as we have been deairous of obtaining uniformity with respect to the revision Of the report so as to conform to the essential principles Of the agreement. "There are certain important differences between these schedules end the comparable schedules, copies of vhich have been received from your Corporation and the Comptroller of the Currency. Both of such forms, it is understood, will show the total current market value as well as the total book value of all securities by classes; i.e., Governmenta, municipals, rails, etc. They will also show separately the total market value of all 4th rated bonds (Baa and similar ratings) which under the agreement are included in Group 1 securities, and the total market value 809 8/3/38 "of all Group 2 securities. The inclusion of such market values, from which could readily be computed appreciation or depreciation in the securities account as a whole, in Group 1 securities as a total, in the lowest grade of Group 1 securities separately, and in Group 2 securities, is believed to be inconsistent with the policies agreed upon and directly contrary to the spirit, if not the letter, of the agreement as made public. Accordingly, such market values will not be shown in the report approved by the Board for use by the Federal Reserve banks in the examination of State member banks. "In addition, it is understood that below the analysis Of capital account showing the computation of adjusted capital after deductions as specified in the agreement, Your form will show the total depreciation, based on current market quotations, in the 4th rated bonds and Group 2 securities, less such part of the depreciation in such securities as may have been deducted in the computation of adiusted capital. Such ,a memorandum item likewise seems to be inconsistent with the understanding and not in conformity with the agreement. Accordingly our schedules do not contain a similar item and it is understood that the form of report of examination for national banks will not include such an item. "The general definition of Classification II in the sumAary of classifications in our form differs from the definition in your form in that ours contains no reference to securities, whereas yours contains a specific reference tQ 'securities which lack recognized investment merit.' It is understood that your examiners are to include in Cl assification II the amount of all Group 2, 3 and 4 securities which is not more severely classified. It seems to us that after including in Classifications III and IV the depreciation in such securities in the manner provided by the agreement, the inclusion of the balance of the book value of such securities in Classification II is not in conformity with the agreement. In this connection, it is Tiderstood that the definition of Classification II in the iumPtroller's form of report of examination does not specifically call for the inclusion of securities." In connection with the above, there was presented a memorandum 4ted AUgust 2, 1938, from the Division of Examinations referring to the ViSj0n of the form of report of examination of State member banks 8/3/38 -14- by Federal reserve banks which had been in process for some time and to the changes in the form which were made necessary by the recently announced agreement with respect to examination procedure, and recamIlleilding that the Division be authorized to proceed with the printing of the completed form in Washington and to furnish supplies of the f°rm to the respective Federal reserve benks. Copies of the proposed nOW form were distributed Among the members of the Board and changes recentlY made therein to conform to the agreement relating to examineProcedure were discussed. made Attention was called to the suggestion following a conference of members of the Division of 'Examinations With re presentatives of the Federal Reserve Banks of New York and Chicago that a different page 3 of the report be used in the examinei011 of State member banks in New 'York and that a different page 12 be a 4 -Ln the examination of State member banks in New York and Pennsylani a. It was agreed that the use of the revised form of report should e Uniform by all Federal reserve banks and that whether the alternate Pa'ees should be eliminated or used in a uniform manner by all Federal /'68erve banks should be referred to Mr. MdKee for decision. At the conclusion of the discussion, upon motion by Mr. McKee, the revised form was approved unanimously to became effective on September 1, 1938, with the understanding that it would be printed by the Board and the cost of printing prorated among the Federal reserve banks on a basis to be determined by the Division of Examinations and the Secretary's office. 8/3/38 -15Mr. Morrill presented a draft of letter to Mr. Walter Lichtenstein, Secretary of the Federal Advisory Council, reading as follows: "Members of the Board have read with interest the report which was submitted by the Federal Advisory Council at the time of its meeting with the Board on May 17, 1938, ana which summarizes the suggestions received by the members of the Council in response to the inquiries addressed by them to member banks in their respective districts with regard to the question: 'How can the Federal Reserve System increase the value or scope of its services to member banks in practicable or desirable ways?' It was noted that in a number of instances the suggestions represent conflicting viewpoints and in others perhaps a lack of adequate information. "Several of the matters referred to in the report relate to important questions of System policy in connection with which the Board wishes to know whether the Council concurs in the suggestions made or the particular viewpoint Which it favors. Therefore, the Board will appreciate being advised as to the conclusions of the Council on the basis of its consideration of the report." Approved unanimously. Reference was also made to the statement submitted by the FedAdvisory Council at the meeting of the Board with the Council on May 1?, 1938, with respect to the questions: 1, (a) That is the function of the Federal Advisory Council as a part of the Federal Reserve System. (b) How essential and important is this function and how might it be improved. 2. That types of topics should be discussed by the Council with the Board from time to time. The statement was discussed but no action was taken with respect thereto. 8/3/38 -16Mr. Thurston joined the meeting again at this point. Mr. Morrill presented a letter dated July 30, 1933, from Mr. SeillH. Hoefer, Secretary of the Bankers Association of Lafayette-Ray Cc/unties, Missouri, expressing regret at the Board's decision, as set f°1ith in its letter of Tune 6, 1938, in declining to approve the transOt. thirteen counties in western Missouri from the eighth to the tent zederal reserve district. The letter set forth in considerable clet4i1 the reasons why it was felt that the change should be made and "Pressed the trust that the Board's decision would not be considered as ti The letter was referred to Mr. Szymczak for recommendation to the Board as to the action to be taken. At this point Messrs. Thurston, Wyatt, Paulger, Dreibelbis, Le°4"a and Cagle left the meeting and consideration was then given to " e I uf the matters hereinafter referred to and the action stated with l'e8Pect thereto was taken by the Board: The minutes of the meeting of the Board of Governors of the Pecie Reserve System held on August 1, 1938, were approved unani- 11 10 11 Sl y Telegram dated August 2, 1938, to Mr. Parker, First Vice President of the Federal Reserve Bank of Atlanta, referring to the application _ ur the "Bank of Eastman", Eastman, Georgia, for pernission to withdr-. Immediately from membership in the Federal Reserve System, 8— 8/3/38 -1'7- and stating that the Board waives the usual_ requirement of six months notice of intention to withdraw, and that, accordingly, upon surrender of the Federal reserve bank stock issued to the Bank of Eastman, the Federal Reserve Bank of Atlanta is authorized to cancel such stock and nlake aPpropriate refund thereon. The telegram also stated that it was Understood that the Bank of Eastman desired to continue without interits status as an insured bank and that it was assumed that termination of its membership in the Federal Reserve System would be deterred until it could simultaneously be accepted by the Federal De- Posit Insurance Corporation as a nonmember insured bank. Approved unanimously, together with a letter to Mr. Leo T. Crowley, Chairman of the Federal Deposit Insurance Corporation, reading as follows: "The Board has today approved the application of the '13ank of Eastman', Eastman, Georgia, for permission to Withdraw from membership in the System and waived the usual Six months' notice of intention to withdraw. "It is understood that the bank desires to continue, Without interruption, its status as an insured bank and that tt desires the insurance on deposits as a nonmember to becoMe effective simultaneously with its termination of membership in the System. "It is understood also that you may desire to make an examination of the bank; therefore, in accordance with he provisions of subsection (k)(2) of section 12B of the -rederal Reserve Act, the Board hereby grants written consent for examiners for the Federal Deposit Insurance CorPoration to examine the Bank of Eastman, Eastman, Georgia, in connection with its application for continuation of d aPosit insurance as a nonmember bank." Letter to Mr. George W. Breabcwell, Cashier, The Second National kak 0 t lAasontown, Masontown, Pennsylvania, reading as follows: 8/3/38 -18- "This refers to your letter of 'Tilly 26, 1938, relating to the status of Laurel Land and Investment Company, Uniontown, Pennsylvania, as a holding company affiliate of Your bank. "The Board understands that The Second National Bank of Masontown has outstanding 1000 shares of stock; that 895 shares were voted at the last election of directors Of the bank; that Laurel Land and Investment Company owned or controlled 467 shares voted at such election; that Laurel Land and Investment Company subsequently has sold 17 shares and now owns or controls 450 shares; and that Laurel Land and Investment Company does not own or control any stock of, or manage or control, any bank other than The Second National Bank of Masontown. "On this basis, Laurel Land and Investment Company clearly is a holding company affiliate of The Second NaBank of Masontown within the meaning of the following provisions of section 2(c) of the Banking Act of 1933: '(c) The term "holding company affiliate" shall include any corporation, business trust, association, or other similar organization-'(1) Which owns or controls, directly or Indirectly, either a majority of the shares of capital stock of a member bank or more than 50 er centam of the number of shares voted for the election of directors of Enly one bank _q_..the_precedinc, election, or controls in any manner the election of a majority of the directors of any one bank; * * *.' (Underscoring supplied.) "However, in view of the facts above recited, the Board has determined that Laurel Land and Investment CamPanY i is not engaged, directly or indirectly, as a business holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies, nthin the meaning of the following provisions of section 4(e) of the Banking Act of 1933: 'Notwithstanding the foregoing, the term "holding company affiliate" shall not include (except for the purposes of section 23A of the Federal Reserve Act, as amended) * * * any organization which is determined by the Board of Governors of the Federal Reserve System not to be engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks or trust companies.' 815 8/3/3s -19- "As the result of such determination, Laurel Land and Investment Company is not a holding company affiliate for anY Purposes other than those of section 23A of the Federal Reserve Act, which relates to member banks' loans and extensions of credit to their affiliates (including holding comPany affiliates) and their investments in, and advances against, stock and obligations of their affiliates (including holding company affiliates). It should be noted, however, that the determination by the Board does not affect the status of Laurel Land and Investment Company prior to the date thereof, i.e., the date of this letter. "If Laurel Land and Investment Company should at any time own or control a substantial portion of the stock of, or manage or control, more than one bank, this matter should again be submitted to the Board for its determination. The Board reserves the right to make a further determination at 111Y time on the basis of the then existing facts." Approved unanimously. Letter to Mr. Sproul, First Vice President of the Federal Reserve 114allk of New York, reading as follows: "Reference is made to your letter of July 21, 1938 requesting the Board to consider changing its ruling of Una 19, 1931 (X-6915) which now reads as follows: 'In the event of the death of an officer or employee of a Federal Reserve bank, the salary of such officer or employee should be paid only up to the next succeeding pay day.' "The Board has considered the suggestion that it authorize the payment of 15 days' salary after date of death regardless of the time of month at which death occurs and in so doing has taken occasion to review the circumstances sUrrounding the adoption of the rule in the first instance and the effect of its application in the present changed circumstances. "Briefly recounting the same, it will be recalled that under date of April 13, 1931 (X-6859) the Board, for feasons therein stated, submitted the following topic for 6he consideration of the Governors at their next ensuing c onference: 'Compensation for officers and employees of Federal reserve banks after death and during 8/3/38 -20- "'periods of incapacitation and extended illness. On one or two occasions in the past, upon the death of an officer of a Federal reserve bank, the directors have voted to make a payment to the widow or estate of the deceased officer equal to several months salary. The Federal Reserve Board has been advised by its Counsel that in his opinion such payments are ultra vires, but that the question is a close and doubtful one as there is no Specific provision of law covering the matter. A question of policy is also involved inasmuch as all of the Federal reserve banks are carrying life insurance policies covering their Officers and employees. The Board considers it important that some definite understanding Should be arrived at concerning this matter and, if possible, also regarding the matter of salary payments to officers and employees absent on account of illness or injury not received in the line of official duty.' "Phis resulted in the following recommendation from the Governors' Conference to the Board: 'Careful consideration was given to the matters referred to in the board's letter X-6859, Particularly the legal questions involved, and also the desirability of arriving at a definite understanding as to a general policy to be followed by each of the Federal Reserve banks. After a general discussion, in which the members of the Federal Reserve Board participated, it Wa VOTED that it is the sense of the conference: 1. That in the event of the death of an officer or employee of a Federal Reserve bank, his salary should be paid up to the next succeeding pay day; 2. That the question whether any further increase in life insurance for officers and employees of a Federal reserve bank is desirable is a matter for the determination of the Board of Directors of that bank subject, if necessary, to the approval of the Federal Reserve Board. 8/3/38 -21- That this whole question inevitably raises the propriety of further consideration of a pension plan, and that because of the difficulties and delays attached to the consummation of a group pension plan, the Federal Reserve Board should be asked whether it would approve of a reasonable retirement annuity or insurance plan for individual reserve banks along lines that are now considered appropriate and proper for large corporations in this country employing large numbers of workers.' "Following the receipt of this recommendation, the Board issued its ruling of June 19, 1931. "It is to be observed that at that time it was recognized that the question being considered was closely related to the broader question of the propriety of establishing a retirement annuity or insurance plan for officers and employees. When it is considered that now e comprehensive plan, which, among other things, makes Provision for a payment equal to a salary for a year from the date of death to the estate or beneficiary of each member of the retirement syctm in the service of !. bank at the time of his death, has been established and 18 in operation, the Board is impressed with the fact that to continue the practice authorized in its ruling of June 19, 1931, would unjustifiably duplicate the paym?nts being made by the banks for the benefit of the individual officers and employees. t2. "AccordinEly, the Board has concluded that effec-ve August 16, 1938, salary of any officer or employee 414: while in the service of a Federal Reserve bank should be paid only to and including the date of his death. The other Federal Reserve banks are being advised to this effect." "3. Approved unanimously. Thereupon the meeting edjourned.
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