Full text of Minutes of the Board of Governors of the Federal Reserve System : Meeting Minutes, August 4, 1937, Volume 24, Part 3

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11.094(c
A meeting of
the Board of Governors of the Federal Reserve Sysa"as heldin
Washington on Wednesday, August 4, 1937, at 11:30 a.
PRESENT:

Mr. Eccles, Chairman
Mr. Szymczak
Mr. Davis
Mr.
Mr.
Mr.
Mr.

Morrill, Secretary
Bethea, Assistant Secretary
Carpenter, Assistant Secretary
Clayton, Assistant to the Chairman

Co
nsideration was given to each of the matters hereinafter rererred
t0 and the action stated with respect thereto was taken by the
liOard

The minutes
of the meeting of the Board of Governors of the
Reserve System held on August 3, 1937, were approved unani-

Telegram to Mr. Young, President of the Federal Reserve Bank
°tIoston
) stating
that the Board approves the establishment without
clilee by
thev
bank today of the rates of discount and purchase in its

-g schedule.
Approved unanimously.
Memorandum dated August 3, 1937, from Mr. Morrill recommend111 the p.
-PPointment of/tr. Charles D. Lindsmood as a general utility
Nib

4;2,000

in the Board's new building, with salary at the rate of
Per

An

effective as soon as his services may be required

tIttel,

Passed satisfactorily the usual physical examination.
Approved unanimously.
Memo
randum dated August 3, 1937, from Mr. Morrill recommendel3Pointment of Mr. Charles W. Storm as a carpenter at the




1.095
8/4/37
Bc'ELrdts new
building, with salary at the rate of 4,800 per annum, efiectilIe as soon as his services may be required after having passed
satisfactorily the usual physical examination.
Approved unanimously.
There tas submitted a recommendation from Messrs. Spurney and
IC,Opp

g that Lhe
following persons, who had been selected in accordaxice ,
with the
authority granted by the Board on July 12, 1937, and tho
had pa
ssed satisfactory physical examink-Lions, be appointed as charvioaien
111 the Board's new building, each with salary at the rate of 50t
Per hour,
e
ffective as of August 4, 1937:
Mrs. Irma L. Brannon
Mrs. Minnie C. Pruett
Mrs, Helen S. Nutwell
Approved unanimously.
Lett
er to Mr. Fletcher, Vice President of the Federal Reserve
,
of
''leveland, reading as follows:
rel :This refers to Mr. Taylor's letter of July 16, 19372
TrLia
'
nting, to an inquiry from The First National Bank and
the?mPanY of Lexington, Lexington, Kentucky, concerning
P,
ication of section 11(a) of the Board's Regulation
Pertinent provisions of which read as follows:
tF
yreceived or held by a national bank
as tild=
shall not be invested in stocks or obliVions of * * * the bank or its directors * * *.'
trust 't appears that the bank was recently appointed coOf
Of a trust which has been in existence for a number
and that among the assets of the trust received by
the
14hichank was a mortgage note of one of the bank's directors
the ;matures in August, 1937. The bank inquires whether
senewal of the note would violate Regulation F.




1096
8/4/37
-3t
"The above-quoted provisions of Regulation F relate to
the investment of trust funds and do not prohibit the re,ention of assets received by a national bank as a part of a
estate when it becomes trustee. Further, in accordance
with the principles applied in a recent ruling relating to
an analogous situation, the renewal of a note so received as
:
1 Part of a trust estate should not be considered as an invectraent of trust funds within the meaning of such requirelent of the
regulation (see ruling in Federal Reserve Bulletin
MeY, 1937, at page 392). Therefore, it is the view of
the Board
that the regulation itself does not prevent the reOf the note referred to above; it being understood,
ze course, that the investment is otherwise a proper invest"of the trust in view of all the circumstances relating
thereto and
such investment is not otherwise subject to critieisra.
t . "However, the bank's attention should be called to cerain Provisions of law which may have some bearing on the
(Irstion whether the note should be renewed. Section 11(k)
tw the Federal Reserve Act provides that it shall be unlawdi-k f°11 a national bank to lend trust funds to any officer,
or employee of the bank and makes it a felony for
any
loj 13fficer, director, or employee to make or receive such
fZ. Since the enforcement of such statutory provisions
th ls within the jurisdiction of the Department of Justice,
B"rd cannot undertake to express any opinion concernof6
,
their interpretation and their application to the renewal
uhe no
.
be in question."
Approved unanimously.
Letter to Mr. Torthington, First Vice President of the Federal
vellre

ank of Kansas City, reading as follows:
inci Th1s refers to your letter or Tune 9, 1937, and its
NatT°sure, relating to an inquiry from The United States
pli-(3nal Bank at Omaha, Omaha, Nebraska, concerning the apcetion of section
11(a) of the Board's Regulation F.
he bank inquires whether such section prohibits the
batik
pur I frclm investing trust funds in real estate mortgage loans
1,, le:lased through Byron Reed Company, Inc., of which Mr. A.
qir -eed, a director of the bank, is chairman of the board of
or rors. It is stated that such loans are not obliFations
7
., r°n Reed Company, Inc.; that proposed loans are suitted :
bm
uo the trust department of the bank before commitment




LOW
8/4/37

_4-

"and closed only after its approval; and that they are secured by first
mortgages on real estate of a sufficient apPraised value to meet the requirements of the Nebraska law.
In the latest report
of examination of the bank the investetts in such
mortgage loans which had been made since Tune
,' 1936$ were criticized as being in violation of the regu-Letion.

T

."The bank also inquires whether the above-mentioned
)
1.cr
ic)
sZTZs
ado
sfthe
,,
regulation apply to 'general market and
mentioning obligations of Nebraska Power
I°111PanY and Chicago, Burlington & Quincy Railroad Company.
aPPears that a director of the bank is a director and
lee President and general manager of Nebraska Power Cornand that another director is a director and executive
ice President of Chicago, Burlington & Quincy Railroad ComIt is stated that the bank has in the past purchased
1ons of such companies for trust accounts and that
'
en oblications are on the bank's list for future investments.
,
"The views expressed by the Board in its letter of this
r ? to you,
relating to a similar inquiry from The Omaha
1101 Bank, Omaha, Nebraska, are equally applicable in
ea
itt1°
2,nnection with this inquiry and it is suggested that you
e The United
States National Bank at Omaha in accordtre therewith.
In addition, the bank should be advised
ch t the fact that bonds are listed on a securities ext:
11
or possess a general market does not make the per1"
ei;nt Provisions of the regulation inapplicable thereto,
itt"
.°11gh it may have a bearing on the question whether the
erest of officers, directors, or employees of the bank
beste Obligor is such as might effect the exercise of the
t
Judgment of the management of the bank in investing
'"481; funds in
such bonds.
"Further, the Board feels that it should specially
attention to the fact that the mortgage loans in questj
Reeldi quite clearly constitute 'property acquired from' Byron
tha; C°.n1PanY, Inc., within the meaning of the regulation, and
ve,i, even though such loans are otherwise proper trust intaa;Tents) their purchase is forbidden, if, as apparently
or'll
'
e the case, Byron Reed Company, Inc. is an 'interest'
L. Reed within the spirit and purposes of the regu-

T, Y.

Approved unanimously.

.erve

Let+uer
,•
to Mr. 'k)rthington, First
Vice President of the Federal
EtIlk of Kansas City, reading as follows:




1098
8/4/37
-5"This refers to your letter of June 9, 1937, and its
closures, relating to an inquiry from The Omaha National
Omaha, Nebraska, concerning the application of section
l‘a) of the Board's Regulation F, the Pertinent provisions
°I which read
as follows:
'Funds received or held by a national bank as fiduciary shall not be invested in stock or obligations
°111 or Property acquired from, the bank or its direct rs
or their interests,
officers2 or employees
,
th
"It appears that in the latest report of examination of
e bank the examiner listed certain trust investments as
_ TIv
estments in concerns in which directors are interested
173nd criticized those purchased since June 1, 1936, as having
been
Purchased in violation of the above-quoted provisions
::t
"
0.7
iTon F which became effective on that date. The
1
listed are stocks or obligations of Fairmont
R.rimerY Company, Nebraska Power Company, Union Pacific
'
pti ll'ond Company, St. Joseph and Grand Island Railway Cornand Oregon-INashington Railroad and Navigation CornThe bank inquires whether the investment of trust
e
IDY
it in such securities is prohibited by Regulation
F.
to
"It appears that one director of the bank is a direc,: and executive vice president of Fairmont Creamery Com;;11Y; that one director
is a director of Nebraska Power Com:
0 Y &lid) until recently, another was a director of that
of-panY; that one director is a director and president of each
,
0 the
companies; that the securities of the railper comPanies are listed on the New York Stock Exchange and
oti-isess e general market; and that the securities of the
1)114
"c°mPanies are not listed on any securities exchange
a ;it is
stated that they are not closely held and possess
te airlY active local market. It is understood from a letre ceived from the president of the bank that none of
the
tio securities is ever purchased from the issuing corpora:
or through any of the directors of the bank and that
au
boril,! securities are purchased entirely through brokers or
,
10uses of independent and national standing.
lati The purpose of the above-quoted provisions of Reguaa f°1 F is explained in a footnote which reads, in part,
t* *
'
this requirement contemplates that the naonal bank will not invest trust funds in the obA ations of any organization in which officers,
V- rectors or employees of the bank have such an
'nt•
4
,
•1eou
as might affect the exercise of the best




1Q499
8/4/37
-6"'judgment of the management of the bank in investing trust funds.'
?lile the
footnote refers only to obligations of organizas in which officers, directors, or employees are intere
the same principle is applicable in the case of
Inv sted
estments in stocks of, or property acquired from, such
orga
nizations.
"In determining whether particular investments are proL.
Ilbited, it is necessary to consider all of the facts and
aelreurristances of each case. For example, the mere fact that
director of
a national bank is director of a corporation
;
(3as not
necessarily make it a violation of the regulation
_clr the bank to invest trust funds in stocks or obligations
iytt%r
eporation. On the other hand, such an investment
properly made unless it is clear that, in view
ell of the facts and circumstances of the case, the inOf the director in the corporation is not such as
„ae ht affect the exercise of the best judgment of the manage'
of the bank in investing the trust funds. An investaent
4
zi'lch
may otherwise be entirely proper, or even highly deofTle, may be in violation of the above-quoted provisions
oi fla Board's regulation,
and the well-established prinbal)
,,lea of sound trust administration upon which they are
acjd) because
conflicts of interest are involved, transconld°ns in which trustees have conflicting interests are
busea ed as a class because there is grave danger of

;It

114, 7Phe Board
feels that, as a general proposition, it is
of"81rable for it to attempt to rule upon specific cases
airt
l,Ila kind presented by this inquiry, both because of the
fse;ieultY of ascertaining and accurately stating all of the
end circumstances involved and because such rulings
to
ittnd to destroy the
intended flexibility of the pertinent
te111
,1
,
1 !P of the regulation. It is felt that this is a mat,
s° 4"Ich should be
left primarily to the good faith and
cierd Judgment
of the banks and that ordinarily they must
arse.11111ina for themselves whether particular transactions
raslit'n
0 violation of the spirit and purpose of this requirethe regulation.
be
"It is
supgested that the inclosed copy of this letter
eici
rniched to The Omaha National Bank, together with any
nal comment& which you may wish to make."
Approved unanimously.
Lette_ to
Mr. Clark, Vice President of the Federal Reserve Bank
Itistttl
) readinE
as follows:




1100
8/4/37
-7"Reference is made to your letter of July 29, 1937, re1”ing to the affiliation between The Blackshear Bank, Blackear, Georgia,
and A. P. Brantley Company.
4.
It has been noted that the bank now concedes that the
t,P
' Brantley Company is an affiliate within the meaning of
Banking Act of 1933, that the company owns a majority of
,/iihe
the
stock of the Blackshear Manufacturing Company, The Manor
cr8ding Company, Wayne Trading Company and Pierce Trading
4°MgenY, and that, accordingly, such companies have been defled to be affiliates of the bank.
m
"The report of examination of The Blackshear Bank of
:
31Y 22, 1937 showed that the Pierce Trading Company was in,1reibted
on an unsecured basis to the bank in the amount of
'500 which, according to subsequent information, was later
reased to 4'9,500 and subsequently reduced to V7,000, which
!
13 less than 10 per centum of the capital and surplus of the
You report also that you have been advised that the
b an tO the Pierce Trading Company would be promptly secured
o c°11ateral which conforms to the provisions of section 23A
the Federal Reserve Act. It is understood that you have
c-Lzeussed with officers of the bank the situation with
to affiliates and that all parties at interest now
•
tioerstand the provisions of law end of the Board's regulahavns az repards loans to, and reports of, affiliates and
theeZiven you assurances that such provisions of law and
ward's regulations will be strictly followed in the

7

11,eThe Board
concurs in your opinion that apparently no
"ul Purpose would be served by requiring the submissi,on
194he report of the Pierce Trading Company as of June 20,
•
will' or by the publication of such report, and, therefore,
Of
ake no requirements concerning reports of affiliates
:
her ortl
.
:0which should have been furnished or published

Approved unanimously.
Letter

to Mr. Sargent, Vice President of the Federal Reserve

or Zan F
rancisco, reading as follows:
itel "This refers to your letter of July 24, 1937, and its
Corall°surea, relating to the status of Knudson Investment
Iltd?IlY, Brigham City, Utah, as a holding company affiliate
1.93 1' the Provisions of section 2(c) of the Banking Act of
' as amended by section 301 of the Banking Act of 1935.
he Board has determined that Knudson Investment Cornno u engaged, directly or indirectly, as a business




8/4/37
_8in holding the stock of, or managing or controlling, banks,
. anking associations, savings banks, or trust companies, withIn the meaning
of section 2(c) of the Banking Act of 1933, as
amended, and, accordingly, that corporation is not a holding
2
c 3113ellY affiliate for any purposes other than those of section
of the Federal Reserve Act. Inclosed herewith is a letter
to
Knudson Investment Company advising it concerning the
.„°ard's action in this matter. Please transmit the letter
to that
corporation. A copy of the letter is also inclosed
ror your
files.
"As you will note, the Board expressly reserves the right
()
1,
n
1u-A-0 a further determination of this matter at any time
the basis of the then existing facts. In this connection,
18 requested that you advise the Board if, at any time,
"Al believe
this matter should again be considered by it."
Approved unanimously, together with
a letter to the Knudson Investment Company,
Brigham City, Utah, reading as follows:
ft

Boar Thi refers to your corporation's request that the
the .ctl 'declare said corporation not to be included within
rA
enn "holding company affiliate" and exempt it from the
'quirements made of holding company affiliates.'
oott The Board understands that your corporation owns and
°18 1,013 of the 2,000 outstanding shares of stock of
staj
e Security Bank, Brigham City, Utah, but it does not
-4°1% control any stock of, or manage or control, any other
bpt,t_
1,0
-r1 In view of these facts, the Board has determined that
Your
corporation is not engaged, directly or indirectly,
•
troi business in holding the stock of, or managing or contru'illE, banks, banking associations, savings banks, or
c°mPanies, within the meaning of section 2(c) of the
in'
1ng Act of 1933, as amended by section 301 of the Bank.'‘'et of 1935, and, accordingly, your corporation is not
•
of gl.ding company affiliate for any purposes other than those
lav 8ection 23A of the Federal Reserve Act. However, under the
et i, the
Board's action does not in any way effect the status
pu 17°11r corporation as a holding company affiliate for the
1130ses of
section 23A of the Federal Peserve Act.
Et autst
t -f your corporation should at any time own or control
more
ential portion of the stock of, or manage or control,
to
one bank, this matter should again be submitted
the Board
riehue
for its determination. The Board reserves the
btlsit to make a further determination at any time on the
8 of the then existing facts."




1102
8/4/37

_9Letter to The Honorable, The Secretary of State, reading as

follows:

"This refers to the previous correspondence with the
''elr
peeA
,
f4,—vment
of State regarding the sealed box and locked any
4.d safe, said to contain Mexican and United States coin
ctTcl currencY, held in custody at the New Orleans Branch of
-e Federal Reserve Bank of Atlanta since December 1923.
"In reply to the Board's letter of April 25, 1.94, re!,sting advice as to where the authority over the box and
'
m e is vested and what disposition should be made of them,
0/;.Kiroore, Assistant Secretary, stated that the Department
of Qtate was giving
careful consideration to the disposition
t. the funds, said to be funds collected during the occupawl°11 of Veracruz in 1914 and which were in the hands of the
(11131s4 Department as custodian, and that, in the absence of any
13,4ectian, it was believed advisable that the New Orleans
4.":8'hoh continue to store the funds pending decision as to
"ueirofinal disposition.
The management of the Federal Reserve Bank has again
raised
bo_
the question as to the proper disposition of the
to4est The Reserve Bank is naturally reluctant to continue
enAhold in custody sealed boxes for extended periods of time,
'
sh is strongly of the opinion either that the safe and box
pr°111d be withdrawn from the custody of the bank by the
th:Per authority or that the bank should be authorized to open
the sefe and box in the presence of proper witnesses and take
b„,c°11tents into custody where they would be subject to
ic examination and
audit.
Gottit will
be appreciated if you will advise the Board
Of
vernors whether the present unsatisfactory situation
inn respect to the custody of the boxes may not be adjusted
-cc°rdance with the wishes of the Federal Reserve Bank."
Approved unanimously.
Letter to Mr. Parker, First Vice President of the Federal Reserve

r

Atlanta, reading as follows:

2a, "Reference
is made to your letters of July 27 and July
ton 1937 regarding the application of section 8 of the Claydir .P.ct to
the service of certain persons as officers and
vieLyTors of First National Bank, Tampa, Florida, and Broad,lational Bank, Tampa, Florida.
"It is
understood that Broadway National Bank is the




1103
8/4/37

-10-

n,
.."elms under which Latin American Bank of Ybor City converted
into a national
banking association, and that Ybor City is
the Spanish
section of Tampa, being located within the city
On August 23, 1935, the date of enactment of the
ruking Act of 1935, Messrs. B. P. Taliaferro, H. T. Lykes,
A. Liggett and V. H. Northcutt were serving both First
,etional Bank of Tampa and Latin American Bank of Ybor City
officers or directors under permits issued by the Board
Pu/'suant to section 8 of the Clayton Act as that provision
read before
its amendment by the Banking Act of 1935. When
Latin
American Bank converted into a national bank these
E!Tilemen were still serving pursuant to the following pro"ion of the amended section 8:
'Until February 1, 1939, nothing in this section
shall prohibit any director, officer, or employee of
any member bank of the Federal Reserve System, or any
branch thereof, who is lawfully serving at the same
tiine as a private banker or as a director, officer,
or employee of any other bank, banking association,
savings bank, or trust company, or any branch thereof,
on the date of enactment of the Banking Act of 1935,
from
continuing such service.'
"The Board concurs in your opinion that for the purposes
Of
the present
case Broadway National Bank, the converted
.1,?_nal bank, is the same institution as Latin American Bank
Of
i,"or City, the earlier State bank, and that, therefore,
the c
ircumstances the provision quoted above permits each
th the gentlemen named above to continue his relations with
pele3 Converted national bank and First National Bank until
IllerY 1, 1939 just as if the conversion had not occurred."




Approved unanimously.

Thereupon the meeting adjourned.

—fe5Ve.A0D
1 (LA/
1
Secrete tliti.--Q4)

Chairman.