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Minutes of actions taken by the Board of Governors of the Federal Reserve System on Thursday, August 7, 1952. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Szymczak, Chairman pro tem. Mr. Vardaman Mr. Mills Mr. Robertson Mr. Carpenter, Secretary Mr. Kenyon, Assistant Secretary At the meeting of the Board on July 29, 1952, there was a Preliminary discussion of a draft of letter to Mr. Slade, Vice President of the Federal Reserve Bank of San Francisco, prepared response to Mr. Sladeis letter of June 11, 1952, which enclosed 4 eoPY of the report of examination of the First Security Corporation, Ogden, Utah, made as of the close of business September 30, 1951, and l'equested the Boardts opinion concerning the applicability of section 51414ei of the Revised Statutes of the United States to investments bY the Corporation in stocks and debentures of Aubrey G. Lanston CO•, Inc., and to certain activities of Nestern Investment Company, a Wholly-owned subsidiary of the corporation. Action by the Board was deferred at that time pending a review of the file by Governor Roberte04 upon his return from vacation. Governor Robertson stated that he had reviewed the file and 4PProved the draft of letter to Mr. Slade in the form in which it was PrePared. 1371 9 8/7/52 e Governor Vardaman said that he also approved the languag of the proposed letter, based on his understanding that the position taken therein was in accord with the policies and practices followed by the Board in the past in similar cases. Security Governor Mills referred to the acceptance by First certain Company, a nonbank subsidiary of First Security Corporation, of employees examination, savings accounts", as disclosed by the report of stating that, while it appeared that the company might have accepted it seemed dsPosits in violation of the applicable statutory provision, clear that the possible violation was not willful and that, if brought to the attention of the management, the practice could readily be ehanged so that it would not be illegal. In a discussion, it was Reserve brought out that the proposed letter requested the Federal the Bank of San Francisco to ascertain the full facts concerning Operation of the savings accounts and bring the matter, including the 8oardl5 practice in such cases, to the attention of the holding company l-ffiliate, with the suggestion that the holding company affiliate care to in order that 811PPlY such additional information as it might violation of law th° Reserve Bank might consider whether a probable Was involved. At the conclusion of the discussion, unanimous approval was given to the letter to Mr. Slade in the following form: 1372 8/7/52 -3- "This refers to your letter of June 11, 1952, addressed to Mr. George S. Sloan, enclosing a copy of the report of examination of the First Security Corporation, Ogden, Utah, and requesting the Board's opinion concerning the applicability of section 5144(e) of the Revised Statutes of the United States to investments by the Corporation in stocks and debentures of Aubrey G. Lanston & Co., Inc., and to certain activities of - estern Investment Company, a whollyowned subsidiary of the Corporation. "On the basis of the information presented, the Board is of the opinion that Aubrey G. Langton & Co., Inc. was !formed for the purpose of! the public sale or distribution of securities; that the acquisition of such Company's stock by First Security Corporation resulted in the acquisition of an 'interest' in such Company in violation of section 514h(e) of the Revised Statutes; and that the Corporation should divest itself of ownership of such stock as soon as possible. With respect to the Class B and C debentures of Aubrey G. Lanston & Co., Inc., the Board is of the opinion that ownership of these debentures does not give First Security Corporation any 'control' of, or any 'interest' in, the Company within the meaning of the statute. In this connection, it is understood that owners of the Class B debentures have not been called Upon to consent to the payment of dividends on the Company's common stock aggregating in excess of 10 per cent of its net earnings and therefore have not exercised any measure of control over the Company. . "With respect to Western Investment Company, it is questionable whether the Company is actually engaged in the securities business. However, the Company's charter powers are so broad that it could engage in the public sale or distribution of securities and therefore it is to be considered as 'formed for the purpose of' engaging in the securities business. Under the circumstances and in accordance with action taken in somewhat similar cases arising heretofore, the Board will consider the Corporation as having complied with the spirit and purpose of the statute if the board of directors of First Security Corporation Will adopt a resolution to the effect that Western Investment Company shall not be permitted to engage in the issue, ajwyt) t) 8/7/52 at "flotation, underwriting, public sale or distribution, of ns ipatio partic ate syndic h throug or , wholesale or retail If ties. securi other or notes, ures, debent stocks, bonds, this is done, the Board will not regard the purchase by the sale Company of stock of First Security Corporation and resoluthereof to employees of the group as violating such a onal tion. Nor will the Board regard the purchase and occasi ct confli in as group the of ers custom sale of such stock to acquire with such a resolution as long as the Company does not and large blocks of stock of the Corporation for this purpose of as long as the Company and other units which are members sales the holding company group do not actively promote such sing adverti h throug sales such make or hold themselves out to or otherwise. or'Tour letter of June 11, 1952, referred also to the aexamin of report the of 37 and ganizations listed on pages 4 ation Corpor ty Securi First with tion which are affiliated beunder the provisions of section 1(d)(5) of Regulation P that, fact the to and , orates cause of interlocking direct ain connection with the examination of First Security Corpor ion attent s ation' Corpor the tion as of September 30, 1949, was directed to the omission of information regarding such is affiliations from its annual reports to the Board. It the to ion attent tion's requested that you direct the Corpora ing regard it to advice s fact that, notwithstanding your previou annual the in ted reflec the matter, such affiliations were not the reports for 1950 and 1951, and advise the Corporation that ation inform e includ to Board will expect future annual reports of Form required by Item 8 of Supplemental Information (page 9 s. F. R. 437) with respect to all affiliated organization s ith further reference to the affiliated organization the that mentioned above, attention is directed to the fact 1)44) confidential section of the report of examination (page loans shows that First Security Bank of Utah, N. A., held of certain of these organizations as follows: Collateral Amount None shogn Amalgamated Sugar Co., Ogden Utah $150,000 U tT 500,000 Anderson Lumber Co., 554,036 Co., Utah Construction U U 0 400,00 Co., rd Lumber Stodda $1,6011,636 t4 t-Vi 11.0 8/7/52 -5- "In addition, (p.149) loans made by that bank, secured in whole or in part by the capital stock of First Security Corporation, amounted to $118,810. The capital and surplus of First Security Bank of Utah, N. A., aggregated $61000,000. "Also, from information contained in the confidential section of the report of examination (pages 136, 144, and 149), it appears that loans to certain of these affiliated organizations made, or participated in, by the subsidiary banks were on an unsecured basis. "Therefore, it appears from the facts as submitted that there were violations of paragraph 2 of the agreements executed by First Security Corporation as a condition to the issuance to it of general voting permits, in that (1) the aggregate loans made by First Security Bank of Utah, N. A., to organizations affiliated with First Security Corporation and loans collateraled by stock of that corporation exceeded the limitations of section 23A of the Federal Reserve Act, and (2) loans to the above-mentioned affiliated organizations were made, or participations therein were held, by the subsidiary banks of the group on an unsecured basis, whereas the provisions of section 23A of the Federal Reserve Act with respect to collateral were applicable. "It is suggested that the holding company be advised of the apparent violations and that we be advised of steps taken to bring about the necessary corrections, if such violations still exist. "It was also noted in that part of the report of examination covering the operations of First Security Company that (1) the balance sheet of that company as of September 301 19511 reflected a liability of $56,791.29 for 'Employees Savings Accounts'; (2) the company accepts, by regular payroll deductions, Up to 10 per cent of the salary of any employee of the First Security group; (3) interest at the rate of 6 per cent per annum is paid on these accounts upon payment of the accounts in December; and (4) the participating employees have the option of receiving cash or stock of First Security Corporation. From the facts submitted, the question arises as to whether First Security Company is accepting deposits in violation of section 21(a)(2) of the Banking Act of 19331 as amended. As you kno, a violation of this provision of the law constitutes a felony -6- 8/7/52 "and under the Board's practice, as set forth in the Board's letter of August 19, 1948 (F.R.L.S. #6503), every case in Which it appears probable that a violation of the banking laws constituting a felony may have occurred is to be reported to the local United States Attorney and by the Board to the Attorney General of the United States. Since all of the Pertinent facts of this matter may not appear from the examination report, it is requested that, unless the full facts concerning the operation of the savings accounts are known to your bank, you bring the matter, including the Board's Practice in such cases, to the attention of the holding comPany affiliate and suggest that they supply such information as they may care to in order that your bank may consider whether a probable violation of the law is involved." The following additional actions were taken by the Board: Minutes of actions taken by the Board of Governors of the Federal Reserve System on August 5, 1952, were approved unanimously. Minutes of7 actions taken by the Board of Governors of the Federal Reserve System on August 6, 1952, were approved and the 4ctions recorded therein were ratified unanimously. Memoranda recommending that the resignations of the following elliP10Yees be accepted, effective the dates indicated: Effective Date Name and Title Director, from Mr. Young, Division of Research and Statistics 4I4.2122amancian Memorandum 8/1/52 Jeannette H. Kavanaugh, Clerk 8/27/52 e 8/7/52 -7- Effective Date Name and Title 12ZI2.21—M22222,911-dum -- Memoranda from Mr. Dembitz, Assistant Director, Division of International Finance 8/1/52 8/4/52 Edward Marcus, Economist John H. Power, Economist Approved unanimously. 8/29/52 8/29/52
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