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390 A meeting of the Federal Reserve Board was held in Washington Oillffednesday, December 13, 1933, at 11:15 a. m. PRESENT: Er. Mr. Mr. Mr. Er. Black, Governor Hamlin Miller James Szymczak Morrill, Secretary Carpenter, Assistant Secretary Bethea, Assistant Secretary Martin, Assistant to the Governor Wyatt, General Counsel Faulger, Chief of the Division of Examinations Mr. Smead, Chief of the Division of Bank Operations Er. Boatwright, Assistant Counsel Mr. Cagle, Federal Reserve Examiner Mr. Mr. Mr. Er. Er. Mr. ALSO PRESENT: tonto_, Mr. Ripley L. Dana, Counsel for Old Colony Trust Associates Er. Benjamin W. Guernsey, Trustee, Old Colony Trust Associates G overnor Black stated that the Old Colony Trust Associates, achusetts, a Massachusetts trust, had inquired of the Fed- 1111x1 Re8erve Bank of Boston whether, in filing its application for a 4uthorizing it, as a holding company affiliate, to vote the 141'ck held by it in member banks, it could eliminate from the applica.404 the clause requiring that the applicant shall agree not to declare dividends unless provision is first made for any impairment in its N31-ta1; and that Mr. Curtiss, Federal Reserve Agent at Boston, had t4141111itted the inquiry to the Board with his letter of November 3, Governor Black said that, after a discussion yesterday with ri aa and Guernsey, he had taken the natter up with the Board's teZA1 Division and the Divisions of Examinations and Bank Operations, 391 12/13/33 -2- culd that Counsel was of the opinion that the depreciation in the bank stock held in the assets of the trust resulted in an impairment of its " 'Pita', and that the Board should not grant a voting permit unless the trustees would agree not to pay dividends while such impairment unprovided for. lie also stated that he had advised Messrs. 41148.nd Guernsey of Counsel's opinion, and had invited them to discuss the 114tter with members of the Board at this meeting. ' lir. Dana stated that the Old Colony Trust Associates was organ".." 1928 by individuals acting as trustees, who sold to the public PEtt'ticiPating shares in the trust, such shares representing proportionate in4_ ' vr°8ts in the assets of the trust and in the income derived theref rQm; that a total of approxinntely $20,000,000 was received by the t ru8tee5 from the sale of the participating shares, which VW inVested . ln the stocks of eighteen banks in the neighborhood of Boston at a coat of approximately $19,000,000; that these stocks have since dePractated in value to something less than 010,000,000; that the terms the trust provide that the trustees shall not be required to differentiate between the principal and income of the trust but may make a vitetribution to the holders of participating shares -without regard to rt 11:1°3-Pal or income; that the shareholders purchased the shares in relialace on the provision of the trust that dividends would be paid out c4 ' earrLiaage; that dividends paid by the banks are now in the hands of the trlasteee 136 available for distribution; that it is felt that it would lahrair to the shareholders for the trustees to agree not to pay 4.tridends out of the earnings; and that, therefore, while the association 392 12/13/33 30.. 71°Il1d not object to entering into an agreement net to pay dividends €313t out of earnings, it feels it should not be required to agree that it 'will not pay dividends while its capital is impaired, particu- lEtriY since, under the present circumstances, such an agreement would Preclude the Payment of dividends during the life of the present particiPatitg shareholders. Reference was made by Mr. Dana to applications for membership illthe Federal Reserve System which have been filed by four nonmember trust eotloanies in which the Old Colony Trust Associates holds stock, 414t he stated that he had been advised that the condition of the trust °°11/Parlia: 4 -S such that they are able to meet the requirements for men- bershi -Ps but that their admission to membership is being delayed by the I'l)quil ' ellIent that the trust must first obtain a voting permit authoriz&lig it -0 vote the stock held by it in the applicant institutions. 4180 He 4- ' a ated that it is known generally that the four trust companies h(lAre 41/Plied for membership, and it is felt that if they are not adAed to membership it will affect public confidence, not only in the tota„ z "Lnztltutions, but in the affiliated member banks as well. Governor Black made the suggestion that the trust could meet th.e n. ltuetion by writing down to their present value the carrying value or the balak stocks held in its assets and reducing the value of the Akrtic. 1Ntting shares on its books in an equal amount, which would elimill4te th6 question of impairment of capital* Mr. Dana stated in reekhe, t ° that suggestion that it has always been the practice of the trt4lt to carry its assets on its books at cost and to reduce the carrying 393 12/13/33 -4- 71211e thereof only in the case of an actual loss realized from the 84le of assets; that it is desired at this time to make no change in 84ecnulting methods for the reason that a suit has been filed against the "last°es charging bad faith in the purchase three years ago of bank stock in which there has since been a substantial depreetat on -; and that, while the purchase was made in perfect good faith, it /748 felt that if a change in the accounting procedure of the trust were made at this tire it would be referred to by counsel for the Plaintiffs in the suit as an acknowledgment of improper methods. He 64130 said that, as soon as this litigation is disposed of, the trustees vill be glad to meet any requirements that the Board may make in the irmtter. There followed a discussion of the purpose of the agreement I lcier co . nsideration, and it was pointed out that this was the only ease out of forty or more applications for voting permits heretofore Ilived in which the Board has been asked to waive the agreement, nna that it mould appear that Congress did not intend that there should be :11111 different consideration accorded to business trusts, such as the -010ny Irust Associates, which are holiing company affiliates, than te ao corded to corporations, associations, or other similar organizati . During the consideration of the matter, Mr. Miller withdrew trnwra tee " ' 14 meeting, which continued as a meeting of the Executive Commit- c't the Board. At the conclusion of the discussion, Messrs. Dana G _ Iturnsey also left the room. 394 12/13/33 Governor Black suggested that the Committee take action on the f°11.017ins; c questions: 1. Whether the Board will grant the request of the trustees that tIle trust be permitted to file an application for a voting permit ulthout agreeing in the application not to pay dividends unless Praiasion is first made for impairment of capital; 2. Ahether the Board will admit the four affiliated State trust companies which have filed applications for membership, without !'cquiring that the Old Colony Trust Associates first obtain a vot11g per, and; Whether the Board will grant to the trust a temporary permit. Accordingly it was voted, (1) not to grant the request of the trustees, (2) that the four State trust companies Should not be admitted to membership until the Old Colony Irust Associates files a proper application foxya voting permit and the Board grants such permit, and (3) not to grant a. temporary permit to the trust. On the third question Jr. hamlin voted "aye". The Secretary was requested to advise the Federal Reserve Agent at Boston in accordance with the action taken, end Governor Black stated that he would advise Messrs. Dana szd Guernsey of the Board's action. Ur. Szymczak then referred to a letter received from Yr. MlFederal Reserve Agent at Cleveland, under date of December 11, 1933 'eallinr attention to the fact that, because of the provisions of 4eticn BA of the Clayton Act, there is danger of the Cleveland bank 1o8itg the services of Yr. George D. Crabbs as a Class B director and o Messrs. C. E. Eaming and Fred A. Geier, as directors of the Cincintralich, as they are also directors of corporations mhich make 101148 eeured by stock or bond collateral. Mr. Szymczak inquired as to /1hEtt action, iJ1 addition to recomrending to Congress an amendment to the 474 is being taken in connection with communications of this kind Nteived from Federal reserve banks. It uas stated that, in accordance with the action taken at the 395 12/13/33 -6- tleeti116 - of the board on December 6, 1933, letters are being prepared to the Chairmen of the Banking and Currency Committees of the Senate 11°11se of Representatives, recommending that Section 8A of the ClayAct be amended so as not to apply to cases of the kind referred to ill •' ;alliams' letter, and that a circular letter is also being pre'for the consideration of the Board, to the Federal reserve agents Llt all Federal reserve banks, advising that such a recommendation will be triade. It was agreed that a reply should be made to lAr. Williams' letter, and the Secretary was requested to prepare such a reply. Mr. James presented the following draft of letter to Mr. Norris, G°Ircril or of the Federal Reserve Bank of Philadelphia, prepared by the C°111111it+-ee on Salaries and Expenditures following the action taken at the nieeting of the Board on December 8, 19331 is "The Board has considered carefully the report dated December 1, at33, of the comnittee appointed pursuant to a resolution adopted i4 a meeting of your directors on ilovember 15 in regard to changes D the official staff and your statements to the Board on Friday, "ether 8. is the view of the Board that the duties and responsibilis devolving upon the Federal Reserve bnnks are of such extent :14_L c haracter as to justify the employment of competent counsel on ull time salary basis, to be located in the bank's offices in association with the executive officers so that he may partil61uPate conveniently in their conferences and be available for freconsultation and to consider correspondence and other matters ' 17ing legal questions. In other words, the Board feels that ity° h,17°Iuld be of considerable value to the Federal Reserve banks to I.J? their counsel as an integral part of their staff organizations. i4 I? assumed that this is what you have in mind as to ILI. - Sinclair, : 1 71ew of his past experience and relations with the Federal Re„ Go \re bank, and that you would probably designate him as Deputy to17'onor and General Counsel. On this basis the Board is prepared C170 favorable consideration to the salary payment involved. W 396 1'03/33 -7- uch an arrangement mould eliminate the necessity for the retenon, on an annual basis, of outside counsel as it is assumed - nEtt the bank would employ special counsel in exceptional cases only. ft As indicated to you at the meeting on Friday, there is a feeling on the part of the members of the Board that in making recommendations for additions to the staff of senior officers consideration should be given to the desirability of obtaining the services of an official who has had broad practical experience in o?mmercial banking, and when this matter has again been given con!deration by your directors the Board will be glad to receive further recommendation in regard to the strengthening of the uellk's official staff. In the circumstances, the Board is deferring action on the other changes suggested in your letter." Approved. 1. 1r• James then stated that, at the request of Governor Black, lour13uant to the action taken at the last meeting, he had approached j 1- Pole yesterday with regard to his entering the employ of °111 " the .rederal Reserve Board for the purpose of making a study of banking to4diti °Ile in Puerto Rico, and possibly other territories, dependencies alla in,, '41/41' Possessions of the United States, in connection with the c1141r3ti°11. of the admission to membership in the Federal Reserve System Orbanks atoll located in such territories, dependencies and insular posses- elld that 111.. Pole had advised this morning that he mould be glad to 11401 ertake the work. Mr. James also stated that Mr. Pole had agreed ecept aPPointment by the Board with the understanding that his salary vrolaa be at the rate of 0.,000 per month and that he would be reimbursed tor actual necessarv transportation and subsistence expenses. Governor Black stated that he had discussed the proposed appointtent air e Pole with Mr. Case, Federal Reserve Agent at Now York, who r411 itra4 --44J-ngton today, and that Mr. Case had said that he knew of no 397 12/13/33 01le better fitted to conduct the study. After discussion, flr. Pole was appointed an examiner for all purposes of the Federal Reserve Act, as amended, and of all other acts of Congress pertaining to examinations made by, for, or under the direction of the Federal Reserve Board, and was designated as Special Adviser to the Federal Reserve Board, with salary at the rate of 6 y1,000 per month and with the understanding that he will be reimbursed for actual necessary transportation and subsistence expenses incurred by him when absent from Washington on official business, all effective as of December 13, 1933. It was understood that the appointment of Mr. Pole was for the purpose of making a study of banking and Other conditions in Puerto Rico and in such other ternorbs, dependencies and insular possessions of the United States as the Board may later designate, and of submitting !report to the Federal Reserve Board thereon for considerai°11 in connection with the determination of the policy to us by it with regard to the admission to membership of banks located in Puerto Rico and other territories, dependencies and insular possessions of the United States. The Committee then considered and acted upon the following illstters Reply to a letter dated December 5, 1933, from Mr. Strater, Seeret arY of the Federal Reserve Bank of Cleveland; the reply reading ka l'°110wt. Federal Reserve Board approves the recammendation contollied in your letter of December 5 that your bank be authorized as ?ontinue for an additional period of three months the temporary Di gn.nlent of J. W. Kossin and E. E. Edmiston to the Failed Banks wh:'eions Loans and Discounts Function at their present salaries 11;ich are in excess of the maximum of 43,600 fixed in the personclassification plan for the positions occupied." Approved. Letters to the boards of directors of the following State banks, 841*1 lei. -ter stating that, subject to the conditions prescribed in the Itker 'the Board approves the bank's application for membership in 398 12/13/33 -0- the Federal Reserve System and for the appropriate amount of stock in the p ederal reserve bank of the district in which the applicant is lo- Federal Reserve Bank um Ihe Utica Savings Bank Company" Utica, Ohio. union Bank of 'Winchester", "Winchester, Virginia. Monroe City Bank", Monroe City, Missouri. Barton County State Bank", Lamar, Missouri. Cleveland Richmond St. Louis Kansas City Approved. Telegraphic reply to a letter dated December 9, 1933, from Mr. Curt' le°, Federal Reserve Agent at Boston; the reply reading as follows: c "Referring your letter December 9, 1933 re application Bristol ?unty Trust Company, Taunton, Massachusetts, Board grants exten.1 of time to January 9, 1934 within which to comply with congltlone of membership" Approved. Letter to nr. O'Connor, Comptroller of the Currency, reading Eta oilovra Bo "In accordance with your recommendation, the Federal Reserve T, 4rd approves a reduction in the common capital stock of 'The tzoccheange llational Bank of Olean', Olean, NEW York, from 01,000,000 pursuant to a plan which provides that the bank's 4131tal shall be increased by the sale at par of 0500,000 par value 1. 3!seferr ed stock to the Reconstruction Finance Corporation, and rat the funds released by the reduction in common capital stock, 14Z?ther with approximately 0135,345 from the bank's surplus and : 1 141vided profits, shall be used to eliminate substandard assets depreciation in the amount of approximately c3635,345, all as forth .ii your memorandum of December 5, 1933." Approved. Letter to Lir. Stevens, Federal Reserve Agent at Chicago, 399 12/13/33 io 1141ing as follows: "Receipt is acknowledged of Mr. Young's letter of December 3$ 1933$ regarding the Clayton Act application of Mr. Warren Sutliff Of Peoria, Illinois, in which you state that the applicant is also president and director of the Fond du Lac State Bank of East Peoria, which was pot listed in his application. You state that h? Intends to resign as president and director of that bank or will not accept re-election at the annual meeting in the early part of January. "You suggest that Mr. Sutliff should not be required to file 01.1 aPPlication covering his service of that bnplc, and under the clreumatances it would appear that such an application would be unnecessary." Approved. There mere then presented the following applications for orig4-- s ock, or for the surrender of stock, of Federal reserve banks: lications for ORI NAL Stock: '11'st TG:--577----National Bank in West Union, West on, West Virginia bistrictr10 e 7 ational Bank in Wabash, Wabash, Iiadian a kt..riot No. 12. viltr(Ads National Bank in Brea, Brea, Cal ifornia lications for SURRENDER of Stock: rict No. 2 e(t ational Bank, Belmar, New Jersey 'irp eing liquidated through conservator) B Branchville, New Jersey (Bein m -Liquidated through conservator) ulat • Shares 36 36 72 72 36 Total 36 144 C matio liqnal Bank, aanford, Kentucky ?irztell.,g uidated through conservator) (t Alational Bank, Woodsfield, Ohio PiretTlg liquidated through conservator) . ( inonal Bank,Scottdale, Pennsylvanla 1‘,--'ary liquidation, succeeded by -rat il ational Bank of Scottdale) 60 75 135 GO 60 510 630 400 12A3/33 41- uistr37- 1 o for SURRENDER of stooks (Continued) . 5. National Bank of Fairmont, Fairmont, West Virginia (Insol-vent) District No. 6. rst la tionarbank, Headland, Alabmna Oeins liquidated through conservator) 41'..ILI1.SLN07* Pirat ,. (Insolven() 1.1it National Bank, Th. ansolvent) U'st Nati onal Bank, ,. (Insolvent) 'ilrst national Bank, b. (Insolvent) '11"Tb National Bank, p4 killS°1Vent) *trSt RatiOnal R 600 600 94 94 La Harpe, Illinois 45 Clinton, Indiana 69 Clearfield, Iowa 18 Dunkerton, Iowa 36 Hubbard, Iowa 36 Marathon, Iowa (Insolvent) c'eli'"Teal City Bank, National Bank, Rockwell City, Iowa Pi \Being liquidated through conservator) rat National 01,(Itso1vent) Bank, St. Ansgar, Iowa Wlerchants Natiol National Bank and Trust Company, Battle Creek, Michigan (Being liquidated thro , pir. , _Lot conservator) -National Bank, Rochester, Michigan Par„,Being liquidated through conservator) erchants Eational Bank, Princeton, "ltconsin (Being liquidated through cOzlse rvator) IDj zi.t..let Shares e......11•••••1111•010...• 20 36 29 1,620 120 29 2,058 76 76 3,000 3,000 No. 3. Murray, Kentucky Irn/licsiolvent) Bank' 1)4tr,. z,ila No, 10. ;litY *ational Bank & Trust Co., Kansas City, 13 ; -8.!,(/uri (Voluntary liquidation, succeeded 'Ilion National Bank in Kansas City) biet . corIot /To, lie (v. ri°nal Bank, Uico, Texas p? ulit"Y liquidation, absorbed by lret N ational Bank of Hico) 60 401 12/13/33 -12lioations for SURRENDER of Stooks (Continued) Dictri t3Q 11. ContinuM. Citizens National Bank, lano, Texas (I nsolvent) Shares 47 Total 107 6,700 Approved. Thereupon the meeting adjourned. Seorbtary.
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