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271 Ix meeting of the Federal Reserve Board was held in Vashington on Monday December 4, 1933, at 12:45 p. m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mr. Black, Governor Hamlin Miller James Thomas Szymczak O'Connor Morrill, Secretary Carpenter, Assistant Secretary Bethea, Assistant Secretary Martin, Assistant to the Governor Paulger, Chief of the Division of Examinations Mr. Wyatt, General Counsel Mr. Wingfield, Assistant Counsel Mr. Mr. Mr. Mr. Mr. Reference was made to the discussion at the meeting of the Executive Committee of the Board on Novembe 29, 1933, r with regard to the proposed 40(1111sition of certain corporate stocks by the"Nheeling Bank and Trust CamIY",Wheeling, West Virginia) a member bank, through the merger with that itatitution of the"Dollar Savings and Trust Company",a nonmember, and there wEt3 Presented a memorandum dated December 4, 1933, from Mr. Wingfield, AsIstEint Counsel, stating he i of that, while the question is a very doubtful one, the opinion, for the reasons stated in the memorandum, that the N4ira be legally justified in not objecting to the acquisition of the held by the Dollar Savings and Trust Company by the Wheeling Bank tlet Company through the propose d merger, if, in view of all the cir- 8tocits W°111C1 11"3 inv°1ved, the Board feels that it should not raise any objection. %Gal° The, het t ratic1411 al "suggested that, if the Board should decide not to ob: sholli the ac quisition by the member bank of the stocks in question, it 811 " e8t, in accordance with its usual policy, that, as a matter of 272 12/4/33 - 2(°0c1 banki --lig Practice, the merged institution dispose of such stocks as soon a8 POSSible. A til°t be discussion ensued during which it was pointed out that the ques- tore the Board is not only whether the Board will interpose no ob- Jectlob - 60 the acquisition by the member bank of the stocks in question, bit 30 whether, on the basis of counsel's opinion, the Board will take the po sition that the word "purchase" as used in section 5136 of the R 8ed St atutes includes the acquisition of corporate stocks by merger or consolid ati°n with a member bank of the institution holding the stocks. At the conclusion of the discussion, Yr. Tames moved taat the 8Z Board take the position that the acquisition of corporate Y a member bank through a merger of, or consolidation With another banking institution is not a purchase within the 4,0111rvisio__ 113 of section 5136 of the Revised Statutes. Carried. it 10r. James then moved that the Board reconsider its action at 131 ' °ving the letter addressed to the Federal Reserve Agent thi;'eveland under date of November 24, 1933, in connection with 84- matter, and that the agent now be advised that, in view of to j he circumstances involved, the Board withdraws its objection the: 6 acquisition by the Wheeling Bank and Trust Company through the 11°13°eed merger of the corporate stocks referred to, but that ;°a-t feels that stocks are not suitable for investment of rtilid;'d quir-A°1% commercial banking institutions, that the stocks acthe trait the Dollar Savings and Trust Company as a result of so _ -erger should be disposed of as soon as it is feasible to do prc;b:Ibld that it is understood that the agent feels this can feotealY be within one year after the merger is ef- Carried. krth er co nsideration was given to the letter received under date of liovetilbe Z11,1401 :21 '1933, from Mr. Albert A. Sprague, Director of the Continental the Nati"al Bank and Trust Company, Chicago, Illinois, inquiring if N.ect n °4 Ur. Ranney as chairman of the board of the Continental 273 12/4/33 -3 National Bank and Trust Company meets with the full approval of the Federal Reserve Board. After be advised discussion, Governor Black suggested that Mr. Sprague that the Board believes that Mr. Ranney is a man of , , ste ! ling character and high ability, and well fitted for the vosltion offered. ^ Mr. Hamlin moved that Governor Black's suggestion be amended c.""u. °1 "The Board believes Mr. Ranney is a man of sterling f'_"'Iracter and high ability, and among the class of men qualified °r the Position offered." Ur. Mr. Hamlin's motion was put by the chair and lost, Hamlin voting "aye." The Governor was then authorized to address a lett,er to Mr. Sprague in accordance with his suggestion; ' viesara. Hamlin, Szymczak, and O'Connor voting "no." a 44 Mr. Szymczak, in explanation of his vote, stated that he had mr:gh regard for Mr. Ranney and for his ability, and also for i4 SPrague, and that his vote should not be construed as indicat84ithet he is opposed to the choice of Mr. Penney for the pot() m°11 referred to, but that he felt that in addressing a letter Boa, ; 1 * SPrague along the lines suggested by Governor Black the es4 *Quid be acting in a situation presented to it for the first t1 mtskian d would be setting a precedent as to the action to be as similar cases arising in the future, and that inasmuch the gestad tplard's letter of October 19, 1933, in which it was sugwas to at the management of the national bank be strengthened, raas 'dressed to the Comptroller of the Currency, there is no Y the Board should express directly to the rector board of dithar2r8 of the Continental Illinois National Bank, or any committee ; °f, its opinion with regard to Mr. Ranney or any other choice 8,11 ;0 11114,;-1 . the new management is completely set up by the bank with the tr011:!4" °I' the Reconstruction Finance Corporation and the Comp—' the Currency, at which time the Board could properly mettmore ef fectively express its opinion as to the proposed manageThe Board then considered and acted on the following matters: 1T : legraM ‘40arti kr, dated November 29, 1933, from Mr. Curtiss, Chairman of the "erve Bank of Boston, and letter dated November 29, 1933, from Secretary of the Federal Reserve Bank of New York, both advising 12/4/33 that, at mee ings of the boards of directors on the dates stated, no changes were made in the banks' existinE schedules of rates of discount and Purchase. Without objection, noted with approval. Memorandum dated November 28, 1933, from Mr. Morrill stating that, la C/rdeT to maintaiL a regular thirty-minute schedule of messenger service between the Treasury end the Shoreham Building, it has been found necessary t0 h0e an a dditional messenger, and that, therefore, it is recommended that hase D Smith be appointed as a messenger to fill this need, with 411fary at the rate of 4840 per annum, effective as of the date upon which Ile enters uloon the performance of his duties; the recommendation having 111 aPProved by four members of the Board on December 1, 1933. Approved. TelegraPhic reply on December 1, 1933, approved by four members of t116 13°e:r t° e letter dated November 22 from Mr. Walsh, Federal Reserve A( eltlt et I) alias; the reply reading as follows; 1."Y°1-Ir Neil le tter November 22. Board approves appointmentof Edwin Your b an a3 Examiner in the Federal Reserve Agent's depaFtment all =rate of 43,000 per annum. Please advise date he assElteat Approved. Letter 1141"al atfqiuE: or tiro D411 dated December 1, 1933, to Mr. Helm, Deputy Governor of the Reserve Bank of Kansas City, approved by four members of the Board, that, in accordance with the recommendation contained in his letter lianter 21, the Board approves changes in the personnel classification °t the bank to provide for tAv new positions in the Federal reserve 275 12/4/33 -5 agent - e xamination department and three new positions in the auditing clePartme the discontinuance of the position of "office boy" in the —11v, feriellel service - mail department, and a change from "messenger" to "messenger-el,, --re in the title of one position in the general service-mail dePartraent. Approved. RePlY on December 1, 1933, approved by four members of the Board, to 4 lett . A 1e- ,ated November 16 from Mr. Norris, Governor of the Federal Reserve 44k . 0 'Phil adelphia; the reply reading as follows: tel : Your letter of November 16 in regard to the portion of my letas "'November 11 to Chairman Austin which referred to your service hese'hdirector of the Beneficial Saving Fund Society of Philadelphia May ;:en,brought to the attention of the Federal Reserve Board. You the ; - 11 that in the Board's " circular letter of May 7, 1924, X-4048, lowing statement was made: e Federal Reserve Board believes it will be as obvious to the directors of the Federal reserve banks ! .8 it is to itself that the good conduct and repute of ube Fede rel reserve system require that the officers t Of the Federal reserve banks shall give their entire bin* and attention to the affairs of the banks and not "The identified with any outside business interests'. Board quoted this statement in its circular of April 29, 1933, ?4 ti048 °rend requested that it be advised with respect to any connec'r any ,,°! ' ficers of the Federal reserve banks with business concerns 4.11.celact the BenA1 : 41ing to the July, 1933, edition of the Bankers Directory 114(1 Saving Fund Society had total deposits of 05,000,000 liabilities of 1;5,500,000; it had outstanding loans and " ,c't 0.3,700,000; it had investments in bonds and securities iet:T r ::4 0 ) 0 ,1 4 )ts cash and exchanges due from banks amounted to ; it operated two branches in Philadelphia; and ere& rt2„1,1°1-Pal c orrespondents were important member banks of the Fed"gEiteed-erve system. Evidently it has a large organization and is t)ao„ , orto „C verY considerable extent in activities comparable to ilet 1'nor important banking institutions. It is conceivable ;11direct8Ome instances it might have some transactions, directly or with the Federal Reserve Bank, and the possibilities of questions affecting such an institution, in which the 276 12/4/33 Bank might be concerned, are illustrated by the recent ne gotiations of the mutual savings banks of the State of New York with serk the Reconstruction Finance Corporation and the Federal Reank of New York for the purpose of establishing certain re41t;c)ns and providing for lines of credit. It may be added that Ual savings banks asyou know, under the terms of the Banking Act or 1933 '' ' ins „ are eligible for the benefits of heFederal Deposit tem7lice Corporation and for membership in the Federal reserve sys- "In . racot -w of all the circumstances the Board feels sure that upon posi,a4.7iueration of the matter you will recognize the wisdom of its r11,:;40n and terminate your connection as a director of the savings as soon as it is feasible for you to do so." Approved. Memorandum from Assistant Secretary Carpenter advising that the reellt elections at Federal reserve banks resulted in the election of the fol1414 Cless A and B directors at Federal reserve banks, each for a term of tille Years b eginning January 1, 1934: Class A Directors Name Bank Edward S. Cecil R. Kennard Berry George W. RellY Ben R. Charle Conner s Ryburn RiemanG. Cl 3"arlie3 R ay. Leavell Max B. R. C. Naha). C. C. Hansen R. E. Parks Harding Eeith Powell Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Class B tdward X. Frost * Robert T. Stevens * J.. Carl * Xohn L DeLaCour Galvin Charles C. Peed Directors Boston New York Philadelphia Cleveland Richmond 277 12/4/33 -7-. Class B Directors Name Cont'd) Bank X. A. McCrary Ilex N. Babb X. N. Harris Albert P. Funk ' 1. D. Hosford X. R. Milan Malcolm McNa:c..:hten Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Re elected The ' ''leril°randum also stated that the Board had been advised of the election orL11.. * .1"^/— - -"" H. Hanna as a Class B director of the Federal Reserve Bank of Richton, a for the unexpired portion of the term ending December 31, 1934, to 'ueeed Mr. Edwin C. Graham, resigned. Noted. Letter dated December: 1933, to the board of directors of the '%)Pcsitors Trust C members of the ompany", Augusta, Maine, approved by four 134rci, stating that, subject to the conditions prescribed in the letter and "33 eet also to the approval of the Comptroller of the Currency of the est:blishrnent and continued operation of the institution's nine branches lo- '";ed in 14eine, the Board approves the institution's application for member111P in the Federal Reserve System and for the number of shares of stock of the ecieral Reserve Bank of Boston to which the institution will be entitled 1-1111 the basis of its capital and surplus as of the date upon which its memte11111) becomes ePfective. The 4 Approved, together with a letter dated December 2, 1933, to Mr. O'Connor, Camptroller of the Currency, also approved by four members of the Board, readin as follows: .,c111113a. y Board has received an application of the 'Depositors Trust jlugueta, Maine, for membership in the System. The bank ' 4)€'111111i --e tran saction of business on October 9, 1933, and is now tf( 12/4/33 8 40 , e rating the following branches, all of which are located in the ' arTle or adjoining counties: LOCATION Boothbay Harbor Fairfield Hallowell Madison Oakland Richmond Winthrop Wiscasset Gardiner POPULATION 2,076 3,500 2,675 3,000 2,500 2,000 2,234 1,186 5,609 tor"The establishment and operation of the branches by the DepositbesTrust s Company have been authorized by the Bank Commissioner of pally—ate of Maine pursuant to State law. The Augusta Trust Corn" 11 in the hands of a conservator, formerly maintained branches at ;eh of these points except at Gardiner. hes , ha Federal Reserve Agent at the Federal Reserve Bank of Boston '"°mmended that the application be granted, and the Board has mewtoved the application subject to your approval of the establishcondiZnd o peration by the bank of its branches, and to the following Boerd:i°11, in addition to the conditions usually prescribed by the 16. Prior to admission to membership, such bank, if it has not already done so, shall dispose of any corporate stocks carried in its assets except such stocks as may bs lawfully purchased by a national bank. tieS 4 era aPPears to be a need for banking facilities in the communitosr ' ,n which the main office and branches are located, and the be a.c̀ feels, in view of the available information, that the bank should BoeraT4ed to membership with all of its present branches. The brs °I the opinion that the establishment and operation of the Pl'oviei,lichess at the places indicated, is in accordance with the °:vat -hs of the Federal Reserve Act governing the establishment of cues b Y a State member bank, provided your approval thereof is There are inclosed for your information the report of examination or the °ctobe osito rs Trust Company made as of the close of business 1()stotl- ' 411 1933, by an examiner for the Federal Reserve Bank of R:):14d con of a memorandum prepared in the office of the Fed 1/aerIlh -erve Agent at Boston relative to the bank's application for e aln 4 "It wil Drove 1 be appreciated if you will advise the Board if you aptbec) the establishment and continued operation of the branches 6o niernbA-ePositors Trust Company, in the event the bank is admitted -1 'shiP on the terms and conditions prescribed by the Board." 279 12/4/33 9 Letter dated December 2, 1933, to the board of directors of "The Riverview State Bank", Kansas City, Kansas, approved by four members of the stating that, subject to the conditions prescribed in the letter, the 13°ard aPproves the bank's application for membership in the Federal Re8ela SYstem and for the number of shares of stock of the Federal Reserve 411k of Kansas City to which the bank will be entitled upon the basis of it8cePital and surplus as of the date upon which its membership becomes ertective. Approved. Letter Elt dated December 1, 1933, to Mr. Hoxton, Federal Reserve Agent "ul°11d, approved by four members of the Board, reading as follows: 193;Ra.”iPt is acknowledged of Fry's letter of November 22, lin'.nelosina copy of a letter dated November 21, 1933, from NallEhton, Cashier of the 'Seat Pleasant Bank', Seat ticyn-arYland, requesting the withdrawal of the bank's applicafor call m embership in the System inasmuch as it would be practityitY imPossible for the directors to purchase the number of quailShea ,es required under the Banking Act of 1933. xi accordance with the request of the Seat Pleasant Bank, its Ders cation will be considered as having been withdrawn. The paPwii.°111PrisinE the application for membership will be retained Board." as Or 4-1arficial permanent files of the Federal Reserve Approved. --J on December 1, 1933, approved by four members of the Board, to etter d ated November 10 from Mr. Hale, Cashier of the Federal Reserve Bank S 4 1 Or l'Elneisco; the reply reading as follows: 10 vi,',!w of the circumstances set forth in your letter of NovemN.4 the Board has no objection to the waiving of the penalty of tti f°11 re8erve deficiencies incurred by the Old National Bank tPer181ti°4 Trust Company or Spokane during the month of February o ja,siggregating :4Z05.85 incurred by 14 unlicensed member banks 4he banking holiday." "80 12/4/33 -10- Approved. Reply on December 2, 1933, approved by five members of the Board, to a 4tier dated October 4 from Mr. Austin, Federal Reserve Agent at PhiladelPhIs; 48 reply readinq as follows: a "Reference is made to your letter of October 4, 1933, inclosing yo:!py Of a letter received by you from the York Trust Campany, 11'1 Pennsylvania under date of August 2, 1933, relative to the tiZof the York Trust Company to acquire stock in other corpora"The Board understands that the York Trust Company holds a note pcoltue York Securities Corporation, an affiliate of the trust comis ?r ,' secured by a pledge of certain stocks as collateral, that it u tioesired to effect the dissolution of the York Securities Corporand a ' a a l l be that, in this connection, the trust company has asked to col, -vieSd whether it may lawfully purchase the stocks so held as a ici1J;teral and hold them for a more favorable market rather than 1088 in e Present forced sale at prices which might result in a deredt.° the trust company. You inclose a copy of the opinion rencazielli vir Your counsel with respect to this question, in which the ' 3 °11 is reached that the trust company may lawfully take the ectio; tact ProPosed provided such action is necessary in order to proPoratitor .lf against loss on a loan made to the York Securities CorttAs bank by Y_ou know, section 9 of the Federal Reserve Act as amended the abell ine Act of 1933 arovides, in part, that State member s epee; us subject to the same limitations and conditions with reo Ilatiob the purchasing of stock as are applicable in the case of visei banks. Paragraph 'Seventh' of Section 5136 of the Rettig th tatutee as amended by the Banking Act of 1933, after limitand ari riEht of a national bank to deal in investment securities* except er defining such securities, provides further that,'* * 40thi es he reinafter provided or otherwise prohibited by law, eocialt1 herein contained shall authorize the purchase by the as"cord:,4 °f any shares of stock of any corporation * * * *. In ever, T:ee with certain decisions of the U. S. Supreme Court, how1 Seems that a national bank may acquire stock in other corIlticin; With a view to its subsequent sale in order to reduce an u0 the- i3 eu loss, as by becoming the owner of shares of stock pledged k as collateral for a loan. See California National Bank zat,_ 197 U. S. 332, 17 S. Ct. 831,833 (1897); First National ' 44 m A IC-4 4t1tho 1:National Exchange Bank, 92 U. S. 122, 23 L. Ed. 679 (1876). ;he * litin,thsse decisions were rendered prior to the enactment of Act of 1933, it does not appear that their force has been senea by such amendment. n 281 12/4/33 -11clu"Accordingly, the Board is in general agreement with the conof your counsel that the York Trust Company may acquire the dllc' ez in question provided such action is in fact necessary to reeach loss or to eliminate the possibility of loss and provided that stock is disposed of as soon as it is practicable to do 90." Approved. Clarren Letter dated December 1, 1933, to Mr. O'Connor, Comptroller of the eY) approved by four members of the Board, reading as follows: 130,2n accordance with your recommendation, the Federal Reserve tv;'`' aPproves a reduction in the common capital stock of 'The cicZett National Bank', Everett, Massachusetts, from c;200,000 to ceni: (4° in accordance with a plan which provides that the bank's pr;;i'al shall be increased by the sale at par of ;200,000 par value ael erred stock to the Reconstruction Finance Corporation and the Parevn Par to the bank's present stockholders or others of 0.00,000 red cin;ue of new common stock, and that the funds released by the 3 1 ,:'°11 in common capital stock, together with 08,000 from the katea ' Undivided profits account, shall be used to eliminate esti01 3;osses amounting to approximately T 66,194, and approximately Et8 ;Cu °f the existing depreciation in substandard securities, Iletio:”iried in the report of examination of the bank made by a yo111,-.114 bank examiner as of August 2, 1933, all as set forth in IrIlemorandum dated November 14, 1933. cEtpitll considering the plan under which the reduction in common 1%e stock is to be effected, the Board noted that no provision clde,2 in the plan for the elimination of approximately ,A7,000 it4palc'eiation in securities, which, if considered as a loss, would bank's common capital stock to the extent of approxlmateq66). J. In addition there will remain in the bank approximateOf doubtful a of ' assets, as well as a heavy investment in th t 17,5 arld furniture and fixtures. The Board assumes, however, uecom—a%have these undesirable features in mind and, whenever it t° b4e ; Arasible to do so you will require such further corrections --4 ' 48 in the condition of the bank as may be practicable." Approved. Letter 4t Ch dated December 2, 1933, to Mr. Stevens, Federal Reserve Agent ' approved by four members of the Board, reading as follows: ce„iirt is acknowledged of Mr. Young's letter dated November 17, 14141,;:sing of the proposed reduction in common capital stock of w'w0,000 — gn State Savings Bank', Adrian, Michigan from 4150,000 to ill connection with its reorganization. the 0.62 12/4/33 - 12 - e,"It aPpears from information submitted by Mr. Young that only ' r 44d assets are to be retained by the bank, that the funds to be ! t alized by the resale of 100,000 of common stock are to be paid before reopening, and that there will be no liability on the part ,v4,1 the bank for repayment to depositors for the amount of deposits atved bY them. ths" li the basis of such information and in view of the fact that h4 °era's consent to the proposed reduction in capital is not req. 4red bY ' beltk law, or the conditions of membership applicable to this the ' the Board offers no objection to the reduction in capital in co amount indicated, with the understanding of course, that your pellla ci.sel has considered the case and is satisfied as to its legal asst51 : 8) that such reductions in the common capital stock and the recor:,(If A-00,000 in common stock will not result in any change in the the'j!te existence of the bank which will affect its membership in or ,;':aueral Reserve System, and that the transaction has the approval fle Michigan State Banking Department." Approved. Letter dated December 2, 1933, to Mr. Case, Federal Reserve Agent at 4 1V y0 k approved by four members of the Board, reading as follows: liese "r The Board has reviewed the report of examination of the Federal Bank or New York as of May 27, 1933, copies of which were r you and ,Page 23 theGovernor Harrison. the paper examiner comments upon the inferior quality of upon which credit has been extended to member banks tiolla n the form of direct loans, to individuals, firms, and corpora01)14e'4the undesirability as investments of many of the municipal : 1°ns held under repurchase agreement, and the doubtful chartei:11 the Hungarian credits. The Board is in accord with the suget of its examiner with regard to the reserves thereon to be :it the end of the year. Der wa 'his connection it is noted that appraisal of much of the paP,Ert o l Possible because of the fact that in many instances a large v )000. ' ha Paper Pledged by borrowing banks consisted of loans under Deee 22011 which current financial statements were not available. On tOn thefthe report the examiner states that this situation was ' ". 011 attention of the management who stated that considerazrrlEtila_`(14 be r li nes.given to the advisability of obtaining statements on Itarere., atI memorandum the examiner raises a question with Ze, arld e toPPlementary the accountint, connected with the sale between February Sra):41,, ' a rell 29, 1933, of United States Government securities to other '‘ero "eserve utinEls "8 thai. under repurchase agreements. The Board underen this matter was discussed by the Board's examiner 283 12/4/33 - 13 - th °fricers of the reserve bank, Deputy Governor Burgess stated hat the reserve bank did not wish to show any liability on its ate111ent for securities sold under repurchase agreement and had rethe transactions as sales under gentlemen's agreements such ere customarily entered into in connection with the handling of D( Slratem Special Investment Account. In view of the facts as rei;ued by the examiner, the Board feels that the transaction should 2417e been shown as a liability of the bank on its records and in its lblished statements. Inasmuch, however, as paragraph (b) of Secon ! , n 11 of the Federal Reserve Act provides a specific way by which ' er zederal Reserve bank may obtain accommodation from another Fedareil Reserve bank, the Board requests that, if a situation should datr, IlEein which makes it advisable for your bank to obtain accommoor raa --4 the from other Federal Reserve banks, the Board's formal approval 1, specific form of the accommodation be obtained, so that there Y (;!. an adequate record and the transaction may be properly recorded. thattt-a Page 28 of the report the examiner calls attention to the fact at the time of final settlement unlicensed banks had been charged tef at at the rate of four per cent on the net daily liability afcoll " i lance for any credit balances held in cash collateral aclish and that there was no record that such a rate had been estabnlitte e bY the Board of Directors of the reserve bank or had been subk to the Federal Reserve Board for its approval. It is noted that: gosrahe management stated that adjustments would be made and the the4;t17:4 31% g k:dt .o be advised as to the manner of adjustments and q it;ee:2fd le pleased to note that the recommendation (page 26) .kal,rze -,.‘ner that audits of the Fiscal Agency Department be enas to sob provide for a checking of all subscriptions received !adopted. It is requested that you advise the Board what acanY, has been taken regarding the recommendation that the be oc; Of the collection and check departments at the Buffalo Branch c°rIlinzT°11allY enlarged in scope so as to include a control on inand a;Zell for a period of time subsequent to the date of the audit, to what decision was reached regarding the practicability of at the such Procedure to occasional audits of similar departments to ,v:lad Office. It is also requested that you advise the Board that hether any action has been taken regarding the recommendation !11 1. natur , 83 on reconcilements of balances due to member and nonc)peri2n±cs be checked to determine whether they are signatures of , 04 J authorized officials. liebilit , e 26 of the report the examiner has recommended that the gold i; exi stin:s at the end of 1933 for melting and alloy charges thEq ti e estimated and that any excess held in suspense account at 21e t. `qted t_representi rig deductions made for meeting such charges be 10, 4 Will ci = erd loss. The Board notes that this recommenda114 is u Ilk ha noted (page 27) that several of the officers of the reserve -a number of instances obtuLned payment of their salaries # 12/4/33 - 14 1' Portions thereof in advance, at times other than when the reguIr Pay day would fall within a vacation period, and the Board is ' eased to note that this Practice will be discontinued. ior, "? Page 225 of the report the examiner calls attention to the ' 1,--e".Ce at the Buffalo Branch of releasing to local banks, against i:ceiPte, bills of ladino and other documents received with items ' B r warded to the Branch for collection. It would appear that the acting without authority in releasing such documents 't4ertlt awEl instructions of its indorser and the Board is f eased to note that the practice will be discontinued. The Board 1-1°tea that the recommendation of its examiner that cash withblac a for Pay roll Purposes at the Branch previous to date of disth;seraent be held under dual control until the day of payment and mast , an armed guard or other designated employee accompany the payhis rounds, will be adopted. or The Board has been informed that in your absence the question onestrengtheninq the examination department by the employment of Or the more experienced and trained examiners was discussed by tit pcird's examiner with Assistant Federal Reserve Agent Dillisdiej," tha ouestion of personnel in the auditing department was to b2ased with the Assistant General Auditor. The Board desires ,l'tadvised of the present situation as to these matters. Ezenii, has been reported that the financial affairs of Assistant the 11-er E. G. Steadman are apparently somewhat involved and that Pere;n°11nal files contain other unfavorable data regarding his aesis:al- affairs. Inasmuch as the appointment of examiners and 130aant e xaminers for the reserve bank must be approved by the arreirY°u are requested to forward a brief statement as to the hie ris t of such assistant examiner aid your recommendation as to ”Inr neaa to continue in that capacity. ee or JrMation at hand indicates that the average cost per employ844k ue welfare and medical unit of the New York Federal Reserve eral ! r almust three times the average for the eleven other Fedor thelerve banks. In discussing this matter with the officers 't such allk the Board's examiner suggested that a survey be made qtlate activities to determine Whether the bank is receiving adebe advised for the expense incurred, and the Board would like to as to whether such a survey has been undertaken. ti, ter the -n or t,_ report and this letter have received the considersNliested -ue board ofdirectors of the Federal Reserve Bank, you are be take, t° advise the Board as to what action has been or will " on the matters discussed." 4 Approved. Letter Ett Cleveland, gated December 1, 1933, to Mr. Williams, Federal Reserve Agent approved by four members of the Board, readin as follows: 285 12/4/33 - 15 - ques"Mr• Fletcher's letter of November 14, 1933, asks several --ti -ons arising under the Clayton Act regarding the service of ii-, ectors of certain banking institutions at Pittsburgh, including 1)..1le Mellon National Bank, The Union Trust Company, The Union Savings : tlt t rik, The Farmers Deposit Trust Company, and The Farmers Deposit Bank, all of Pittsburgh, Pennsylvania. th It aPPears that some of these directors already have received ore Pe Mission of the Federal Reserve Board covering their service senis°111e . of the banks involved. As stated in the Board's letter of re;11ther 16, 1933, X-7591, such permits continue in force until tevr°"d; and it will not be necessary for these directors to obtain Pa covering the services described in their present perdi sey.:Tt ePPears, however, that some of the directors involved are 1:10—.'ng banking institutions which are not covered by their present Se tti ts; end, if these institutions come within the prohibitions of thoe,:°_, 4 8A of the Clayton Act, it will, of course, be necessary for WhiCh uirectors to obtain new pennits covering the other institutions theY are serving. or " t),',I aPPear8, further, that the permits which were issued to some whi„-88 directors did not cover their service of one institution cei4 theY were serving because that institution came within an exsecti°4 contained in Section 8 of the Clayton Act which makes that tiori i°n inaPPlicable where all of the stock of one banking instituclAt in s%"ned by the stockholders of another. However, as pointed to the -ection IV of Regulation L, that exception is not applicable now Provisions of Section 8A, with the result that a pennit is to it 5 'Y coverina that institution if Section 8A is applicable clire "t t is not clear from Mr. Fletcher's letter whether any of the other (3 1:11's involved are serving a national bank and more than two 8A. Rnallicing institutions corning within the provisions of Section whir : uwevers your attention is called to Section V(a) of Regulation Perniit'" Points out that the Board is not authorized to issue a ecraing "inE the service of more than three banking institutions erly di wlthin the prohibitions of the Clayton Act. Accordingly, if 14 : t e?t°r is serving a national bank and more than to other bankcoming within the prohibitions of Section 8A, it be flee sileh , 4 4„ 6"ssarY for him to sever his connection with all but two "Eitio„,,""iuer i nstitutions, or else sever his connection with all beriks., Approved. Letter sititpet uated December 2, 1933, to Mr. Young, Governor of the Federal idOS tOtt approved by four members of the Board, reading as 12/4/33 286 - 16 - is made to your Inquiry No. 20 dated June 27, 1933, and"Reference subsequent correspondence concerning the question of the payment 7 1 interest on deferred deposits by the Second National Bank of '"huas New Hampshire. r "care,, cceisideration has been given to the opinion of counsel 211 Your bank and to the form of Certificate of Special Deposit is' lil ted to the subordinating depositors of the Second National Bank. th...18 noted that the certificate states that the funds evidenced by t certificate have been deposited as a special deposit subordinated d° all other deposits, except other special deposits, and adds 'this Posit shall be subject to such restrictions as to withdrawal and lirlt4e of interest as may be determined by the directors of this bank der the of the Comptroller of the Currency'. The ceresttoocettehaelso provides that if the bank shall later issue preferred depositor may elect to convert his deposit into such when and as issued. Pay 3.4 this connection, it is observed that such deposits are not et anY specified future date or at the expiration of any eire 'L 44 'ed Period, but at such time as it may be practicable in the witCui:nances of the case as determined by the directors of the bank he cin 14 `'lle approval of the Comptroller of the Currency. There being st maturity provided, and in the absence of a provision for that."'" 30 days' written notice before payment, it would appear nieellin 3Uch dePosits would not constitute time deposits within the licteci-81,°f Regulation Q, upon which interest could be paid. It is ter ad ',( -fgever, that your counsel has suggested a form of resolution Provi,— ,P'.1°/1 by the board of directors of the Second National Bank the ,"`Ing su bstantially that such deposits may not be withdrawn by thatIPQsi tors until the Comptroller of the Currency shall determine sery he retention of such subordinated deposits is no longer neceshe,ve iirld Et then only after the board of directors of the bank shall each °ted to release said subordinated deposits and, in the case of the sPet_cial deposit, after the depositor thereof shall have given to at least thirty days' notice in wtiting of his intention !hoUld , cl i 12,"• If the board of directors of the Second National Bank (.;"opt a resolution, approved by the Comptroller of the Curesteci b- onteining a Drovision substantially in the form of that sugsI tich a d y your counsel and containing an additional provision that ,""least th -° , 81-t may not be converted into preferred stock until at days' notice in writing shall have been given by the %IriPertsdr to the bank of hi s intention to wi thdraw the depos it or to serve 33 it into u preferred stock, it is the opinion of the Federal ReI Dayabi ,° , that such subordinated deposits may then be regarded as 41 ,,esritylp, after thirty days' and, therefore, time deposits within the c)r Section 19 of the Federal Reserve Act and that interest tlist 'cter ace ruing may be paid thereon at a rate not in excess of Provided in Regulation Q. ctil the veld s cant 4-111 ormation at hand the Board does not agree with the iziter "tion that the subordinating depositors may lawfully be eston + uhe subordinated deposits at a cumulative rate of r: 12/4/33 - 17 - : "6 ° Pox' annum. The rate of interest must not exceed the rate prein the Board's Regulation q, and interest on such time demaY be paid only for the period commencing on the date on . "a action is taken by the Board of Directors of the bank as above dicated Approved. Tel -egraphic reply on December 2, 1933, approved by four members of the Board, to telegraas dated November 15 and 29 from r. Clerk, Deputy G°17ertor of the Federal Reserve Bank of San Francisco; the reply reading "t011ow8 Was amur wires November 15 and 29. Section 19 Federal Reserve Act Psd nded by Banking Act of 1933 so as specifically to require rilayei;e 7 Reserve Board to limit by regulation rate of interest which Paid by member banks on time deposits and it follows as a nlatte/' bajaka - °f law that the rate of interest which may be paid by member tract °n such deposits under the terms of any certificate or can16, 19:hich has been or may be issued or entered into after June Board: 3 'mel, not exceed the rate as limited by the Federal Reserve t ' rom time to time pursuant to the statute. In the circumstanor 2"d feels it would be appropriate for member banks to stamp (It u* ; t.'„i 1t the sentence suggested in X-7676 on all time certificates posit hereafter issued." Approved. Memoreodum dated November 22$ lZ, from Mr. DuBois, Assi stant Coun"1) at i phi4dee it-11 that the Board has received from the Federal Reserve Bank of Phia an agreement executed by Gimbel Brothers, Inc., as the holding a tri ate of Gimbel Brothers Bank and Trust Company, Philadelphia, a State member bank; that the agreement was executed on the Printed form , but that there was typed in at the end of the llited torn, e Proviso that the company executing the agreement made the '11e.ertellt 1:c3Eitcit 8 "b c, 11t °IllY in the event that it is in fact a holding -111ellY affiliate within the meaning of the provisions 288 12/4/33 - 18 "Of the Banking Act of 1933, and that said Act is constitutional in so design.:ting it; and the undersigned asserts and reserves the right to establish that it is not in fact such a holding company affiliate and is not bound by or subject to any of the terms or provisions of said Banking Act pertaining to holding company affiliates; and that if the Act is so construed as to consider it a holding company affiliate the Act is unconstitutional as to the undersigned." The memorandum also expressed the opinion that the Board would be RIstified in accepting the agreement as filed, and recompinded that it be "caPted. Approved. to e, ,e ReP1Y on December 1, 1933, approved by four members of the Board, tter dated November 3 from Mr. C. A. Collins, Trust Officer of The rst lonal Bank of West Bend, Wisconsin; the reply reading as follows: latter of November 3, 1933, addressed to the Comptroller °f repi 6 CUrrency, , has been referred to the Federal Reserve Board for 33 0.1;. „ „11°11 request to be advised whether section 32 and section the Nit ( Banking Act of 1933 prohibit a director or officer of aif sch°11,11a1 bank from holding stock in a loan or securities company ploye ' allk director or officer is not an officer, director, or em.()! such Such loan or security company. directi i°n 32 of the Banking Act of 1933 prohibits an officer or °f any member bank from serving after January 1, 1934, as or uti', director, or manager of any corporation, partnership, neorPorated association engaged primarily in the business of 4:111q-, selling, or negotiating securities. 1311/110,11 " 1°n BA of the Clayton Act as amended by section 33 of the Act of re 1933 makes it unlawful after January 1, 1934, for a ircl °pricer, or employee of a national bank to serve at the (other -;;: aa e director, officer, or employee of any corporation bY 8toe;'an e mutual savings bank) Which shall make loans secured bend collateral other than to its own sabsidiaries. h°40,: 11 ther of these sections contains any prohibition against the °rtice`' Of stock in a loan or securities company by a director or tIlet ?ft a national bank; and i t is not necessary, therefore, 'ea stock be disposed of by a bank director or officer." J Approved. .'" 12/4/33 - 19 - Reply on December 1, 1933, approved by four members of the Board, to a letter dated September 16 from Itir. Robert E. Minnich, Prentice-Hall, Inc., iv yort. iv) New York; the reply reading as follows: ad "Receipt is acknowledged of your letter of September 16, 1933, "re seed to the Governor of the Federal Reserve Board, in which request to be advised of any ruling of the Federal Reserve h° : t rci 14 respect to the meaning of the words 'bona fide owner in rph;: .Obwn rig', as used in Section 31 of the Banking Act of 1933. it- tffoard has not issued any such rulinc, and it does not feel that whieRould undertake at this time to define in detail the words to c, p 11 You have reference. seri It an, -4 ' 1-ears from your letter, however, that one of your subrenWiers desires to know whether the provisions of Section 31 would oui;i7r ,unlawful the pledge by a director of a manber bank of his o'pi-; - :4Ying shares as collateral security for a loan. It is the eff : 1°11 of the Board that, after one year from Tune 16, 1c33, the ow:ethie date of Section 31, a director of a State member bank must sha 'irthe required qualifying shares in his own riffht, and that such a io-s IllaY not lawfully be hypothecated or pledged as security for the .nn El or debt after that date. This conclusion finds support in ezenclact that Section 5146 of the Revised Statutes, which has been tati ed in part by section 31, provides that every director of a stajli d al bank must 'own in his own right' qualifying shares in is iti e-taln i, °1111t8, and that Section 5147 of the Revised Statutes, which bank t, 11:::-L force and effect, requires each director of a national his --take an oath that he is the 'owner in good faith, and in titi: 31/11 right, of the number of shares of stock required by this the as"' subscribed by him or standing in his name on the books of vie i ssd°eiati°n* and that the same is not huothecated, or in any 1)crtio ; , e ecl as security fory loan or debt'. The underscored words or Section 5147 indicates that Congress considered the glialt vr/11 in his own right' as used in Section 5146, to mean that arid uh rl,--rie shares of a director ' of a national bank shculd be unpledged the w-o-YPot hecated, and there does not appear to be any reason why wiler in his own right', as used in Section 31 of the rielic18Acttc)of 1933, should be constmed differently." Approved. There b()1, -- was presented for the record the following letter dated NovenaZe, 193 rEll 3 ' received by Mr. Szymczek from LIr. Stevens, Chairman of the Fed"Ile Bank of Chicago: 12/4/33 2,90 - 20 - "Referring to our telephone conversation today with respect to my lettert of October 6, in which I asked for approval of additional to our general counsel for the remainder of this year, by oy reason of developments since that letter was writtenorill You Please disregard such a request. "The general counsel of the bank is Carl Meyer, and he has for ni me,years designated Charles B. Dunn, of his office, to represent h the handling of nost of our rout the matters, which Mr. Dunn ras done to our general. satisfaction. While the arrangement reto in ''Y previous letter to give us all of Mr. Dunn's time for the core si-36 of the year was satisfactory to Mr. Meyer, upon further eral , deration, both by our board and in consultation with the FedKveserve Board in Washington, we all determined to consider a ou- arrangement for the ensuing year which would presume our engaging erIr t4 Own counsel for whole time service for next year, who should be trelY disasso ciated from any other legal firm; that in addition so-Teto . w 4. -6 might retain the services of outside counsel for a 441c purpose where advisable. geileI was authorized to take this matter up tentatively with our cit„rel Counsel, Carl Meyer, but in the meantime he had left the tore " end will not return until after the middle of December. Thereshort nothing can be done until his return. The time is now so been ,s'at we consider that we should leave the matter as it has uere4L,ofore until after consultation with Mr. Meyer and until a l'anga 118enlent may be made as of the first of next year. The arel l e, rary — ' 16 suggested in my previous letter to you was to be a temporene°11e in the expect ation that it would lead to a permanent arcludeni fi: ell t for the new year, but owing to the necessary delay we conthere- ' ,hat a temporary one would run for such a short period that tti no further necessity of considering it. tion 'rust that this will explain the situation to your satisfacwhen't}.71d we will, of course, advise you prcmptly, for your approval, -e permanent arrang ement may be ready to submit." ri 2 Noted. Meraorendum dated November 28, 1933 1 frcca Mr. Wyatt, General Counsel, tecolitiendia the to renewal, at a cost of ,,10C, of the Board's subscription the titahe Congressional service regarding banking and currency matters furd by the C orporation Trust CompanY for the forthcoming session of C°11€tess which c bEtli ommences on 3, 1934; the recomnendation Wednesday, 11 been aPProved by four members ofjan e aB ro thu yard on Dece_aber 1, 1933. Approved. ' 191_ 12/4/33 -21 - Letters dated December 1, 1933, approved by four members of the to aPPlicaats for permits under the Clayton Act, advising of ap- Proval of their applications as follows: I°hn H. Brooks, for permission to serve at the same time ne,uirector and officer of The Brooks Bank and Trust Company, p(I ! i rington, Connecticut, and as director and officer of The 1st National Bank of Litchfield, Litchfield, Connecticut. Gilbert H. Scribner, for permission to serve at the same chaile as director of the National Boulevard Bank of Chicago, Ba,lag°, Illinois, and as director of The Terminal National Chica,zo, Chica6o, Illinois. Mr. Otto N• Frenzel, Jr., for permission to serve at the same time as director and officer of the Merchants National Bank, ans, Indiana, as director and officer of The Indiana Fou Trust compan_ Y, Indianapolis, Indiana, and as director of the n Square State Bank, Indianapolis, Indiana. Approved. There were then presented the following applications for original atock of Federal reserve banks: 4 148lications tziet xo. for ORIGINAL Stock: Shares 2. 1%tional Spraker Bank in Canajoharie, Catajoharie, New York 84 84 ! ) ,18trict No. 4. qrst National Bank at East Palestine, .LEElat 431, Palestine, Ohio 44 National Bank of Braddock, l'addock, P 108 152 ennsylvania pLi%let No. 5. 101.)laa National Bank of Hancock, 11le iTilEill"ek) aion Na Maryland 36 ti oonal Bank of Oxford, °4rord, North Carolina 75 39 131 striet ,„ /14 . 7. 114tiori "0 al Bet.„, 1 st, Hastings, "-rigs 36 Michigan 36 4,se 12/4/33 - 22 - A lications for ORIGINAL Stock: (Continued) District No. 9• Ii•rst National Bank in Ontonagon, , Ontonagon, Michigan °lion National Bank of Ashland, Ashland, Wisconsin Shares 36 66 Total Approved. Thereupon the meeting adjourned. kripr011red 102 449
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