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1 505 A meeting of the Board of Governors of the Federal Re8eI7e System was held in Washington on Tuesday, December 5, 1939, 4t 9:45 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Davis Draper Mr. Mr. Mr. Mr. Morrill, Secretary Bethea, Assistant Secretary Carpenter, Assistant Secretary Clayton, Assistant to the Chairman The action stated with respect to each of the matters hereinafter referred to was taken by the Board: The minutes of the meeting of the Board of Governors of the -T,ekAA eral Reserve System held on December 4, 1939, were approved Memorandum dated December 1, 1939, from Mr. Paulger, Chief °t the Division of Examinations, submitting the resignation of 11. ' 11°rnt0n Snow as an Assistant Federal Reserve Examiner, to be effective as of the close of business on December 4, 1939, and l'ee°471endine that the resignation be accepted as of that date. Approved unanimously. Telegram to Mr. Young, Vice President of the Federal Re- 1k of Chicago, referring to the application of the "Guard1411 t allk of Royal Oak", Royal Oak, Michigan, for permission to 15C6 12/5/39 -2- IlithdrEm Immediately from membership in the Federal Reserve System, alld stating that the Board waives the usual requirement of six /11°11ths notice of intention to withdraw, and that, accordingly, upon 8111render of the Federal Reserve bank stock issued to the Guardian 13clk of Royal Oak, the Federal Reserve Bark of Chicago is authorized to cancel such stock and make appropriate refund thereon. Approved unanimously. Tzlegram to Mr. Matter, Assistant Federal Reserve Agent 4 the Federal Reserve Bank of Cleveland, stating that, subject to the c°nditions set forth in the telegram, the Board of Governors of the rederal Reserve System authorizes the issuance of a general Ireti4g. Permit, under the provisions of Section 5144 of the Revised Stet iltes of the United States, to the "BancOhio Corporation", C°11/1111311s, Ohio, entitling such organization to vote the stock which 111 (4‘148 or controls of "The Hocking Valley National Bank of 414cestertt, Lancaster, Ohio, at all meetings of shareholders of ellch bEtnk, and that the period within which a permit may be is- 1311e4 PIll'auant to the authorization contained in the telegram is 1.111ted to thirty days from the date of the telegram unless an exlelleion of time is granted by the Board. The conditions contained illthe telegram upon which the permit was authorized were as follows: 12/5/39 -3- "1. Prior to issuance of 7eneral voting permit author ized herein, applicant shall execute and deliver to YOU in duplicate an agreement in same form as that which applicant executed on December 12, 1938, as condition to issuance of permit dated December 16, 1938. "2. Prior to issuance of general voting permit authorized herein, The Hocking Valley National Bank of Lancaster shall have charged off or otherwise eliminated all estimated losses as shown by latest available report of examination by a national bank examiner. tt3. Prior to issuance of general voting permit authorized herein, applicant shall have charged off or otherwise eliminated all estimated losses as shown by report of examination as of April 29, 1939, by an examiner for the Federal Reserve Bank of Cleveland." The t el --egram also stated that it had been noted that the Comptroller "the Currency had requested The Ohio National Bank of Columbus, a" ' Centt S principal subsidiary, to increase its capital structure et leest :1,F00,000, the request being predicated upon a marked inof deposits without a proportionate increase of capital, the fail , "lbe to provide for allowable depreciation in properties out of "ings, the large investment in banking premises and other real eatate and amount thereof classified as III because of previous write"d nepaected depreciation, the large amount of potential other t'eel ' estate, and the extent to which earnings have been continuously 1118 1411d t O toted aPplicant. The telegram stated further that it had been also that during the years 1934 to 1938, inclusive, management alid dividends received by applicant from this bank were ;2,7841,000, that With total net income of ,458,000, applicant paid dividends of 15C8 12/5/39 -4- 2)156,000, and that dividend rate increased from 72 cents per share in 1936 to 80 cents in 1937 and 84 cents in 1938 and is 88 cents for 1939, and that in view of the foregoing, and after consideration of all Pertinent data and correspondence, the maintenance of adequate by The Ohio National Bank of Columbus is a matter of concern to the Board and the Board feels that, in accordance with conserveti!e banking practices and terms of voting permit agreements executed by aPPlicant, applicant should pursue such financial policies as are liece8sarY to provide for increases in the bank's capital structure in l'eletion to increases in its deposits and to make ample provision for clePr eciation in its properties. Approved unanimously. Letter to Mr. Jerome Frank, Chairman of the Securities alici4change Commission prepared for the signature of Chairman Eccles, 414 r eading as follows: "Upon returning to the office I have found your letter of November 27, enclosing a copy of a tentative cillIft of a rule which the Commission has now under con24deration to regulate the commingling and rehypotheca'ion of customers' securities. "You call my particular attention to a clause of the i 15roPosed rule which would prohibit a broker from borrowon customers securities an amount greater than the "°tel indebtedness of those customers in respect of their ehnothecated securities and suggest that we may wish to ! .,4313.eider this feature in its relation to the 75 per cent tclen value presently accorded to customers' securities °Y. Regulation U. 1_509 12/5/39 -5- "If the principle involved in the clause in question IS correctly understood by us, it means that a broker may not borrow on all of the securities of customers who owe him money a total amount in excess of the total amount owed to him by those customers. On the basis of this understanding the staff advises me, and I thoroughly agree with the view, that in principle the clause is in accord both with good brokerage practice and with the intent of Regulation II, which has always been predicated on the proPosition, already embodied in the rules of leading exchanges, that a broker's total borrowings on customers' securities should not exceed his total loans to customers. "Astir. Parry has advised Mr. Purcell, the staff will Probably be able to supply, in advance of December 11, some further comments relating to technical details or to Other features of the proposed rule." Approved unanimously. Thereupon the meeting adjourned. Chairman.
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