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539 A meetinz, of the Executive Committee of the Federal Reserve Board was held in Washington on 'iednesday, February 14, 1934, at 4:00 n. m. PRESENT: Mr. Mr. Mr. Mr. Black, Governor Hamlin Thomas Szymczak Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Bethea, Assistant Secretary The Committee considered and acted upon the following, matters: Letter to Mr. Curtiss, Chairman of the Federal Reserve Bank of 130st°11, reading as follows: "In response to your letter of December 29, 1933, you are advised that the Federal Reserve Board has approved the payment to 1\1r. Phills Ketchum, Counsel for the Federal Reserve Bank of Boston, of . '3,000 for professional services rendered during the period from Ianuary 1, 1933 to October 1, 1933, plus the sum of „112.29 in etmbursement for out-of-pocket disbursements, such compensation ring in addition to the retainer of 400 per month regularly paid to Ketchum. It is noted that the payment of this additional fee been approved by the Board of Directors of the bank subject to )e Board's approval. "In this connection, the Federal Reserve Board would appreciate deft nlue advice as to what changes, if any, the Federal Reserve Bank °I Boston contemplates making with respect to its arrangement for t?gal services. The Board understands that Mr. Hamlin discussed is subject with you when he was in Boston during the month of December and that he and 1,:r. Wyatt have since discussed it with eGovernor Younr:, a number of times during Governor Young's visits to i!eington. However, it seems advisable to comment upon the matter this letter in order that the Board's views may be clearly understood r theyou know, the Federal Reserve Board relies upon counsel for lederal reserve banks for advice and information concerning matQrs oudepend tar:, Primarily upon Questions of local law and especially 10] ,eTl°ns arisin,7, in connection with applications of State banks for c( erelliD in the Federal Reserve System, applications of holding 1.0-2?IlY affiliates for voting permits, applications of national banks ti4 0 'trust powers, questions arising in connection with reorganizato ns.of State member banks, and similar matters. \Athout intending fra flticise any particular individual, but in order to be entirely inn:7' it maY be said that the advice received on such matters arist ratin Your district during recent months has frequently been unsatisasa rY, Principally because it has been indefinite and based upon -"IPtioas of facts the actual existence of which had to be ascer- 538 2/14/34 -2- #(\ "tained before the iJederal Reserve Board could take definite action upon the matters involved. This has made it necessary for the Board to co:]imunicate repeatedly with your bank before obtain111C7, satisfactory advice upon such matters and has resulted in much delay in the disposition of matters which both your bank and the Board desired to dispose of promptly. "The Board has no desire to prescribe the nature of the arrangements for legal services to be made by your bank; but, in View of the Board's experience and observations regarding the leal services obtained by other Federal reserve banks, it is believed that it is appropriate to suggest that your difficulty may result tram the fact that you rely for legal advice upon a very busy firm of attorneys engaged in general practice, who are unable to devote enough time to a study of the problems of the Federal Reserve 5ystem to become intimately familiar with them and with the character of advice and information which the Federal Reserve hoard expects in connection with matters such as those mentioned above. There is no °0Jection to the retention of such a firm engaged for the purpose Of handli/v7 litigation and other legal matters of an ordinary character; but the Board believes that more satisfactory advice Would be obtained with respect to questions arising in connection With applications of State banks for membership, applications of aational banks for trust powers, applications of holding companies 1?r voting permits, questions arising in connection with reorganizatl°ns of State member banks, and similar matters if the bank would _trrane.-,e to have a competent lawyer devote all of his time to the °ank's work and especially if it would arrange for him to take an 21 rice in the bank and become a member of the bank's official staff. is belieed that such a man would become intimately familiar with he Practical as well as the legal aspects of the bank's problems fld could render more satisfactory legal services. He would natur11Y be entitled to more compensation than the retainer which you 4re.been payinc, to your present counsel; but it is believed that increased expense would be fully justified, especially in view the Er,reatly increased volume or work handled by the Federal rethrve banks and the Federal k-:eserve Agents since the enactment of e Banking Act of 1933. re _ "Such arrangements have existed in a number of other Federal erve banks for years with very satisfactory results and a simiarrangement has recently been entered into by the Federal Re•erve Bank of Chicago. att "It will be appreciated if you will bring this matter to the tlon of your Board of Directors and advise the Federal Reserve 1370- at your early convenience as to what action, if any, they °P°20 to take in order to solve this problem." n Approved. Letter to 1,ir. Rounds, Deputy Governor of the Federal Reserve kiak or I\Tew York, as Chairman of the Pension Committee, reading as )() -3- f\ "Reference is made to your letter of February 8 and previous correspondence including my letter of January 3, 1934, to you in regard to the retirement plan for officers and employees of the Federal reserve banks. The Board now understands that all of the twelve Federal reserve banks have approved the plan and the rules and regulations in the form submitted with your letter of November 2 , 1933, with modifications which comply with the Board's suggestions contained in my letter of January 3, 1934. "Therefore, the Federal Reserve Board now approves the plan and the rules and regulations as thus submitted and modified and Governor Calkins as Chairman of the Governors' Conference is being advised accordingly. "The Board appreciates the information which you have submitted to it currently regarding the steps taken with the view of Putting the plan into effect and will be glad if you will continue this practice." Approved, together with a letter to Governor Calkins in accordance therewith. Telegram to Mr. Curtiss, Federal Reserve Agent at the Federal 11e8ee Bank of Boston, reading as follows: Tru"Refer your letter February 10, 1934, re application Hyannis t Company, Hyannis, Massachusetts. Board grants extension of time to March 14, 1934, within which bank may comply with conditions cf membership." Approved. the Telegram dated February 13, 1934, approved by three members of Board, to 11.. Newton, Federal Reserve Agent at the Federal Reserve /2ank of San Francisco, reading as follows: vall "Refer Sargent's letter February 9, 1934 re reorganization Yakima or eY Bank and Trust Company, Yakima, Washington. Board's approval loProposed reorganization of such member bank is not required by but °r anY conditions under which bank was admitted to membership, all whether bank may be reopened as a member bank depends upon isper"' of license by Secretary of Treasury upon recommendation of 0 ,eral Reserve Bank. It appears that under proposed plan of rebank's net worth will not equal total amount of capital re0rtures and capital stock outstanding, and Board feels that if : : 11, 11g is accomplished under proposed plan bank's reports and pubic ' 84ed statements should correctly and fully reflect condition 540 2/14/34 "of bank's capital liabilities. It does not appear that this would be accomDlished by the method proposed in paragraph numbered (2) in pro forma statement forwarded with Sargent's letter. Board understands that your counsel is satisfied that plan will be legally effective under State law and that Supervisor of Banking will approve such plan." Approved. eerim Telegram to Mr. Newton, Federal Reserve Agent at the Federal ReBank of San Francisco, reading as follows: "Refer Sargent's telegram February 14 re application Monterey County Trust and SavinL;s Bank, Salinas, California. Board grants extension of time to February 17, 1934 within which bank may comply with conditions of membership." Approved. Letter to Mr. O'Connor, Comptroller of the Currency, reading as follows: 80 "In accordance with your recommendation, the Federal Reserve , 4111c1 approves a reduction in the common capital stock of the i'teten Island National Bank & Trust Company of New York', Port Xhal°nd, New York, from '4500,000 to 250,000, pursuant to a plan eb. Provides that the bank's capital shall be increased by the 4...°3 at par of .:250,000 par value preferred stock to the Reconstructoa Finance Corporation, and that the funds released by the reduc2*(7)11 in common capital, together with a portion of the bank's unded profits, shall be used to eliminate, if the bank has not deresdY done so, substandard assets, securities depreciation and ;.greolation in bankinrr, house in the amount of approximately 625-71, all as set forth in your memorandum of February 3, 1934." 7 ' i Approved. Letter to Mr. O'Connor, Comptroller of the Currency, reading as f011ows: catrt"The Federal Reserve Board approves a reduction in the common stook of 'The Anniston National Bank', Anniston, Alabama, ?2°0,000 to 1;;100,000, pursuant to a plan which provides that ' the-h ' allk's capital shall be increased by the sale at par of .00,000 par 1 .11r,t1." Preferred stock to the Reconstruction Finance Corporation sh41;uat the funds released by the reduction in common capital stock 4- be used to eliminate a corresponding amount of substandard 2/14/34 -5- ' assets, and provides also that 50,000 shall be transferred from the surplus account to a reserve for contingencies, all as set forth in Your letter of February 1, 1934. In this connection, it is understood that the eliminated assets are to remain the property of the bank. "In considering the plan under which the reduction in cammon capital stock is to be effected, it was noted from your letter that there has been a change in management since the examination of FebIllarY 10, 1933, in which your examiner criticized a number of the directors and officers as having borrowed too freely for their individual needs and for concerns in which they are interested. The Ileconstruction Finance Corporation examiner, as of December 12, 1933, lists borrowings of officers and directors as.,;3402000 direct and Ne2v4,000 indirect, representing approximately sixty per cent of total loans on that date. These borrowings seem particularly criticisable in view of the unsatisfactory condition of the bank. It is assumed, however, that these matters are receiving the attention of Your office." Approved. Letter to Lir. O'Connor, Comptroller of the Currency, reading as follows: "The Federal Reserve Board approves a reduction in the common .etaPital stock of 'The'Commercial National Bank of Anniston', Annis°41 Alabama, from 300,000 to c;225,000, pursuant to a plan which Pr°vides that the bank's capital shall be increased by the sale at Par Of 05,000 par value preferred stock to the Reconstruction 411ahce Corporation, all as set forth in your letter of February 2, 1934 "It your letter for the has been noted that no provision is made in use of the released capital funds. It is assumed that none , 0 , F the released capital funds will be returned to shareholders but al_lat se t such funds will be used to eliminate unsatisfactory assets, depreciation and/or to augment the bank's surplus, un;-"rided profits or reserve for losses and contingencies. It is t .11er assumed that all eliminated assets are to remain the properY Of the bank." Approved. Letter to Mr. O'Connor, Comptroller of the Currency, reading as r011ows: "The Federal Reserve Board approves a reduction in the common etTital stock of 'The First National Bank of Greenville', Greenville, 542 2/14/34 -6- "Alabama, from ,425,000 to 34°,000, pursuant to a plan which provides that the bank's capital shall be increased by the sale at Par of cj25,000 par value preferred stock to the Reconstruction Finance Corporation, and that the released capital funds shall be Used in eliminating substandard assets in the amount of approximatelY , 'M,606.90, all as set forth in your letter of February 10, 1934. "It has been noted that no provision is made in your letter For the use of the remaining released capital funds of approximately CA5,393.10. It is assumed, however, that none of the remaining released capital funds will be returned to shareholders but that such 'Itnds will be used to augment the bank's surplus or undivided profits. It is further assumed that all eliminated assets are to remain the property of the bank." Approved. Letter to Mr. O'Connor, Comptroller of the Currency, reading as follows: "In accordance with your recommendation, the Federal Reserve ard approves a reduction in the common capital stock of 'The ddell National Bank of Brazil', Brazil, Indiana, from -,-,80,000 4°, 50,000, pursuant to a plan which provides that the bank's capi! ILL shall be increased by the sale at par of '050,000 par value prei?rred stock, and that the funds released by the reduction in com211 capital stock shall be used to eliminate unsatisfactory assets, 'q-11 as set forth in your memorandum of January 31, 1934." Approved. Letter to Mr. O'Connor, Comptroller of the Currency, reading as t011ows: re "Reference is made to your memorandum of January 27, 1934, ,T20:Mmending approval of a reduction in the common capital stock of rr"e Woodford County National Bank of El Paso', Id Paso, Illinois, wh7 4 00,000 to y25,000, in accordance with a plan of reorganization atIch provides that the bank's capital shall be increased by the sale pi,Par cf $25,000 par value preferred stock to the Reconstruction co;tmlnee Corporation and that the funds released by the reduction in capital, together with the bank's undivided profits of ap."-Lmately ;':;1,000 and a voluntary contribution by shareholders of orP1*()XImately 15,000, shall be used to eliminate substandard assets tIPPrcximately 31,000 and establish a surplus of $10,000. steaqd"it is obvious that the reorganization plan will remove subtor i.?,11(1 assets, increase the liquid position and enable the bank time beinL , to pay its depositors 100 per cent; however, due 543 2/14/34 -7- "to the very small amount of earning assets remaining in the bank and the increased expense for interest created by the issuance of preferred stock which the institution is ill-prepared to meet, it would seam that either a merger with the unrestricted El Paso National Bank or a liquidation of the subject bank might provide a more satisfactory solution of this bank's problem than would a reduction in its common capital and consequent release of the stockholders liability thereon. . "The Board is advised that since 1921 the bank has made up deficits by charges against surplus and voluntary contributions, the result being a net loss to the stockholders; that it has paid no dividends since 1925; and that during the five years from 1928 1932 there was a net loss of about :315,000. The Board is also Informed that the bank was not licensed following the banking holideY; that it is in the hands of a conservator; and that last September a plan was submitted by the El Paso National Bank which provided !or the payment in full of the depositors upon the payment of 015,000 ln cash by the stockholders of the Woodford County National Bank. The national bank examiner in his report of May 18, 1933, severely criticized the management and advocated a merger with the El Paso National Bank as a 'local banking correction which has been needed rOr a number of years'. "The Assistant Federal Reserve Agent reported to the Board as follows: 'In view of this record, it is our belief that the community as well as the banking business will be better served by a pay-out of deposits either through the bank in the town now in operation or through a receiver, and we are not willing to recommend that the Reconstruction Finance Corporation purchase preferred stock in this bank or that the common shares be reduced.' "It appears that the Federal Reserve Agent wired you as follows: 'Regarding plan for reorganization Woodford County National " 1/1 14c, El Paso, Illinois, we have not approved the program for reopening this bank for the reasons indicated in our letter of December 11 and are not now inclined to recommend reduction in c°1r1Mon capital of ;25,000 and purchasing by Reconstruction Finance Corporation of like amount of preferred stock, believing that the . 01t1lunity as well as the banking business will be better served CY 100% Pay-out to depositors, either through the bank now in operation or through a receiver.' "In the circumstances, the Board is not prepared to approve the :Posed reduction in common capital stock of the bank as a part of "ntemplated plan." Approved. Letter to ET. O'Connor, Comptroller of the Currency, reading as t011ows: r'/IZY 2/14/34 -8- "In accordance with your recommendation, the Federal Reserve Board approves a reduction in the common capital stock of 'The irst National Bank of Seymour', Seymour, Texas, from "' I ,05,000 to SA5,000, pursuant to a plan which provides that the bank's capital 811e11 be increased by the sale at par of .:;25,000 par value preferred stock to the Reconstruction Finance Corporation, and that the funds released by the reduction in common capital, together with a portion Of the bank's undivided profits, shall be used to eliminate unsatisfactory assets in the amount of approximately :;45,185 and to establish a surplus of approximately 37,500, all as set forth in your letter of February 3, 1934." Approved. Letters dated February 13, 1934, approved by five members of the to Honorable Duncan U. Fletcher, Chairman of the Committee on 844ki ag and Currency of the United States Senate, and to Honorable Henry 11411 1 2 8. SteRgall, Or Chairman of the Banking and Currency Committee of the House 15 Alepre sentatives, reading as follows: "The Federal Reserve Board respectfully recommends that appropriate -egislation be enacted by Congress extending for one year 41'om March 3, 1934, and for such additional period not exceeding two rears as the President may prescribe, the authority conferred by 8e00nd paragraph of Section 16 of the Federal Reserve Act as tinded by the Act of February 27, 1932, under which direct obligaof the United States may be used as collateral security for Federal that Section 16 of the :ederal reserve notes. It will be recalled Reserve Act was amended by the Act of February 27, 1932, so 4 to provide that until March 3, 1933, the Federal Reserve Board, art!'t deems it in the public interest, shall have authority by an et,_rmative vote of not less than a majority of its members, to A:!Ilorize the Federal reserve banks to offer, and the Federal Reserve s cgats to accept, as collateral security for Federal reserve notes, thie-ct oblimtions of the United States. As originally enacted, mar3 amendment provided that such authorization should terminate on 1933, and such obligations be retired as security for Pedn of 1,4a-4 reserve notes; but the law was further amended by the Act t_lerY 3, 1933, so as to extend the period of this authority Illati March 3, 1934. ?sae The Federal Reserve Board on May 5, 1932, authorized the statral reserve banks to pledge direct obligations of the United : as collateral for Federal reserve notes and the procedure thsr tonth °r was set out fully in the Federal Reserve Bulletin for the Of May, arld sin 1932, a copy of which is inclosed for your convenience; 4 oe that date such obligations have been pledged continuously 2/14/34 -9- as collateral security for Federal reserve notes, the maximum amount pledged at any one time being :„a,098,000,000 on Yarch 20, 1933. In the opinion of the Board, the authority to use direct obligations of the United States as collateral for Federal reserve notes has been of material assistance to the Federal reserve banks 11 their efforts to facilitate business recovery. "On January 31, 1934, Federal reserve notes were outstanding in the amount of e3,181,000,000 and there were available to be used as collateral against them eligible paper in the amount of170,000,000 and gold certificates in the amount of Q2,687,000,000. Aecord, Inely, the amount of direct obligations of the United States required as collateral against such outstanding Federal reserve notes on that date was , . 324,000,000, and the Federal reserve banks on that date actually had pledged as collateral direct obligations of the United States in the amount of c570,000,000. In the circumstances, it is the opinion of the Board that it is important to extend the authority l"telo use direct obligations of the United States for this purpose until -arch 3, 1935, or until the expiration of such additional period llot exceeding two years as the President may prescribe. "For the consideration of your Committee there is inclosed h• erewith a draft of a bill which would accomplish this purpose. In svi of the short time before Larch 3, 1934, when the present authorexpires, the Board hopes that your Committee will be able to give is matter its prompt attention." Approved. Letter to '„lovernor Calkins of the Federal Reserve Bank of San Pratte., as Chairman of the Governors' Conference, reading as follows: January 15, 1934 (TRANS 1942) iAdi "Replies to the Board's wire of cate that while all Federal Reserve banks purchase and sell Uanited States Government securities at the request of and for the rc ec°unt of member banks, they do not have a uniform policy with atsPect to the practice of purchasing and selling such securities f,,the of and for the account of (a) nonmember banks and individuals, firms and corporations other than banks. The Board feels that it is doubtful whether Federal Reserve banks should buy and sell United States Government securities for siJaramber banks and that it is particularly doubtful whether they Acculd perform this service for individuals, firms and corporations. illeIrdingly, it is requested that this matter be made a topic for ,k_Ision in the program of the next conference of the Governors of , wle deserve banks." Approved. 546 2/14 -10There were then presented the following applications for original "lc of Federal reserve banks: lieations for ORIGINAL Stock: uistrict No 41* First NatioLl Bank of Export, Port, Pennsylvania 7 le ' NationalBank, Granville, Illinois Shares 44 44 33 Total 33 77 Approved. Thereupon the meeting adjourned. L Secretary. 4 ' 4roved: Governor.
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