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e4i2.1 Minutes of actions taken by the Board of Governors of the Peral the Reserve ,-.ystem on Monday, February 18, 1952. The Board met in fpecial Library at 2:30 p.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Martin, Chairman Szymczak Evans Vardaman Powell Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Kenyon, Assistant Secretary Vest, General Counsel Leonard, Director, Division of Bank Operations Before this meeting there had been sent to the offices of the taeml),, of the Board copies of a memorandum submitted by the Federal 017 Council relating to topics to be discussed at the joint meeting the Council and the Board of Governors tomorrow. The topics were 'red and it was agreed that the views of the Board would be presented " et forth in the minutes of the joint meeting. 142c. Powell reported that he had received additional advice from the F'ederal Reserve Bank of Dallas regarding the growing practice in that 1.trIct under which a member bank solicits country bank deposits on the te, that it is in a position, because of an arrangement with a nonmember btt, tn collect nonpar checks at par. He suggested that it might be 1411"elge to present this matter to the Federal Advisory Council tomorrow l'eciliest their comments. Ni4r8 of the Board. This suggestion was concurred in by the other 258 2/18/52 There followed a discussion of the procedure in connection with the joint meetings of the Board and the Federal Advisory Council, the l'easc)ns why that procedure had grown up, and whether it was conducive to e. trce exchange of opinions between the Board and the Council. It was st" 'ed in this connection that it would be helpful to the Board to have l'el)01'ts from the individual members of the Council at the joint meetings 0 conditions within their respective districts and that the Council " 4int -c, PDreciate informal discussion with the Board of matters currently berr`),4'e the Board for consideration. At the conclusion of the discussion It as understood that Chairman Martin would take the matter up with Mr. 4ot— Preeident of the Council, to see whether such a program could be out for future meetings. Mr. Vest stated that he had just completed a memorandum summarizing the llrinciPal provisions of bill H.R. 6504, the Bank Holding Company Act Of 10,- 'd)2) and, commenting on some of the differences between this bill and hold4 atE pan4 ' company legislation which was under consideration in the and Currency Committee in 1950. In a brief discussion, it Etereed t1)-It copies of the memorandum might he given to the members of the l'eclerR1 AcbiLcry Council at the meeting with the Council tomorrow. It was also agreed that if the question were raised by the Council, Nell would report on the status of the study on bank earnings currexty 4thr. -16 conducted by the Board. fltAAA 2/18/52 -3At this point all of the members of the staff with the exception °1*I'lessrs. Carpenter, Fherman, and Kenyon withdrew, and the action stated ilithreEiDect to each of the matters hereinafter referred to was taken by the Board: Minutes of actions taken by the Board of Governors of the Federal Reeerve System on February 14, 1952, were approved unanimously. Minutes of actions taken by the Board of Governors of the Federal ReEerve System on February 15, 1952, were approved and the actions recorded therein were ratified unanimously. Memoranda recommending that the resignations of the following ' 11))-0Yee8 be accepted, effective the dates Nte- of mem indicated: Effective Date Name and Title Memorandum from Mr. MarEet, Director, Division of International Finance Caroline Lichtenberg, Economist 2/29/52 Memorandum from Mr. Bethea, Director, Division of Administrative Services Walter L. Peregory, Offset Press Operator 3/5/52 Approved unanimously. Letter to Mr. Parten, Chairman, Federal Reserve Bank of Dallas, R5 follows: "In accordance with the request contained in your letter of February 8, 1952, the Board of Governors approv 2,6 1 -4"the appointments of the following employees as members of the Federal Reserve Agent's staff with titles and salaries as indicated: El Paso Branch Federal Reserve Agent's Representative &tines L. Cauthen Federal Reserve Agent's Representative 0)779.34 Houston Branch E. Maley Federal Reserve Agent's *6,010.00 Representative C. E. Purifoy Federal Reserve Agent's f('),(310.00 Representative San Antonio Branch Fred. chrj Federal Reserve Agent's (4;5,512.00 Representative E. Stockwell Federal Reserve Agent's $5,200.00 Representative This apDroval is given with the understanding that the Ployees named above will he placed upon the Federal Reserve ent'5 payroll and will be solely responsible to him or, durXg a vacancy in the office of the Federal Reserve Agent, to iissistant Federal Reserve Agent, and to the Board of Gov:"e, for the proper performance of their duties. When not ern AllEaged in the performance of their duties as Federal Reserve ”,.11t's Representatives they may, with the approval of the pZleral Reserve Agent or, in hi5 absence, of the Assistant r, del'al Reserve Agent, and the Vice Presidents in charge of the 1.7.ePective Branches, perform such work for these Branches as Alli not be inconsistent with their duties as Federal Reserve e:ent's Representatives. The employees named above should execute the usual oaths , 4 , . Of n4 to -11.1ce which should be forwarded to the Board of Governors Cether with advice of the effective dates of their appoint- Travis Johnson r It is noted from your letter that 11essrs. Fraser at El Pa ° 'Boyd. at Houston, and Stover at San Antonio will be re11 : t; ved of their duties as Federal Reserve Agent's Representa4ves at the time the foregoing appointments become effective." Approved unanimously. Letter to the Chautauqua National Bank & Trust Company of JcmesJatlestown, New York, reading as follows: 211-8/52 -5- "The Board of Governors of the Federal Reserve Sys..en has given consideration to your supplemental applicafor fiduciary powers, and, in addition to the authority heretofore granted to act as trustee, executor, administrator, reEistrar of stocks and bonds, guardian of estates, assignee, receiver and committee of estates of lunatics, grants you a uthority to act, when not in contravention of Etate or local in any other fiduciary capacity in which State banks, Lrust companies, or other corporations which come into conP letitien with national banks are permitted to act under the awe of the state of New York, the exercise of all such rights to be subject to the provisions of the Federal Re! erve Act and the regulations of the Board of Governors of -Ole Federal Reserve ystem. This letter will be your authority to exercise the fidu • clarY powers granted by the Board pending the prepara:;°n of a formal certificate covering such authorization, waich will be forwarded to you in due course." Approved unanimously for transmittal through the Federal Reserve Bank of New York. Letter to Mr. Roger W. Jones, Assistant Director, Legislative 1,17ere nee) Bureau of the Budget, Washington, D. C., prepared pursuant lolletim, — taken at the meeting on February 14, 1952, reading as follows: "This refers to your letter of February 11, 1952, rean expression of views with respect to a legislapre e Proposal, including a draft bill, to make permanent the sent temporary authority of the Federal Reserve Bilku to chase Government obligations directly from the United States. que 1 8e "Except between the years 1935 and 1942, the Federal Re. ve Banks have always had authority to purchase Government oj th'leations directly from the Treasury. Eince 1942 this ause°ritY has been limited by section 14(b) of the Federal ReAct to an aggregate maximum amount of five billion le.rs at any one time, and the provision has been temporary /ature. Lhile the time limit has been extended from time to . the authority under present law will terminate on 30, 1952. The Board of Governors believes that the direct purchase EtUtho,.., -1(-Y of the Federal Reserve Banks is desirable. This ,t1 2/18/52 -6- !I authority provides a useful mechanism for helping to smooth out the effect of short-run peaks in Treasury cash receipts and disbursements so that the disturbing effect of their flow through the banking system may be held to a minimum. It also makes it possrble for the Treasury to operate with a smaller cash balance than might otherwise be needed, since it provides a means by which the Treasury, if necessary, may temporarily meet large cash outlays of which it has not had previous , 11?tioe. Under both the existing law and that prior to 1937, ' ( Ile direct purchase authority has been used only Infrequently arid for short periods as a convenient means of meeting temporary situations. "For the reasons indicated, the Board favors enactment of the proposed legislation." Approved unanimously. Letter to Mr. Purrington, Assistant Vice President, Federal Reserve 4rat of C hicago reading as follows: / "This refers to your letter of February 13, regarding the Penalty of *27.97 incurred by the First National Bank of Morton , rove, Morton Grove, Illinois, on a deficiency in its reserves or the period ended January 31, 1952. that "t is noted that the subject bank Is a new institution; tae deficiency resulted from the fact that the maintenance reserves did not receive proper attention because of the burden of details incident to its opening; that the banK's e 14 serve balance during the two previous computation periods .t le five times the amount required; and that the Cashier of bee subiect hank gives assurance that proper reserves will Maintained in the future. "In the circumstances, the Board authorizes your Bank to " aosessment of the penalty in this case." Approved unanimously. Letter to Mr. Sproul, President, Federal Reserve Bank of New York, 11 "f011owE: lett "The Board of Governors has given consideration to your fi A er of February 6, 19)2, submitting the preliminary and coninquiry of the Bankers Trust Company of New York as 263 2/18/52 -7- "t° whether it would avprove, pursuant to Section 18(c) of the Federal Deposit Insurance Act, the acquisition of three °r four smaller banks by the Bankers Trust Company with the understanding that the Trust Company would, after completion of its program, obtain additional capital to repair whatever temporary diminution of capital had taken place. "In a supplemental memorandum submitted in connection !ith the examination of the Bankers Trust Company as of October i. 1950, the examiner reported a discussion of the bank's e<program with President Colt, in part, as follows: 'He says there are two reasons for this expansion program. (1) Inland banks are now larger and able to grant larger lines to their customers. '.1,)nce, New York City banks are losing That used to be excess business for the inland banks. To replace this earningswise, Bankers have had to go into what they call a retail business (formerly wholesaled credit to big names). (2) In order to further increase earnings and eventually provide additional return to the shareholders, the capital structure in relation to deposit ratio has to be "watered" down. An easy way of doing this is to acquire other banks without increasing capital funds.' "Since Section 18(c) of the Federal Deposit Act became l''fective on August 17, 1950, (originally it was Section 12B )(4) of the Federal Reserve Act, as amended), the Board Ta8 granted written consent for absorption by the Bankers a t Company of the Lawyers Trust Company, the Flushing Bank, and the Commercial NAtional Bank and Trust cinPanY, which involved, in the aggregate, assumption of d':130eits in the amount of approximately *270,000,000 and the '18trfbution of about *34,000,000 in capital funds. On 411Cla5t 7, 1950, just prior to the effective date of the amend! exit) the Trust Company absorbed deposits of the Title Guaranty ' ; 1 11c1 Trust Company amounting to *56,000,000 and an unreported *°Istion of its capital funds, totaling *6,700,000 was disbursed. It is noted that the Bankers Trust Company does not contem1)3 oi"e an ultimate further reduction of capital funds as a result .0 08sible takeovers now being canvassed and it is to be assumed 11':xt such transactions will not adversely affect the public interest r involve a tendency toward monopoly. Also, it is noted that capital ratios of the Bankers Trust Company are not subntially out of line with those of other comparable New York 'InkLi. However, in view of the evident intent of the legislative r j 2/W52 "a6V'on, tne Board would wish to.be.-advised (1) if the proincrease in capital of the Trust Company will contaftPlate ade(iuute provision for the previous distributions eanctioncd by it pursuant to the provisions of Section 18(c)3 '(2) as to the estimated , , 2„Ltregate of further distrfbuicns that may be effected before action to increase Capital is tkell, and (3) as to what consideration has been given to Present increase in Capital which muy be related to both Past and contemplated dietributiong." Approved unani.raously.