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561 A meeting of the Executive Committee of the Federal Reserve Board las held in Washington on Monday, February 19, 1934, at 3:30 p. m. PRESENT: Mr. Mr. Mr. Er. Black, Governor Hamlin Thomas Szymczak Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Bethea, Assistant Secretary The Cammittee considered and acted upon the following matl;ers: Memorandum dated February 14, 1934, from Mr. Wyatt, General el/11411411, recommending that the temporary appointment of Mrs. Dorothy M. as a stenographer in the legal division be continued until the °I.clse Of business on February 28, 1934, at her present salary rate or 4130 a month. Approved. Memorandum dated February 14, 1934, from Mr. Wyatt, General Courts , e.t, recommending that Miss Hildur V. Lehn, a stenographer in the leeal d. . . lvlsion, be granted an additional leave of absence with pay, 134 accoluat of illness, from February 16 to 28, 1934, inclusive. Approved. Memorandum dated February 15, 1934, from Mr. Paulger, Chief °t the D ivision of Examinations, recommending that Miss Dorothy E. Quinn, '14° had been employed temporarily as a stenographer, be appointed per4411elltly as a stenographer in the division, with salary at the rate of 4 ' 66° Per annum, effective February 16, 1934. Approved. Tel -egraphic reply on February 17, 1934, approved by four members or the 80 4rd, to a letter dated February 16 from Mr. Hoxton, Chairman of 5(;2 2/19/34 the Federal Reserve Bank of Richmond, stating that the executive camrilittee of the bank, at its meeting on February 16, voted to establish, 811hisct to the approval of the Federal Reserve Board, a rate of 4% per 414111111 on advances to individuals, partnerships or corporations secured b/T direct obligations of the United States under section 13 of the FedReserve Act, as amended, effective on the first business day follow lag that on which approved by the Federal Reserve Board. The reply steted that the Board approved for the Federal Reserve Bank of Richmond the ""e of 4'7 fixed by the executive cormittee, effective February 19, 194. Approved. Letter to Mr. Walden, Controller of the Federal Reserve Bank of ilichniond, stating that, in accordance with the recormendation contained letters of January 30 and February 2, 1934, the Board approves "in the bank's personnel classification plan to provide for four el115.4 41/ Positions at the head office, two new positions at the Baltimore b:t h, and one new position at the Charlotte branch, the discontinuance 0 °46 Position each at the head office and Baltimore branch, and a h440 in 1 ary range of one position at the Baltimore branch. thesa, Approved. Letter dated February 17, 1934, approved by five members of the 84") to Mr. Stevens, Chairman of the Federal Reserve Bank of Chicago, 1144i4g as follows: zi,„ "The Federal Reserve Board approves annual salaries, effective 8Z11.4rY 1, 1934, of i;6,000 for Mr. C. L. Pitman, Chief Examiner, yo111. -;5,000 for Mr. W. R. Diercks, Examiner, as recommended in letter of January 5." Approved. 56:7 2/19/34 Letter dated February 17, 1934, approved by five members of the (11 to Mr. Williams, Chairman of the Federal Reserve Bank of Cleve" 53 11114d, reading as follows: "Governor Black brought to the attention of the Board your letter of February 9 in regard to leave of absence granted to Governor Fancher until April 1, 1934, in view of his illness. "The action of the board of directors of the Federal Reserve Bank in granting this leave to Governor Fancher does not require action by the Federal Reserve Board and therefore it has requested lale to advise you that it has noted the information submitted and to thank you therefor, with an expression of the Board's hope for the early recovery of Governor Fancher." Approved. Letter dated February 1?, 1934, approved by three members of the cl) to Mr. Williams, Chairman of the Federal Reserve Bank of Cleveland, ' 8°41 1444ing as follows: "Receipt is acknowledged of your letter of February 14, 1934, advising that because of the illness of Mr. H. C. McEldowney, member of the Federal Advisory Council representing the Fourth Federal Restarve District, the Board of Directors of your bank has designated A. E. Braun, President of the Farmers Deposit National Bank, Pittsburgh, Pennsylvania, as alternate to represent the Fourth District at the meeting of the Council to be held on February 20. "In connection with the selection of Mr. Braun as alternate for Mr. McEldowney, your attention is directed to the Board's circular letter of March 23, 1925, X-4296, a copy of which is attached." Approved. Letter dated February 16, 1934, approved by four members of the 11041.A tO Mr. food, Federal Reserve Agent at the Federal Reserve Bank of Lo reading as follows: "Receipt is acknowledged of your letter of February 2, 1934, taci-Losing reports of indebtedness and outside business affiliations °f seven employees recently added to your staff, and of Mr. Frank 4aanape11, clerk, who was absent from the bank when the reports of other employees in Your department were forwarded to the Board. "In this connection, the Board's letter of April 29, 1933, X-7425, stated that there should be a prompt report to the Board the letter, incurred enY indebtedness of the kind referred to in 564. "by the agent or any member of his staff after July 1, 1933, and that such report should contain information similar to that called for in the Board's letter with respect to indebtedness outstanding on that date. Accordingly, it is suggested that you arrange to report to the Board promptly any indebtedness, excluding current bills for ordinary personal or household expenses, incurred by members of your staff, and that you submit on July 1 and January 1 of each year a statement with regard to the progress being made in the liquidation cf the indebtedness previously reported. "The reports submitted by Mr. H. L. Mathias and Paul E. Schroeder and your letter of February 2, 1934, state that these employees hold Positions as assistant examiners in the Federal reserve agent's dePartment of your bank. The Board does not have any record of having approved these appointments, and it is requested, therefore, that a ' lsquest for such approval by the Board be submitted promptly, together with the information regarding Messrs. Mathias and Schroeder requested in the Board's letter of September 20, 1933 (X-7595)." Approved. Letter to the board of directors of "The Louisville Trust Company", 141487ille, Kentucky, stating that, subject to the conditions prescribed 114 the, letter, the Board approves the institution's application for member11 the Federal Reserve System and for the appropriate amount of stock 14 t he Federal Reserve Bank of St. Louis. Approved. Telegram dated February 17, 1934, approved by three members of the • to ux. Newton, Federal Reserve Agent at the Federal Reserve Bank of ".'1'1111cisco, stating that, subject to the conditions prescribed in the tel▪ aJZ, the Board approves the application of the "First Trust and Sav- ille8 13allic of Pasadena", Pasadena, California, for membership in the FedRe 8erve System and for the appropriate amount of stock in the Federal 11""Ire Bellic of San Francisco. Approved. Telegram to dated February 16, 1934, approved by four members of the tT°• Newton, Federal Reserve Agent at the Federal Reserve Bank of 2/19/34 atua -5- Francisco, referring to the application of the Bank of Beaverton, (IreeMI, for permission to withdraw immediately from membership in the hcleral Reserve System, and stating that the Board waives the usual re qUireraent of six months' notice of intention to withdraw and that, acc°rdinglY, upon surrender of the Federal reserve bank stock issued to the Eallk or Beaverton, the Federal iieserve Bank of San Francisco is authorized tcs cancel such stock and make a refund thereon. Approved. Letter to the "First National Bank in Sharon", Sharon, PennNrlliania, reading as follows: "The Federal Reserve Board approves your application for perto act, when not in contravention of State or local law, as l'Ustee, executor, administrator, registrar of stocks and bonds, uerdian of estates, assignee, receiver, committee of estates of , Unatice, or in any other fiduciary capacity in which State banks, rust companies or other corporations which COMB into competition !ith national banks are permitted to act under the laws of the State Qf Pennsylvania, the exercise of all such rights to be subject to the P,I'csvieions of the Federal Reserve Act and the regulations of the rederal Reserve Board. "This letter will be your authority to exercise fiduciary powers "set forth above. A formal certificate covering such authorizatica will be forwarded to you in due course. "The feels that if you are tendered any of the trusts now held by TheBoard First National Bank of Sharon you should carefully rUtinize their condition and should not accept any of such trusts ich, through their assumption, may be detrimental to your institun. In this connection particular reference is made to the five " , 1 dianship estates mentioned by the national bank examiner in his 4-Pc)rt of examination as of April 21, 1933. It is felt that these ts should not be accepted unless it is clearly established that ,_ liability which may have been incurred by the old institution is 40 be assumed." l r j Approved. Letter to Lir. O'Connor, Comptroller of the Currency, reading as t011ows: 566 2/19/34 -6- "In accordance with your recoluwendation, the Federal Reserve Board approves a reduction in the common capital stock of 'The La-tteawan National Dank of Beacon', Beacon, iew York, from .200,000 to 0.00,000, pursuant to a plan which provides that the bank's capital shall be increased by the sale at par of -100,000 par value Preferred stock to the present shareholders and/or others, and that the funds released by the reduction in common capital stock, together with the bank's surplus and undivided profits accounts, shall be Used to eliminate a corresponding amount of substandard assets and securities depreciation, all as set forth in your memorandum of February 8, 1934. "In considering the plan under which the reduction in comon capital stock is to be effected it was noted that no provision was 'made for the elimination of securities depreciation nmounting to apPr°ximately 14,000, which will impair the bank's capital stock to that extent. In addition, there will remain in the bank ?37,645, in d oubtful, and 4204,122 in slow assets, and a heavy investment in banking house, furniture and fixtures. It is assumed, however, that You have these conditions in mind and that whenever it becomes feasible to do so you will obtain such further corrections as may be Practicable." Approved. Letter dated February 16, 1934, approved by three members of the 13oard. t° fitr. Williams, Federal Reserve :'sent at the Federal Reserve Bank or ni e veland, reading as follows: "Reference is made to the application of 'The Peoples City Bank', liciCeesport, Pennsylvania, for permission to reduce its capital from ,000,000 to :,500,000, simultaneously increasing its surplus from 60,000 to :)1,000,000 and transferring the balance of :260,000 obl ained by the reduction to the undivided profits account, as previous;Y submitted by Assistant Federal Reserve Agent Fletcher, and to the wc)rd's letter dated January 22, 1934, advising that no objection ?uld be interposed to a reduction to „;700,000, the objection to the red. euct ion as proposed by the bank being that it would reduce its : p on capital to an amount less than the investment in banking house. 19,!rence is made also to Er. Fletcher's letter dated February 4, sir:, transmitting the request of such bank for the Board's reconin raion of the original plan and offering to reduce its investment refl ankine; house to c;;500,000, the amount to which it is desired to 'Uce the bank's capital stock. tal "The Board interposes no objection to the reduction of the capicik of The Peoples City Bank to an amount not less than 5500,000, liz04%c that the Present carrying value of the banking house shall e_dueed to ,500,000 by a definite write-off and not through the r, " °1ishment of a reserve for that purpose, and provided further 4 c•F.11,) 2/19/34 -7- "that none of the funds released by such reduction are returned to the shareholders but are credited to the surplus and undivided Profits accounts of the bank, and that the reduction in capital is duly accomplished in conformity with the laws of the State of Pennsylvania and with the approval of the Pennsylvania Department of Banking." Approved. Letter to Mr. O'Connor, Comptroller of the Currency, reading as toliows: "In accordance with your recommendation, the Federal Reserve Board approves a reduction in the common capital stock of 'The Dakota National Bank of Fargo', Fargo, North Dakota, from 0_50,000 075,000, pursuant to a plan which provides that the bank's capito al shall be increased by the sale at par of a50,000 par value preferred stock to the Reconstruction Finance Corporation and that the fur.lds released by the reduction in common capital shall be used to ! : 1 1minate a corresponding amount of substandard assets and securi-1.ss depreciation, all as set forth in your memorandum of February 9, 1934.” Approved. Letter to Mr. O'Connor, Comptroller of the Currency, reading as roliows: "In accordance with your recommendation, the Federal Reserve BoarA - approves a reduction in the common capital stock of the 'First i°na1 t Bank in Dodge City', Dodge City, Kansas, fram c)200,000 to n°0,000, pursuant to a plan which provides that the bank's capital fjlall be increased by the sale at par of 400,000 par value preferred c k to the Reconstruction Finance Corporation, and that the funds ;? ...e.Leased by the reduction in common capital shall be used to eliminate t4corresponding amount of substandard assets and securities depreciation -4?n, all as set forth in your memorandum of February 12, 1934." Approved. Letter to Mr. O'Connor, Comptroller of the Currency, reading as accordance with your recommendation, the Federal Reserve Proves a reduction in the common capital stock of 'The $2 ; ( 1t National Bank of Fort Morgan', Fort Morgan, Colorado, from barik:°°° to c50,000, pursuant to a plan which provides that the s capital shall be increased by the sale at par of t50,000 par -8"value preferred stock to the iieconstruction Finance ..;orporation, aad that the funds released by the reduction in common capital, together with the funds received from the removal of certain unacceptable loans by J. H. RoediL;er and the proceeds realized from -brie transfer of eliminated assets to the Virginia Mortgage Loan Liompany, shall be used to eliminate substandard assets and securities depreciation in the amount of 0316,030 and in increasing the bank's surplus and/or undivided Profits in the amount of $12,470, all as set forth in your memorandum dated February 5, 1934, and your meiaorandum dated January 11, 1934 showing Plan of reorganization." Approved. Letter dated February 16, 1934, approved by four members of the 1 30ard , to ivir. O'Connor, Comptroller of the Currency, reading as follows: "In accordance with your recommendation, the Federal deserve Oard approves a reduction in the common capital stock of 'The City uational Bank of Colorado', Colorado, Texas, from Q100,000 to 0)000, pursuant to a plan which provides that the bank's capital shall be increased by the sale at par of :50,000 par value preferred stock to theeconstruction Finance Corporation, ana that the funds eleased by the reduction in common capital together with a portion Of the bank's surplus and undivided profits shall be used to eliminate substandard assets and depreciation in the amount of approxiDlately :)116,000, all as set forth in your letter of February 3, 1934." Approved. Letter to Mr. O'Connor, Comyytroller of the Currency, reading as r'llows, "In accordance with your recommendation, the Federal Reserve BoetrA , a2p10ves a reduction in the common capital stock of 'The Con1:ational Bank of Tucson', Tucson, Arizona, from Q400,000 c 200,000, pursuant to a plan which provides that the bank's 3 shall be increased by the sale at par of 0200,000 par value ttPit.1 theerred stock to the Reconstruction Finance Corporation, and that 10e fUnds released by the reduction in common capital stock shall andused to eliminate undesirable assets in the amount of $150,000 ,to increase the surplus and/or undivided profits in the amount 50,000, all as set forth in your letter of February 8, 1934. In considering the plan under which the reduction in common ca is to be effected, it was noted that the bank's Capit caPital structure is inadenuate to support the volume of deposits, DePital and surplus, after adjustments, amounting to less than seven cent of total deposits. It is assumed, however, that you have tj 13 condition in mind and that whenever it becomes feasible to do 2/3N34 -g_ "so you will obtain such further correction as may be practicable." Approved. Letter dated February 17, 1934, approved by four members of the /3°ard, to Mr. Newton, Federal Reserve Agent at the Federal Reserve Bank c)t San Francisco, reading as follows: "This letter has reference to the Board's telegram to you dated February 10, 1934, further amending the Board's previous telegrams which authorized, upon certain conditions, the issuance of limited rting permits to Transamerica Corporation and Transamerica Bank Holdlag Company. The Board had provided as conditions of the issuance of such permits that each of the two applicants should execute an agreenaent to cause its subsidiary member banks to make certain charge offs or eliminations if they had not already done so. From recent disussions with representatives of the Comptroller's Office and with fix% Giannini and T,Ir. Clary acting on behalf of the Bank of America 1.1ational Trust and Savings Association, the Board ascertained that 'those gentlemen had assured Chief National Bank Examiner Folger that the bank would make certain charge offs and eliminations which, with , 'eepect to that bank, would accomplish the exact purpose which the ?card had had in mind in prescribing the aforesaid conditions except the charge offs and eliminations would be completed by May 15, tr41 instead of by April 1, 1934. As the Board did not object to extension of time there appeared to be no valid reason for not eding to the request for a further anendment of the specified " co nditions. "This action of the Board involves only the issuance of limited lug permits. Before general permits are issued to these applicants 6 will be necessary to develop a considerable amount of additional allformation relative to the financial condition and operations of the 43, 1icants and their principal subsidiaries and the probable effect 011, Ole continuation of the present relationships. The Board's coneratio of the issuance of general permits will be made in the ii ,ght of the facts developed and the recommendations which you and .! Executive Cammittee of the Federal Reserve Bank of San Francisco ar,46 as to the advisability of the issuance of general permits and to the nature of any specific conditions of their issuance which be necessary or desirable in the circumstances." f 1 Z Approved. Letter to Ia.. Hoxton, Federal Reserve Agent at the Federal Reserve 4111k of glehmond, reading as follows: letter of January 12, 1934, replying to the Board's letter ueeember 18, 1933, relative to the report of examination of the or ,"Your 570 2/19/34 -10- "Federal Reserve Bank of Richmond as of truly 29, 1933, has been received and brought to the attention of the Federal Reserve Board. "The Board has noted with interest your comments made in response to the inquiry as to your views regarding the advisability, in general, of employing individuals who are closely related to other employees of the bank. While this is a question primarily for the determination 01 the individual reserve bank, the Board feels that as a general Policy it is not desirable for a bank to have employees who are Closely related to other employees of the bank, particularly where Such employees are engaged in work in the some or related departments. From the information submitted, it is apparent that your views coincide With the views of the Board. "In this connection it is noted that the wife of the manager of the Fiscal Agency Department, who is at present working under his immediate supervision, will be transferred to another department as soon as a transfer can be arranged. It is noted, also, that the employee of the Auditing Department and his wife, who is employed in the Custody Department, have both worked in the bank for a long period of time and are considered valuable employees in their respective departments, and that it is proposed that they be allowed to remain in their present P°3itions with the distinct understanding that the husband does not Participate in any examinations of the Custody Department or otherwise Check or certify to the correctness of any records or information emanating from or pertaining to such department. Aile the sugested rrangement may be satisfactory for the time being, it would appear that any such arrangement which would tend to restrict or limit the duties Of an employee of the Auditing Department would not be desirable and should be discontinued as soon as practicable. "In the Board's letter of December 18, 1933, reference was made to a discussion between you and the Board's examiner relative to the of strengthening the staff of the Auditing Department, With a request for an expression of your views in the matter. The :lth °3331 Ii().„ ents in your letter of January 12, 1934, in this respect have been 11 sci, but they do not cover the particular phase that the examiner had in mind, as the weakness to which he referred lay in the fact i"at, with a small number of senior audit clerks, there was a lack of .1 ,nior clerks who seemed to have the ability and background to enable em at present to assume greater responsibilities in the department, 4L1. 1 that in the event, therefore, of the loss or transfer of even one the senior audit clerks, the department would be seriously handia'Ped. Your comments and views in this connection would be appreciated. 1 , "In reply to the inquiry made in the Board's letter of December 18, 6°36) regarding the nature of the safekeeping accounts held by the for the account of various receivers of closed banks, it has been 4; ea noted that you state that most of the securities held in such AsooUnts had been accepted prior to the suspension of the member bank. Indicated in its letter of December 18, the Board feels that while there is no objection to retaining the securities held in safekeeping ell °I; time of suspension of a member bank until the receiver has had unity to make other arrangements, new deposits of securities Should not be accepted. Z 2/19/34 -11- "The Board has noted the references in your letter to the other rnatters mentioned in its letter of December 18, 1933." Approved. Lemorandum dated January 24, 1934, from Lr. Vest, Assistant "-L) reeoendjnp. that there be published in the next issue of the Pedel'al ileserve Bulletin a in the form attached to the memorandum, with regard to the application of section of the Clayton Act to a director of a Federal Savings and Loan Association. The recommendation " 17 approved by five members of the hoard on February 17, 1934. Approved. Letter dated February 16, 1934, approved by our members of the Boa.rd ) to Curtiss, Federal Reserve Agent at the Federal Reserve Bank Of dOston, readin as follows: "Reference is made to your letter of January 4, 1934, in reply to tl„ “e Board's letter of December 7, 1933, -7702, regardinp: examina,ons t of State member banks in connection with the applications for ' I-L-3s A stock in the Federal Deposit Insurance Corporation. "You state that you hope that the examinations made in December 7 1 three mem.,:er banks may be considered current for the purpose of , akint: the necessary certifications to the Federal Deposit Insurance r I rPeration. It is believed that in order to discharge the responsizIllitY imposed by law, the necessary certifications should, if at all a eible, be based upon reports of examination since January 1, 1934, if necessary, consideration may be given to re7orts of ' Zamination made in December, 1953. 'You advise that the necessary examinations of State member banks ' t?-11 delay considerably the examination of any bank which may apply s.° tr membership. Although such delay may be necessary in the circum2 .J 4cee, it would be unfortunate and it is believed that your examinwi staff should be so increased as to make it possible to examine uneut undue delay banks which may apply for membership. tio_ The Board has considered your suggestion that in these examinaban s for the insurance fund the investments and collateral of all sa1,43 be appraised on the basis of market values on one certain date, IlarY 1, 1934, for instance, and not on the basis of market values °r the date of examination. You advise that in connection with 0;e examinations of nonmember banks by the Federal Deposit Insurance 1Toration such appraisals were made as of September 5, 1933. The j tr()ey ;J o 2/19/34 -12- "circumstances, however, are different and it is believed that the report of examination upon which the Board bases the certification should be a report accurately reflecting the condition of the bank aS at the date of its examination. "Your question as to whether it will be necessary to examine as member banks, state banks which have applied for membership but have not yet become members and have been certified for the temporary insurance fund, has been referred to Counsel and you will be advised in due course as to the ruling on this auestion." Approved. Letter dated February 17, 1934, approved by four members of the BOard, to Mr. Walsh, Federal Reserve Agent at the Federal Reserve Bank of 134118z, reading as follows: "Reference is made to your letter of Tanuary 4, 1934, in reply to the Board's letter of December?, 193'6, X-7702, regarding examinations of State member banks in connection with the applications for 'Less A stock in the Federal Deposit Insurance Corporation. "You ask what will be the policy of the Board in passing upon the permanent deposit insurance applications of the following classes State member banks: '1. Banks whose capital, according to the latest report Of examination, is impaired by losses in assets and/or an operating deficit, and whose losses and doubtful assets are offset by at least an equal amount of debenture capital or preferred stock. '2. Banks which show a capital impairment and whose losses and doubtful assets are not offset by debenture capital or preferred stock.' "Under the provisions of the Act an unimpaired capital is not ;Le(1.11ired for a bank to become a Class A stockholder of the Federal t'ePosit Insurance Corporation, and the Board is required only to fy 'upon the basis of a thorough examination of such bank ther or not the assets of the applying bank are adequate to enable it to met all of its liabilities to depositors and other creditors as shown by the books of the bank.' "It is desirable, of course, that every State member bank shall have a sufficient amount of net capital after provision for all losses, oUbtful assets, and depreciation, to provide adequate protection to he depositors and other creditors, and it is expected that the Federe_b_s:,1- Reserve Agents will do everything possible in order that member 41'448 whose capital structure requires strengthening may be rehabil4‘ated e "You ask, also, to be advised with respect to cases where the 10, tC263 as estimRted by your examiner substantially exceed those of :State examiner, as to which of the two estimates will be the ba le ror the Board's recoEimendations in connection with the bank's t •-•67. 2i/1.9/34 -13- "application for permanent insurance. In all such cases the certification will be based upon the appraisal by the examiner for the edera1 reserve bank. On the other hand, if the losses and doubtful assets as'classified by the State examiner are substantially in excess of similar classifications by the examiner for the Federal reserve bank, the report of examination submitted to the Board should explain the differences fully in order that the Board may satisfy itself that there is justification for basing the certification upon a4 apparently more lenient classification. "The question raised in your letter of December 11, 1933, as to Whether, in some instances, examinations made by the State banking authorities would be acceptable for the purpose of ranking the necessary Certifications in connection with applications for Class A stock 1l11 the Federal Deposit Insurance Corporation had been discussed with ''Betts, your examiner, and, as he advised Mr. Evans some time ago, lt ls believed•that the certifications made in connection with the 49plications for Class A stock should be based upon reports of examination made by examiners for the 'Federal reserve bank." Approved. Letter dated February 17, 1934, approved by four members of the to the :3ecretary of the Treasury, reading as follows: "For your information you will find attached a copy of a letter clated January 30, 1934, addressed to the Comptroller of the Currency by the First National bank of Des Plaines, Illinois, which was referred to the Federal Reserve Board, and a copy of a letter from the Federal Reserve Agent at Chicago, dated February 13, in reply to an flOuiry concerning the, matter referred to by the Feict I:ational Bank °r Des Plaines. "This correspondence relates to a complaint that the First il!ional Bank of Des Plaines, Illinois, did not have adequate time Tithin which to subscribe for an issue of Treasury notes." Approved. Letter dated February 17, 193-, approved by five members of the ' t Honorable Duncan U. Fletcher, Chairman of the Committee on and Currency or the United .Jtates Senate, reading as follows: "The Federal Reserve Board is gratified to note that in accord1;r with the recommendation contained in its letter of February 13, 2766, to extend the period dur41 You have introduced a bill, c0T.I which direct obligations of the United States may be used as -Lateral security for Federal Reserve notes. It is observed, that in line 3 on page 1, after the words 2/19/34 -14- "That the second paragraph of, the words 'Section 16 of' have been omitted from the bill as introduced and in line 3 on page 3, the words at any time' have been changed in the bill as introduced to read at all times'. These are apparently typographical errors and are brought to your attention in order that the necessary corrections may be made." Approved. Letter dated February 17, 1934, approved by four idembers of the r), , to Honorable Duncan U. Fletcher, Uhailimn of the Committee on Bankedld Currency or the United States Senate, reading as follows: 'Receipt is acknowledged of the letter of February 10, 1934, from the Acting Clerk of the Committee on Ranking and Currency of the Senate, in which the request is made that a report be submitted to You on bill S. 2628, introduced by 1\1r. Byrnes on February 5, 1934, entitled 'A Bill To amend section 31 of the Ranking .Let of 1933 elating to stock ownership by directors of member banks of the l'ederal Reserve System)'. "Section 31 of the Banking Act of 1933, approved June 16, 1933, Provides that, after one year from the date of the enactment of that .4. 1et, every director, trustee or other member of the board of direc" )ro, board of trustees or other similar governing body of every rnational bank and of every State bank or trust company which is a irmber of the Federal reserve system shall be the bona fide owner 11.1 his own right of shares of stock therein having a par value of . 6 less than c2,b00, unless the capital of the bank shall not exceed oo 0, in which case he must own in his own right shares having a r value of not less than .j1,11500, or unless the capital of the bank Jail not exceed :425,000, in which case he must own in his own ri,..ht Ilares having a par value of not less than ::,;1,000. "If bill S. 2628 were enacted its effect would be to reduce the ount of stock which an individual director must own in his own ht to an amount not less than 1.,000 in the case of any bank hav";- a capital stock of 425,000 or less. "However, your committee on February 5, 1034, submitted to the a report to accompany bill S. 2601, which had been introduced 'erlate by Y°u 011 January 23 (calendar day, February 2), 1934, to repeal the visions of section 31 of the tanking Act of 1933 which relate to aj 3., 1 °ck ownership by directors of member banks of the Federal reserve Ic' ostem upon which you had requested a report by the Federal Reserve pael'd, which was sent to you on February 6, 1934. Bill S. 2601 was ed by the Senate without amendment and is now pending in the Use of liepresentatives. 2a.1,"In these circumstances it is assumed that a report upon bill ' " - -4° is not necessary at this time." V il r Approved. "1-d°y 2119/34 -15Letter dated February 16, 1934, approved by four members of the d) to Lr. Burgess, Chairman of the Subcommittee of the General ComZittee on Bankers' Acceptances, reading as follows: "This refers to your letter of January 4 and Li'. Doulas' letter of January 8, 1934, with inclosures, with regard to the question Whether whiskey and wine may properly be considered readily marketable staples within the meaning of the Federal Reserve Board's definition of this term as contained in Regulation A with respect to bankers' acceptances. "This question is primarily one of fact but depends also upon Whether or not there are substantial restrictions imposed by the laws °f the various States upon the purchase and sale or marketing of these Products. It is understood that the laws of the States with respect tO this subject vary greatly and while in some States there may be fOW restrictions, if any, upon the marketing of whiskey and wine, in Other States, there may be no legal market for these products. In the circumstances, it would seem that the marketability of whiskey and wine could be more satisfactorily determined at a later date when the onditions as to the Llarket for these products in the various States 'lave become more settled and better known. "If, however, your subcommittee feels that a determination of the question should be had at this time, the Board suggests that the i llb committee cause such investigation as it may deem necessary to be fe:de in order to ascertain the facts in this connection, with paru-cular reference to the number of States in which there are no sub”antial restrictions upon the market for whiskey or wine and whether t4 sUch States these products or either of them are the subject of nstant dealings in ready markets with such frequent quotations of rice as to make the price easily and definitely ascertainable and 4 ,1e 1 staple itself easy to realize upon by sale at any time within O Meaning of the definition contained in the Board's Regulation L. Federal Reserve Board will be glad to review any conclusion which be reached by your subcommittee on the basis of the facts so dev eloped." 7 Approved. Letter dated February 16, 1934, approved by four members of the to Mr. Gibbs Lyons, Deputy Comptroller of the Currency, reading as ate. ,,"Receipt is acknowledged of your letter of January 30, 1934, 1.1143 that you have received a letter from Chief National Bank canner William H. Baldridge innuiring whether whiskey may be -31dered as a readily marketable non-perishable staple; and you 576 2/19/34 -16- "request the opinion of the Board in this connection. It is assumed that your request refers to the view of the Federal Reserve Board With respect to such a question arising under the definition of the term 'readily marketable staple' contained in the Board's Regulation A With regard to bankers' acceptances. "The Federal Reserve Board has not considered the question Whether whiskey is a readily marketable staple since the recent changes in the laws relating to restrictions upon the transportation and sale of intoxicating liquors. The Subcommittee of the General Committee on Bankers' Acceptances of the Federal Reserve System has suggested this question, however, and it may be that it will give consideration to the subject with a view to a determination of the l'sedY marketability of whiskey. The Federal Reserve Board will be glad to advise you of any conclusion which may be reached in the matter." Approved. Letter to Mr. George D. Snyder, Secretary of the Berks County Regiob., Clearinghouse Association, Reading, Pennsylvania, reading as follows: "I regret that the pressure of other matters of urgent importance arising under the Banking Act of 1933 has prevented the Board making an earlier reply to your letters of December 5, and Decam"23, 1933, regarding the withdrawal of savings deposits. "You request to be advised whether the Federal Reserve Board's RegUlation q makes it mandatory for the board of directors of each member bank to pass a regulation stating what portion or percentas,:e savings deposits may be withdrawn without the giving of notice. 8 You know, Section VI (c) of that regulation provides that no manbe bank shall change its practice with respect to the requiring or 2.7ing of notice of intended withdrawal of savings deposits 'except 11 t1, (14-ter duly recorded action of its board of directors or of its ex2utive committee properly authorized.' Accordingly, it is not retred that the board of directors or executive committee take such ilov-ion unless the bank shall change its practice in this regard. 110 /ever, even where there is no such change in practice, there is Objection to such action on the part of the board of directors or :,-(!cUtive committee formally prescribing the practice to be followed ;:ft ta same cases this may be desirable in order to eliminate any "Im ertainty in the matter. 404 "You are apparently under the impression that a member bank may td.paY the entire amount of any savings deposit without requiring 40' op lee of withdrawal. As you know, however, under the provisions Section VI of Regulation CL, a member bank may pay any portion or : el ; 11tatif,e or the savings deposits of any depositor without requiring : 311 - notice if, upon request and without requiring such notice, it V meri 2/19/34 -1'7- "shall pay the same portion or percentage of the savings deposits of every other depositor which are subject to the same requirement; and it is permissible under this section of the regulation for a member bank to pay the entire amount of any savings deposit provided that it camplies with the condition mentioned and also with the other aPPlicable conditions of Section VI of the regulation. "You further request to be advised whether a member bank may .11ow the withdrawal of the sum of 0_00 in any one month on any sayaccount consisting of less than 4,000, without requiring notice c'r such withdrawal, and allow the withdrawal of 10 ,b in any one month of any savings account consisting of more than $1,000 without requirin8 notice. Section 19 of the Federal Reserve Act provides in part that no member bank shall waive any requirement of notice before payment of any savings deposit except as to all savings deposits having the same requirement and it is assumed that all the deposits in question are deposits 'having the same requirement' within the meaning of the law. In accordance with this provision of the statute, the Board ljas provided in its Regulation Q, that 'if a member bank pay any portion or percentage of the savings deposit of any depositor, without requiring such notice, it shall, upon request and without requiring elach notice, pay the same portion or percentage of the savings deposits cf every other depositor which are subject to the same requirement'. The Federal Reserve Board has construed the word portion in this proIrlsion of its regulation as including a specified amount. Under the Plan concerning which you inquire, however, a member bank would per:lit the withdrawal without notice of a certain specified amount of °Ime savings accounts and a certain percentage from other savings accounts. Such a plan does not permit the withdrawal from all dePecsits without notice either of the same amount or of the same per474tage. While under the Board's regulation the withdrawal without :nice either of a certain percentage of all savings deposits or of certain specified amount of all such deposits is permissible, a 4-an under which there may be withdrawn without notice a percentage some deposits and a specified amount from others does not comply "All the requirement of the regulation." Approved. toi„,a Letter dated February 17, 1934, approved by five members of the ' to gfkahill T. 01 C. Roberts, Solicitor of the Veterans Administration, t°n, D. C., reading as follows: 0017 "This refers to your letter of February 7, 1934, addressed to erncr Black of the Federal Reserve Board, regarding the questi, 0;'4 whether trust companies organized under the laws of the State 0 ,New York may lawfully pay interest on funds which are payable 1:tildernan, u held by such trust companies as guardian or committee for °1*8 and incompetent beneficiaries of the Veterans Administration. 578 -18"In this connection, it is noted that nsticle IT, Section 188, of Chapter 2 of the Consolidated Laws of the State of New York re'Jlires trust companies subject to the provisions of that article to allow interest at not less than the rate of 2 per centum per annum cn all sums of money not less than 400 received in a fiduciary caPacitY until expended or distributed pursuant to the provisions of the trust. "As you knew, Section 19 of the Federal Reserve Act as amended forbids a member bank, directly or indirectly, to pay interest on anY deposits payable on demand, except in accordance with a contract entered into in good faith prior to June 16, 1033, and in force on that date; and a member bank is reauired to eliminate from any such contract any provision for the payment of interest on deposits payable on demand as soon as possible consistently with its contractual Qbligations. The Federal Reserve Board has ruled, with specific reference to trust companies organized under the laws of the tate of New York, that this section prohibits a member bank from paying interest on deposits of funds held in a fiduciary capacity which are dePosited by the trust department in another department of the bank subject to payment on demand, except in accordance with a contract entered into in good faith before June 16, 1933, and existing on that date, and such a contract must be modified by the bank as soon aa possible to eliminate any provisions for the payment of interest oh deposits payable on demand. "It is assumed that the uninvested funds to which you have reflice in your letter are treated by the trust company as deposits t cill u that they are not segregated from the general assets of the 421st company and otherwise subjected to the safeguards ordinarily P°sed upon the custody and use of trust funds. In these circumstances, ; z-- would appear that the ruling of the Beard above referred to is 23Plicable to the case presented in your letter; and that, therefore, interest may lawfully be paid by trust campanies which are members 3 '!: the Federal Reserve System upon funds of the character described sY 4. You which are payable on demand, notwithstanding the fact that the e law reauires the payment of interest by trust companies on Ilch funds. "In this connection, your attention is called to the fact that c'j ) ,Prohibition against the payment of interest on deposits is applibanke Only to deposits payable on demand and does not prevent a member from Dayinr, , interest on time deposits in accordance with the Drevi,. -lons of the Board's Regulation a copy of which is inclosed Your information." 7 1 Approved. A i i Letter dated February 16, 193, approved by four members of the c:41.1'd, to Lessrs. Platt, Platt, Smith Ef. Black, attorneys and counselors tlt 14w, pertland, Oregon, reading as follows: 579 2/1g/34 -19- "Receipt is acknowledged of your letter of Tanuary 19, 1934, With reference to the effect of the Board's Regulation Q, limiting the rate of interest which may be paid by member banks upon time deposits after October 31, 1933, upon certificates of deposit issued since Tune 16, 1933, but prior to the promulgation of the Regulation, Where such certificates provide for the payment of interest at a rate in excess of that fixed by the Regulation. "After having carefully reviewed this question in the light of Your letter, the Federal Reserve Board is of the view that the position taken by it in its telegram of December 6, 1933, addressed to the Counsel for the Federal Reserve Bank of San Francisco, to which You make reference in your letter, is in accordance with the requirements of the statute. Section 19 of the Federal Reserve Act as nmended bY the Banking Act of 1933 expressly requires the Federal Reserve Board from time to time to limit by regulation the rate of interest Which may be paid by member banks on time deposits. That provision Of the statute must be regarded as a term necessarily implied in any contract for the payment of interest entered into subsequent to the e nactment of such statute. (Farmers' and i,derchants' Bank v. Federal II:ve Bank of Richmond, 262 U.S. 649, 43 Sup. Ct. 651, 655; v. Wall, 241 U.S. 87, 36 Sup. Ct. Railway attention is invited to the fact also connection 495). In this Ilat the provision of Regulation Q in question is prospective only, 1:or the limitation on the rate of interest which may be paid on time ftosits is applicable only with respect to interest accruing after euctober 31, 1933, and did not until after that date affect the inter5t which may be paid on any deposit made prior to the effective date the regulation, August 29, 1933." P Approved. Letter dated February 16, 1934, approved by four members of the 1113")to yx. Schaller, Acting Governor of the Federal Reserve Bank of Clilelig°, reading as follows: re "Receipt is acknowledged of your letter of February 10, 1934, tocluesting to be advised with respect to the authority of your bank Tax Anticipation Warrants of tli PUrchase 1933 Educational Fund bee Board of Education of the City of Chicago in such amount as can against 1933 taxes. "As stated in its letter of March 8, 1933, the Federal Reserve Bo tg,11rd knows of no reason why a Federal reserve bank should not pay iaTces levied against its own property a reasonable length of time wh247anee of the date upon which such taxes are due, especially TC4 such action will result in a substantial saving to the bank. ci Board, therefore, offers no objection to the purchase by the pee leters1 Reserve Bank of Chicago of the warrants referred to in your ter or of other such tax anticipation warrants which can be 580 "applied against the 1933 taxes of your bank." Approved. Letter dated February 17, 1934, approved by five members of the to Mr. Curtiss, Federal Reserve Agent at the Federal Reserve Bank of B°aton, reading as follows: "Reference is made to your letter of December 4, and Er. Gettemy's letter of December 7, 1933, and prior correspondence with the Board relating to the status of Mr. Philip L. Spalding under Sections 32 and 33 of the Banking Act of 1933. "Fran the information submitted and the Board's files, it appears that under date of July 16, 1925, the Board granted Mr. Spalding a permit to serve at the same time as a director of the First Rational Bank of Boston, Boston, Massachusetts, as a director of the First National Bank of Easton, North Easton, Massachusetts, and as a Illember of the firm of private bankers of Estabrook a, Company, Boston, Alaesachusetts. Under date of November 13, 1933, Mr. Spa1din7 has !dlrised you that in his opinion Estabrook 8: Company is not a firm of Private bankers since it does not solicit nor accept deposits subject to check, does no foreign exchange business nor acceptance busiilees, and does no loan or discount business and that its activities l confined to the purchase and sale of securities and the execution Orders for customers for a commission. He further stated that the carries credit balances for customers which are left with it .17tIending investment, and that it carries margin accounts for its cus2alere. Under date of December 4, 1933, Mr. Spalding advised you ; : I..o -Dtat he had resigned as a director of the First National Bank of ,ston, but wished to continue to serve as a director of the First Bank of Easton and as a member of the firm of Estabrook CclaPany "While it is not clear from the information submitted, it ri appear that Estabrook & Company may be primarily a brokerage be'which purchases and sells securities only upon the order and on . ?-Lf of others. The Board has not yet ruled on the question of eae.11er such a brokerage firm is an 'unincorporated assockation eni,eed Primarily in the business of purchasing, selling, or negotiat0;g securities' within the meaning of Section 32. But regardless 0 ,the determination of this *question, if it would be in contravention Section SA of the Clayton Act as amended by Section 33 of the Banktt: Act of 1933, for Mr. Spalding to continue to serve at the same 1114 a3 a director of the First National Bank of Easton and as a er of the firm of Estabrook & Company, it would serve no useful P ee for the Board to grant Mr. Spalding a permit under Section 32 or j tio2 rule that no permit was necessary thereunder. In this connect„ ;I reference is made to the Board's letter of December 22, 1933 ‘4, 734). r 581 2/19/34 i i 1 -21- "With respect to the applicability of Section BA of the Clayton Act to Mr. Spalding's status two questions are presented. First: Is Estabrook & Company a firm of private bankers? Second: Are Ilsrgin accounts 'loans secured by stock or bond collateral' within the meaning of that section? "If Estabrook & Company is a firm of private bankers, Mr. Spal., ulna' need not secure a new permit under the Clayton Act even though 1Targ111 accounts are classed as loans secured by stock or bond collateral, as the permit previously granted to him remains in force lIntil revoked. In view of Ur. Spalding's opinion that Estabrook s!'.:, u°raPsnY is not a firm of private bankers, the Board will assume, without so rulin, that such is the case. With that assumption, the 11°Etrd would have no authority to grant a Clayton Act permit covering Spalding's services as a director of the First National Bank of Easton and as a member of the firm of Estabrook & Company, and the rmit previously granted would seam now to be ineffective, or at east revocable, with respect to Mr. Spalding's services as a direcbc)r of the First National Bank of Easton and as a partner in Estarook & Company. Accordingly, if the margin accounts are to be re?.rded as loans secured by stock or bond collateral, Mr. Spalding, w°uld have to terminate one of these connections. "The Board has not had occasion to rule on '6he Question as to !_flIet her margin accounts are loans secured by stock or bond collateral °lit feels that this is a question which depends primarily on the 1) 17ticular facts involved, and possibly also upon local law, so that vall not be in a position to decide whether Estabrook & Company es loans secured by stock or bond collateral within the meaning or Zt bection SA until it has been furnished with a complete descrip, i 4°n of the manner in which the firm carries out such transactions with copies of all contracts, agreements and other documents Used in connection with such transactions. In submitting this n eation to the Board it would ue desirable not only to submit a tt1lac3lbarldum by counsel for Mr. Spalding regarding the question, but e_°.to have the data examined by counsel lor your bank before being .„ , )11"mitted to the Board in oraer that he may ascertain whether all the ; ssrY data has been submitted. It would be appreciated if coun:ea s :for Your bank would also give the Board the benefit of his 0— P1nion on the Question." i 1 1 )i 1 Approved. There were then presented the following applications for original qlocle or for the surrender of stock, of Federal reserve banks: A icat Shares Z 75 iono erict No. for ORIGIN.LI, Stock: 2 tiV ( 0. 11:rj s 113y3uttenburg, ilittf t:/ 75 582 2/19/34 -22- _________41)lications for 01/IF,:-1-221 Stock: Distric1765. rip Continued ) 1,ati onal Bank of Crewe, Crewe, Vir3inia lbAstrict Shares 56 . 7Lationai Sank in Lincoln, Lincoln, Illinois Sank of Shenandoah, Shenandoah, Iowa 56 110. 69 69 2otal 138 249 180 180 iUlliZENDER of Stock: First aatjoflal Bank) C arteret, New Jersey 1 1.2trict I;o 3. I:at .ional Bank in Philadelphia, „:Chi ladelphia, Pennsylvania "le Tower uity National Bank, Tower City, Pennsylvania ketrict If°. 4. 3t T .ational Bank, , Br adford, Ohio '4tizens National Bank, Caldwell, Ohio °able County National Balk in Caldwell, z, Ohio il'st National Bank, Suarm erfield, Ohio 41'lers 1.-..erchants National Lank, aookwood, Pennsylvania t Nat ional Bank, Rockwood, Pennsylvania A1,1:''strict No. 7. -4'Qra National Bank, 1?i Itilrc3rtl, l'at National Bank, c , Soldiers clrove 'Jisconsin -'441Water National Bank) p1,e°1-etwater, Pichigan Bank, 98 180 126 72 57 36 23 45 359 300 19 90 75 134-41 1.21 1%t Nati-9.4._P• onaf-hank, :;ladison, Illinois 278 :,.pproved. 60 Total 484 60 1,361 ?hereupon the meeting adjourned. Goverior.
@FedFRASER