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215 Minutes of actions taken by the Board of Governors of the Reserve System on Monday, February 20, 1950. PRESENT: Mr. Mr. Mr. Mr. Mr. McCabe, Chairman Eccles Szymczak Draper Vardaman Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Minutes of actions taken by the Board of Governors of the Ped elial Reserve System on February 17, 1950, were approved unanimously. M emorandum dated February 20, 1950, from Mr. Pethea, Director or the D ivision of Administrative Services, recommending increases in the basic annual salaries of the following employees in that Division, ffeotive March 5, 1950: terfle. Riston Cvrt,-r • Title Assistant Foreman, Laborers, (N) Mail Clerk Salary Increase To From $3,300 t3,220 2,930 2,850 Approved unani-nously. Letter to Mr. norrison, Vice President of the federal Reserve of Cleveland, reading as follows: 13 37or the reasons outlined in your letter of February 50, the Board of Governors approves the payment of sEi' effe-r5%t0 Mary Hirschman at the rate of ,21160 per year, ret : etl-ve February 1, 1950. It is understood that this Rir; (1! above the maximum salary of the grade in which Miss --"illan's job is presently classified." Approved unanimously. Let ter to Mr. Woolley, Vice President of the Federal Reserve 2/20/50 —2— Bay1‹: of Kansas City, reading as follows: . "In accordance with the reouest contained in your ..etter of February 14, 1950, the Board approves the des1-gnati0n of the as special assistant examiners 1:or the Federal following Reserve Bank of Kansas City. Joyce M. Armstrong Lois N. Means." Approved unanimously. Telegram to Yr. Eerhart, President of the Federal Reserve Bank 'rczeisco, reading as follows: sh "Retel 16th. Board approves appointments of Messrs. A.aT1011 Crandall, Wakefield Baker, Edmund Hayes, Walter and. J. A. Folger as members of Industrial Ad— 'arY Committee for 12th Federal Reserve District to serve ,or sear beginning March 1, 1950." Approved unanimously. Yew_ Letter to The National City Bank of New York, New York, New eE'Aing as follows: The Board of Governors of the Federal Reserve Sys— telt suct iorizes The National City Bank of New York, pur— se tO the Provisions of section 25 of the Federal Fe— Stet :Act) to establish a branch in the City of Salvador, 101,,,'Lof Bahia, Brazil, and to opn.rte and maintain such cocr l subject to the provisions of such section; upon ( 1 )tion that unless the branch is actually established ened for business on or before "arch 1, 1951, all ri,hj do;„18 granted herby shall be deemed to have been aban— cnd the authority hereby granted shall automatically ''ilate on such date." Approved unanimously, together with the following letter to Mr. Wiltse, Vice President of the Federal Re— serve Bank of New York: i r"-1 2/20/50 -3"Enclosed is a letter of the Board of Governors a.u thorizing The National City Bank of New York to est olish a branch in the City of Salvador, State of b 31a, Brazil, which you will please deliver to tile ank* A copy of this letter is enclosed for your files. "Please ask the bEnk to note that the authority to mstablish the branch will automatically terminate on 8:/31: , 1 eh 1) 1951, if the branch is not actually established oPened for business on or before that date, and reque the bank to advise the Board in writing through : le Federal Reserve Bank of New York when the branch is est-Jolished and opened for business." Letter to nr. Sheehan, Chief Examiner of the Federal Reserve Of New York, reading as folLows: "Reference is made to your letter of February 9, 195C, i tting the request of 'The Patchogue Bank', Patchogue, for approval of a reduction in its common capital a from 200,000 to 4$100,000 par value in connection with re ;°gram for capital readjustment which contemplates the vallrement, at $137,500 retirable value, of S55,000, par 00 , 11e, Preferred stock held by the Reconstruction Finance 'P°rt;tion. th,„ "°n Jahu-ry 10, 1950, the Board of Governors approved a .3:Proposed reduction in common stock in connection with 1 ' 7/Itch contemplated the sale of 2,000 additional also here ip n S of common stock, par g25, at .5;70 per share, to result sur-ril increase of 50,000 in common capital and ,')90,000 in the13" 18. It is understood that it is now proposed to effect as ifnetion in common and retirement of preferred stock sh, „res. eted prior to the sale of the additional common 47 "In view of your recommendation, the Board approves the, Of ti-leduction in the par value of the common capital stock to Patchogue Bank, Patchogue, New York, from .',200,000 add;?°,000, with the understandin:; . that the sale of 2,000 as Shares of common stock, per .2.5 at ;-.70 per share, del,''gtnlly proposed, will be undertaken without undue allt° ,,Y',and provided formal approval of the appropriate State co4;°r-Lties is obtained; also with the understanding that a.s 48e1 for the Reserve Bank will review and satisfy himself uo tne legality of all steps taken to accomplish the 218 2/20/50 -4reduction in common capital." Approved un-nimously. Letter to nr. Denmark, Vice President of the Federal Reserve }3exiic of, Atiant?, reEding as follows: ra. "This refers to your letter of February 13, 1950, sub;tt1ng, with your favorrble recommendation, the request of p 4.0r Jeff Davis Bank and Trust Company, Jennings, Louisiana, .Permission to act as joint trustee with The Calctsieut ; l'a rine Nationd Pank of Lake Charles, Lake Charles, Louist0 ; a) under a mortgge indenture securing an issue of bonds nn, the First Baptist Church, Jennings, Louisiana, in the -"°111-it of 50,000. wit "It is noted that the duties of the bank in connection bo this trusteeshio will involve authentication of the pen-;s. to be issued under the indenture of mortgage and the i,r-arTence of other ministerial duties commonly involved tru steeships of this kind and that the acconi,anying reorneibilities will be limited in nature. It is further eerved tbrt it is not the desire of the bank to exercise sollel'al trust powers and that the authority requested is elT to permit the bank to act in the specific instance. obi 'In the circumst. noes, the Board will interpose no '?etLon to the Jeff Davis Bank and Trust Company acting 1144Joint trustee in the matter above described with the 72 tanding that it will not acquire any other fiducia-ry bu5. ple : -sse without first obtaining the permission of the Board. ' se advise the bank accordingly." 4 Approved unanimously. Letter to Mr. Grover W. Ensley, Joint ConTdttee on the Economic 11-C3 Senate Office Building, reading as follows: acoom"This refers to your letter dated February 7 and the 1D,I, ,I Par1Ying letter dated February 2 sent to Senator Douglas b. c-. 9' Burton, President of The City Bank, Washington, • Burton's letter is returned herewith, and pursuant to y() reauest a draft of a suggested reply is also enclosed. 'fie City Bank was a member of the Federal Reserve System 219 2/z0/50 -5nd , . ng the period July 11, 1940 - November 16, 1949. otnes L' the city of Washington is a reserve city, The B-tY Bank was classified as a reserve city bank. burton on a number of occasions requested that the bank to given permission to carry the reserves applicable :? s°-called 'country banks'. Under the law, such perbe given to a member bank located in an may” district of a reserve city. Kr. Burton was inthat the Board was Precluded from giving favorable °nsideration to his request because The City Bank is loce ted in an outlying district of the city of Washits head office being located at Ninth and nesses4sstte Avenue, N. W., and one of its branches on Penn;rJ Avenue, N. U., between Ninth and Tenth Streets. no. Burton has also st-ted from time to time that there is eitjustification for the Board to continue the reserve designation of Washington, and we have had a good of correspondence with him on the subject of the sls of designation of reserve cities." Approved unanimously, together with a draft of suggested reply from Senator Douglas to Mr. Burton, reding as follows: hEve your letter of February 2, calling attention to tl to "e statement, 'Another aspect of reserve requirements bE,snich ve wish to cell attention is the geographical den;74°f member bank reserve requirements against demand th' el si, Which appears on page 36 of the recent report of (Se De°mmittee on Monetary, Credit, and Fiscal Policies nate Document 129, 81st Congress, Second Session). %be "Phis stl,tement is based on testimony offered at the - rings and in replies to Questionnaires sent to Governors of the Federal Reserve System and ,1;"' Presidents of the Federal Reserve Banks; it is merely exitiort-cut description of the incidence of existing differdeso ln reserve requirements. These differentials were 8(x,141°ed in the following manner by Chairman McCabe of the 54 of °f Gove2nors of the Federal Reserve System (see page Policthe Committee document, 'Monetary, Credit, and Fiscal /Th' lesi l containilg the replies to the Comrittee's question- 220 2/20/50 -6"The existing statutory basis for member bank reserve requirements tends to be ineouiteble in important respects as among banks. The present system of classifying banks for reserve purposes on the basis of geogrephic location dates beck to the establishment of the national banking system over 85 years ago. A member bank's designation for reserve-requirement purposes depends on whether it is located in a central Reserve city or in a Reserve city, or whether it is outside of these cities--a socelled country bank. A member bank located in a- central Reserve or Reserve city must hold reserves at the higher percentages designated for such a center, irrespective of whether it is doing the correspondent banking type of business (holding of interbank balances and nonmember hank reserves, which is associated with 1;?le desic;nation of a Reserve city and initially 14,78 the justification for the higher requirements for banks in Reserve cities). On the Other hand, another member bank holding an import at volume of deposits of banks, but located outside the Reserve city areas, need Tmintain only the reserve percentages recuired of country member banks. Some inequities of this kind have been relieved by the Board's discretiona-y authority reletin to outlying .re'ls of Reserve cities, but many cases of -Lneouity cannot be solved in this way and a basic problem of equity of treatment ES among Member banks still remains.' 1 e as You point out, there is no geographical basis d 111as n esiefnating reserve cities, once a city has been designated re; te2erve city every member bank in the city, solely by rec;,°11 of such geographic location, is subject to the reserve eents applicable to reserve city banks unless it is el.1011 utlYing district of such city and the Bo-rd of Gov-/ pursuant to the law, gives it permission to carry the re vss a citi Pplicable to member banks located outside of reserve "As you cities doubtless know, most of the existing reserve Of th 'Fere designated as such by Congress or by the Comptroller e Currency, before the Federal Reserve System was estab- 221 0 -7- tShed, ed, while the others were designated by the Board Governors of the Feden.1 Reserve System. I understand b"Pt, although the Board of Governors did not until Decem, Z 1947 formally adopt a formula for designating reserve on the basis of the proportion of interbank deposits i e d by meraber banks in the city, the Board has always taken account the General character of br,nkin,4 business trans.ac.cted by member banks in the city, including the amount of ,orresPondPnt banking business. The difficulties experienced °J the Board in the designation and termination of reserve rlties and in acting on applications for permission to carry truced reserves are, I am advised, among, the reasons for d,e sugt;estion that consideration should be given to a funlentl revision in the basis for establishing bank reserve equi rements. : Ban appreciate your letter and I am sure the Counittee on and Currency will be glad to have any specific suggestions offli you may care to make for changes in bank reserve re4—zernents." 413Proved: ; Chairman.
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