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329 A meeting of the Board of Governors of the Federal Reserve System was held in Washington on Tuesday, February 23, 1937, at 11:30 a.m. PRESENT: Mr. Eccles, Chairman M±. Szymczak Mr. Davis Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Co nsideration was given to each of the matters hereinafter rei'csl'red to and the action stated with respect thereto was taken by the BOard. Telegram to Mr. Powell, Secretary of the Federal Reserve Bank ormi nneaMis, stating that the Board approves the establishment with-"' e by the bank today of the rates of discount and purchase in its e,, J-sting schedule. Approved unanimously. Letter to Mr. Sargent, Secretary of the Federal Reserve Bank of Sart pra "1800, reading as follows: "As a result of a review of the records of service of rectors of branches of Federal reserve banks who have been 14,,aPPointed recently, it has came to the attention of the 0 -7-1'd that Mr. E. 0. Howard was first appointed a director ee , the Salt Lake City Branch on November 20, 1930, and has thjed continuously since that date but, notwithstanding Res8 length of service, he was reappointed by the Federal Laknis Bank of San Francisco as a director of the Salt 1937'1.tY Branch for a term of two years beginning January • citi "On the basis of this information, the Board has rethat the attention of your board of directors be di15;cted to the fact that it appears that this action on the W, t , of the Federal Reserve Bank of San Francisco was in °-"i°13. of the Board's regulation, a copy of which was di 330 2/23/37 "tranamit ted to the Federal Reserve Bank of San Francisco With its letter of Januar y 9, 1935, (X-9083), paragraph six Of which provided that 'no director, other than the managing director, shall be reappointed for a term immediately follow14g six or more years of continuous service as a director' and that, althou gh the regulation was amended in the form of which a copy was inclos ed with the Board's letter of JanIs.arY 4, 1937, (X-9778), the appointment was not authorized uy such amendment and that, therefore, Mr. Howard cannot qualify as a branch director. "It will be appreciated if you will submit this letter to the board of directors of your bank at its next meeting ,!Id advise the Board of Governors of the disposition made of the matter by your board." Approved unanimously. Letter to Mr. Martin, President of the Federal Reserve Bank of St, L°11t5, reading as follow s: "This refers to your letter of February 13, 1937, with regard to the connection of Mr. *Tames W. Barris, a Class B your bank, with the Governmental Research InThis matter was the subject of discussion in our telephone conversation on February 19, 1937. bee, It appears that Mr. Farris for about seven years has , v - a member of the Municipal Research Bureau, a non-salaried ;;;/1115 of St. Louis citizens, who have been observing munici1344- activiti es with a view to keeping down expenses. This reall expects to enlarge its activities and to change its e to the Governmental Research Institute. It is underStood that it is a purely voluntary organization of citizens 0_ St- Louis having?: no connec tion with any local government ta'ederel agency, that it has no partisan political connec, b -, and that its membership is not in any way determined 4 Political considerations. It is also understood that its ; virti°ns are purely those of a citizens' organization, adtea °I7 in character, with no authority, and that it may or Y 11, ° ,t agree with or criticize governmental activities. to mr In the circumstances, the Board offers no objection or * Barris' continuing his connection with this Bureau oral-nstitute while serving as a Class B director of the Fed-k Reserve Bank of St. Louis. " dsitTt7Itt:r. of Approved unanimously. 331 2,4W37 _3.. Letter to Mr. Gidney, Vice President of the Federal Reserve Bank (3r New York, reading as follows: "Reference is made to Mr. Dillistin's letter of Feb: 1 11arY 10, 1937, regarding the proposed plan whereby the TLi ncoln-Alliance Bank and Trust Company', Rochester, New will acquire the business of the Brockport National Brockport, New York, and establish a branch at Brock"In accordance with the recommendation of the Federal .1.E : 41 serve Bank, the Board approves the establishment and operathe Lincoln-Alliance Bank and Trust Company, Rochester, tell York, of a branch at Brockport, New York, effective upon : le acquisition of the business of the Brockport National As you know, the Board has frequently expressed the 'raion that at estimated losses in loans and other assets should e off or otherwise eliminated and has prescribed 1-tions requiring State member banks to conform to such 1:"1-cY prior to the establishment of branches. From the in-Lormation available, it appears that although substantial gs-offs have been made, the Lincoln-Alliance Bank and tIi'rlIst Company has not eliminated all of the estimated losses As classifi.ied in your examiner's report of examination as of ern 24, 1936. It is recognized that during the time which ha8 elapsed since the examination considerable change may tE been effected in the classified assets, and accordingly " ll m 6 Board has not conditioned its approval of the establi shthnt of the branch upon the elimination of all of the estied losses shown in the report of examination as of April 0,2 1936* It is expected, however, that any estimated losses wn at the time of the next examina tion will be promptly eltrainated. "It has been noted that, in the opinion of your office, the 214 Proposed absorption of the Brockport National Bank will set result in any change in the general character of the astrus, °f, or broadening in the functions exercised by, the 1.1408'' "mPany within the meaning of the general condition as2r which it was admitted to membership in the Federal Re' WI" s System. In view of the circumstances, the Board likeecoe dOes not regard the transaction as coming within the Peftof that condition of membership. °r thit is assumed that the Brockport National Bank is aware se,_ 6 Provisions of section 12B (i) (4) of the Federal Re've Act relating to the termination of the insurance on its i !liar W 332 2/23/37 -4"Posits; however, it may be advisable to call the bank's attentio n to the provisions of such section in order that instructions may be obtained from the Federal Deposit Insurance Corporation relative to the procedure to be taken to terminate the insured status of the nation al bank." Approved unanimously. Letter dated February 20, 1937, to the Presidents of all Federal l'eaer/le banks, transmitting forms and instructions in connec tion with the, -ext call for condition report of s State member banks and their aftiliates. Approved unanimously. talik of Letter to Mr. Dawes, Assistant Cashier of the Federal Reserve Chicago, reading as follows: "This refers to your letter of January 6, 1937 addressed to tir„ '4— Parry, Chief of the Division of Security Loans, regard41g the following situation under Regulation T: '*** * * a customer cabled his broker Instruction s* to purchase listed securities costing Lft.1(, ' .0) ), .tn' which were purchased for his account. Prior transaction, the account was restricted to the extent of a few hundred dollars. During the preced ing thirty days dividends in the amount approx of imately 500 had been credited to the account and not withdrawn, and there had been no transactions in the account subsequent to the crediting of the dividends until the subject transa ction.' or "Section 8(b) of the regulation permits the withdrawal the dividends here involved, and you present the question ar Ther it is permissible for the broker to deduct the withme , wabla dividends from the amount of the demand for margin, or'elY demandi ng the difference of about :5400. Otherwise, ezi:: ,!11 8e, the broker would be required to demand the full warz , of margin in the sum of about $5900, possibly for' 131,0 411S with such a demand for margin a check for the apx tmately 500 of dividends. 2/23/37 -5"The Board agrees with your view that it is permissible for the broker to deduct the amount of the withdrawable dividends from the amount of the demand for margin instead or demanding the full amount of margin without deducti on of the dividends. In order to make it clear, however, that the dividends are not thereafter available for other purposes, Tad also to comply fully with the requirement of the regulaion that margin be demanded upon the basis of the aggregate "r ansactions in the account on a given day, the notation that the dividends are no longer withdrawable (which in effect amounts to a withdrawal and redeposit of the dividends) :hould be made on the date of the transaction in question her than on the later date on which margin is deposited in response to the demand." Approved unanimously. Letter to Mr. Sihler, Assistant Vice President of the Federal 1168 " 7e Bank of Chicago, reading as follows: "This addressed refers to Mr. Dawes' letter of January 20, 1937, to Mr. Parry, Chief of the Division of Security 4:oans, regardi ng Regulation U. The inquiry refers to a case J la which a bank makes an agreement with an out of town customer to lend a certain sum of money on a registered stock, he amount being 45 per cent of its then market value. The irrower delivers the stock and the note as promptl as posy ble on the next day, but the market value of the stock belower in the interval so that the amount the bank has :!reed to lend is in excess of 45 per cent. The question is whether Regulation U permits the bank to carry out tit its commitment. U a case such as that presente d in which the bank enter 10'ers into an enforceable commitment, the details of the alar ere perfected insofar as practicable on the first day, pl .the negotiations for and completion of the loan take th-ce as nearly contemporaneously as the circumstances of Ire7 . ceae permit, it is the view of the Board that the market me ue or the stock for the purpose of completing the loan cj a Properly be determined as of the time when the bank and go t°rIler agree upon the amount and terms of the loan. The . .: 0 4rd feels, however , that any clearly forseeable change in Jue stock during the interval such as a split-u p of the shares r 334 7 -6- wor the stock selling 'ex' a dividend of any kind, should be taken,into account in such a determination." Approved unanimously. Thereupon the meeting adjourned.
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