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162 A meeting of the Board of Governors of the Federal Reserve SYStam was held in Washington on Tuesday, February 8, 1938, at 10:30 4. m. PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Davis Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Ur. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Wyatt, General Counsel Mr. Paulger, Chief of the Division of Examinations Mr Goldenweiser, Director of the Division of Research and Statistics Mr. Smead, Chief of the Division of Bank Operations Mr. Dreibelbis, Assistant General Counsel Mx. Leonard, Assistant Chief of the Division of Examinations Mr. Thomas, Assistant Director of the Division of Research and Statistics Mr. Horbett, Assistant Chief of the Division of Bank Operations Mr. Gardner, Senior Economist in the Division of Research and Statistics Mr. Bryan, Senior Economist in the Division of Research and Statistics Prior to this meeting there had been sent to each member of the Boa, d coPies of a memorandum dated February 2, 1938, from Mr. Smead on s Ubject of analysis of the reserve position of individual member during the week ended January 14, 1938; a memorandum from Mr. st eet, Senior Economist in the Division of Research and Statistics, c(3111111e/ltin -e on the survey of the reserve position of member banks for the 163 2/8/38 week ending January 14 1938. and a memorandum dated February 7, 1938 0 from :Mr. Goldenweiser on the subject of member bank reserve renui rements and containing an analysis of the proposal made in 1931 by th 9 SystemY Committee on Bank Reserves. The reserve position of tilenber banks as shown by the analysis submitted by Mr. Smead was disConsideration was also given to the possible effects on re- eliseed. serv for es of member banks of changes in the interdistrict time schedule cash items to reduce substantially the periods prescribed by the ached. , '44-9 before the proceeds of collection items are made available. Ther was discussion also of the problem presented by the practice Of Certain s particularly in the Cleveland district of solicitbank- collection items from their correspondent banks on the basis of thei_ 4- crediting the proceeds of the items at an earlier time than WOUld be the case in the event collection were made by the Federal res. 'I've banks and question was raised as to what steps could be taken by the Iederal Reserve System to meet that situation. It was under8t0 A ckt that this matter would be considered further by the staff with i.ew to the foiaulation of a conclusion prior to the forthcoming ec'llference of Presidents of Federal reserve banks. The members of the Board had also been furnished with copies Of Lc_ ". mead's memorandum of Xanuary 28, 1938, to Chairman Eccles °4 ths subject of changes in designations of reserve and central reserv. -'e cities. The formula set forth in the memorandum for the desig- 164 2/8/38 tiati°n of reserve and central reserve cities was discussed, tof-ether with the a1ag7estion that central reserve end reserve cities might be c°nfined to cities in which Federal reserve banks or branches are located, Reference was also made to a memorandum dated February 7, 1938 ) from Mr. Smead on the subject of deposits of forein central bawdit um and nonmember clearing banks with the Federal reserve banks and Pointed out that changes in these deposits can have a substan- tial effect upon the reserve oosition of member banks. At the conclusion of the discussion it was understood that the members of the Board would study carefully the memoranda referred to above and that the subjects treated in the memoranda would be placed on the docket for further consideration at the meeting on Friday, February 11, 1938. At this Point Messrs. Thurston, Wyatt, Paulger, Goldenweiser, Dreibelbis, Leonard, Thomas, Horbett, Gardner and Bryan left tIle meetina. and consideration was then given to each of the matters '43:tarter referred to and the action stated with respect thereto was taken by the Board: The minutes of the meeting of the Board of Governors of the ecloral Reserve System held on February 7, 1938, were approved unanitlepa sly, Bank of Letter to Mr. Nardin, Chairman of the Federal Reserve St, ,,u18, prepared in accoraence with the action taken at the meeting .165 2/8/38 -4or the Board on February 4, 1938, and reading as follows: , "Receipt is acknowledged of your letter of January 27, 19'-'81 in which you advise that the board of directors of Your bank, at its meeting on that date, appointed Col. Frank D. Rash as Managing Director of your Louisville Branch for the remainder of the current year and that, subject to approval bY the Board of Governors, his salary had been fixed at the rate of $10,000 per annum. "The salary proposed for Mr. Rash in the new position 1"m8 considered by the Board in the light of the salaries which have been paid the Managing Directors of other branches Of Federal reserve banks and the fact that the salary of Mr. 4ohn T. Moore, who retired as. Managing Director of the Louis7111e Branch on December 31, 1937, was at the rate of only 8,000 per annum. It is also understood by the Board that 41r. Rash will became sixty years of age shortly and that, ould he remain as Managing Director until his retirement, "would be subject to retirement after a period of service Of only approximately five years. In view of these circumstances the Board felt that a salary at the rate of $10,000 Per.annum would not be justified. However, I was requested tO advise you that the Board would approve a salary at a l'ete of not to exceed $8,000 per annum for Mr. Rash if fixed cY the board of directors of your bank. "As you know, the Board is charged with the responsibility f°11 the approval of all salaries at Federal reserve banks and - /lerefore when a salary for a position such as that of ManaglnE Director of a branch is submitted to the Board it is necessary for it to give consideration not only to the ef,?ct of approval of such salary upon the expenses of a parulcular Federal reserve ban?: but also to its relation to Other salaries in the system. Your letter contained no inFormation with respect to the considerations which led the 1Xfard of directors of the bank to appoint Mr. Rash to the Position of Managing Director, the reasons for proposing , 1 salarY higher than that received by his predecessor or t'fla necessity for bringing in a than from outside instead of Promoting or transferring a member of the bank's present peral.i In the circumstances, the Board felt somewhat handicappedpassing upon the matter in the light of other inforIllation available to it and the suggestion was made during itpa discussion that if these aspects of the situation were ra4ght to your attention you would appreciate the Board's n 1 166 2/8/38 -5- "position fully and would take such steps as might be necessarY to insure the submission of complete information in future cases sufficiently in advance to enable the Board to o?mmunicate its views to you before the bank commits itself fluallY to the person whose salary is under consideration." Approved unanimously. Letter to "The Sandy Bill National Bank of Hudson Falls", Hudson Pelle) New York, reading as follows: "This refers to the resolution adopted on December 20, 1937, by the board of directors of your bank signifying the bank's desire to surrender its right to exercise the trust Powers which have heretofore been granted to it under the Provisions of section 11(k) of the Federal Reserve Act, as amended. "The Board understands that your bank has been discharged or otherwise properly relieved in accordance with the law of all of its duties as fiduciary. The Board, thereore, has issued a formal certificate to your bank certifyi!ig that it is no longer authorized to exercise any of the fiduciary powers covered by the provisions of section 11(k) of the Federal Reserve Act, as amended. Such certificate is inclosed. "In this connection, your attention is called to the fact that, under the provisions of section 11(k) of the Federal Reserve Act, as amended, when such a certificate has been issued by the Board of Governors of the Federal Reserve System to a national bank, such bank (1) shall no longer be sUbject to the provisions of section 11(k) of the Federal Reserve Act or the regulations of the Board of Governors of :the Federal Reserve System made pursuant thereto, (2) shall De entitled to have returned to it any securities which it IllsY have deposited with the State or similar authorities for the Protection of private or court trusts, and (3) shall not e xercise any of the powers conferred by section 11(k) of the Federal. Reserve Act except with the permission of the Board °f Governors of the Federal Reserve System." Approved unanimously. Letter to the Presidents of all Federal reserve banks, reading 169 2/8/38 -6- "f°110W8: "The question has been raised in connection with the annual review of the capital position of state member banks referred to in the Board's letter A-9506, dated February 28, 1936) whether the ratio of capital to deposits, so far as demand deposits are concerned, should be based upon gross dedeposits or net demand deposits as defined in Regulation b. "For the purpose of the review, it is requested that the capital ratio be based upon total deposits; i.e., the total Of time deposits end gross demand deposits, as defined in Regulation D." Approved unanimously, together with a telegram to Mr. Sonne, Chief Examiner for the Federal Reserve bank of San Francisco, reading as follows: "Your wire February 5. For review referred to ratio ?f capital to deposits should be based upon total of time ueposita anu gross demand deposits." Thereupon the meeting adjourned. 41:3PrOyed:
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