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A meeting of the Board of Governors of the Federal Reserve Systern was held in Washington on Tuesday, January 12, 1957, at 11:45 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Eccles, Chairman
Ransom, Vice Chairman
Broderick
Szymczak
McKee
Davis
Mr. Morrill, Secretary
Mr. Bethea, Assistant Secretary
Mr. Clayton, Assistant to the Chairman
Consideration was given to each of the matters hereinafter 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 Federal Reserve System held on January 11, 1937, were approved unanimously.
Bond, in the amount of $100,000, executed under date of January
4, 1937, by Mr. A. 0. Stewart as Federal Reserve Agent at the Federal
Reserve Bank of San Francisco.
Approved unanimously.
Memorandum dated January 5, 1937, from Mr. Paulger, Chief of the
Division of Examinations, recommending, for the reason stated in the
memorandum, that the headquarters of Mr. Julius B. Richner, Assistant
Federal Reserve Examiner, be changed from Washington, D. C., to Louisville, Kentucky, effective as of January 5, 1937.
Approved unanimously.
Telegram to Mr. McCravey, Assistant Federal Reserve Agent at the
Federal Reserve Bank of Atlanta, reading as follows:
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"Referring to your January 6 letter, Board approves
temporary appointment of D. E. Moncrief as alternate assistant Federal Reserve Agent at your bank with the understanding that before such approval becomes effective he
will be placed on the payroll of the Federal Reserve Agent,
and thereafter will be solely responsible to him or, during a vacancy in the office of Agent, to the Board of Governors for the proper performance of his duties. When not
engaged in the performance of his duties as Alternate
Assistant Federal Reserve Agent he may with the approval
of the Agent (or, during a vacancy in the office of Agent,
of the Assistant Agent) and the President perform such work
for Federal Reserve bank as will not be inconsistent with
his duties as Alternate Assistant Federal Reserve Agent.
Mr. Moncrief should execute usual oath of office and surety
bond in the amount of $50,000 as Alternate Assistant Federal Reserve Agent. Please forward such oath and bond to
Board but, before doing so, your counsel should be satisfied that the bond complies with rules printed on reverse
side of bond form 182. Mr. Moncrief should not enter upon
the performance of his duties as Alternate Assistant Federal Reserve Agent until you have received advice of Board's
approval of his bond."
Approved unanimously.
Letter to Mr. Hill, Vice President of the Federal Reserve Bank of
Philadelphia, reading as follows:
"Receipt is acknowledged of your letter of January 6,
1937, and, in accordance with your request, the Board approves the use of the employees listed to lend clerical
assistance to your regular examiners in the examinations
of State member banks, and the designations of such employees as assistants to examiners. It is understood, of
course, that none of these employees will be transferred
permanently to examining work without Board's approval."
Approved unanimously.
Letter to Mr. Evans, Vice President of the Federal Reserve Bank
°f Dallas, reading as follows:
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"This refers to your letter of October 23, with regard
to agreements made by the First State Bank of Loraine, Texas,
in connection with advances made to that bank in 1932 and
1933 by Mr. C. H. Lasky, its former president, which were
referred to in the report of the examination made of that
bank as of April 13, 1936.
"It is noted that counsel for your bank has taken the
Position that, based upon the provisions of the agreements,
the bank is under a definite liability for the repayment of
the unpaid portion of the advances, but that, in view of the
ambiguities existing in the agreements, it is possible that
oral testimony might be permitted to explain that it was the
intention of the parties that the bank's only liability is
to convey proper title to the assets pledged as security for
the advances in the event that the advances are not paid in
full. The Board's counsel concurs in these views.
"It is understood that the assets pledged against the
two advances had been charged off the bank's books, that any
collections therefrom were to be credited to the account of
Mr. Lasky and applied against the sum advanced by him to the
bank, and that in the event the bank failed to pay the advances the charged off assets were to become the property of
Mr. Lasky in fee simple. It is understood also that, under
the terms of a subsequent agreement executed by Mr. Lasky,
all of his rights against the assets referred to were declared
to be junior to the claims of the Reconstruction Finance Corporation or other holder of Series A capital debentures issued by the bank, $25,000 of which appear to be outstanding.
It appears further that on the date the bank was examined the
balance due on the two advances amounted to $22,365.87, exclusive of interest, and that the new president of the bank
has advised you that no interest has as yet been paid and that,
as a matter of fact, Mr. Lasky verbally told the directors of
the bank that he did not expect any interest.
"The Board feels that condition reports of State bank
members should disclose all of the liabilities of such banks.
In the present case, however, the circumstances surrounding
the agreements which gave rise to the apparent liability of
the First State Bank of Loraine, Texas, are such as to make
it doubtful whether the bank has any liability other than to
convey proper title to the collateral pledged against the
loans made to the bank by its former president. This collateral, as previously stated, has been charged off and does
not appear among the bank's assets. The Board does not feel
warranted, therefore, in requiring the bank to show a liability on the advances until such time as further evidence is
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"produced to the effect that a liability does in fact exist.
It would seem, however, that the nature of the liability of
the bank, if any, under the agreement should be definitely
determined. Accordingly, it is suggested that in connection
with the examinations of the bank inquiry be made as to
Whether any additional facts with respect to these advances
have come to light and that the examination reports contain
a summary of any new information obtained. It is assumed
that you will request the bank to keep you advised as to any
developments in this situation and that, in turn, you will
keep the Board advised of any such developments."
Approved unanimously.
Letter to Mr. Paul P. Gourrich, Director, Research Division, Securi-
ties
and Exchange Commission, reading as follows:
"This refers to your letter of November 21, 1936 addressed to Chairman Eccles, in which you say that in the
course of the study of investment trusts and investment
companies which your Commission is conducting pursuant to
section 50 of the Public Utility Act of 1935, you would
like to know the extent to which the divorcement of commercial banks from investment trusts and investment companies
is compelled as a matter of law by the Banking Act of 1933.
"An examination of the Board's files indicates that
the provisions of law in which you would be interested are:
"Section 20 of the Banking Act of 1935, which
makes it unlawful for a member bank to be an 'affiliate' of any organization engaged principally
in underwriting or distributing securities. ('Affiliate' is defined in section 2(h) of the Banking Act of 1935, and includes affiliation by ownership, or by common ownership or control of stock,
or by a majority of interlocking directors.)
"Section 5144 of the Revised Statutes of the
United States (applicable to national banks, and
made applicable to State member banks by section
9 of the Federal Reserve Act), which deals with
'holding company affiliates' of banks and which
provides (subsection (e)) that a holding company
affiliate of a bank, in applying for a permit to
vote the stock of such bank, must, among other
things, show that it does not and agree that it
will not, or agree that it will cease within a
prescribed time to own or have any interest in an
organization engaged principally in underwriting
or distributing securities.
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"Section 32 of the Banking Act of 1933,
which makes it unlawful for a director, officer
or employee of a member bank to be a director,
officer, employee or partner of an organization
primarily engaged in underwriting or distributing securities.
"Section 5139 of the Revised Statutes (which
is applicable to national banks) and paragraph 20
of section 9 of the Federal Reserve Act (which is
the corresponding provision applicable to State
member banks), which make it unlawful for the certificate of stock of a member bank to represent
the stock of any other corporation, with certain
exceptions not here material.
"For ready reference, copies of these statutory provisions are inclosed.
"It will be observed that with the exception of section
5139 of the Revised Statutes (and the corresponding provision in section 9 of the Federal Reserve Act), all of these
provisions refer to what may be called 'securities companies',
that is, companies engaged primarily in the underwriting,
flotation, distribution and sale of securities. Therefore,
they would require the termination of an affiliation such
as that to which you refer only if the investment trusts were
'securities companies' within the definition contained in the
law.
"Of course, if the affiliation between the investment
trust and the bank had been the result of common stock ownership resulting from the stock of both organizations being
represented by one certificate, section 5139 of the Revised
Statutes would have been applicable. However, this section
would, of course, not necessarily have caused a termination
of the affiliation since the same persons might, without violating the law, continue to own the stock of both organizations
after separate certificates were issued.
"Furthermore, an affiliation resulting from any cause
would not be prohibited by section 20 of the Banking Act of
1933 or section 5144 of the Revised Statutes unless the investment trust were a 'securities company' of the kind referred to above.
"Similarly, the services of a common director, officer
or employee would not be prohibited by section 32, unless the
investment trust were primarily engaged in theflotation, underwriting, public sale, or distribution of securities.
"In short, except for the provisions affecting the actual
stock certificates, none of the above provisions would require
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1/12/37
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"the divorcement of an affiliation between an investment trust
and a member bank unless the investment trust were engaged in
activities other than the mere investment and reinvestment of
its assets. In this connection, some investment trusts may be
engaged in underwriting and distributing securities, and some
investment trusts may be so actively engaged in selling their
own shares as to be within the provisions of section 32 or the
provisions of section 20.
"Incidentally, prior to its amendment by the Banking Act
of 1935, section 32 of the Banking Act of 1933 was somewhat
broader in its application, and covered an investment trust
Which was engaged actively in purchasing and selling securities
in its portfolio and which was not engaged merely in 'investing
and reinvesting'. The section in its original form therefore
affected some relationships which it does not now affect.
"There are certain other provisions which might have an indirect bearing upon the matter since they might possibly have
influenced the decision of the management of a bank or trust company as to continuing an affiliation. However, these provisions
are not of the kind which you describe in your letter since they
would not have compelled a divorcement. These provisions are:
Provisions for the examination of affiliates of member banks,
both State and national, and the publication of reports of condition of such affiliates; section 25A of the Federal Reserve Act
imposing certain restrictions upon loans to and investments in
affiliates by member banks; and section 5136 of the Revised Statutes, and a corresponding provision in section 9 of the Federal
Reserve Act, making it unlawful for member banks to purchase
stock.
"With regard to your request for any memorandum or opinion
on this problem which has been prepared by counsel for the Board,
the Board's files contain correspondence and memoranda regarding the facts of particular cases, but it is believed that these
would not be of assistance to you. However, we would like to
give you any information which would be of assistance to you in
this connection and if after reading this letter you would like
to have a representative of your organization discuss the matter
informally with a representative of the Board, we would be glad
to have him do so."
Approved unanimously.
Thereupon the meeting adjourned.
1)frl 4AJP
Secretary.
Approved:
Chairman.
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