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13 rve A meeting of the Board of Governors of the Federal Rese Sys- 1936, at 11:25 a. m. tem was held in Washington on Saturday, January 4, PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Thomas, Vice Chairman Hamlin Miller James Szymczak Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Panlger, Chief of the Division of Examinations Mr. tyatt, General Counsel Mr. Wingfield, Assistant General Counsel Mr. Chase, Assistant Counsel Austin, Federal There was presented a draft of a letter to Mr. of Philadelphia, in reply to Reserve Agent at the Federal Reserve Bank he recommended that he be auhis letter of November 1, 1935, in which nation of the Integrity Trust thorized to withdraw the report of exami as of April 27, 1935, jointly Company, Philadelphia, Pennsylvania, made bank and the State Banking Departby examiners for the Federal reserve nation of the bank some time in ment, and to arrange for another exami the next three or four- months. The proposed reply, which stated that n to the agent's action in withthe Board would interpose no objectio similar action by the State Bankdrawing the renort in conformity with previously among the members of the ing Department, had been circulated a memorandum thereto stating that Board, and Mr. Hamlin had attached iety of withdrawing the renort of he doubted the desirability or propr would raise no objection to a new examination in question, but that he 14 1/4/36 -2- examination in conjunction with the State Banking Department. Messrs. Miller and Thomas had indicated on the file that they concurred in Mr. Hamlin's position. The Chairman stated that he felt that, in addition to the decision to be reached in this particular case, there was involved a question of policy with regard to the action to be taken in future cases. It was pointed out that the Federal reserve agent stated that the report had already been withdrawn with the understanding that his action would have to be unobjectionable to the Board and that his recommendation was that he be authorized to withdraw the report permanently. Mr. Eccles said that he felt that such changes in procedure as may be necessary to prevent a recurrence of such a situation should be made; that, in his opinion, the matter should have been submitted to the Board for consideratIon before any action was taken by the agent withdrawing the report; and that this case should serve as an occasion for the issuance of instructions to the agents which would insure the adoption of such a course in similar cases arising in the future. During the ensuing discussion, Mr. Miller stated that this matter raises a question as to the status of the Board's Division of Examinations in relation to the examining functions conducted by the Federal reserve agents and he expressed the opinion that the instructions of the Board should be amended so that the examination work of the Federal Reserve System would be conducted as a whole, with direction of the entire examination function of the System provided by the Board's 15 1/06 —3— Division of Examinations in Vashington, in accordance with policies de— termined by the Board. Chairman Eccles suggested that the Board authorize Mr. Paulger to make a study of the examining divisions in the Federal reserve agents' departments at the respective Federal reserve banks and their relation— ships with the Board's Division of Examinations and of the changes which would have to be made in the present organization to give effect to an arrangement along the lines suggested by Mr. Miller, so that if the new Board wished to take the matter up it would have the benefit of such a study, nnd that Mr. Paulger also be requested to prepare (1) a letter to the Federal Reserve Agent at Philadelphia advising him that the Board was not willing to authorize the withdrawal of the report of the Integrity Trust Company but that another examination of the trust company should be made in the near future, and (2) a letter to all Federal reserve agents instructing them to send copies of all examination reports to the Board's Division of Examinations as soon as they are available and that whenever a report of examination made by them shows a capital impairment or other serious condition, the question what action should be taken be submitted to the Board for consideration before the report is transmitted to the member bank. At the conclusion of the discussion, Mr. Szymczak moved that the suggestions made by Mr. Eccles be adopted. Carried unanimously. Chairman Eccles then suggested that attention be given to the draft of RegulationV, Interlocking Bank Directorates Under the Clayton 16 1/4/36 -4- Act, which had been prepared by the staff and revised following receipt of comments and suggestions of the Federal reserve banks. Copies of the draft of regulation and Mr. Chase's memorandum of December 10, 1935, had been furnished Previously to the members of the Board. There followed a discussion particularly of the relationships proposed to be permitted by the Board as set forth in Section 3 of the proposed regulation. In this connection, Mr. Thomas read a letter dated December 20, 19350 received by him from Governor Norris of the Federal Reserve Bank of Philadelphia suggesting that certain other relationships be permitted by the Board. Special consideration was also given to the question whether the regulation should permit a small neighborhood bank located in an outlying district or suburb of a large city to have the services of a director or officer of a large downtown bank. Mr. 1Watt also called attention to the fact that the draft of regulation would permit certain relationships by private bankers which, while prohibited by the statute unless specifically authorized by the Board, it was not believed Congress intended to prohibit. At the conclusion of the discussion, upon motion by Mr. Miller, the regulation was approved and adopted unanimously in the following form, effective immediately, as being necessary and appropriate to accomplish the purposes of Section 8 of the Clayton Act as amended by the Banking Act of 1935; "REGULATION L Revised Effective January 4, 1936. (Superseding Regulation L, Series of 1933) "INTERLOCKING BANK DIRECTORATES UNDER THE CLAYTON ACT 17 1/4/38 -5"STATUTORY PROVISIONS "This regulation is based upon and issued pursuant to the provisions of section 9 of the Clayton Act, thq pertinent parts of which are published in the Appendix hereto.' "SECTION 1. PROHIBITIONS "Under section 8 of the Clayton Act, except as hereinafter stated in section 2: "(a) No person who is a director, officer, or emnloyee of a member bank of the Federal Reserve System can legally be at the same time a director, officer, or employee of any other bank, banking association, savings bank, or trust company organized under the National Bnnk Act or organized under the laws of any State or of the District of Columbia; "(b) No private banker2 can legally be at the same time a director, officer, or employee of any bank, banking association, savings bank, or trust company organized under the National Bank Act or organized under the laws of any State or of the District of Columbia. "SECTION 2. EXCEPTIONS "The provisions of section 8 of the Clayton Act: do not apnly to a person who is neither a private "(a) director, officer, or employee of a member bank a nor banker "1 Section 52 of the Banking Act of 1933 is applicable in certain circumstances to interlocking relationships between member banks and underwriters and dealers in securities. See Regulation R of the Board of Governors of the Federal Reserve System. "Section 17(c) of the Public Utility Act of 1935 is applicable in certain circumstances to interlocking relationships between banks and public utility companies and public utility holding companies. Inquiries regarding this section should be addressed to the Securities and Exchange Commission and not to the Board of Governors of the Federal Reserve System. "Section 305(b) of the Federal Power Act is applicable in certain circumstances to interlocking relationships between public utility companies and banks which are authorized by law to underwrite or participate in the marketing of securities of a public utility. Inquiries regarding this section should be addressed to the Federal Power Commission and not to the Board of Governors of the Federal Reserve System. "2 The term 'private banker' means an unincorporated individual engaged in the banking business or a member of an unincorporated firm engaged in such business. 18 1/4/36 -6- "of the Federal Reserve System; "(b) do not prohibit a private banker or a director, officer, or employee of a member bank of the Federal Reserve System from being at the same time a director, officer, or employee of any number of other banking institutions not organized under the National Bank Act or under the laws of any State or of the District of Columbia5; "(c) do not prohibit, until February 1, 1939, any interlocking relationship involving a member bank, which was in existence on August 23, 1935, the date of the enactment of the Banking Act of 1935, and which, at that time, was lawful under the Clayton Act, either (a) because it was authorized by a permit4 then in effect5 or (b) because it was H5 In other words, the provisions of section 8 of the Clayton Act do not prohibit a private banker or a director, officer, or employee of a member bank of the Federal Reserve System from being at the same time a director, officer, or employee of any number of the following: (a) Joint Stock Land banks, Federal Land banks, Federal Reserve banks, Federal Intermediate Credit banks, The Central Bank for Cooperatives, Federal Home Loan banks, foreign banking corporations organized under section 25(a) of the Federal Reserve Act, and other institu. tions organized under laws of the United States other thaA the National Bank Act; (b) Banking institutions organized under the laws of territories, dependencies, or insular possessions of the United States, such as the Philippine Islands, Puerto Rico, Hawaii, or the Canal Zone, and not organized under the National Bank Act; and (c) Banking institutions organized under the laws of foreign countries. "Federal Savings and Loan Associations and Federal Credit Unions are not organized under the National Bank Act or under the laws of any State or of the District of Columbia, and therefore are excepted on that ground irrespective of whether they are 'banks' or 'banking associations' within the meaning of the statute. "4Relationships which were lawful on August 23, 1935 because authorized by a permit then in effect were lawful within the meaning of this exception irrespective of whether the permittee was then also serving in other relationships which were within the prohibitions of the Clayton Act but which were not authorized by such permit. "5It is immaterial whether or not such permit contained a provision limiting its duration, provided it was in effect on August 23, 1935. 19 1/4/56 -7- "otherwise not subject to the prohibitions of the Clayton Ace; "(d) do not prohibit a director, officer, or employee of a member bank of the Federal Reserve System from being at the same time a director, officer, or employee of any number of the following (1) Banks, banking associations, savings banks, or trust companies, more than 90 per cent of the stock of which is owned directly or indirectly by the United States or by any corporation of which the United States directly or indirectly owns more than 90 per cent of the stock; (2) Banks, banking associations, savings banks, or trust companies which have been placed formally in liquidation or which are in the hands of receivers, conservators, or other officials exercising similar functions; (5) Corporations principally engaged in international or foreign banking or banking in a dependency or insular possession of the United States which have entered into agreements with the Board of Governors of the Federal Reserve System pursuant to section 25 of the Federal Reserve Act; (4) Banks, banking associations, savings banks, or trust; companies, more than 50 per cent of the common stock of which is owned directly or inairectly7 by persons who own directly or indirectly f more than 50 per cent of the common stock of such member bank; (5) Banks, banking associations, savings banks, or trust companies not located and having no branch in the same city, town, or village as that in which such member bank or any branch thereof is located, or in any "6The provisions of the Clayton Act regarding interlocking bank directorates in effect prior to August 25, 1935 are analyzed in Regulation L, Series of 19350 which was published in the Federal Reserve Bulletin for November 1933, page 711. 117 The following are clear illustrations of indirect ownership: (1) where more than 50 per cent of the stock of one bank is owned by the other bank; (2) where more than 50 per cent of the stock of one bank is held in trust for the shareholders of the other bank; and (5) where more than 50 per cent of the stock of one bank is owned by a corporation, all of the stock of which is owned by the shareholders of the other bank. 1/4/36 -8- "city, town, or village contiguous or adjacent thereto8; (6) Banks, banking associations, savings banks, or truss companies not engaged in a class or classes of business in which such member bank is engaged; (7) Mutual savings banks having no capital stock; "(e) do not prohibit a private banker from being at the same time a member of any number of firms of private bankers, or from being at the same time a director, officer, or employee of any number of the following: (1) Banks, banking associations, savings banks, or trust companies, more than 90 per cent of the stock of which is owned directly or indirectly by the United States or by any corporation of which the United States directly or indirectly owns more than 90 per cent of the stock; (2) Banks, banking associations, savings banks, or trust companies which have been placed formally in liquidation or which are in the hands of receivers, conservators, or other officials exercising similar functions; (3) Corporations principally engaged in international or foreign banking or banking in a dependency or insular possession of the United States which have entered into agreements with the Board of Governors of the Federal Reserve System pursuant to section 25 of the Federal Reserve Act; (4) Mutual savings banks having no capital stock. 8The Board has interpreted the tern 'contiguous' as referring to cities, towns, and villages whose corporate limits touch or coincide at some point, and has interpreted the word 'adjacent' as referring to cities, towns, and villages which, although not actually 'contiguous' within the above interpretation of that word, are located in such close proximity and are so readily accessible to each other as to be in practical effect single city, town, or village, as for example, cities, towns, or villages separated only by a water-course, or a suburb of a city separated from that city by an intervening suburb. n9 The phrase 'class or classes of business' refers to the various types of business engaged in by such institutions involving relationships with customers, such as (1) receiving commercial deposits, (2) receiving savings deposits, (3) carrying checking accounts, (4) making commercial loans, (5) making real estate loans, (6) making loans on stock or bond collateral, (7) making 'personal' loans of the character usually made by Morris Plan or Industrial banks, (8) engaging in corporate trust business, and (9) engaging in individual trust business. 21. 1/4/56 -9"SECTION 3. RELATIONSHIPS PERMITTED BY BOARD ' "In addition to any relationships covered by the foregoing exceptions, not more than one of the following relationships is hereby permitted10 by the Board of Governors of the Federal Reserve System in the case of any one individual: "(a) Any private banker or any director, officer, or employee of.a member bank of the Federal Reserve System may be at the same time a director, officer, or employee of not more than one Morris Plan bank, cooperative bank, credit union or other similar institution; "(b) Any director, officer, or employee of a member bank of the Federal Reserve System may be at the same time a director, officer, or employee of not more than one other bank, banking association, savings bank, or trust company if the records of both institutions show that active consideration is being given to the consolidation or merger of such member bank and such other bank, banking association, savings bank, or trust company, or that active consideration is being given to the purchase of a substantial portion of the assets and the assumption of a substantial portion of the liabilities of one such institution by the other; provided that no interlocking relationship permitted pursuant to this paragraph shall continue for a period or periods aggregating more than six months11; "(c) Any director, officer, or employee of a member bank of the Federal Reserve System who had filed an application for permission to serve two or more banks within the prohibitions of section 8 of the Clayton Act, which had been received at the offices of the Board in Washington, D. C., or at the offices of a Federal Reserve Agent on or before August 23, 1935, and on which the Board had not taken adverse "1 ()The provisions formerly contained in section 8 of the Clayton Act authorizing the issuance of individual permits by the Board were repealed by section 529 of the Banking Act of 1935, and the Act now provides that the Board 'may by regulation permit such service as a director, officer, or employee of not more than one other such institution or branch thereof * * * .' Accordingly, individual permits will no longer be issued. "11 In the case of any relationship existing on the date this regulation becomes effective, such six months period shall begin to run on the effective date of this regulation. 22 1/4/36 -10- "action prior to that date, may serve any member bank named in such application and any other one bank, banking association, savings bank, or trust company named in such application until the next election of directors of such institutions or until March 1, 1936, whichever is the earlier; "(d) Any private banker may be at the same time a director, officer, or employee of not more than one of the following: (1) A bank, banking association, savings bank, or trust company organized under the laws of any State or of the District of Columbia which is not a member bank of the Federal Reserve System; (2) A member bank more than 50 per cent of the common stock of which is owned directly or indirectly by such private banker or by a firm of private bankers of which he is a member; (5) A member bank not located and having no branch in the same city, town, or village as that in which such private banker or a firm of private bankers of which he is a member maintains a place of business, or in any city, tom, or village contiguous or adjacent thereto12; (4) A member bank not engaged in a class or classes of business15 in which such private banker or a firm of private bankers of which he is a member is engaged; (5) A bank, banking association, savings bank, or trust company within the prohibitions of section 8 of the Clayton Act, which was included in an application under the Clayton Act filed by such private banker, which had been received at the offices of the Board in rashington, D. C., or at the offices of a Federal Reserve Agent on or before August 23, 1935, and on which the Board had not taken adverse action prior to that date; provided, that the provisions of this paragraph (5) shall be effective only until the next annual election of directors of such institution or until March 10 1936, whichever is the earlier. "SECTION 4. ENFORCEMENT "(a) Action by Federal Reserve Arent. Each Federal Reserve Agent shall cause the information contained in reports of examination of member banks and other information available to him from other sources to be analyzed in the light of the provisions of section 8 of the Clayton Act relating to interlocking relationships involving banks; and, in the case of any apparent violation of that section, shall communicate with the banking institutions and with the director, officer or employee involved, "12See footnote 8, page 8. "15See footnote 9$ page 8. 23 1/4/56 -11- "with a view of ascertaining whether the relationships involved are in conformity with the law, and, if not, obtaining compliance with the law. "(b) Reports to Board. In each case in which, after taking the steps outlined above, the Federal Reserve Agent finds that the relationships involved are in violation of the law and have not been brought into conformity with the law within a reasonable time after the matter was brought to the attention of the banking institutions and the officer, director or employee involved, the Federal Reserve Agent shall report the facts to the Board of Governors of the Federal Reserve System with a recommendation as to the action to be taken. "SECTION 5. AMENDMENTS "This regulation is subject to amendment or repeal, in whole or in part, in the discretion of the Board of Governors of the Federal Reserve System." Rela- Consideration was then given to the draft of Regulation' tionships with Dealers in Securities Under Section 32 of the Banking Act of 1935, which had been prepared by the staff and revised following receipt of comments and suggestions from the Federal reserve banks. Copies of the draft and Mr. Chase's memorandum of December 25, 1955, had been furnished to the members of the Board prior to this meeting. Mr. Wyatt presented the question whether Section 2 of the regulation, which permitted certain relationships, should be expanded to Permit an officer, director or employee of a member bank to act in his individual capacity in, or to serve as an officer, director or employee of, an organization engaged in the issue, flotation, underwriting, public sale, or distribution of general obligations of any State or of any Political subdivision thereof; the principal reason advanced for so broadening the section being that such obligations were exempted from the restrictions on underwriting and dealing in securities by member 24 1/06 -12- banks contained in Section 5156 of the Revised Statutes of the United States. In this connection, Mr. Thomas stated that he felt relationships should not be allowed which would permit officers, directors or employees of member banks to deal with themselves in the purchase or Sale of securities. After a discussion, Mr. Miller moved that RegulationV, in the form submitted by the staff, be approved and adopted as being necessary and appropriate to carry out the purposes of Section 32 of the Banking Act of 1955, and that the regulation be made effective immediately. Mr. Szymczak moved as a substitute that the regulation be approved and adopted with Section 2 of the draft as submitted by the staff expanded as outlined above. Mr. Sgymczak's motion was put by the chair and lost, Messrs. Thomas, Szymczak and James voting "aye", and Messrs. Eccles, Hamlin and Miller voting "no". Mr. Miller's motion was then put by the chair carried, Mr. Thomas voting "no" for the reason and stated above. RegulationV; as adopted by the Board on Mr. Miller's motion, is as follows: "REGULATION R Revised, effective January 4, 1956. (Superseding Regulation R of 1935) "ImprpaNsiars WITH DEALERS IN SECURITIES OF THE BANKING ACT OF 1935 SECTION 32 UNDER "STATUTORY PROVISIONS. "This regulation is based upon and issued pursuant to the provisions of section 52 of the Banking Act of 1955, which is published in the Appendix hereto. 25 1/4/36 _15_ "SECTION 1. PROHIBITIONS. "Under section 32 of the Banking Act of 1933, except as hereinafter stated in section 2, no officer, director, or employee of any corporation or unincorporated association, no partner or employee of any partnership, and no individual, primarily engaged in the issue, flotation, underwriting, public sale, or distribution, at wholesale or retail, or through syndicate participation, of stocks, bonds, or other similar securities, can legally be at the same time an officer, director, or employee of any member bank of the Federal Reserve System)"SECTION 2. EXCEPTIONS. "Pursuant to the authority vested in it by section 32, the Board of Governors of the Federal Reserve System hereby permits the following relationships:2 sr. n0. 1Therefore, by its terms, section 32 does not apply "(a) To a person who is not an officer, director, or employee of a member bank of the Federal Reserve System; "(b) To a person (1) who is not an officer, director, or employee of a corporation or unincorporated association primarily engaged in the issue, flotation, underwriting, public sale, or distribution, at wholesale or retail, or through syndicate participation, of stocks, bonds, or other similar securities, (2) who is not a partner or employee of a partnership primarily so engaged, and (3) who is not, in his individual capacity, primarily so engaged. "A broker who is engaged solely in executing orders for the purchase and sale of securities on behalf of others in the open market is not engaged in the business referred to in section 32. 2Under section 32, as amended effective January 1, 1936, the Board is authorized to except limited classes of relationships from the prohibitions of the statute, under certain conditions; but the Board can make such exceptions only by general regulations and is not authorized to issue individual permits. 26 1/4/36 -14- "Any officer, director, or employee of any corporation or unincorporated association, any partner or employee of any partnership, or any individual, not engaged in the issue, flotation, underwriting, public sale, or distribution, at wholesale or retail, or through syndicate participation, of any stocks, bonds, or other similar securities except bonds, notes, certificates of indebtedness, and Treasury bills of the United States, obligations fully guaranteed both as to principal and interest by the United States, debentures issued by Federal Intermediate Credit banks, bonds issued by Federal Land banks, and general obligations of Territories, dependencies and insular possessions of the United States, may be at the same time an officer, director, or employee of any member bank of the Federal Reserve System, except when otherwise prohibited.3 "SECTION 3. AMENDMENTS. "The right to alter, amend, or repeal this regulation, in whole or in part, is expressly reserved." "Section 8 of the Clayton Act is applicable in certain circumstances to interlocking relationships between member banks and private bankers, and other banks, banking associations, savings banks and trust companies. See Regulation L of the Board of Governors of the Federal Reserve System. "Section 17(c) of the Public Utility Act of 1935 is applicable in certain circumstances to interlocking relationships between banks and private bankers (and corporations owned by banks and private bankers), and public utility companies and public utility holding companies. Inquiries regarding this section should be addressed to the Securities and Exchange Commission and not to the Board of Governors of the Federal Reserve System. "Section 305(b) of the Federal Power Act is applicable in certain circumstances to interlocking relationships between public utility companies and banks and bankers that are authorized by law to underwrite or participate in the marketing of securities of a public utility. Inquiries regarding this section should be addressed to the Federal Power Commission and not to the Board of Governors of the Federal Reserve System. 27 l/4/36 —15— Mr. Wyatt stated that as the annual meetings for the election of directors of member banks would be held in the very near future, he felt it was imoortant that RegulationsVandbe placed in the hands of the banks as promptly as possible as they may affect the action taken by stockholders in electing directors for the current year. It was agreed unanimously that the regulations should be sent to the Federal reserve banks immedi— ately with the request that, in order to expedite the distribution of the regulations, the banks have copies printed locally and forwarded to member banks in the respective districts as soon as possible. At this point Messrs. Paulger, Wingfield and Chase withdrew from the meeting. Chairman Eccles suggested that a meeting of the Board be held on Tuesday or Wednesday of next week to discuss Regulation "U", Loans by Banks for the Purpose of Purchasing or Carrying Equity Securities Registered on a National Securities Exchange. Mr. Miller stated that the final plans and specifications for the Board's new building would be in Washington on Tuesday and that he would like to have a meeting of the Board on that day to pass uoon the Plans in order that invitations for bids might be sent out as promptly as possible. In this connection, Mr. Miller was authorized to consult with Mr. Thurston, Special Assistant to the Chairman, and, if thought necessary, to issue a press statement in the form determined upon by them, with regard to the selection of the contractors to whom invitations for bids on the construction of the new building were being sent, and in the absence of a press statement to make such replies as he may see fit to persons inquiring with respect to the matter. 28 1/4/36 -16The Chairman then stated that Mr. Thomas had advised that he felt the draft of the entry to be made in the minutes of the meeting of the Board on November 29, 1935, with regard to the election of directors at the Federal reserve banks and branches should be enlarged and that the matter was being brought to the attention of the Board for consideration. There followed a discussion, at the conclusion of which Mr. Thomas was requested to make such amendments or additions to the draft of the minutes as he might care to suggest, following which the amended draft would be circulated among the members of the Board. At this point Mr. Wyatt withdrew from the meeting, and consideration was given to each of the matters hereafter referred to and the action stated with respect thereto was taken by the Board: Letter to Mr. Clark, Secretary of the Federal Reserve Bank of Atlanta, stating that the Board approves the establishment without change by the bank on January 3, 1936, of the rates of discount and Purchase in its existing schedule. Approved unanimously. Memorandum dated December 30, 1935, from Mr. James submitting a letter dated December 24 from Mr. Walden, Deputy Governor of the Federal Reserve Bank of Richmond, which requested approval of certain changes in the personnel classification plans of the bank and its Baltimore branch. The memorandum stated that, in addition to the changes listed therein, the distribution of work and qualifications required for several positions were changed without change in salary 29 1A/36 range. -17The memorandum also called attention to the fact that the pro- posed revisions pertaining to the Reconstruction Finance Corporation Custodian Department at the Baltimore branch were to be made effective as of December 1, 1935, and that the remaining revisions were to be made effective as of January 1, 1956. The memorandum further stated that the proposed changes had been reviewed by Mr. James and recommended that they be approved. Approved unanimously. Memorandum dated December 27, 1935, from Mr. James, submitting a letter dated December 21 from Mr. Helm, Deputy Governor of the Federal Reserve Bank of Kansas City, which requested approval of certain Changes in the personnel classification plan of the bank to provide for the creation of five new positions in certain departments, the discontinuance of three positions, and a change in the titles of two positions. The memorandum stated that the proposed changes had been re- viewed by Mr. James, and recommended that they be approved. Approved unanimously. Reserve Letter to Mr. Larson, Assistant Cashier of the Federal Bank of Minneapolis, reading as follows: "Reference is made to your letter of December 19, in which you state that an advance of six months' salary was made to Mr. L. E. Rast, formerly Assistant Cashier, upon his resignation on September 50, and that a similar advance will be made to an employee of the Helena branch who will be disthe missed on December 31. You request advice as to whether their of amount the with names of these persons, together requested annual salaries, should be included in the reports X-9366. 22, in the Board's letter of November 30 1/4/36 -18- "Since the above mentioned persons cannot be considered as being in the employ of the bank on January 1, 1936, you are advised that their names and the amount of their annual salaries should not be included in the reports as of that date." Approved unanimously. Letter to the board of directors of the "Glen Rock Bank", Glen Rock, New Jersey, stating that, subject to the conditions prescribed in the letter, the Board approves the bank's application for membership in the Federal Reserve System and for the appropriate amount of stock in the Federal Reserve Bank of New York, effective if and when the bank is authorized to commence business by the Department of Banking and Insurance of the State of New Jersey. Approved unanimously, together with a letter to Mr. Case, Federal Reserve Agent at the Federal Reserve Bank of New York, reading as follows: "The Board of Governors of the Federal Reserve System approves the application of the 'Glen Rock Bank', Glen Rock, New Jersey, for membership in the Federal Reserve System, subject to the conditions prescribed in the inclosed letter which you are requested to forward to the board of directors of the institution. Two copies of such letter are also inclosed, one of which is for your files and the other of which you are requested to forward to the Commissioner of Banking and Insurance for the State of New Jersey for his information "Before accepting payment of or issuing stock in the Federal Reserve Bank to the Glen Rock Bank, Glen Rock, New Jersey, you should satisfy yourself that the bank's proposed capital stock of $50,000 has been paid in and that the organization papers and all agreements and contracts entered into between it and the Glen Rock National Bank covering the purchase of assets from, and the assumption of liabilities of, the Glen Rock National Bank and any and all other agreements or contracts between such bank and stockholders and/or directors or other individuals or concerns incident to the organization of the Glen Rock Bnnk have been considered by your counsel and that he is satisfied as to their legal 31 1/4/36 -19- "aspects. It is requested that a copy of the opinion of your counsel given in this connection, together with copies of any such agreements and organization papers, including a copy of the bank's charter, be forwarded to the Board as soon as possible. In connection with condition numbered 7, it is requested that you satisfy yourself that the charter of the new bank contains no provisions granting powers other than those usually conferred on institutions transacting a general commercial banking business. "It is understood that your office has given careful consideration to the criticisms of the management contained in the last two reports of examination of the bank made by the national bank examiner but that, nevertheless, your office is satisfied that the affairs of the new bank may be safely entrusted to the proposed management which, except for the fact that the board of directors will be reduced from seven to five in number, is identical with that of the present national bank. "It is understood also that your office will determine the acceptability of the assets to be acquired by the Glen Rock Bank from the Glen Rock National Bank and that the securities so acquired will be at not more than market values." Letter to Mr. Walsh, Federal Reserve Agent at the Federal Reserve Bank of Dallas, reading as follows: "Reference is made to your letter of December 23, 1935, regarding an increase in the capital and surplus of the 'Southern Arizona Bank and Trust Company', Tucson, Arizona, in order to comply with condition of membership numbered 15. "The report of examination of the bank as of April 6, 1235, made by your examiners, showed capital stock and surplus of .1520,000 and a net sound capital of $610,000 as compared with deposits of $6,203,000, and that the bank was considered to be in satisfactory condition and under capable and conservative management. It has been noted that in a letter dated December 19, 1955, the bank advised that with the authorized transfer of $25,000 to surplus the bank's capital and surplus on December 31, 1935, would amount to $550,000 which is only $20,000 less than one-tenth of its average deposits for the twelve months' period ending on November 30, 1955, and that the bank expects to lose a substantial portion of its oublic deposits during the next few months which, if withdrawn as anticipated, will reduce the bank's deposits to an amount well within the ratio contemplated under membership condition numbered 15. 32 1/4/36 -20- "In view of all the circumstances, the Board agrees with you that it is unnecessary to require the Southern Arizona Bank and Trust Company to increase its capital stock and surplus at this time under the provisions of membership condition numbered 15." Approved unanimously. Letter to Mr. Sargent, Assistant Federal Reserve Agent at the Federal Reserve Bank of San Francisco, reading as follows: "This refers to your telegram of November 9, 1935, and to Mr. Sonnets letter of November 25, 19350 inquiring whether a State member bank may reduce the aggregate of its capital structure, consisting of common stock, preferred stock, and/or capital notes and debentures, to an amount less than the amount of capital required for the organization of a national bank in the same place. "As you will observe from the telegram the Board addressed to Mr. Clerk under date of October 27, 1933, the Board has previously ruled that a State member bank may not, while remaining a member bank, reduce its capital below the amount of capital required for the organization of a national bank in the same place. Section 303 of the Emergency Banking Act of 1933, as amended, defines the term 'capital' as used in provisions of law relating to the capital of national banks to mean the amount of unimpaired common stock plus the amount of preferred stock outstanding and unimpaired. The Board is of the opinion, therefore, that preferred stock and excommon stock are in the same category in determining the its tent to which a State member bank may lawfully reduce amended, capital. Section 9 of the Federal Reserve Act, as State any of ip membersh of purposes the provides that, for include shall stock' 'capital and ' bank, the terms 'capital the amount of outstanding capital notes and debentures uclegally issued by such bank and purchased by the Reconstr Board the ances, circumst the In ion. tion Finance Corporat Is of the opinion that outstanding capital notes and debend tures legally issued by a State member bank and purchase likewise should ion Corporat Finance by the Reconstruction be treated as capital in determining the extent to which a State member bank may lawfully reduce its capital. Accorde ingly, a reduction by a State member bank in the aggregat prestock, common of ng consisti e, of its capital structur es legally ferred stock, and/or capital notes and debentur ion, below the Corporat Finance uction Issued to the Reconstr a of tion organiza the for amount of capital required 33 1/4/36 -21- "national bank similarly located, would constitute a violation of the requirements of the Federal Reserve Act. "In Mr. Sonnets letter of November 25, 1935, reference has been made to the retirement by the Bank of Rosalia, Rosalia, Washington, on November 19, 1955, of $7,500.00 of capital debentures which it had sold to the Reconstruction Finance Corporation. In reviewing the Board's records, it has been ascertained that, in 1933, the Reconstruction Finance Corporation purchased capital debentures from the Bank of Rosalia amounting to ."20,000 and that, in addition to the retirement effected on November 19, 1955, the bank had previously retired $5,000 of these debentures. "It is understood that Rosalia, Washington, has a population of approximately 650 inhabitants, with the result that the capital required for the organization of a national bank in a place of that size is $50,000.00. Accordingly, as indicated above, the action of the Bank of Rosalia in retiring its capital debentures in the amounts stated, or any subsequent retirement of capital debentures of this kind without a corresponding increase in common or preferred stock, constitutes a violation of the requirements of the Federal Reserve Act for which the bank's membership in the Federal Reserve System might be forfeited in accordance with the provisions of section 9 of the Federal Reserve Act. However, whether such action should be taken is one of policy for the Board's consideration in view of all the circumstances involved in the particular case. "In the present case, the Bank of Rosalia was organized in 1898 and was admitted to membership in the Federal Reserve System in 1917 with a capital of $25,000.00. It will thus be noted that the capital of the bank, after the retirement of the debentures in question, is greater than that which was required of it at the time of its admission to the System and is also greater than the capital which would be required of it if it were applying for membership at the present time. It has been observed also that the report of examination of the bank made as of September 17, 1955, shows slow assets amounting to 4,15,098.64, no assets classified as doubtful and only $1,205.68 of assets estimated as a loss. The report discloses also that the bank has a net appreciation of $5,296.78 in securities and that a8,586.72 is the estimated value of certain assets not shown on its books. Therefore, after giving credit to such appreciation in securities and the estimated value of such non-book assets, the bank, if it charges off all the slow assets and losses disclosed by that rePort, will have a net sound capital amounting to approximately $57,000.00, as compared with total deposits of approximately $455,800.00. 34 1/4/36 -22- "In the circumstances, the Board feels that the purposes of the Federal Reserve Act have been substantially complied with and it interposes no objection at this time to the retirement of the capital debentures referred to above. The Board, however, reserves the right to take such action at any time with respect to requiring the restoration of the capital as may seem advisable in the light of the circumstances then existing. You are requested to advise the Bank of Rosalia of the Board's position in this matter." Approved unanimously. Letter to Mr. Case, Federal Reserve Agent at the Federal Reserve Bank of New York, reading as follows: "Reference is made to Mr. Gidney's letter of December 19, 1935, transmitting the request of the 'First Citizens Bank and Trust Company of Utica', Utica, New York, for permission, in accordance with the provisions of Section 24A of the Federal Reserve Act as amended, to increase the bank's investment in bank premises to an amount in excess of the bank's capital stock. According to the information submitted, the bank's total investment in banking premises and in loans to and investments in stock, bonds, debentures and other obligations of corporations holding title to its banking premises amounts to approximately $1,595,000, which would be increased to approximately $1,840,000 through the proposed purchase from the public of the outstanding bonds of the affiliate holding title to bank premises. The bank's capital as of November 1, 1935, consisted of 4,000,000 common stock and $6,000,000 capital debentures sold to the Reconstruction Finance Corporation. "As you were advised under date of October 17, 1934 (X-8078), the Board is of the opinion that capital notes and debentures legally issued by State member banks and purchased by the Reconstruction Finance Corporation should be considered as capital or capital stock in determining various limitations under the sections referred to in such letter, including section 24A of the Federal Reserve Act. Accordingly, on the basis of the information submitted, which indicates that the proposed additional investment will not increase the aggregate amount of the bank's investment in bank premises and obligations of and loans upon the stock of corporations holding bank premises to an amount in excess of the limitation permitted under section 24A of the Federal Reserve 35 1/4/36 -23- "Act as amended, the Board's permission for the pr000sed increase by the bank in its direct and indirect investment in bank premises need not be obtained, and it is requested that you so advise the bank. "The Board understands that your office has given full consideration to the practical problems involved in the proposed investment and that you are satisfied that such increase will ultimately result in appreciable benefits to the bank." Approved unanimously. Letter to Mr. Clark, Assistant Federal Reserve Agent at the Federal Reserve Bank of Atlanta, reading as follows: "This refers to the application of 'Hamilton National Associates, Incorporated', Chattanooga, Tennessee, for a voting pernit entitling it to vote the stock which it owns or controls of its subsidiary member banks. "In view of the very large impairment of capital and otherwise unsatisfactory financial condition of the applicant, the unsatisfactory character of its management, which apparently is largely of a 'one-man' type, the examiners' criticisms of the condition of the assets and the operating practices of various banks in the group, including The Hamilton National Bank of Chattanooga (which, although not technically a holding company affiliate nor a subsidiary of the applicant, is nevertheless practically the controlling unit and the key bank of this group), and the reluctance or failure of the management to remove the causes of criticisms in the past, the Board feels that it should not grant a general voting permit to the applicant at this time. However, in view of the capital rehabilitations and certain other improvements which have been effected during the past year, and the short time remaining before the next regular shareholders' meetings of the subsidiary banks, the Board authorizes you to issue a limited voting permit to Hamilton National Associates, Incorporated, entitling it to vote the stock which it owns or controls of the following banks: 'The Hamblen National Bank of Morristown; Morristown, Tennessee National Bank of Lenoir City', First 'The Lenoir City, Tennessee 'The First National Bank of Loudon', Loudon, Tennessee 'First National Bank in Harriv-n', Harriman, Tennessee 'The First National Bank of Pikeville', Pikeville, Tennessee 'The First National Bank of South Pittsburg', South Pittsburg, Tennessee 36 1/4/36 -24- "for the following purposes: To elect directors of such banks at the annual meetings of shareholders, or at any adjournments thereof, at any time prior to April 1, 1936, and to act thereat upon such matters of a routine nature as are ordinarily acted upon at the annual meetings of such banks. "Thepermit shall be issued only after you have received (1) advice from the applicant, or other information satisfactory to you, showing: (a) that each of the applicant's subsidiary national banks has complied, in so far as in your judgment is practicable, with the recommendations or suggestions of the Comptroller of the Currency based upon the reports of examination of such bank made to him pursuant to authority conferred by law; (b) that each of the applicant's subsidiary State banking institutions has complied, in so far as in your judgment is practicable, with the recommendations or suggestions of the appropriate State supervisory authorities based upon the reports of examination of such bank made to them pursuant to authority conferred by law; and (c) that the applicant has substantially performed any agreement or agreements heretofore executed by it as a condition to the issuance of a limited voting permit by the Board, or has used its best efforts to do so; or, (2) assurances from the applicant satisfactory to you that, within such time as may be deemed practicable by you, applicant will use its best efforts to perform any agreement or agreements heretofore executed by it as a condition to the issuance of a limited voting permit by the Board, and to remove the causes of any criticisms relating to any feature of its financial condition, management and supervision over or relations with its subsidiary banks, and to cause each of its subsidiary banks to comply, in so far as in your judgment is practicable, with such recommendations or suggestions of the appropriate sunervisory authorities. 'Please have the limited voting permit authorized herein prepared by counsel for your bank in the usual form except that you are authorized to add the words land/or its nominees' following the name of the grantee. Upon the issuance of such permit please forward one copy thereof to the Board, together with a copy of any letter, telegram or memorandum submitted by the applicant or its subsidiary banks, or received from any other source, in response to any request which you deem necessary to make in connection with the above 37 1/4/36 -25- "conditions, and advise the Board as to the facts which satisfied such conditions. "The Board has authorized the issuance of this limited voting permit on the basis of the facts contained in its files and in reports of examination and files made available by the Comptroller of the Currency and the Federal Deposit Insurance Corporation. If you are aware of any materiel facts or circumstances of which the Board has not been advised heretofore which raise any question as to the propriety of the issuance of the limited voting permit authorized herein, or if you feel that additional requirements should be made as a condition precedent to the issuance of a limited voting permit to the applicant, you are requested to furnish to the Board a full statement thereof and to withhold the issuance of the limited voting permit until you receive further instructions from the Board relative thereto. "If the applicant desires to vote the stock which it owns or controls of any subsidiary member bsnk for any purpose other than those set forth above, it will be necessary that the Board be furnished at the earliest date practicable with the necessary details of the plan or matters to be voted upon, together with your recommendations concerning any additional requirements which should be prescribed as a condition to the issuance of a special limited voting permit for any such purpose. A request for such special permit may be considered as a matter separate and distinct from the issuance of the limited voting permit herein authorized. "The report of examination of The Hamblen National Bank of Morristown, as of October 151 19351 shows that Morrison Turning Company, Morristown, Tennessee, is an affiliate of that bank. The report of examination of The First National Bank of Lenoir City, as of October 21 19351 shows that EasonNorwood Company, Inc., Lenoir City, Tennessee, is an affiliate of that bank. Accordingly the applicant should furnish Exhibit L (Form P-3) executed by Morrison Turning Company and Eason-Norwood Company, Inc. and Exhibit N (Form P-4) executed by the applicant and consented to by such corporations, or evidence in writing satisfnctory to counsel for your bank that such exhibits are not required by the Board's Regulation P or the instructions on the printed forms referred to. "The Board feels that further consideration of this application for a general voting permit, or for any additional limited permits (except as may be necessary in connection with a desirable rehabilitation or reorganization program), should be deferred until such time as the reports of examination indicate to you that the financial condition and management of the applicant and of the banks in the group have been substantially improved, and the causes of criticisms heretofore 38 1/4/36 -26- "made have been substantially eliminated. Accordingly it Will be appreciated if you will keep in close touch with this situation by reviewing the reports of examination and contacting the chief national bank examiner of your district and the appropriate State supervisory authorities, from time to time, and advise the Board when you feel that the application should again be considered for a general voting permit. In the meantime it is desired that you continue to cooperate fully with the supervisory authorities with a view to effecting the desired corrections at the earliest date practicable. Please advise the applicant accordingly." Approved unanimously. Telegram to Mr. Peyton, Federal Reserve Agent at the Federal Reserve Bank of Minneapolis, authorizing hm to issue a limited voting Permit to the "First Bank Stock Corporation", Minneapolis, Minnesota, entitling such organization to vote the stock which.it owns or controls of the following banks: 'The Farmers National Bank in Alexandria', Alexandria, Minnesota, 'First and Farmers National Bank of Blue Earth', Blue Earth, Minnesota, 'The First National Bank of Fairmont', Fairmont, Minnesota, 'The Merchants National Bank and Trust Company of Fargo', Fargo, North Dakota, 'The National Bank of Lewiston', Lewiston, Montana, 'First National Bank of Mankato', Mankato, Minnesota, 'First National Bank in Miles City', Miles City, Montana, 'Bloomington-Lake National Bank of Minneapolis', Minneapolis, Minnesota, 'Northfield National Bank and Trust Company', Northfield, Minnesota, 'The Pipestone National Bank', Pipestone, Minnesota, 'Citizens National Bank and Trust Company of Sioux Falls', Sioux Falls, South Dakota, 'First National Bank of Valley City', Valley City, North Dakota, 'First National Bank in Vermillion', Vermillion, South Dakota, 'The Farmers National Bank of Waseca', Waseca, Minnesota, 'The First National Bank of Windom', Windom, Minnesota, at any time prior to April 1, 1936, to act upon proposals to reduce the capital stock of each such bank and to make such amendments to the 39 1/4/36 -27- articles of association, charter and/or by-laws of each such bank as shall be necessary for such purpose provided that all action taken shall be in accordance with a plan approved by the Comptroller of the Currency. The telegram stated that the Board had also considered the request of the First Bank Stock Corporation for a limited permit authorizing it to vote the stock which it holds in the subsidiary member banks at regular meetings thereof, to elect directors, and to act upon such matters of a routine nature as are ordinarily acted upon at the annual meetings of such subsidiary member banks; that it appears that the First Bank Stock Corporation did not contemplate acting on the agreement prescribed by the Board in connection with the issuance of a general voting permit until January 20, while annual meetings of its subsidiary banks were to be held before that date; and that it would seem that the First Bank Stock Corporation could hold a special meeting of its board of directors to act on such agreement or, if this was impracticable, meetings of stockholders of the subsidiary banks could be adjourned until after the First Bank Stock Corporation had acted on such agreement. The telegram also stated that the Board had taken the position that it Should not grant limited permits to applicants to vote on the election of directors and routine matters at annual meetings of subsidiary banks Where such applicants had been offered general permits; and that the making of an exception in the case of the First Bank Stock Corporation would necessitate the making of similar exceptions for other applicants and might delay the issuance of general permits to such applicants for another year. The telegram requested the agent to advise the First 40 1/4/56 -28- Bank Stock Corporation that the Board had decided not to issue limited permits to it except for the purposes stated in the telegram. Approved unanimously. In connection with the above matter, consideration was given to a memorandum dated January 3, 1935, from Mr. Wingfield, Assistant General Counsel, calling attention to the fact that the granting of a limited voting oermit to the First Bank Stock Corporation entitling it to vote the stock which it owns or controls of the banks listed in the telegram, in order to act upon proposals to reduce the capital stock in the cases requested, did not modify the Policy which had been adopted by the Board of not issuing limited voting permits covering election of directors and routine matters at annual meetings where a general voting permit 1rd been offered the holding company. Letter to Mr. Case, Federal Reserve Agent at the Federal Reserve Bank of New York, reading as follows: "This refers to Mr. Gidney's letter dated December 24, 1935, regarding the termination of the holding company affiliate status of Financial Institutions, Inc., Warsaw, New York. "It is the understanding of the Board that the holding company affiliate relationship heretofore existing was based upon the fact that Financial Institutions, Inc. owns 953 of the 1,000 outstanding shares of common stock of The Wyoming County National Bank of Warsaw, Warsaw, New York. Mr. Gidney stated in his letter that on December 21, 1935, The Wyoming County National Bank of Warsaw issued and sold to the Reconstruction Finance Corporation 3,200 shares of Class A preferred stock. It thus appears that Financial Institutions, Inc. now owns 933 of the 4,200 outstanding shares of stock of such bank. It is also understood that none of the shares owned by Financial Institutions, Inc. was voted at the last election of directors of such bank. "On the basis of the above facts, the Board is of the opinion that the holding company affiliate relationshio 41 1/4/36 -29- "heretofore existing between Financial Institutions, Inc. and The troming County National Bank of Warsaw has been terminated." Approved unanimously. Telegram dated January 3, 1936, approved by four members of the Board, to Marine Midland Corporation, Jersey City, New Jersey, signed by Chairman Eccles, reading as follows: . "Reference your telegram of January 2 requesting issuance limited voting permit STOP Regarding Board's letter November 9 to Federal Reserve Agents the suggestion of possible issuance of temporary permits related to cases in which Board might not arrive at a decision at a sufficiently early date to enable it to authorize issuance of general voting permit but not cases in which applicant was unwilling to execute agreement adopted by Board for all holding company affiliates. Since Board has authorized issuance of general permit to your corporation it does not feel that your desire to revise some of the standard conditions in the agreement is valid reason for issuance of temnorary permit. As you know Board has considered criticisms and suggestions of various holding company affiliates including yours and adopted standard agreement thereafter which has been generally well received and numerous applicants have already executed this agreement and have been issued general voting permits. Your telegram also refers to conversation regarding pressure on banks incident to granting of temporary permits in past. Pressure referred to was that arising from fact that in some cases Board was unable to authorize temporary permits until only a few days before annual meetings. Since applicants generally have not complained as to shortness of time it is believed that your cornoration has been allowed a reasonable time. The execution of such agreement is required as a condition to issuance of general voting permit pursuant to duty imposed upon Board by law and is not to be considered as in the class of a private contract requiring negotiation to agree on terms mutually satisfactory to both parties. Having prescribed standard agreement to be executed in connection with the issuance of general voting Permits, Permission to your corporation to execute revised agreement in your case would obviously be unfair to other holding company affiliates, many of which have already executed the agreement and received general voting permits. The reasons for revision which were given in your previous communications have been fully and carefully considered by both 42 1/4/36 -30- "stuff and Board and it is view of Board that they do not afford sufficient ground for change in standard form of agreement or for issuance of limited permit. As requested, I have given this matter Personal consideration but regret that I am unable to offer any further suggestions." Approved unanimously. Telegram to Mr. Sargent, Assistant Federal Reserve Agent at the Federal Reserve Bank of San Francisco, reading as follows: uRetel January 2 relating to voting permit application of First Security Corporation of Ogden, Ogden, Utah. You state that applicant has informed you that it desires to have sanction of its board of directors, which does not meet until February, before executing prescribed agreement and therefore has requested limited permit to vote stock of First National Bank of Salt Lake City at 1956 annual meeting. It would seem that apnlicant could hold a special meeting of its board of directors or, if this is impossible, could adjourn meeting of bank's stockholders until after meeting of applicant's board of directors. Board has taken position that it should not grant limited permits to applicants which have been offered general permits. The making of an exception in the case of First Security Corporation of Ogden might necessitate the making of similar exceptions for other applicants and might delay the issuance of general permits to such applicants for another year. Accordingly, please advise applicant that Board has decided not to issue limited permit." Approved unanimously. Letter to Mr. Fry, Assistant Federal Reserve Agent at the Federa" Reserve Bank of Richmond, reading as follows: "Receipt is acknowledged of your letter of December 16 regarding affiliate reports of the Bank of Hartsville and of the Bank of Rainelle. "The report of Realty Investors, Inc., an affiliate of the Bank of Hartsville, which, according to your letter, was forwarded on the 13th, was received after date of our letter of December 12. The terms of waiver as stated on Form 220-b would not apply to the member bank's other affiliate, the Consolidated Land Company, since its stock is owned by the member bank even though carried on the member bank's books at 43 1/4/36 -51- "only A. However, as you were informed by the Board's letter of December 21, (B-1124) on the subject of call reports, new terms of waiver h&ve subsequently been adopted under which submission of a reoort in the circumstances described is waived. Accordingly, since the member bank misunderstood the original terms of waiver, submission of the report as of November 1 will not at this time be required. "In our letter of December 12 we stated that the Meadow River Coal and Land Company should be listed on Schedule 0 as submitted by the Bank of Rainelle, since it is an affiliate of the bank, and that its report on Form 220 should be submitted and published unless subject to the terms of waiver. Since, according to your letter, it is subject to the terms of waiver, Form 220 is not required, but the affiliate must be reported on Schedule 0." Approved unanimously. Telegram to the Federal reserve agents at all Federal reserve banks, reading as follows: "Board has reviewed replies received to its telegram of December 23, 1935 (Trans. 2344), and will be glad to furnish a sufficient number of copies of Regulations H and D to enable YOU, should you care to do so, to furnish one copy of regulations to each member bank in your district and one cow of Regulation H to each nonmember bank which you feel may be interested in membership. If copies of these regulations already received not sufficient for distribution decided upon by you in accordance with above, please advise number of additional copies required and these will be sent to you as soon as printed." Approved unanimously. Letter to Mr. Howard A. Wilson, President, Citizens National Bank and Trust Company of Fulton, Fulton, New York, reading as follows: "This refers to your letter of December 16, 1935, in which you imluire whether the Secretary of the Board of Directors of your bank is an executive officer within the meaning of that term as defined in subsection (b) of section 1 of the Board's Regulation 0. "You state that one of the directors of your bank has the title of Secretary of the Board of Directors, that his functions are those pertaining to the minutes of the meetings 44 1/4/36 -32- "of the Board of Directors, certification as to certain resolutions as passed by the Board of Directors and that he acts strictly in these and similar capacities, but is not in any sense active in the management of the bank. On the basis of these facts, the Board is of the opinion that the director of your bank who is also Secretary of the Board of Directors is not an executive officer within the meaning of that term as defined in Regulation O." Approved unanimously. as Letter to the governors of all Federal reserve banks, reading follows: "In the last few weeks the amount of industrial loan applications received by the Federal Reserve banks, and parinticularly the amount of such applications approved, has creased relatively little. Recent studies which have been made, particularly one by the Committee on Direct Loans of the Associated Business Papers, indicate the existence of some feeling that the Federal Reserve System would have many more applications if a more intensive effort were made to acquaint prospective borrowers with the facilities open to them and to bring to the attention of member banks the desirability of making industrial loans under cover of Federal Reserve bank commitments. "As you know, the Board feels that it is important that each Federal Reserve bank have some qualified person available at all times to explain to prospective applicants for preIndustrial advances what the Federal Reserve bank is obtain to order in proceed oared to do and how they should an advance. It is, of course, appreciated that the person having this responsibility should be fully familiar with the Federal Reserve bank's policies and able to appraise ive apfairly accurately the financial problems of prospect nts of applica e convinc plicants. He should also be able to ently consist can, it r whateve the Reserve bank's desire to do to le availab credit make to with the terms of section 13b, them System has "In view of the expressed feeling that the ons of provisi the nt impleme not done all that it should to a address will you if ated Section 13b, it will be appreci asits ing request t, letter to each bank in your distric program. A draft sistance in furthering the industrial loan this connection in use of a letter which it is suggested you is attached." 45 1/4/36 -33Approved unanimously. The draft of letter to be sent to all member and nonmember banks by the Federal reserve banks readsas follows: "Information which has recently come to the attention of the Board of Governors of the Federal Reserve System indicates the existence of some feeling that the Federal Reserve System has not done all that it could to make a success of the industrial loan program authorized by Section 13b of the Federal Reserve Act. This section was adopted June 19, 1934, and as YOU recall, authorizes the Federal Reserve banks to make credit available to established industrial and commercial enterprises for the purpose of replenishing working capital, for periods not exceeding five years. "It has been the aim of the Board, the Federal Reserve banks, and the Industrial Advisory Committees to make such credit available to all borrowers who are in need of working capital and to whom advances could be made on a reasonable and sound basis. To th.9.t end special efforts have been made to bring the provisions of the section to the attention of member and nonmember banks and industry in general, and applications for such credit have been approved whenever possible. It may be that there are now no enterprises in your community which are unable to obtain needed working capital from the usual sources and to which loans for this purpose could be made on a reasonable and sound basis. This bank desires particularly, however, to do what it can for industry in its district, and if you know of any instances, or hear of any instances, where worthy enterprises in need of working capital have been unable to obtain it, we shall appreciate Your bringing them to our attention. "Under the provisions of the Act the Federal Reserve banks are authorized to make these loans either direct to borrowers or in participation with financing institutions. If you are interested in participating in any loans, the liquidity of which may be guaranteed by the Federal Reserve bank and your loss limited to a maximum of 20 percent, this bank will be glad to cooperate with you in any way it can within the law." Memorandum dated December 28, 1935, from Mr. Smead, Chief of the Division of Bank Operations, stating that the standing committee on collections of the Governors' Conference submitted a report recommending that the Federal reserve banks make transfers of funds in multiples of 00 over the commercial wires for the account of nonmember banks at the 46 1/4/36 -34- expense of such banks; that a list of nonmember clearing banks be published in the par list; and that the rules and regulations governing transfers be revised, and that the report was approved by the Governors' Conference on October 25 1955. report be approved by the Board. The memorandum recommended that the The memorqndnm further stated that the only institutions maintaining nonmember clearing accounts with the Federal reserve banks which were not banks, in the sense that that term was ordinarily used, were the Discount Corporation, the FrenchAmerican Banking Corporation, and the J. Henry Schroder Banking Corporation, all in New York City; that the Federal Reserve Bank of New York had advised, however, that these corporations were regarded as banks for certain purposes; and that it would like to have such corporations included in the list of nonmember clearing banks published in the par list. The Board was in agreement with the statement contained in the report of the committee on collections that since nonmember clearing banks are permitted to carry clearing accounts with Federal reserve banks, and since reserve banks collect checks drawn on them, some provision should be made which would permit them to transfer funds both to and from such accounts. Accordingly, the following letter to the governors of all Federal reserve banks, dated January 3, 1936, approved by four members of the Board, was unanimously approved: "The Governors' Conference on October 23, 1935, approved a report of its standing committee on collections recommending that transfers of funds be made by the Federal Reserve banks for nonmember clearing banks at their expense over commercial wires and that a list of nonmember clearing banks be included in the semi-annual par list. The Board of Governors of the Federal Reserve System concurs in this recommendation and will arrange to have a list of nonmember clearing banks 47 1/4/36 -35- "included in the semi-annual par list. Regulations governing the use of Federal Reserve leased wires for the nurpose of making telegraphic transfers and otherwise as contained in the Board's letter X-4099 of June 21, 1924, are amended as follows: "1. Telegraphic transfers of funds over the leased wires will be accepted from and paid to member banks only. They must represent bank balances and can be made only for round amounts, i. e., multiples of $100. The term 'bank balance' shall be construed to mean an accumulation of funds comprising an established account carried by one bank with another bank. "2. The information given in telegrams transferring funds over the leased wires must be limited to the name of the sending member bank, name of its correspondent member bank requesting the transfer, name of the member bank receiving credit, and name of its correspondent member bank. "3. The Federal reserve code, including test word, must be used for all messages involving the transfer of funds and, in the interest of economy, all other telegrams should be sent in code when its use shortens the message materially. "4. In addition to the usual mail advice to the bank receiving credit for telegraphic transfers of funds, immediate advice by telegraph, or otherwise, should be given by the Federal reserve bank receiving the transfer in cases where the sending bank or the credited bank has stated that other than the usual mail advice is necessary, or where the nature of the transaction or the amount involved indicates that the additional expense is justified, as to which the receiving Federal Reserve bank will exercise its discretion. All such wire advices should be at the expense of the bank receiving credit and, therefore, should be sent collect. "5. Requests for telegraphic transfers of funds for consummation on date of receipt should not be accepted by Federal reserve banks later than thirty (30) minutes prior to the closing hour of the Federal reserve bank to which transfer is to be made. Any telegraphic transfers of funds requested after such time will be made at the discretion of the Federal reserve bank receiving credit. "6. The leased wires shall not be used for tracing or advising payment or non-payment of any non-cash collection items, nor for transferring the proceeds thereof. "7. The leased wires shall not be used for reconciling exceptions in accounts between Federal reserve banks, except where a loss might be involved. "8. Any loss resulting from negligence on the part of the Federal reserve system in the transmission of telegrams transferring funds over the leased wires through relay 48 1/4/36 -36- "stations shall be borne by the sending Federal reserve bank, unless responsibility can be definitely placed upon the Federal reserve bank to which the telegram was addressed. 9. Telegrams must be worded as concisely as possible. Telegrams should not be sent when communication by mail will suffice. For the purpose of enforcing these regulatIons, provision should be made in each Federal reserve bank so that any misuse of the leased wires will be brought to the attention of a designated officer for reference to the originating department, or, in the case of incoming messages, to the sending Federal reserve bank. "The following clauses under the respective headings Should be included by all Federal reserve banks in their circulars to member and nonmember clearing banks relating to telegraphic transfers of funds. "TRANSFERS OVER LEASED WIRES "1. Only transfers of bank balances in round amounts, that is multiples of OM, will be made over the Federal reserve leased wires. The term tbanic balance' shall be construed to mean an accumulation of funds comprising an established account maintained by a member bank with its Federal reserve bank or with another member bank. "2. Telegraphic transfers of funds over the leased wires will be made for and paid to member banks only. Such transfers will be made without cost to member banks. "3. The descriptive data in telegrams transferring bank balances over the leased wires must be limited to the amount to be transferred, name of the member bank to receive credit, and, when necessary, name of its correspondent member bank, and name of member bank with which request originated. "4. Transfers of the proceeds of individual collection items will not be made over the leased wires. "5. The Federal reserve banks maintain, at large expense, a leased wire system over which it is necessary to transmit a heavy volume of important communications. Member banks are requested to cooperate with us in attempting to avoid overcrowding the leased wires by not making requests for telegraphic transfers of small amounts, or those which can be made as well through the mails. "TRANSFERS OVER COMMERCIAL WIRES "1. Telegraphic transfers of funds for any purpose and in any amount and without limitation as to descriptive data will be made over the commercial telegraph wires for member banks. While such transfers will be accepted from and paid to member banks only, they may be for the use of any bank, individual, firm or corporation. "2. Telegraphic transfers of bank balances in round 49 1/4/36 -37- "amounts, that is multiples of t.100, will be mode over the commercial telegraph wires for nonmember clearing banks. Such transfers will be accented from any member bank for the credit of any nonmember clearing bank, and from any nonmember Clearing bank for the credit of any member bank or any other nonmember clearing bank. "3. The cost of all telegrams between Federal reserve banks transferring funds over the commercial telegraph wires Will be charged to the member and nonmember clearing banks for which the transfers are made. Member and nonmember clearing banks should prepay the cost of telegrams requesting such transfers, and telegrams to member and nonmember clearing banks advising credit will be sent 'Collect'. "LIABILITY OF THE FEDERAL RESERVE BANK will use "The Federal Reserve Bank of due diligence and care in the transfer of funds by telegraph to the receiving Federal reserve bank for credit to the eccount of the payee bank, but will not be responsible for errors or delays caused by circumstances beyond its control." Letter to Mr. Paul P. Cret, Architect for the Board's new buildingt Philadelphia, Pennsylvania, reading as follows: "On the basis of the information and in accordance with the suggestion contained in your letter of December 27 in regard to mimeographing the specifications and printing the drawings the Board approves the arrangement outlined by you and authorizes you to proceed in accordance thererith on the basis of the prices stated in your letter. "In this connection it is understood that instead of 25 sets you will obtain 30 sets at the first printing of the drawings in view of the number of building contractors Who %ill be invited to submit bids." Approved unanimously. Memorandum dated December 31, 1935, from Mr. Noell, Assistant of the Secretary, recommending that, in order to expedite the issuance Par lists and supplements for 1936, which had previously been printed by the Government Printing Office, the contract for printing, binding and mailing the par list for 1936 be awarded to the National Capital Press, Washington, D. C., et a total cost of $2,567.50. The memorandum stated 50 1/4/36 -38- that the price quoted by the National Capital Press included only the cost of mailing since it was contemplated that the Board would furnish addressed envelopes to the printer, as it was believed that the use of envelopes was a more satisfactory method of mailing than that used by the Government Printing Office, and that the cost of the envelopes would be aPproximately $280 per year. The memorandum also stated that Mr. Smead, Chief of the Division of Bank Operations, concurred in the above recommendation. Approved unanimously. Letter to the governors of all Federal reserve banks, except Atlanta, reading as follows: "The Board is in receipt of a letter from Dr. H. S. Cumming, Surgeon General of the United States Public Health Service, asking that the Board and the Federal Reserve banks cooperate with the Public Health Service in an occupational Morbidity and Mortality Study being conducted by it. "It is understood that a represent&tive of the Public Health Service engaged in this study will call at your bank to Obtain certain information regarding its personnel, and the Board will appreciate your cooperating with him in the study. Any information made available to the Public Health Service Will not be published separately as coming from your bank but will be combined with other similar data so that the identity of the institution from which specific information is obtained will not be disclosed." Approved unanimously. Thereupon the meeting adjourned. Chairman.
@FedFRASER