Full text of Minutes of the Board of Governors of the Federal Reserve System : Meeting Minutes, July 16, 1937, Volume 24, Part 3

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985
A, meeting of the Board of Governors of the Federal Reserve Syswas held in
Washington on Friday, July 16, 1937, at 11:00 a. m.
PRESENT:

Mr.
Mr.
Mr.
Mr.

Eccles, Chairman
Ransom, Vice Chairman
Broderick
Davis

Mr.
Mr.
Mr.
Mr.

Morrill, Secretary
Bethea, Assistant Secretary
Carpenter, Assistant Secretary
Clayton, Assistant to the Chairman

Consideration was
given to each of the matters hereinafter retalTed

and the action stated with respect thereto was taken by the

The minutes of the meeting of the Board of Governors of the Fed"8,1 Reserve
System held on July 15, 1937, were approved unanimously.
Telegrams to Messrs. Kimball and Clark, Secretaries of the
Padaral Reserve
Banks of New York and Atlanta, respectively, stating
that the Board approves
the establishment without change by the New
1°It bank on July 15, 1937, and by the Atlanta bank today, of the rates
Of cliscount and
purchase in their existing schedules.
Approved unanimously.
Memorandum dated July 13, 1937, from Mr. Goldenweiser, Director
or the Division
of Research and Statistics, recommending that Miss M.
llizabath Barnett be appointed on a permanent basis as a clerk in the
t"181°1, with
no change in her present salary at the rate of $1,440
15" aluttlm, effective at the close of her temporary appointment on July
19' 1937) Provided that she passes satisfactorily the usual physical
6/aliatation.




Approved unanimously.

986
7/16/37

-2dated Ally 15, 1937, from Mr. Morrill recommending

the aPPointment of Miss Lois W. Jones as nurse in charge of the first
aj

r43an in the Board's new building, with salary at the rate of $1,800

Per annitm,
effective as soon as she may be released from her present position $
after having passed satisfactorily the usual physical examination.
The Memorandum stated that under an arrangement effective as of July 1,
1935$ the Board
has been reimbursing the office of the Comptroller of

the
--"'enoY $600 per year toward the payment of the salary of Miss

Plore„

-ce Coombs, a nurse at the Treasury Department, whose services

cluring that period
have been available to the Board's employees, and
recoramended that, inasmuch as that service will no longer be required
after the
move to the Board's new building, the arrangement with the
ecMPtroller's office be terminated effective as of August 1, 1937.

The

Ze:coranditn also
stated that the matter had been discussed with Mr. Birgtelc1) Chief Clerk at the Treasury Department, who advised that the ter111144tioa of the
arrangement as of August 1, 1937, would be satisfactory
to "
h
rice.
Approved unanimously.
Memorandum dated July 15, 1937, from Mr. Morrill, recommending
the ,
'PPointment of Mr. Louis N. Bertol as Captain of the Guard to have
char,Of the
protection force in the Board's new building, with salary

at the
/late of av1,800
per annum, effective as soon as his services may
be vai,
'
table after having passed satisfactorily the usual physical ex-




Approved unanimously.

987
7/16/37

-3Letter to the board of directors of the "Ecorse Savings Bank",

Ecorse, Michigan, stating that, subject to the conditions of membership
MIlibered 1 to 3 contained in the Board's Regulation H, and the followspecial condition, the Board approves the bank's application for
MeMbership
in the Federal Reserve System and for the appropriate amount
r stock in
the Federal Reserve Bank of Chicago:
"4.

Such bank shall make adequate provisions for depreciation in its banking house and furniture and fixtures."
Approved unanimously, together with a
letter to Mr. Schaller, President of the
Federal Reserve Bank of Chicago, reading as
follows:

"The Board of Governors of the Federal Reserve System
1PP1
6 -oves the application of the 'Ecorse Savings Bank', Ecorse,
4ichigan, 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
,
,
IIstitution. Two copies of such letter are also inclosed,
T"
a a of which is for your files and the other of which you
a requested to forward to the Commissioner of the Banking
Department of
the State of Michigan for his information.
will
be noted that the Board has not prescribed
the"It
aPecial condition recommended by your committee prohibit4
the bank from increasing above $i;55,000 its aggregatein.,!atment in banking house and furniture and fixtures. Since
,vae revision
of the standard conditions of membership, it
nclt been the practice of the Board to prescribe condini ns relating to the investments in bank premises and furandc
fixtures except in special cases where the ciruretances indicated the desirability of so doing. It is
understood
from Mr. Young that such circumstances do not
st in this case and that the elimination of the condition
satisfactory
to your bank.
fi, "With reference to the four accounts listed in the conas"ntial section of the report as being improperly carried
pifivings deposits, it is assumed that, if the bank comti:es its membership, you will call the management's attens
to the fact that such accounts should be carried in
()Me other
manner."

;




7/16/37
-4Letter to Honorable Clyde L. Herring, United States Senate, reading as
follows:
"This refers to your letter of June 22, 1937, addressed
to Governor Davis and inclosing a letter you have received
frora the First Bank and Trust Company, Ottumwa, Iowa, with
reference to
its difficulties in obtaining admission to memberabliP in the Federal Reserve System while retaining certain
24t-of-town branch offices. It is understood that the First
Bank and
Trust Company has capital stock amounting to ;;300,000.
111 vieof this fact, it appears that the difficulties to
Which the bank refers
grow out of the fact that it does not
have the
capital stock required by Federal law for the ad. ission
to membership in the Federal Reserve System of State
nanks having
out-of-town branches.
"The Federal Reserve Act requires a State bank applying
for membership
in the Federal Reserve System and having one
or more
out-of-town branches established subsequent to Febr
i.lerY 25, 1927, to have the capital stock which a national
bank is
required by law to have in order to establish one or
nre out-of-town branches. With certain exceptions, depend5 g on the population of the State in which located, section
155 of the Revised Statutes of the United States requires a
national bank to have capital stock of at least 4500,000 in
ar to establish a branch outside of the city of its head
defica. There are also aggregate capital stock requirements,
4;Pending upon the number of branches established by a na,40n5l bank.
Fi
It is understood that
the capital and surplus of the
thr2t Bank and Trust Company, of Ottumwa, is 4:3350,000 and
the bank has deposits of approximately ‘;1,600,000. Asiring that the assets of the bank are in good condition, it
„ Clear that its present capital and surplus funds are &de:!-fte for the
protection of its deposits. However, in view
Bo
ul the
sPecific requirements of the Federal law and since the
re
"
d is not vested with any discretion to waive the capital
tl, uirementS contained in the law, it will be necessary for
trust
company to increase its capital stock to at least
;Inu,000 in order
to be eligible for admission to membership
sii7ler the
present requirements of law. In the above discus1312 it has been assumed that one or more of the out-of-town
TZ?es referred
to in the letter from the First Bank and
rual„ s alaPanY, of Ottumwa, was established subsequent to Febof ,f 5, 1927. As you know, February 25, 1927, is the date
oth
'
eua enacent
enactment of the so-called McFadden Act which, among
statr thiM's, authorized the retention by national banks and
e member banks of branches in lawful operation on the

r

T




989
7/16/37

-5-"date of the enactment of such Act without requiring a bank
to have any specific amount of capital in order to retain
such branches.
"While the letter of the First Bank and Trust Company
dOes not make any reference to whether or not its branches
exercise broad banking functions or merely certain limited
functions, it
has heretofore came to the Board's attention
that in same instances offices are established by Iowa banks
i th only limited functions. However, attention is invited
!
0 the fact that Congress,
in defining the term 'branch' as
ed in section
5155 of the Revised Statutes, has provided
hat such
term 'shall be held to include any branch bank,
°Much office, branch agency, additional office, or any branch
Pylace of business located in any State or territory of the
'
Jnited States or in the District of Columbia at which deposits
are received, or checks paid, or money lent.'
In accordance with your request, the letter addressed
to 17,, by
'
the First Bank and Trust Company, of Ottumwa, is
4 111
,
revurned herewith."

r

Approved unanimously.
Letter to Mr. 'Post, Secretary of the Federal Reserve Bank of
Philad

elphia, reading as follows:
wh. "Reference is made to your letter of July 9, 1937, in
1 ch You include an excerpt from a letter received by you
r:
alsing a question regardinw, section 5(d) of Regulation T.
"Your letter is not entirely clear as to the question
•
fO1' which
an answer is desired. As a result of a subsequent
itelephone
o
conversation between yourself and a member of the
ard's staff, however, it is understood that the question
Intended
to be presented may be stated as follows:
'Section 5(d) states that certain credit maintained
without collateral or on collateral other
than
exempted or registered securities may be so
maintained until
January 1, 1938. Does section 5(d)
l'equire the liquidation on or before this date of
credit in a special account establishe pursuant
d
to section
5(b) of the regulation, i.e., credit
,
that is
maintained without collateral or on collateral other
than non-exempted registered securii
ties
but that is not for the purpose of purchascue or carrying securities or of evading or cir1114vanting the provisions of the regulation?'




990
7/1s/37
-6"In reply to this auestion you are advised that the time
limitation in section 5(d) does not apply to credit provided
or in section
5(h) and that, therefore, credit provided for
in section 5(h) may be maintained without regard to the date
specified in section 5(d)."
Approved unanimously.
Letter to Mr. Fry, Vice President of the Federal Reserve Bank
Of Richmond,
reading as follows:
, "Receipt is acknowled7ed of your letter of July 8,
'
19
57, with inclosures, regarding the question whether the
endorsement
or guarantee by Mr. T. W. Norwood, Vice President of
The Wilmington Savings and Trust Company, WhiningNorthip
Carolina, of commercial paper sold to other
enks, must be reported to the Trust Company as an indebtedness of an executive officer of a member bank under the
Provisions of section 22(g) of the Federal Reserve Act and
Of
Regulation O.
"It appears that Mr. Norwood is engaged in the business
9f selli-ng
commercial paper as a broker. Some of this paper
8 sold with
Mr. Norwood's endorsement or guarantee to banks
in North
Carolina or elsewhere. Proceeds of the paper are
rarentlY made available directly to the makers and Mr.
,
?rwood receiv
es only his commission or fee for endorsing.
also appears
that Mr. Norwood is not active in the admnistration
of the affairs of the Trust Company.
"In view of
the provisions of Regulation 0 to which
You1 referred
in your letter of Tune 30, 1937, to/tr. J. G.
c,,
(
,
)
,ruton, Vice President of The Wilmington Savings and Trust
PsnY, it is clear that the sale to banks of paper bear11r. Norwood's endorsement or guaran
tee results in an
indebtedness
to
requir
such
which
banks
ed to report
he
is
to
n
Trust Company under the provisions of the statute
4 section 5
of the regulation.
It is understood
that Mr. Norwood is not only Vice
President of
The Wilmington Savings and Trust Company, but
co elso a director. While
it is realized that the Trust
oiTP8,nY is desirou
s of retaining Mr. Norwood in his cepania4Y as Vice
President as well as that of director, you
the
lr wish to call attention to the fact that, in view of
sactProvisions in the
last clause of subsection (b) of
b e 1°11 1 of the regulation, if he should find it not to
as Practicable
to arrange his affairs so as to continue
en executive officer of the Trust Company he may never-

1

7




991
-7"theless retain his position as director without the necessitY of making reports of his indebtedness to other banks."
Approved unanimously.
Letter to Mr. Young, Vice President of the Federal Reserve Bank
°I' Chicago,

reading as follows:

"This refers to your letter of May 29, 1937, and previous correspondence with regard to the question whether
the indebtedness of Mr. B. F. Kauffman, President of the
Bankers Trust Company, Des Moines, Iowa, to such bank as
trustee of the Bankers Employees Trust, is contrary to the
Provisions of section 22(g) of the Federal Reserve Act.
"It is understood that the Bankers Employees Trust,
Of which
the bank is trustee, was created by a declaration
Of trust
executed by the bank in March 1920; that the trust
4,...'411d is one accumulated as a savings fund to which the ofAcers and
employees of the bank contribute monthly; and that
When they
contribute up to 5 per cent of their salary the
bic
contributes a like amount. It is also understood that
°Ile of the purposes of the creation of the trust was to provide for
loans from the fund to officers and employees of
bank who are members thereof and that the trustee may
a loan to a member in an amount not in excess of 95
1/
..er crit of the amount
of his contributions standing to his
Tndit in
the fund at the time the loan is made. In this
nection, it is the Board's understanding that the loan
_question to Mr. Kauffman did not exceed 95 per cent of
:Mount of his contributions standing to his credit in
the

j

fund.
Other"In view of
the small amount involved and all the

circumstances of the case, the Board will offer no
Ob.lection
jection to the transact
ion in question and you may, if
desire, advise the Bankers Trust Company accordingly."

Z

Approved unanimously.
Letter to the
Presidents of all Federal reserve banks, readf011ows:

b-

"There is inclosed herewith a copy of a letter received
the Board
from Assistant Attorney General Brien McMahon,
of which it is
suggested that copies of reports of violations
the criminal provisio
ns of the banking laws of the United




992
7/16/37
-8"States which are commonly made to the Department of Tustice
be
transmitted to the respective local offices of the Federal
Bureau of Investigation. In this connection there is also
inclosed a copy of a memorandum from the Director of the
Federal Bureau of Investigation which contains a list of
the field
offices of the Bureau.
."In accordance with the request of the Department of
Justice, it
will be appreciated if your bank will transmit
,
,t0 the appropria
te field office of the Federal Bureau of
Investigation a copy
of each report of apparent violations
of the
criminal provisions of the banking laws of the United
States which is made
to the local United States Attorney and
copies of which
transmitt
are
ed to the Board of Governors
Pursuant to
the procedure stated in the Board's letter of
ollY 8, 1937 (S-12)."
Approved unanimously.
Mr. Morrill submitted a recommendation, which had been approved
by the
Personnel Committee, that the Board approve the payment to S.
4roame

Eareckson, Washington, D. C., the swm of $174.00 for spreading

111168$ including
cutting and binding for stand pipes, in the Board's
4e4 building, as set forth in purchase order No. 1778.




Approved unanimously.

Thereupon the meeting adjourned.

Chairman.