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300 Minutes of actions taken by the Board of Governors of the ?ederai Reserve System on Thursday, July 28, 1949. PRESENT: Mr. McCabe, Chairman Mr. Szymczak Mr. Clayton Mr. Carpenter, Secretary Mr. Hammond, Assistant Secretary 1,1r. Morrill, Special Adviser Memorandum dated July 27, 1949, from Mr. Thomas, Director or the Division of Research and Statistics, recommending that a 'efgram to Ernest C. Olson, an economist in the Latin American 4cti°11 of that Division, be approved authorizing an extension of ill8 Si. -"V in Guatemala City by one week to August 8, 1949. Approved unanimously. Letter to the Federal Deposit Insurance Corporation, readfollows. , "Pursuant to the provisions of section 12B of the 'ederal Reserve Act, as amended, the Board of Governors ?! the Federal Reserve System hereby certifies that the bLitizens State Bank & Trust Company', Kilgore, Texas, ! 2 ceme a member of the Federal Reserve System on July ) 1949, and is now a member of the System. The Board ' c Governors of the Federal Reserve System further hereby 1,e1"tifies that, in connection with the admission of such nIlk to membership in the Federal Reserve System, conrderation was given to the following factors enumerated 411 s the Federal Reserve Act:ubsection (g) of section 12B of The finFolcial history and condition of the bank, 2. The adequacy of its capital structure, 3. Its future earnings prospects, 4. The general character of its management, 1. 1, 7/28/49 -2- "7. The convenience and needs of the community to be served by the bank, and 6. Whether or not its corporate powers are consistent with the purposes of section 12B of the Federal Reserve Act." Approved unanimously. Letter to Mr. DeMoss, Vice President of the Federal Resank of Dallas, reading as follows: "Reference is made to the report of examination of Reights State Bank, Houston, Texas, as of March 26, 1949, and to the supplemental information submitted in connection therewith. "The report of examination disclosed that the bank's adjusted capital of $200,100, was only 2.3 per cent of its total assets of $8,722,900 and 7. per cent of risk assets of $2,672,100 (inclusive of S500,000 Consolidated l'ederal Farm Loan bonds). It appears that since the .1 ELIIk's organization and admission to membership in 1943 .Lts deposits have grown from 81,648,900 at the examination as of June 10, 1944, to 58021,200 at the examination as of March 26, 1949. Risk assets in the period increased flscm 3421,200 to $2,672,100. However, the total of the adjusted capital accounts in the same period has shown ?Illy a moderate growth, increasing from $124,700 to $200,40/ of which $79,100 is invested in fixed assets. "It is observed that the bank has been paying dividends. Even if the dividends should be discontinued enand all earnings conserved, the bank's earning power, nsed on its five year record, does not appear sufficient (43 provide for more than moderate increases in the capital "counts. It is noted also that the joint efforts of yourself and the Texas Banking Department to obtain a commitZent for an early increase in capital have been fruitless 8° far. "In view of all the circumstances, it seems quite estionable whether the net capital and surplus funds of bank are adequate in relation to the character and conof its assets and to its deposit liabilities and Qther corporate responsibilities. "It is observed that the bank's president wrote you °II June 11 that a substantial sum would be added to the r 1.302 7/28/49 -3- "surplus account as of June 30. Should the addition Prove to be, in your opinion, insufficient to effect a material improvement in the capital ratios of the bank, it will be appreciated if you will again bring to the attention of the bank the unsatisfactory features of it6 capital position and request it to inform you as to the definite steps it proposes to take to improve the situation to an extent satisfactory to your bank and the Board of Governors." Approved unanimously. Letter to The First National Bank of Lake Geneva, Lake Gelleva, Wisconsin, reading as follows: "This refers to the resolution adopted on December 11) 1948, by the board of directors of your bank, signirYing the bank's desire to surrender its right to exerease fiduciary powers heretofore granted to it. "The Board, understanding that your bank has never accepted or undertaken the exercise of any trust, has issued a formal certificate to your bank certifying that it is no longer authorized to exercise any of the fiduciary powers covered by the provisions of section 11(k) °r the Federal Reserve Act, as amended. This certificate 18 enclosed herewith. "In this connection, your attention is called to the fact that, under the provisions of section 11(k) of the l'ederal Reserve Act, as amended, when such a certificate , 11as been issued by the Board of Governors of the Federal Ileserve System to a national bank, such bank (1) shall 40 longer be subject to the provisions of section 11(k) °r the regulations of the Board of Governors of the FedReserve System made pursuant thereto, (2) shall be erltitled to have returned to it any securities which it !"41 have deposited with the State authorities for the 21-otection of private or court trusts, and (3) shall not 3terc1se thereafter any of the powers granted by section j (k) without first applying for and obtaining a new per''t to exercise such powers pursuant to the provisions of section 11(k)." 7 Approved unanimously, for transmission through the Federal Reserve 7/28/49 Bank of Chicago. Letter to Mr. Rouse, Vice President of the Federal Reserve 4111c of New York, reading as follows: "With your letter of July 1, 1949, you enclosed a copy of a letter ftom the New York Stock Exchange inquiri4g as to whether Amendment No. 8 to Regulation T had the effect of changing two interpretations which the Board had issued under previous provisions of the regulation. "You recommended that these interpretations be held to have been changed by the amendment. "As indicated in the attached copy of a letter to all Pederal Reserve Banks setting out a ruling to be published in the Federal Reserve Bulletin on the Lubject, the Board agrees with your view that the amendment changed the previous interpretations on the points in question." Approved unanimously, together with a letter to the Presidents of all Federal Reserve Banks reading as follows: "For your information there is set out below a ruling I./filch will be published in the Federal Reserve Bulletin With respect to certain questions under Regulation T: Margin Requirements Transactions in Undermargined Accounts "In a ruling published at 1948 Federal Reserve Bulle14, p. 397, the Board considered two questions in connecwith the rules applicable at that time to withdrawals Or cash or securities from an undermargined general account 114der Regulation T. "One question related to the purchase of an unregistered ri°11exempted security in the account. The other concerned a Etse in which a security held in the account was sold, dewas delayed by borrowing a security rather than deliverthe security held in the account, and the security held 14 the account was used later to settle the short position. .7 "The conclusions on both points were based on the proof the regulation in effect at the time regarding 141-thdrawals from such accounts. Those withdrawal provisions t!re changed by Amendment No. 8, effective May 1, 1949, and Board has been asked regarding the application of the new withdrawal rules to such situations. It has expressed the 1304 7/28/49 - "following views: 1. Unregistered securities cannot be carried on margin and accordingly a deposit equal to the full cost Of any unregistered securities purchased in the account must, of course, be obtained. However, a purchase of unregistered securities in the general account may now be treated as a transaction other than a withdrawal, and accordingly the deposit equal to such cost may be obtained Within the three-day period specified in sections 3(h) and 3(e) of Regulation T. 2. With respect to the case in which a customer wishes to sell a security that is held in the account and to delay delivery by borrowing a security rather than delivering the one held in the account, the present withawal rules permit the sale to be treated as a short sale against which margin is not required and permit the transaction to be treated as completed when the security held In the account is delivered later to close out the short Position. Accordingly, it is now permissible for an offsetting transaction to take place on the date when the delivery is so made. "This supersedes the ruling referred to above at 1948 Pederal Reserve Bulletin, p. 397. (That ruling also Pointed out that the 'good faith loan value' specified for all exempted security means the amount which the broker would customarily lend on the security, and that the figure cannot be arbitrarily reduced merely for the purpose of Permitting a later substitution of registered securities for !empted securities. That principle is still correct, but 4&8 of limited application in view of the provisions now con. ' 'airled in the regulation for withdrawals and substitutions Of securities.)' Letter to Colonel Ellery C. Huntington, Jr., President, The lin 8 I'lan Corporation of America, 103 Park Avenue, New York 17, reading as follows: "This refers to your letter of July 12, 1949, to Mr. II-St, inquiring whether consideration would be given by the to a request to Congress for an amendment to section of the Revised Statutes to eliminate the reserve re'ilalrements for holding company affiliates. vc, I 3f1 7/28/49 -6- "The Board has recently recommended to Congress the enactment of comprehensive new legislation relating to bank holding companies which would replace the existing law on this subject. As you will note from the copy of the bill enclosed with our letter of July 21, 1949, section 8 of the bill recommended by the Board would require a bank holding company to accumulate a reserve fund of readily marketable assets, other than bank stocks, in an amount equal to at least 12 per cent of the aggregate par value of all bank shares owned by it. Accordingly, we would not be disposed to look with favor upon your suggestion that the reserve requirements be eliminated. "We trust, however, that upon further consideration YO will find that these requirements are not necessarily a bar to applications for membership by banks in your group." Approved unanimously. Letter to The Regents of the University of Michigan, Ann Michigan, reading as follows: "Enclosed herewith are copies of the proposals transMitted with your letter of July 1, 1949, covering the SumEconomic Survey and the Fifth Annual Survey of Consumer 1-nances. You will note that I have executed these docuMents on behalf of the Board of Governors." Approved unanimously. .42" Abh, Oved ///' Leg (6.62ACT4_ Chairman. Secretary.
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