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1451 A meeting of the Board of Governors of the Federal Reserve System was held in Washington on Thursday, July 30, 1936, at 3:00 p. m. PRESENT: Mr. Mr. Mr. Mr. Eccles, Chairman McKee Ransom Davis Mr. Morrill, Secretary Mr. Eethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Consideration was given to each of the matters hereinafter referred to and the action stated with respect thereto was taken by the 13°ard: The minutes of the meeting of the Board of Governors of the Feder., °--1- Reserve System held on July 28, 1936, were approved unanimously . The minutes of the meeting of the Board of Governors of the l'eclel'al Reserve System held on July 29, 1936, were approved and the ti°ns recorded therein were ratified unanimously. Telegram to Mr. Sargent, Assistant Federal Reserve Agent at the Federal Reserve Bank of San Francisco, reading as follows: "Re your letter May 8, 1936, regarding request of 'Citizens State Bank', Puyallup, Washington, for permission to retire 10,000 of capital debentures held by R. F. C. The Board has given consideration to the various phases of the case) including the fact that the debentures in question were issued for the protection of depositors in a temporary .1d emergency situation which no longer exists, and, in of the apparently satisfactory condition of the bank, ;tie adequacy of its remaining capital, and other related ets and circumstances, and of your favorable recommendation, interposes no objection to the proposed retirement. l'inciples set forth in X-9475 to which you referred are not applicable to banks located in places the population of which exceeds 3,000 inhabitants and Board's position 7 J 1452 7/3o/36 -2- "stated herein is based upon the facts and circumstances involved in the particular case and is not intended to establish a precedent. Any similar cases which arise should be submitted to the Board for its consideration." Approved unanimously. Letter to Mr. Hill, Assistant Federal Reserve Agent at the Peaeral Reserve Bank of Philadelphia, reading as follows: .\ "This refers to your letter of June PO, 1936, in which You have called attention to the fact that, during 1934 and . early part of 1935, certain trust companies in your .le ? cp_strict were admitted to membership in the Federal Reserve SYstem subject to a condition of membership which, without .Pecifying any exceptions, prohibits them from engaging In the business of acting as agent in the purchase and sale °f real estate, or of acting as agent for others in the renting of real estate, while in the case of other trust !ompanies more recently admitted to membership the Board "as Prescribed the following condition of membership: 'Such bank shall not, except to the extent nsue4.1y necessary in the transaction of a comer21.111ilq[Am_ar trust business, directly or indirectengage in the business of dealing in real estate or other properties, either for its own account or as agent for others, or of acting as agent for others In the renting of real estate, in the collection of rents thereon, or in care, custody and management * real or personal property, * * *.' (Undero supplied) "You have inquired whether the exception contained in the above quoted condition of membership may be considered as being applicable to the trust companies which have accePted a condition of membership in which such an exception was not specifically made. The latter condition of memberehiP was not intended to preclude a member State bank from t gaging in real estate operations of the kind referred .s "erein if such operations are considered to be usually neces,!arY in the transaction of a commercial banking or trust 11-siness, and the Board has ruled that, under a similar con): , . ' of membership which was prescribed for a member State .ank in another State, the bank is not prohibited from rentSelling or disposing of real estate in connection with 1453 7/3o/36 -3- “the administration of trusts in which it is authorized to act- In the circumstances, the Board feels that all State !Ilember banks n in your district subject to a condition of membership covering their real estate operations which does not contain the exception referred to above may be considered as having the benefit of such exception. ."You have also requested advice as to whether this exception is applicable to a case in which a trust company subject to the condition of membership enters into an agreeto act as custodian and agent, whereby it will collect aIld account for the income on certain securities deposited With it, and will have the care, custody and management of two parcels of real estate on which it will collect the rent8 and pay the taxes. You have explained that, while you do 110t.h8ve sufficient information in this case definitely to indicate the relative importance of the management of the securities in comparison with the management of the real ?state, there are many trust companies in your district which have entered into trust agreements of this kind, and that the activities engaged in thereunder constitute an important art of the trust business handled by such institutions. It !-S the view of the Board that where an agreement of this kind represents a bona fide fiduciary unriertaking, the management of the real estate and collection of rents being an incident to the administration of the trust, and such an agreement does not represent merely an undertaking to carry on a real estate business of the kind described in the condition ?f membership, the type of relationship involved is one which it is contemplated would come within the exception under discussion.” t Approved unanimously. Letter to Mr. Wood, Vice President of the Federal Reserve Bank Of s4 Louis, reading as follows: "Reference is made to your letter of July 24, 1936, „r t a nsmitting the request of the 'State Bank of Steeleville', neeleville, Illinois, for permission, in accordance with "le provisions of membership condition numbered 8, to expend not to exceed in the construction of a new banking house. "In view of your recommendation and the fact that the Proposed investment does not appear to be unduly large or a15,000 7/30/36 -4- 'improper or otherwise violate the spirit or purpose of condition numbered 8 prescribed in connection with the bank's aPPlication for membership, the Board interposes no objection to the expenditure of an amount not to exceed Z15,000 for such purpose, and it is requested that you advise the bank a ccordingly. "It is suggested that, if you have not already done so, YOU acquaint the bank with the Board's views, which are known to your office, with respect to making adequate provision for depreciation in banking quarters owned." Approved unanimously. Letter to Mr. Attebery, First Vice President of the Federal Re8erve Bank of St. Louis, reading as follows: "Referring to your letter of July 25, the Board notes With approval the action of the Executive Committee of your larlk on July 24 in authorizing a charge against profit and ,?Bs account of the loss sustained on a commitment to the First National Bank of Louisville covering a r4'5,000 loan the Red Cap Battery Corporation in Louisville. 4,1, "The amount of the loss on which the Federal Reserve is liable should of course be reported on Form B-25 against the item 'Losses charged off (other than those charged to reserves)'. At the end of the year should expenses in connection with industrial advances and commitents and losses on industrial advances exceed earnings from ' fldustrial advances and commitments, the appropriate portion of such excess of expenses and losses should be charged to °urPlus (Section 15b)." T Approved unanimously. Letter to the Presidents of all Federal reserve banks, reading tis i'°110ws: t, "There is inclosed, for your information, a copy of 13"e Board's letter of July 2P, 1956, to the Federal Reserve hank of New York, from which it will be noted that the Board aPProved the extension by the bank of a loan, against re security of gold to be earmarked at the Federal Reserve 'Dank of New York, to the Banco de Venezuela, Caracas, Venezuela. 1455 7/30/36 -5"The Board approves the oarticipation in the loan, if made, by the other Federal reserve banks." Approved unanimously. Letter to Mr. John F. Moran, Cashier of Cooley E, Company, Hartford ) Co nnecticut, reading as follows: "This is in answer to your letter of July 7, 1936 making further reference to questions presented in your previous letter. "In the case presented, which we understand to be a hYloothetical case, you take in effect the position that the /.*edit extended is extended altogether on registered securinot to any extent on the unregistered securities thei7 and a- constitute a part of the new issue. This is a question, Z8 indicated by the Board's letter of June 30, 1936, that 2_1"lves interpretation of the meaning of section 11(d) of file Securities Exchange Act of 1934, as to which jurisdicc'-on is vested in the Securities and Exchange Commission and , 11°t in the Board of Governors of the Federal Reserve System. enforcement on the penal side, moreover, vests in the .stittorney General, upon whom an interpretation of any adminisrati7e body would not necessarily be binding. For these reasons it is believed to be inadvisable for the Board to ! 3cPress any opinion on the point presented by your question, ' 8Pecially in view of the fact that the case is a hypothetical one. "It is suggested in the circumstances that when the question you raise becomes a practical one in your business, YOU consult your own attorney and be guided by his advice." Approved unanimously. Letter to Mr. Gidney, Assistant Federal Reserve Agent at the Pede Reserve Bank of New York, reading as follows: to the question raised in "Consideration has been given „ Your letter of May 8, 1936, regarding the applicability " section 8 of the Clayton Act to a director of Massena 7ings and Loan Association,T.!assena, New York, who is also er7ing as a director of a member bank. "The memorandum of counsel for your bank which accomPanied your letter shows that Massena Savings and Loan Asso- i 1456 7/3o/36 -6"ciation is a mutual association operating in substantially the same manner as the usual building and loan association, selling shares to its members upon installment payments, and making loans to them upon the security of its shares and of real estate. It further appears that the association is not authorized to receive deposits. . "In view of this information it appears that Massena , : 117111gs and Loan Association should not be regarded as a 111110 or *banking association* within the meaning of secion 8 of the Clayton Act, and that therefore that section ls not applicable to a director of a member bank serving as a director of that association." Approved unanimously. Thereupon the meeting adjourned. Secretary. A pprOljed: Chairman.
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