The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
728 A. meeting of the Board of Governors of the Federal Reserve System was held in Washington on Wednesday, July 6, 1938, at 11:30 a. m. PRESENT: Mr. Eccles, Chairman Mr. McKee 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 referred to and the action stated with respect thereto was taken by the Board: Mr. Morrill reported that the Comptroller of the Currency on July 5, 1938, issued a call on all national banks for reports of condition as at the close of business on June 30, 1938, and that, in accordance with the usual practice, a call was made on behalf of the Board of Governors of the Federal Reserve System on July 5 on all State member banks for reports of condition as of the same date. The call made on behalf of the Board was approved unanimously. Mmmorandum dated June 29, 1938, from Mr. Thanes, Assistant ing the Director of the Division of Research and Statistics, recommend of appointment on a temporary basis for a period of three months salary Michael Marsh as an economic assistant in the Division, with at the rate of $150.00 per month, effective as of the date upon which he enters upon the performance of his duties. Approved unanimously. 72.9 -2- 7/6/38 Letter to Mr. Gidney, Vice President of the Federal Reserve Bank Of New York, reading as follows: "Reference is made to your letter of June 23, 1938, regarding the application of 'The Peoples Bank of Potsdam N. Y.', for membership in the System which was forwarded to the Board on October 15, 1937, but on which the Board has not taken formal action for reasons with which you are familiar. You state that the Supervising Examiner for the Federal Deposit Insurance Corporation, after reviewing the report of the recent examination made by an examiner for the Federal Deposit Insurance Corporation, has indicated that he would like to have a little more time to work with the situation to see what improvement can be brought about in the matters criticized. You also report that the present condition of the bank as reflected by such report and the comments of the Federal Deposit Insurance Corporation examiner concerning the management were reviewed with your directors who approved the recommendation of officers of the Reserve bank that the suggestion be made to The Peoples Bank of Potsdam N. Y. that it either withdraw its application or request that action thereon be deferred. "In accordance with the recommendation of the Reserve bank, the Board will continue to defer action on the application. The Board, however, will be pleased to reconsider the application when any issues between the bank and the Federal Deposit Insurance Corporation are settled, or when the Federal Reserve bank is prepared to recommend approval of the application subject to such reasonable special conditions of membership as may appear to the Reserve bank and the Supervising Examiner for the Federal Deposit Insurance Corporation adequate and appropriate in the situation. This is in accordance with the position expressed in the Board's letter of July 10, 1936 (X-0647) regarding cooperation with the Federal Deposit Insurance Corporation in connection with applications of insured nonmember banks for membership in the System." Approved unanimously. of Letter to Mr. Young, Chairman of the Federal Reserve Bank 73C 7/6/38 -3- New York, reading as follows: "Phis refers to your letter of 'Tune 9, 1938, relative to the report of the recent examination of the Federal Reserve Bank of New York made by the Board's examiners, and to President Harrison's letter to you of June 9 regarding the examination, a copy of which was forwarded with your letter. "In his letter President Harrison made the following comment: 'One general comment should be made. We have noted that this report of examination makes no mention of any kind of errors or omissions, nor does it include any critical comments or suggestions with respect to the operation or personnel of the bank. In this respect the report differs from those submitted prior to last year. It hardly seems possible that the examiner has not found some matters which would be subject to at least moderate criticism and since the examiner makes a confidential report to the Board of Governors, it is possible that this confidential report includes some such items as have heretofore appeared in the report submitted to the bank. If so, this change in the character of the report seems to us to be unfortunate for the reason that the management of the bank is deprived of the benefit of such views as the examiner may have on these matters. The officers are therefore unable to give consideration to them unless and except to the extent that the examiner may have mentioned them orally, as he ' (Underscoring supplied) sometimes does , however, President Harrison paragraph g concludin his "In said: 'In this connection it should be mentioned that during the recent examination of this bank the examiner has discussed with a number of the officers various matters of operating detail. These discussions have been helpful and all of his suggestions are receiving careful consideration.' "President Harrison's letter indicates that there has been a material change in examination procedure as a result 731 7/6/38 -4- "of which he fears that criticisms of the bank and its operations may have been withheld from the appropriate officers of the bank, thereby precluding the possibility of the management effecting the necessary corrections. Such is not the case. It is true that for some time examiners have followed the practice of not incorporating in reports of examination of the Federal Reserve banks camments, suggestions, and minor criticisms of operating matters where such matters are not indicative of policies or practices contrary to the Federal Reserve Act, Regulations, or instractions of the Board of Governors and where corrections are promised or obtained during the examination. Of course, if the criticized matters were so many, even though none was of a major character, as to reflect upon the competency of the management of the bank appropriate comments with supporting detail would be incorporated in the report of examination. "The copy of President Harrison's letter of June 9 was shown to Mr. Siems, the Board's examiner, who has reported that all matters of criticism and suggestions in connection with the recent examination of the Federal Reserve Bank of New York were informally discussed with the officers of the various departments, memoranda of which matters were left with the officers, and that such matters were later reviewed with the President. "As has been the practice in the case of examinations of all Federal Reserve banks, the report of the recent examination of the Federal Reserve Bank of New York, es submitted to the Board, was accompanied by a confidential report for the Board's convenience. Such reports, however, are solely for the informatior of the Board and the Board feels that it would be unnecessary and inappropriate to transmit a copy to the bank examined. For your information it may be stated, however, that the Board's examiner has reported that the substance of all materiel comments in the confidential report regarding the operations or personnel of the bank was made known to President Harrison in discussions with him during the course of the examination." Approved unanimously. Letter to Mr. Thames, Chairman of the Federal Reserve Bank of Kansas City, reading as follows: 732 7/6/38 "Receipt is acknowledged of your letter of June 18, 1938, advising the Board of the results of the consideration by your board of directors of the report of a survey of the Auditing Department of your bank transmitted to YOU with the Board's letter of April 8, 1938. "The Board appreciates the completeness of your review of the report of survey and has noted with interest the views on the various matters expressed by the directors of your bank and also the changes being made in the auditing procedure." Approved unanimously. Letter to Mr. McKinney, President of the /ederal Reserve Bank of Dallas, reading as follows: "The Board has given careful consideration to your letter of June 24, 1938 and the information inclosed therewith, regarding the applicability of section 32 of the Banking Act of 1933 to the services of Mr. George D. Wray who is a director of the Commercial National Bank in Shreveport and an officer of the Motors Securities Company, Inc. "Motors Securities Company is engaged in lending money to finance purchases of automobiles, end it obtains a substantial part of the money which it lends by issuing and selling its collateral trust notes, which are secured by the deposit in trust of the notes of the car owners. "The president of the national bank submits that section 32 is not applicable because the Motors Securities Company is not 'primarily engaged' in selling its collateral trust notes within the meaning of section 32 but is primarily engaged in the business of lending money on automobiles, the sale of collateral trust notes being a secondary and incidental activity. "However, the Board believes that section 32 was designed to terminate certain types of relationships which Congress felt involved a danger of a conflict of interests. Since that danger is present whenever the company is engaged to a substantial extent in selling securities, the Board has interpreted section 32 as including cases where the selling of securities is one of the primary activities of the company, even though it is not the chief one. Moreover, the Board has taken the position that a company may 733 7/6/38 -6- "be 'primarily engaged' in selling its own obligations Within the meaning of section 32, as is illustrated by the ruling published in the Federal Reserve Bulletin for 1934 at page 485, previously referred to. "In the present case the amount of collateral trust notes outstanding in the hands of the public is substantial, averaging about 45 per cent of the amount of the company's outstanding automobile loans, this proportion being maintained by the sale from time to time of new issues of notes secured by new automobile loans. In the circumstances, the Board is of the opinion that the sale of collateral trust notes is one of the activities in which the company Is 'primarily engaged' within the meaning of section 32. "At the conclusion of your letter you call attention to the fact that the national bank requests a ruling on the question whether the collateral trust notes are 'stocks, bonds, or other similar securities/ within the meaning of the statute. This question was carefully considered in connection with the Board's letter of June 7 to Mr. Diggs, Acting Comptroller of the Currency, a copy of which has been sent to you, and in view of the facts therein stated (including the fact that they are the obligations of the company, issued in series, secured by trust indenture, authenticated by the trustee and payable to bearer) the Board is still of the opinion that they are 'securities' of the kind referred to in section 32." Approved unanimously. Thereupon the meting adjourned. Le ( 92 te4 Secrete .
@FedFRASER