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1054 Minutes of actions taken by the Board of Governors of the l'aderea Reserve System on Wednesday, June 15, 1949. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mr. McCabe, Chairman Eccles Szymczak Draper Evans Vardaman Clayton Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Thurston, Assistant to the Board Minutes of actions taken by the Board of Governors of the NeraReserve System on June 14, 1949, were approved unanimously. Memorandum dated June 14, 1949, from Mr. Bethea, Director °r the the appointDivision of Administrative Services, recommending Of James R. Robinson as a laborer in that Division, on a tempoat the rate 417 b"is for a period of two months, with basic salary per annum, effective as of the date upon which he enters 11Pot e Performance of his duties after having passed the usual " 131Vp 4 -4-cal examination. Approved unanimously. Letter to the Presidents of all Federal Reserve Banks, readas follows: "As you may have observed from the memoranda report-46 the meetings of the Staff Group on Foreign Intere e‘4,which comprises representatives of the Board's Staff and of the staff of the Federal Reserve Bank of 1055 6/15/49 -2"New York, requests are frequently received by the Board and the New York Bank for the services of personnel, usually experts in the international field, needed by various Governmental agencies engaged in that field. These requests have come particularly from the State Department and the Economic Cooperation Administration. We have cemplied, where feasible, with these requests either by lending personnel for relatively brief periods or by granting leave of absence without pay. In the latter case, the persons whose services were lent have been put temporarily on the pay roll of the agency concerned. "It has seemed advisable for the Board and the New York Bank to keep one another informed of such requests and to consider them as much as possible according to consistent policy. "It was not expected that similar requests for the services of personnel might be made to other Federal Reserve Banks not directly engaged in international activities. It has come to the Board's attention, however, that one of the Federal Reserve Banks recently had ?coasion. to lend the services of a member of its staff "/ an agency in the international field for work abroad. "In view of the membership of the Chairman of the Boa Board on the National Advisory Council and because of the Board's general responsibility for the coordination (?f the System's activities in the international field, 'would be appreciated if future requests for the services of personnel, whether compliance with the request entails leave of absence or not, be brought to the -00ard'8 attention before final action is taken. agen"Similarly, other Government departments or cies have period, temporary occasionally requested, for a Rethe Federal services of a member of the staff of a in and field; serve Bank other than in the international these cases advised." also the Board would like to be Approved unanimously. Letter to Mr. Diercks, Vice President of the Federal ReOf Chicago, reading as follows: "In accordance with the request contained in your letter of June 11, 1949, the Board approves the appointrIt of William T. Beaufait as an assistant examiner for he Federal Reserve Bank of Chicago. Please advise us of T it 6/15/49 -3"the date upon which the appointment becomes effective. "Your letter of August 4, 1948, stated that Mr. Beaufait had no indebtedness and no outside business connections. The Board's approval is given with the understanding that there have been no changes in these respects which would adversely affect his services as an assistant examiner for your bank." Approved unanimously. Letter to Mr. Diercks, Vice President of the Federal ReBank of Chicago, reading as follows: "Reference is made to your letter of June 2, 1949, submitting the request of the "Union Bank of Michigan", ?rand Rapids, Michigan, for permission to establish a branch in Home Acres, Michigan, an unincorporated comZunity which adjoins Grand Rapids. "It is understood an investigation has been made by the appropriate State authorities and that they have exPressed a willingness to grant a permit to establish the branch._ In view of your favorable recommendation and the Information submitted, the. Board of Governors approves the Israblishment and operation of a branch in Home Acres, higan, by the"Union Bank of Michigan", Grand Rapids, cMichigan provided formal approval of the State Banking aUthorities is obtained, such branch is established within -X months of the date of this letter and with the under" that Counsel for the Reserve Bank will review nd satisfy himself as to the legality of all steps taken vo establish the branch." Approved unanimously. Letter to Mr. Stetzelberger, Vice President of the Federal litaterir e Bank of Cleveland, reading as follows: "This has further reference to your letter of March 1949, acknowledged by 11.8 on April 12, 1949, inquirfg whether the practice followed by Mellon National Bank Trust Company, Pittsburgh, Pennsylvania, with respect fs,ihe distribution of accrued income of its common trust -'4a8 violates the provisions of Regulation F relating to 11 Zr 1057 6/15/49 -4- "the acquisition by a bank of an interest in the assets Of a common trust fund operated by it. "It is understood that the bank makes advances to Its common trust funds for use in distributing accrued interest and declared dividends receivable on investments of the common trust funds prior to receipt of such income, and that such advances are made from a 'general trust account' consisting of commingled uninvested funds cf all trusts administered by the bank. "In its letter of July 12, 1914.5 (S-861; F.R.L.S. #4105), the Board stated that the use of uninvested cash in a common trust fund to distribute accrued interest and declared dividends receivable on investments of the fund prior to receipt was not inconsistent with Regulation F and that the Board would not object if uninvested cash in a common trust fund were so used in reasonable amounts. "The situation is different, however, where the bank ?Perating a common trust fund makes advances to the fund for this purpose. Subject to an exception which is not Pertinent here, subdivision numbered (3) of the fourth P4ragraph of section 17(a) of Regulation F provides as r°110ws: '(3) A bank administering a Common Trust Fund shall not have any interest in the assets held in such Common Trust Fund, other than in its Tp, capacity as fiduciary, * * * .t its 74ere bank operating a common trust fund advances 774 fUnds to the common trust fund in order to distribute i ccrued but uncollected income of the fund, the bank reits „es upon assets of the fund for reimbursement of acquires a_d bank the and, in the Board's opinion, an 11 interest in assets of the common trust fund which is ' Prohibited by the above-quoted provision of Regulation F. "It appears from your letter that Mellon National la /!.k and Trust Company has believed that its practice was , , 11 inconsistent with Regulation F because the bank was advancing t advancing its own funds but, instead, was rust funds. It is the Board's opinion, however, that in view of funds the bank's liability to the trusts whose of assets in interest advanced, the bank acquires an not does which practice ar common trust funds under this be would , which a_ffer, in substance, from the interest e;quired by advances of its own funds, and that, in any ellt, this practice is not permissible because it violates 7 1058 6/15/49 -)section 11(c) of Regulation F which prohibits a bank from making advances to a trust from the funds belonging to another trust, unless such advances are specifically authorized by the trust instrument covering the latter trust." Approved unanimously, together with a letter transmitting this advice to the Presidents of all other Federal Reserve Banks. Letter prepared for Mr. Clayton's signature to Mr. Elliott 11. Chairman of the Committee on Review of Uniform Valuation P°11°Y) National Association of Supervisors of State Banks, 270 Er.°'ElthlaY, New York, New York, reading as follows: In connection with the proposed revision of the 1938 uniform agreement on examination procedure, it seems desirable to review recent developments. "Under date of May 10, 1949, I communicated to you s Chairman of the Committee on Review of Uniform Valua1011 Policy of the National Association of Supervisors Currency, Of State Banks, and to the Comptroller of the and to the Federal Deposit Insurance Corporation the Position of the Board of Governors with respect to the Proposed revision. In my letter, I stated, 'Subject to (c;!r issuance of a joint statement of the general purport the attached draft, the Board is willing to adopt a et 'vision of the agreement which would provide: cetera. rev, "The attached draft included the following: 'The original involves no fundamental change in the reeMent nor does it signify any intention on the part in the supervisory authorities to become more severe the classification of bank assets. you, i4 received a reply under date of May 2) from that say to d nich you advised that you were authorize 'the of on Associati Executive Committee of the National Supervisors of State Banks approves the contemplated recommend to the — Eulges in the 1938 agreement and will Mber Commissioners that they amend their examination stated, 1,rms and Procedures accordingly.' You also 'We informing favor the issuance of a joint statement Z Z 1059 6/15/49 -6- "'the banks and the public of the action taken. We find the joint statement that you have prepared to be acceptable. If a somewhat shorter statement were proPosed we would be prepared to subscribe to a release that merely informed the public of the amendments being made to the 1938 agreement.' "The day before receipt of your letter of May 2) (but several days after you had advised me over the telePhone of the text of the letter) we received an official reply from the Comptroller of the Currency, stating 'We agree entirely with the position of the Board in these Matters. As to the procedure for putting the changes into effect, there seems to be some question among the agencies as to the best method to be employed. May we suggest that this aspect of the matter be further discussed by representatives of the three agencies and the Committee of the State Bank Supervisors before a final decision is adepted.' "Upon receipt of the Comptroller's reply, I called You on the telephone, at which time you suggested that, if it were possible, you would like to avoid the time and trouble of arranging another meeting of all the agencies. Raving learned meanwhile that Mr. Sailor preferred a t Shorter public statement and that Mr. Robertson was opposed any public statement whatever, I asked you whether you would be agreeable to eliminating the verbatim revision of ‘kle 1938 agreement from the press statement and using the first three paragraphs thereof as the public statement, eliminating any language relating to an attached revision. YOU advised that you would be agreeable to such a public statement, since it was in shorter form, but that the full Statement Proposed by the Board was still acceptable to You. "Under date of June 7, we received a reply from the Federal Deposit Insurance Corporation over the signature 'f Mr. H. E. Cook to the same general effect as the reply from the Comptroller of the Currency, and stating, 'I lInderstand Mr. Sailor has been in touch with Deputy Comptroller Robertson and your Mr. E. R. Millard, and it is !°w Proposed that the technical aspects and announcement f?garding the proposal will be worked out by them and subQlitted to their respective supervisors for formal approval.' "The conference between Messrs. Robertson, Sailor, and Millard was held June 8 and the position taken by Messrs. Robertson and Sailor was so at variance with the terms of the Board's proposal and your letter of May 25 that the I060 6/15/49 -7- "Board considers it necessary to advise you of these developments and of the Board's unwillingness to proceed with the proposed revision unless the proposed public statement contains substantially what is included in the first three paragraphs of the public statement proposed bY the Board, to which you agreed in your letter of May 25, as well as in the subsequent telephone conversation between us as above referred to. "The essential points of difference between the position of the Board and that taken by Messrs. Robertson and Sailor relate to policy nnd not to language. These policy matters may be summarized as follows: 1. A position on their part that the press release should not contain any reference to the 1938 agreement. 2. That the proposed revision of the 1938 agreement should not be published. "Mr. Sailor advised Mr. Millard that in your absence Mr. Lyons had stated to him over the telephone in substance that the State Bank Supervisors would agree fully with the 1;'osition taken by Messrs. Sailor and, Robertson and that he (4r. Lyons) indicated his full approval of the press release proposed by the Federal Deposit Insurance Corporation and the k;omptroller's Office. "In view of the foregoing developments, the Board would ?Predate being advised of your present position with respect o MY letter of May 10, 1949, and the public statement proPosed by the Board, so that it may consider what, if any, rurther action it should take in this matter." Approved unanimously. Chairman.
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