The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
1115 A meeting of the Board of Governors of the Federal Reserve System 1418481d in Washington on Tuesday, June 2, 1936, at 10:45 a. m. PRESENT: Mr. Mr. Mr. Mr. Eccles, Chairman Broderick Szymczak McKee Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Wyatt, General Counsel Mr. Paulger, Chief of the Division of Examinations Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Smead, Chief of the Division of Bank Operations Mr. Parry, Chief of the Division of Security Loans There was presented a memorandum dated May 9, 1936, from Mr. Smead rrith r espect to two proposed amendmnts to the rules and regulations of the ret jbe tit System adopted by the board of trustees of the Retirement System c't the Federal Reserve Banks at its annual meeting on April 21, 1936. The trien53tandum recommended that the first proposed amendment, under which the 41111ciralll salary to be taken into consideration in fixing retirement allow6,4ces 84411 be fixed by the board of trustees subject to approval by the Bolard (in connection with which the board of trustees had adopted a resolutiola fi-Xing the maximum creditable salary at $18,000 per annum) be not -", and that the second proposed amendment, under which the calculatiorl 0 f contribution rates for the Federal reserve banks and the Board of govern ore of the Federal Reserve System would be based on the average elltrah -e0 age of emoloyees using the common experience of the twelve Federal 1116 6/2/36 " r erve banks and the Board as a whole as regards death rate, etc., be "oved. In connection with the first amendment, the memorandum pointed t that the board of trustees at its annual meeting had instructed the retirement committee to study a suggested amendment to the rules and regulations or the retirement system which would permit retirement allowances to be based on the average salary of the e::ployee during the last ten Years of service instead of on the average salary for the full period of Service, and to report its findings at the annual meeting of the board of trustees in April, 1937. After discussion of the reasons for the first proposed amendment and the considerations which would make it inadvisable to approve the amendment at this time, Mr. Szymczak moved that action on the amendment be deferred until after the annual meeting of the board of trustees of the retirement system in April, 1937, when there would be available the report of the retirement committee with respect to the suggested amendment which would permit retirement allowances to be based on the average salary during the last ten years of service, and that, for the reasons stated in Mr. Smead's memorandum, the second proposed amendment be approved. Carried unanimously. Reference was then made to a draft of letter to Assistant Federal Rese I've Agent Sargent at the Federal Reserve Bank of San Francisco, repl;y111E t ° his letter of May 7, 1936, with respect to the publication by State raembe brinks, pursuant to the provisions of Regulation H, of statements of Co on in papers which apparently do not conform to the definition of Nlews Paper" as contained in the regulation. The draft of reply stated that th --e Los Angeles Daily Journal, The Daily Commercial News of San Fran- 1117 6/2/36 -3ise°, and the Daily Journal of Commerce of Seattle, do not appear to be lie"Papers with a general circulation, one of the primary functions of is the dissemination of news of general interest, but that, on the ec)rrtrary, they specialize in news of particular interest to special groups °f pe rsons and have relatively small circulations. The draft of reply re- ed that, in the circumstances, Mr. Sargent advise the State member ballks which had published their condition reports in the papers referred to that, in the future, statements of condition rendered pursuant to calls rplaUe 10Y the Federal Reserve Bank of San Francisco should be published in 4e"Papers conforming to the definition of that term contained in the 80ardt, Ilegulation H. The proposed letter had been circulated among the r11$1711381 ' e of the Board and was brought up for discussion at this meeting at the request of Mr. Broderick. Mr. Broderick stated that he had suggested that the matter be con8j.cier ed at this meeting for the reason that he felt the Board should not 8111Ue °Ilt individual publications as not complying with the definition e°11tattImA z_ .1-n the Board's regulation and that, in his opinion, the Assistant kder al Reserve Agent at San Francisco should be advised that the Board was 11°*td.4 J-sPosed to rule on the question whether a specific publication meets the r equirements of the definition. During the ensuing discussion it was pointed out that the Cc ItIt. ler of the Currency is without apparent legal authority to pretleqb e a requirement that reports of condition of national banks be kit Is 8"ed in publications which would meet the requirements of the 1118 6/2/36 -4dentition of "newspaper" contained in the Board's Regulation H, and that, therefore, national banks may publish reports of conditio n in the three PaPers referred to. It was also suggested that there were undoubtedly tiler Publications througho ut the United States which do not conform to the definition of "newspaper" containe d in the Board's Regulation H and that if the Board were to take action in connection with this matter such Iletic'n should be taken only after a general investigation of the situation. At the conclusion of the discussion, Mr. McKee moved thPt, inasmuch as Mr. Szymczak will be in San Francisco next week, the matter be referred to him for discussion with Mr. Sargent in the light of the considerations presented at this meeting. Carried unanimously. Chair Eccles then referred to certain matters which he felt 811041c1 be given consideration by the Board during June and there was a °Ileral discussion of appointm ents to be made by the Board to fill e".8ting vacancies in Class C directorships at Federal reserve banks. Mr. McKee presented for consideration a draft of letter to A88istaat Federal Reserve Agent Gidney at the Federal Reserve Bank of New Ic/I'k, r eading as follows: ber "The Board has reviewed the question of extending mem, skill) to banks in Puerto Rico and has reaffirned the 143 0n taken in March 1934 that it would not be desirable eder existing conditions to extend membership in the Federal serve System to include banks in Puerto Rico. "It is suggested, therefore, that you advise the Banco Po Pular de Puerto Rico and the Banco de Puerto Rico, both of " cl 'aa Juan, Puerto Rico, accordingly and suggest that they withtheir applications for membership, in which event, ' ' 44 t1ough the applications and the accompanying papers will r 1_1_19 6/2/36 -5tt remain a part of the Board's files, no adverse action thereon will be taken by the Board. "In advising the banks please state that the Board's position has been taken on the basis of general questions of Policy, including the question as to whether the advantages Which might be obtained through membership would justify the expense, either to the applicant banks or to the Federal Reserve System, and that the suggestion regarding the withdi:awal of the applications is not based upon the asset condition of the banks as reflected in the recent reports of e xamination." Mr. McKee stated that the draft of letter had been sent to him first as the member of the Board giving primary consideration to application for membership in the Federal Reserve System and that, while he agreement with the position taken in the letter, he felt the matter shc)uld be carefully considered by the Board before a decision was reached. After a discussion the proposed letter was approved unanimously. At this point Messrs. Thurston, Wyatt, Paulger, Goldenwe iser, 81r14 and Parry left the meeting and consideration was then given to eaell of the matters hereinafter referred to and the action stated with rasPect thereto was taken by the Board: erial The minutes of the meeting of the Board of Governors of the Fedeserve System held on June 1, 1936, were approved unanimously. Memorandum dated June 2, 1936, from Mr. Morrill stating that Mrs. Mitit Ibret A. Rice, Bulletin Clerk in the Office of the Secretary, desired to te ' ke a trip to California during the period from July 6 to August 29, 196, i nclusive, and, for this purpose, had requested a leave of absence rE, 27 days without pay in addition to her regular annual leave. 111 recommended that Mrs. Rice's request be granted. Approved unanimously. The memo- 112e 6/2136 -6Letter to Mr. Young, President of the Federal Reserve Bank of /3()st0n, reading as follows: "This will acknowledge receipt of your letter of April 24th, with respect to the employment by your bank of Mr. Phillips Ketchum as associate counsel in the light of the Board's letter of April 15, 1936 (X-9548). The Board has given consideration to the same and in view of the fact that *. Ketchum's employment for the year has been approved, and the further fact that compensation for services not within the scope of the usual retainer will be submitted to it for apnroval l the Board does not consider the present arrangement with Mr. Ketchum inconsistent with its ruling. "However, in connection with the general subject of 14r- Ketchum's employment, the Board has noted that the annual letainer of $2400. entitles the bank to consult with him or 11 his absence with other men in his office about any questions which may arise and to obtain an opinion on them, and that it also covers minor legal proceedings, such as attention to trustee writs, etc., but does not apply to any rious law questions requiring a great deal of study or to tItigation or other mAtters which consume a great deal of ,me- The Board recognizes that in many instances it is '2eoessary to employ special counsel in connectio n with special '_11 :unusual cases. However, without minimizing the value of 2-ther Mr. Ketchum's or Mr. Carrick's services, it would seem, T',118-t for the purposes of consultation and other routine legal t v„ 1.1siness of the bank, counsel devoting his exclusive time to tr affairs of the bank should perform these functions and r..e Board experiences some difficulty in reconciling the : sPeotive duties of associate counsel with those of your ineral counsel and his assistant. The Board understands toat Your letter of April 24th was written without regard the question here presented and that there may be good reason Y the services of associate counsel are needed as a general ofnsultant as well as in the ordinary and minor litigation it the bank, but for future reference and at your convenience tb-"uld appreciate additional information with respect to Pre question here presented as well as your views in the mises. 44 "The Board has also noted that the services of Mr. chum and of other counsel are utilized in connection with seustrial loans or commitments made under the provisions of 13(b) of the Federal Reserve Act but that in most tyl ahces the legal expenses have, by agreement, been paid by uorrower and that it is not contemplated that fees for r t Z 1121 6/2/36 -7such services, where such fees are collected from others, will be submitted to the Board for its approval. While here is not sufficient information before the Board at this time for it to have any fixed views with respect to the practice, upon the basis of such information as is before it) the Board entertains some doubt as to the advisability °f such an arrangement. Therefore, it will be appreciated if you will give the Board additional information with !"Pect to this arrangement, with particular reference to the circumstanc es under which the services of such counsel are obtained, the circumstances under which fee arrangements are made with the borrower, and the basis upon which the !Is mounts of such fees are fixed. In this connection, the 1°0ard will be interested in knowing the number of cases in which such services have been utilized and the amounts of fees charged.n Approved unanimously. 1 Letter to the board of directors of the "Rochester State Bank", 11°ctheR+ --er, Illinois, stating that, subject to the conditions of membership 4141bered I n to 3 contained in the Board's Regulation HI and the following epee& al conditions, the Board approves the bank's application for member- the Federal Reserve System and for the appropriate amount of stock 14 the Federal Reserve Bank of Chicago: "4. Such bank shall make adequate provision for depreciation in its banking house and furniture and fixtures. 115. Such bank shall stamp, as soon as practicable, in legible form on each certificate for stock of the bank outstanding, and, so long as the legend referred to below is applicable, shall stamp in legible form on each certificate issued upon transfer, or in lieu of the certificates now outstanding, a legend reading substantially as follows: Before any dividend or distribution of any kind or character is made to stockholders as such, the outstanding Deferred Certificates issued by the bank to certain depositors who waived the payment of a part of their deposits in 1933 pursuant to Waiver Agreements, copies of which are on file with Rochester State Bank, must be paid. 6/2/36 -3"(In the event that shareholders of the bank fail or refuse to surrender their stock certificates for the purpose of enabling the bank to place thereon the legend referred to in the foregoing condition numbered 5, this condition will be considered as having been complied with by the inclusion in each published statement of condition of the bank of appropriate information showing the relation of the rights of the holders of outstanding Deferred Certificates to the rights of stockholders.)" Approved unanimously, for transmission through the office of the Federal Reserve Agent at the Federal Reserve Bank of Chicago. Letter to Mr. Sargent, Assistant Federal Reserve Agent at the Federa] . Reserve Bank of San Francisco, reading as follows: "Reference is made to the application for membership of lue First National Bank of Ketchikan', Ketchikan, Alaska, which, as you know, has for some time been pending with the Board. "The Board has again recently reviewed the available infc rmation in connection with the application and the general Tlestion of policy involved in admitting to membership banks 1,:ccated in Alaska, and is of the opinion that, except for the act that the latest available report of examination of the allk (as of September 29, 1934) is now too uncurrent to serve ! . 16 the basis for such action, the application of The First National Bank of Ketchikan should be approved. bant. "It is understood that the regular examination of the Will be made by national bank examiners some time this klmmer, and it is accordingly requested that, following such exa mination, your Executive Committee submit a recommendation Illt8 to the action which should be taken on the application .•1 41. ed upon the new report of examination and such other current -Larormation as may be available." t Approved unanimously. Telegram to Mr. Young, Assistant Federal Reserve Agent at the Federe " Reserve Bank of Chicago, reading as follows: Rotel June I Board extends to July 3, 1936 the time within which 'The State Bank of Coloma', Coloma, Michigan, and to 1123 6/2/36 -9"July 6, 1936 time within which 'Coopersville State Bank', Coopersville, Michigan, may accomplish membership in the SYstem." Approved unanimously. Letter to Mr. Curtiss, Federal Reserve Agent at the Federal Reserve Bank Of Boston, reading as follows: "The Board of Governors of the Federal Reserve System !PProves the application of the 'Pilgrim Trust Company', ,6?ston, Massachusetts, for permission to exercise the 24111ciarY powers granted to it by the Board of Bnrk Incorporalon of the Commonwealth of Nassachusetts under date of JanusrY 23, 1936, on the following conditions: 1. Such bank shall not invest funds held by it as fiduciary in obligations of or property acquired from the bank or its directors, officers, employees, members of their families, or their interests, or in obligations of or property acquired from affiliates of the bank. 2. Such bank shall not invest funds held by the bank as fiduciary in participations in pools of mortgage bonds or other securities, and the securities and investments of each trust shall be kept separate from those of all other trusts and separate also from the properties of the bank itself; provided, however, that the Board of Governors of the Federal Reserve System will not object to the collective investment of trust funds where the cash balances to the credit of certain trust estates are too small to be invested separately to advantage, if the bank owns no participation in the securities in which such collective investments are made and has no interest in them except as trustee or other fiduciary, and if such collective investment is not prohibited by State law or the instrument creating the trust. 3. If funds held by such bank as fiduciary are deposited in its commercial or savings department or otherwise used in the conduct of its business, It shall deposit with its trust department security in the same manner and to the same extent as is required of national banks exercising fiduciary powers. 1 1124 6/2/36 -10- "'You are requested to advise the Pilgrim Trust Company, Boston, Massachusetts, of the Board's action, and to obtain 111 appropriate resolution of the board of directors of the Dank accepting these conditions and forward a certified coRY thereof to the Board." Approved unanimously. Letter to Mr. Robert Proctor, Attorney at Law, Boston, Massachusetts, reading as follows: "This refers to your letter of May 14, 1936, to Mr. Tialter Wyatt, the Board's General Counsel, relating to the ?Llowing provisions of section 11 of the Board's Regulation revised effective June 1, 1956: 'Rinds received or held by a national bank as fiduciary shall not be invested in stock or Obligations of * * * the bank * * * "The above provisions are not intended to prohibit the retention of stock or obligations of the trustee bank received as a part of a trust estate upon the creation of the trust., However, the question whether it is the trustee's ' IltY to sell such assets depends upon the facts of the Particular case, including the terms of the trust instrument, E111d, of course, such question should, in any case, receive the1 trustee's careful consideration in the light of estab-Ushed principles applicable to the administration of trusts. "While your question apparently does not relate to investments which may be made by the trustee, your attention is ?tilled to footnote numbered 10 in Regulation F which provides thatthe above-quoted requirement shall not be deemed to prohibit investments which are expressly required by the Instrument creating the trust or by court order." i Approved unanimously. Thereupon the meeting adjourned. 411131‘oved:
@FedFRASER