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Minutes of actions taken by the Board of Governors of the
Federal Reserve System on Friday, June 2, 1950.
The Board met in
the Board
Room at 10:45 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
McCabe, Chairman
Szymczak
Draper
Vardaman
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Carpenter, Secretary
Sherman, Assistant Secretary
Morrill, Special Adviser
Thurston, Assistant to the Board
Leonard, Director, Division of
Bank Operations
Vest, General Counsel
Nelson, Director, Division of
Personnel Administration
Millard, Director, Division
of Examinations
Baumann, Assistant General Counsel
Sloan, Assistant Director, Division
of Examinations
Mr. Slade, Vice President of the
Federal Reserve Bank of San Francisco
There were presented telegrams to the Federal Reserve Banks
Of
Bost°n, New
York, Philadelphia, Atlanta, Chicago, St. Louis, and
2141 Francisco stating that the Board approves the establishment
litilc31.1t change by the Federal Reserve Banks of St. Louis and San
lirtaacisco on May
31, by the Federal Reserve Banks of New York,
Atlanta, and Chicago on June 1, 1950, and by the
?ederal
Reserve Bank of Boston today, of the rates of discount
114d Nrchase
in their existing schedules.
Approved unanimously.
4*‘
6/2/50
-2Before this meeting each member of the Board had been
1'111'n1shed a copy of a memorandum from Messrs. Millard and Vest
cl4ted June 1, 1950 and reading as follows:
"In accordance with the instructions of the Board at
the meeting
on May 19, representatives of the Board's staff
Met with staff representatives of the Comptroller of the
Currency and the FDIC to discuss further the proposed
certification by the Comptroller to the Board with a view
to the removal of the directors of the Continental National
Benk and Trust Company, Salt Lake City, Utah, under section
30 of the Banking Act of 1933. Mr. Slade, Vice President
of the Federal Reserve Bank of San Francisco, attended the
eeting. Mr. Jennings and Mr. Anderson represented the
omPtroller's Office, 8nd Mr. Shearer and Mr. Aycock
represented the
FDIC.
"We pointed out that action by the Board in a case of
this kind would be reviewable by the courts; that the
!allure of the bank to increase its capital, being negative
IT character and a matter for stockholders' action, would
2irdlY be a proper basis for a section 30 proceeding; that
wle overexpansion of loans in relation to capital is a
la
retive
matter and is actually tied in with the amount
Of the bank's capital; that despite the substandard
alitY of many of the bank's loans, the losses of the
,;Ink have not been abnormal and the total amount of paper
'ilassified doubtful and loss in the most recent examinaion report is relatively small; that the most recent
?xamination report contains some statements of the examiner
Indicating some little improvement and other somewhat
coMPlimentary language on his part; that even if the
Proceeding
were successful, there would seem to be
l ething to
prevent the stockholders from electing other
directors
to carry out the policies desired. Mr. Slade
,
:
a so stated his views, which in general were in accord
with those of the Board's representatives.
The matter was thcughly discussed. The Comptroller's
fePresentatives took the position that the bank was one of
e worst, if not the worst, national bank in the United
otates from the standpoint of ratio of capital to risk
8.ssets and that something should be done to correct the
1..tIlation. They felt that a section 30 proceeding for
the removal
of directors offered the only practicable
solution and that
this was much preferable to a proceeding
V
WAS
6/2/50
-3"bY the FDIC to terminate the bank's insurance, for the
latter Would necessarily force the bank to liquidate
as
a national bank. They argued
that the question whether
the bank was engaged in unsafe or unsoun
d banking practices
was a matter of expert opinion and that if the
!
oard, after hearing and on the basis of the certification by
the Comptroller, found that it was so engaged,
the courts probably would not overru
le the Board. Even
if the Board should lose the case, they felt that the
supervisory authori
ties would then be in a good position
''() go to Congress and ask for appropriate amenda
tory
legi
slation.
"The FDIC representatives felt that the situation
Was
definitely a bad one and that something should be
. Lone about it. They did not commit themselves defini
tely,
h
owever, on whether or not the Board would have a good
in undertaking to remove the directors of the bank
because
uecause of its failure to increase its capita
l or because
Of its
persistent liberal loan policy in relation to
capital. They said that they had brought a number of
1?ro
ceed1ngs against banks for the termination of insurance
In which factors
of this kind were alleged, but in all
Of these
cases there had also been other factors which
gave other legal grounds
for action. None of these proceedings had
been considered by the courts. When asked
Whether the FDIC would proceed against this
bank for the
ermination of insurance in the event the Board did not
act in
the matter, the FDIC representatives indicated
that
they had not fully considered the matter and that
they were
not prepared to give a definite answer to the
ilestion at
this time. They referred to the fact, however,
at Mr. Harl had advised Deputy Comptroller Robertson
that,
if the section 30 proceeding did not go through,
clet;ehim know and he would then consider termination
(
r
)o
-4ngs by the FDIC.
"The Continental National Bank and Trust Company is
04e „
,
'
11 a group of nine banks in which the Cosgriffs have
sollostantial ownership or control. Three are national banks,
mne a State member bank, and of the others four are non_!mber insured and one nonmember uninsured. Nearly all
u
aI these
banks have low capital ratios and some of them
are in approximately the same situation in this respect
_s the Continental National. For this reason the Board's
Presentatives
suggested several times the desirability
I,
. making a simultaneous examination of all of these banks
" order to get
as full and complete information as possible
t
4
699
61/V50
with respect to all matters, and particularly with
respect to such matters as the possible switching of
'cans among the institutions, before anything else is
done. We also suggested the desirability of sitting
down with Mr. Cosgriff and trying to work out some
arrangement under which the bank might obtain more
capital, as for example by the sale of its building
and the use of the proceeds to increase the capital
of the bank. Mr. Slade particularly had indicated
that such a conference with
Mr. Cosgriff might
Possibly be productive of some good results and would
?Lc no harm particularly if representatives of all
three agencies participated.
"Mr. Jennings of the Comptroller's Office, said
that)
subject to checking with the Comptroller, he
felt that they would
be agreeable to a simultaneous
"amination but would not be agreeable to permitting
slIch an examination to delay the certification by the
Comptroller to the Board. He also indicated that he
t:11°11ght they would invite Mr. Cosgriff to come to
washington to discuss the matter before making the
cer
tification, but that they would not be willing to
have any representative of the Comptroller go to Salt
Lake City or
to San Francisco to discuss the matter
with Mr. Cosgriff.
"It is our view that it would be desirable for the
Board to
authorize us to advise the Comptroller's
f!Presentatives substantially as follows: In view of
the fact
that practically all of the Cosgriff banks are
In a relatively weak capital position and the unsound
Practices, if any, probably would apply to all, the
Qard feels that a simultaneous examination is desirable
and. would
be glad to arrange with the Federal Reserve
6.5.11k to participate in such an examination so far as the
member bank is concerned; that since the purpose
(3.
v-L, the examination would be to develop what information
Stateam
.1ere might be that would have a bearing upon a determination as to
whether there should be a section 30 proceedany further steps toward such a proceeding should
be
deferred until the results of such an examination
could be considered; that at some appropriate time,
Probably after such an examination, one representative
each from the Comptroller's Office, the FDIC and the
Federal Reserve
Bank should sit down with Mr. Cosgriff
and discuss the matter fully with him, with the hope to
700
6/2/30
-)-
"obtaining
some additional capital or change in
loaning policies; and that such a conference would
have more chance of being productive if held in
San Francisco or Salt Lake City. This would contemPlate
that we would not voluntarily say to the
C?mPtroller whether or not the Board would proceed
with a section 30 proceeding if the Comptroller made
the
certification, but if pressed, that the Board's
representatives would say that the Board hoped that
the
Comptroller would not make the certification at
this time and, if he insists on doing so, the Board's
Present feeling is that it would not be advisable
for it to undertake such a proceeding."
In response to a question from Chairman McCabe, Mr. Slade
stated that he
concurred in the recommendation contained in the
f°1'e
irig memorandum.
Mr. Slade also stated that while the Bank
41 not have sufficient capital funds and engaged in loaning
klicies which were not desirable, in his opinion there was no
basis for action by the Federal Deposit Insurance Corporation to
%I1
ral4 insurance of deposits from the Bank since it was solvent
tild
'
alci the conditions indicated by the most recent examination as of
Ilebrilary 28, 1950 were not such as to cause risk of loss to the
hciere'l Deposit Insurance Corporation.
Mr. Riefler joined the meeting at this point.
During an extended discussion of the loaning practices of the
C°4tinental National Bank and Trust Company and of the quality of
its
assets as indicated by the latest examination report, Chairman
MQ0ab
e suggested that Mr. Vest and Mr. Millard inform the representEttive
8 of the Office of the Comptroller and the Federal Deposit
r•-t4
6/2/50
—6—
Corporation informally that the Board felt a simultaneous
eillination of the nine banks in which the Cosgriffs have substantial
(3141elishiP or control should be undertaken by the respective Federal
SUPervi-sory
Agencies for the purpose of developing information
that would
have bearing upon a determination as to whether there
should be
a Section 30 Proceeding or what other steps if any should
be
taken, and that following that examination it might be desirable
to hold a
conference with Mr. Cosgriff.
Chairman McCabe also
sliggested that if, in their discussion, the question arose as to
Illether the Comptroller should certify the case to the Board prior
to ti„
--, completion of the examination, Messrs. Vest and Millard
Should indicate that the Board would take no action in connection
/ith
'"4011 a certification until the examination had been completed
an(' a.
conference
held with Mr. Cosgriff.
The foregoing suggestion was
approved unanimously.
At this point Messrs. Millard, Sloan, Baumann, and Slade
,
lth.e
from the meeting.
Mr. Szymczak referred to the discussion at the meeting on
14arch
7) 190 of appointments to be made in February 191 of Presiderlts
and First Vice Presidents at the Federal Reserve Banks, stating
that si
--flce then the Personnel Committee had reviewed the officers
in 01,
-"a-rge of Federal Reserve Bank branches and reached the conclusion
that
the
directors of the Federal Reserve Banks concerned should
6/2/50
13e
-7-
1• -ving thought to the replacement of managing officers at the
ikl
timore; Birmingham, Nashville, Detroit, Denver, Omaha, and
l'ort1anA
u branches who would retire within the next one to three
Y‘ee're, in order that there would be an adequate period of training
for
their successors. He also stated that the Personnel Committee
felt that when Chairman McCabe and he discussed with the Chairmen
c)f t• he
Federal Reserve rinks the appointments of Presidents and
irst Vice
Presidents for terms beginning March 1, 1911, in
a0Cordance
With the action of the Board at the meeting on March
7, it
'would be desirable to take up the matter of successors to
the
'icers in charge of the branches mentioned. Mr. Szymczak
added that
while it was the feeling of the Personnel Committee
th4t at no other branch was the situation such as to require action
Et
th• is time, it as recognized that some of the officers in charge
itght not be
entirely satisfactory and that it might also be
desirable to
discuss some of these cases with the Chairmen.
In this connection,
Chairman McCabe suggested that additional
Stel)S were needed to develop managing officers at Federal Reserve
13&11:k branches who understood the broader functions of the Federal
ve System and who could present such matters effectively to
ballker _
and others in their communities. To this end, he raised
the
cluestion of discussing informally with the Chairmen of one or
tlf3 of the
Federal Reserve B-nks the desirability of assigning an
703
6/2/50
-8-
ee'llonlist
to a Federal Reserve branch for an experimental period to
assist the
managing officer in presenting material to the Board of
airectors Of
the branch and to others.
that
He also renewed his suggestion
th P
residents' Conference invite one or two of the managing
Office
rs of the
Federal Reserve Bank branches to attend Presidents'
e°11fer'noes so that they might receive the benefit of the dis'ulls at these
meetings.
The members of the Board who were present indicated that
they
'would not object if Chairman McCabe discussed these suggestions
vith the
Chairman of the Presidents' Conference and the Chairmen
Of
'
- eh Federal Reserve Banks as he felt he might wish.
Mr. Morrill stated that Mr. Evans informed him over the
te1
el)h°11e this morning that he stopped in Helena on his return from
the
Pacific Coast, that he met with the directors of the Helena
branch
Mr.
and.
Groth, Vice President in charge of the branch, that
the directors informed him fully of the discussions of the Towle
tnetter and
Of the visit of Messrs. Harris and MacEaffie to the
°e'r.'lis offices on May
1, 19)0, and that he was assured there had
been rlo
un
favorable reaction on the part of Montana bankers to the
c°11rse of action taken by the Minneapolis Reserve Bank in relieving
rn
T0141e of his official position and placing him on leave of
ti)8ellee to the
end of this year.
He added, Mr. Morrill said, that
the Primary
concern of the Helena branch directors appeared to be
61V50
-9t4tu
Px. Towle's retirement allowance be supplemented if and when
he
applied for retirement at the end of this year.
At this point all of the members of the staff with the
exception of Messrs. Carpenter and Sherman withdrew, and the action
stated with respect to each of the matters hereinafter referred to
l'as taken by the Board:
Minutes of actions taken by the Board of Governors of the
,
e-J-. Reserve System on June 1, 1950, were approved unanimously.
Letter to Mr. DeMoss, Vice President of the Federal
e flank of Dallas, reading as follows:
"In accordance with the request contained in
Your letter of May 29, 19)0, the BoaIl approves the
aDPointment of William Coleman Reddick, Jr., as an
EDtsstant examiner for the Federal Reserve Bunk of
tt'las. Please advise us of the date upon which
ue
appointment becomes effective and also as to
the salary
rate."
j
Approved unnnimously.
Letter prepared for the signature of the Chairman to Honorable
u.
" Snyder, Secretary of the Treasury, Washington 2), D. C.,
read,
-Lng as
follows:
"Recently, upon learning of the award of merit
',.1.ven by the Secret Service to the manager of the
Toulsville brnnch of the Federal Reserve Bank of St.
,
;
4 c3uis for his work in conducting clinics for the
rtection of counterfeit currency, the Board advised
che other Federal Reserve Banks of the award and
suggested that they might wish to consider the
!
stablishment
of similar clinics in their districts.
111 their replies the Federal Reserve Banks pointed
7O5
6/2/50
-10-
out the work
which they have been doing in this
field, and several indicated that they intended to
Pursue the
idea of holding such clinics.
"In a subsequent letter to the Board, the
FeA
-eral Reserve Bank of New York has expressed
considerable concern over the marked increase in
the number
of counterfeit Federal Reserve notes
aj_Pearing in that district, particularly during
the last
18 months. The following table shows the
,flumber of counterfeit Federal Reserve notes detected by the Reserve Bank in the past five years and
the first
quarter of 19)0:
Total all
No. of
No. of
Year
denominations
10's
20's
426
1946
46
349
87
1947
5)4
106
133
1948
1,346
422
2,143
1949
2,524
792
4,020
TA-3
89
l
lst
Quarter
483
781
153
1950
The number of counterfeits detected by a Reserve
Bank/
r, is, at best, an imperfect measure of
their however,
,
Prevalence within the district, as currency
'ePosited with a Federal Reserve Bank has already
Passed the scrutiny of experienced money handlers in
e banks of deposit.
"Inasmuch as 8 per cent of the currency in circut_5(Dn in the United States consists of Federal Reserve
11 ,
es, the Federal Reserve Bank has raised the question
'
the desirability of a study looking to changes in
the
design of these notes which would make counterfeitn€; more
difficult and at the same time make it easier
:
1" the public to detect counterfeits. The Board is in
with this suggestion and has asked that the
matter
tter be brought to your attention for such considera,paper4 as you might wish to give to it. We realize that
in plates or in the paper used might increase
the cost
.„
of the Federal Reserve notes, but I can assure
You
that the Reserve Banks would gladly pay such increased
Cost if that
would accomplish the desired result.
that :The Board appreciates very much the excellent work
Is being done by the Treasury in suppressing the
c
_t,i_roulation of counterf
eit currency and assures you of
ue System's desire to cooperate in every way it can
14 this
work."
4
j
•
6/2/50
-11Approved unanimously.
Telegram to Mr. Peyton, President of the Federal Reserve
Bank
of Minneapolis, reading
as follows:
.
"As you will recall, the question of administration of investments of the Retirement System was discussed at a meeting of the Executive Committee of the
Retirement System on December 14, 1949, at which some
of the members of the Board were present; the Board
subsequently advised Mr. Gilbert as chairman of that
committee that it was of the opinion that the Retirement System should employ a qualified individual as
an Investment Manager who would work under the
direction of the Investment Committee and that it
would accept temporarily the action taken at the
meeting of the Executive Committee on December 14,
-049, but that it was requested that the Committee make
a thorough investigation of the feasibility and
desirability
of obtaining the services of a competent
Investment Manager and submit a report thereon prior
the annual meeting of the board of trustees of the
H?tirement System in the spring of 1950 so that a
f?.nal decision on the matter could be reached at that
time. A subcommittee of the Retirement System Investment Committee has submitted a report on this subject
and the Board would appreciate
having a discussion of
the matter with the Presidents at their forthcoming
co
nference."
Approved unanimously.
Secretary.
@FedFRASER