Full text of Minutes of the Board of Governors of the Federal Reserve System : Meeting Minutes, June 21, 1940, Volume 27, Part 2

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926
A meeting of the Board of Governors of the Federal Reserve
SYStem

was held in Washington on Friday, June 21, 1940, at 11:30 a.m.
PRESENT:

Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

Eccles, Chairman
Ransom, Vice Chairman
Szymczak
McKee
Davis
Draper

Mr. Morrill, Secretary
Mr. Bethea, Assistant Secretary
Mr. Clayton, Assistant to the Chairman
The action stated with respect to each of the matters hereinafter referred to was taken by the Board:
The minutes of the meeting of the Board of Governors of the
Pederal Reserve System held on June 19 (two meetings) and 20, 1940,
Were approved unanimously.
Telegrams to Mr. Young, President of the Federal Reserve
Bank of Boston, and Messrs. Post, Hays, Dillard and Hale, Secretaries
of the Federal Reserve Banks of Philadelphia, Cleveland, Chicago and
Sari Francisco, respectively, stating that the Board approves the establishment without change by the Federal Reserve Bank of San Francisco
On June 18, by the Federal Reserve Banks of Cleveland, Chicago, and
8e41 Francisco on June 20, 1940, and by the Federal Reserve Banks of
13°8ton and Philadelphia today, of the rates of discount and purchase

in their existing schedules.




Approved unanimously.

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-2Memorandum dated June 18, 1940, from Mr. Nelson, Assistant

Secretary, recommending that, for the reasons stated in the memorandum,
(1) Julian B. Hammond, chauffeur, be promoted to the position of guard
an that his salary be increased from
the rate of $1,260 to ,la,380 per
annum, effective July 1, 1940; (2) Richard E. Hall, Jr., elevator operator, be promoted to the position of chauffeur and that his salary be
increased from the rate of 1'1,200 to $1,320 per annum, effective July
'
1 1940; and that (3) Lawrence A. Kerns and James A. Cameron, Jr., be
aPPcinted as elevator operators, each with salary at the rate of

1_1200

Per annum, effective as of the date upon which they enter upon the pert°rmance of their duties after having passed satisfactorily the usual
PhYsical examination.
The above recommendations were approved unanimously.
Memorandum dated June 18, 1940, from Mr. Wyatt, General Counsel,
l'ec°Mmending that Miss Charlotte M. Nell be appointed on a permanent
1348is as a stenographer in the office of General Counsel, to be effectilre at the expiration of her temporary appointment on June 24, 1940,
and that her
salary be increased to the rate of $1,740 per annum, effectbre
as of July 1, 1940.
Approved unanimously.
Memorandum dated June 18, 1940, from Mr. Morrill referring to

the action taken by the Board on June 3, 1940, authorizing a special




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-3-

contribution by the Board to the Retirement System on behalf of E. T.
MIllranen, Chief Telegraph Operator in the Secretary's Office, in the
11111°11nt of
rate of

2,130, in order to increase his retirement allowance to the

600 per annum on a life basis, and recommending, for the reason

stated in the memorandum, that the amount of the special contribution
be increased. to

2,441.32.
Approved unanimously.

Letter dated June 20, 1940, to Mr. Gilbert, President of the
Pecleral Reserve Bank of Dallas, reading as follows:
"The Board of Governors of the Federal Reserve Systen has learned with regret from your telegram of June
18 of the loss sustained by your board of directors in
the death on June 17 of Mr. John D. Middleton, one of the
Class 'B' directors of your bank.
"It will be appreciated if you will express to Mr.
Middleton's family the deep sympathy of the members of
the Board of Governors."
Approved unanimously.
Letter to The Organizers of the "First Bank & Trust Company
Of Utica'', Utica, New York, stating that, subject to conditions of
niellibership numbered 1 to 6 contained in the Board's Regulation H and
the following special condition, the Board approves the bank's applicati0
11 for membership in the Federal Reserve System and for the approPllate amount of stock in the Federal Reserve Bank of New York:

7.

At the time of admission to membership, such bank
shall have a paid-up and unimpaired capital of at
least f,200,000."




The letter also contained the following special comment:

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—4—

"Since the application for membership was made on
behalf of the proposed bank prior to its organization, it
is requested that, in connection with the acceptance of
the conditions of membership prescribed by the Board, the
board of directors of the new bank ratify the action which
has been taken on its behalf in making application for
membership in the Federal Reserve System."
Approved unanimously, together with
a letter to Mr. Harrison, President of the
Federal Reserve Bank of New York, reading
as follows:
"The Board of Governors of the Federal Reserve Sys—
tem approves the application made on behalf of the 'First
Bank & Trust Company of Utica', Utica, New York, for stock
in the Federal Reserve Bank of New York, effective if and
When the bank is duly authorized to commence business by
the appropriate State authorities, subject to the conditions prescribed in the enclosed letter which you are requested to forward to the Board of Directors of the institution. Two copies of such letter are also enclosed, one
of which is for your files and the other of which you are
requested to forward to the Superintendent of Banks for
the State of New York for his information.
"The application has been approved with the understanding that the new bank is being organized to take over
the affairs of the First Citizens Bank and Trust Company
of Utica in accordance with the plans outlined in the presentation memorandum submitted by the Reserve Bank. Therefore, if the absorption is effected substantially in accordance with such plans, it will not be necessary to
submit the matter again to the Board for consideration
under the provisions of condition of membership numbered
1.
"Before issuing stock in the Federal Reserve Bank of
New York to the new institution, you are requested to satisfy yourself that its capital stock as required in condition
numbered 7 has been paid in, and to ascertain that your
counsel is satisfied with the legal aspects of the organization of the bank. In this connection, please forward
to the Board a copy of the bank's charter and a copy of
the resolution of the board of directors of the new bank
Patifying the action taken on its behalf in making application for membership in the Federal Reserve System. It




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-5-

"is contemplated also that all agreements and contracts
entered into in connection with the absorption by the
new bank of the First Citizens Bank and Trust Company of
Utica will be reviewed by your counsel and that he shall
be satisfied as to their legal aspects.
"Standard condition of membership numbered 6 has
been prescribed in order that its provisions may be invoked at any time in the future if necessary, but as in
Other cases and in accordance with the general authorization previously granted by the Board, you are authorized
to waive compliance with the condition until further notice insofar as the condition applies to funds which are
given statutory preference in the State of New York.
"If, when chartered by the State authorities, the
legal name of the bank should be any other than First
Bank & Trust Company of Utica as shown in the application, advice as to the correct legal name should be included in the telegram advising of the bank's admission
to membership in order that the Board's records and public announcement may be correct."
In connection with the above matter,
the following letter to the Federal Deposit Insurance Corporation was also approved unanimously:
"The Board of Governors of the Federal Reserve System today approved, subject to compliance with certain
conditions, an application made on behalf of the First
Bank & Trust Company of Utica, Utica, New York, for membership in the Federal Reserve System effective if and
When the proposed institution is duly authorized to commence business by the New York State authorities. The
Proposed institution is being organized to succeed the
First Citizens Bank and Trust Company of Utica."
Letter to the board of directors of "The Citizens State Bank",
Inc°
'City, Texas, stating that, subject to conditions of membership
11144bered 1 to 3 contained in the Board's Regulation H, the Board ap151'°ves the bank's application for membership in the Federal Reserve




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-6-

SYstem and for the appropriate amount of stock in the Federal Reserve
Bank of Dallas.
Approved unanimously, for transmission through the Federal Reserve Bank
of Dallas.
Telegram to Mr. Hamilton, President of the Federal Reserve
Bank of Kansas City, reading as follows:
"Relet June 18. Board concurs in your opinion that
in view of the relative sizes of the two banks and the
nature of the assets to be acquired, the proposed absorption of the Union Avenue Bank of Commerce, Kansas City,
Missouri, by Commerce Trust Company, Kansas City, does
not come within the scope of condition of membership numbered 6 applicable to member trust company. Therefore,
Board interposes no objection under provisions of the
condition to the transaction."
Approved unanimously.
Letter to Mr. Hitt, First Vice President of the Federal Reserve
4larik of St. Louis, reading as follows:
"This refers to your letter of June 4, 1940, enclosing a copy of a letter from Mr. E. R. Muir, President of
the Louisville Trust Company, Louisville, Kentucky, with
regard to the deposit of mortgage loans in the trust department of that institution to secure trust funds deposited
by the Louisville Trust Company in its own banking department.
"The Board has carefully considered Mr. Muir's letter
and also the information regarding this matter contained
ln your letter of May 28, 1940, and it appreciates the
Problem the Trust Company has in adjusting the collateral
it has deposited in its trust department to secure the
trust funds carried in its banking department. However,
the Board does not feel that it should modify its establashed ruling, which was described in its letter to you
of May 9, that in order for mortgage loans to be considered readily marketable within the meaning of the Board's




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—7—

"requirements with respect to collateral for trust funds
they must comply with the requirements relating to marketability contained in the regulation of the Comptroller
of the Currency concerning investment securities. The
information which has been submitted to the Board does
not indicate that the mortgages now being used by the
Louisville Trust Company for collateral purposes do comply with the requirements contained in the Comptroller's
regulation.
"As indicated in the last paragraph of the Board's
letter of May 9, 1940, it is contemplated that the bank
be permitted a reasonable time within which to comply with
the requirements of the condition of membership in question, and it is believed that such requirements can be
met without undue hardship to the bank. While it is recognized that, at the time of the latest examination, the bank
may not have had available sufficient eligible securities
to cover the uninvested trust funds on deposit in its commercial department, this situation might be met in various
ways, such as by the purchase and pledge of additional
eligible securities; by more prompt investment or distribution, as the case may be, of the uninvested trust funds;
or by redepositing such funds, or a portion thereof, in
Other banks."
Approved unanimously.
Memorandum dated June 201 1940, from Mr. Smead, Chief of

the Division of Bank Operations, submitting the resolutions adopted
bY the
boards of directors of all Federal Reserve Banks declaring the
l'egtaar semi-annual dividend payable on June 301 1940, to stockholding
raenlber banks of record on that date, at the rate of 6% per annum.

The

14e111(3randum set forth a comparison of the estimated dividend requireWith estimated current net earnings and the estimated amount
4va•ilab1e for dividends which indicated that each Federal Reserve Bank
11°1114 have net earnings sufficient to cover dividends, and recommended




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-8-

that the payment of the regular semi-annual dividend by each Federal
Reserve Bank be approved by the Board.
Approved unanimously.
Letter to Mr. Young, Vice President of the Federal Reserve
tank of Chicago, reading as follows:
"This refers to your letter of June 15, 1940, with
enclosures, to Mr. Faulger, Chief of the Board's Division of Examinations, presenting for consideration the
question whether The Waterloo Morris Plan Company,
Waterloo, Iowa, is a 'bank' within the meaning of section 8 of the Clayton Act.
"The information submitted with your letter respecting the powers and operations of the Company has
been carefully considered and the Board sees no reason
to differ from the conclusion reached by Counsel for
Your Bank and concurred in by you that The Waterloo Morris
Plan Company, Waterloo, Iowa, is not now a 'bank' within
the meaning of section 8 of the Clayton Act."
Approved unanimously.
Letter dated June 20, 1940, to Mr. Carlyle H. Richards, Cashier
Or

The First
National Bank of Springfield, Springfield, New Jersey, read-

ing as follows:
"This refers to your undated letter stating that MT.
Carl H. Flemer, a director of The First National Bank of
Springfield and The First National Bank of Millburn, Millburn, both of New Jersey, has been obliged by reason of
the Clayton Act to tender his resignation, effective June
/ 1940, as a director of the bank first named above; and
Inquiring whether the Board may exercise any discretionary
Power to permit the continuance of Mr. Flemer's interlock1,11g relationship with both institutions. Although you
not so state, it is assumed that Mr. Flemer's inter-Locking relationship was affected by the Clayton Act because the cities of Springfield and Millburn are only

1




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-9--

"about one mile apart and are accordingly 'contiguous
or adjacent' within the meaning of the statute and the
Board's Regulation L.
"Section 8 of the Clayton Act, as amended by the
Banking Act of 1935, prohibits a director, officer, or
employee of a member bank of the Federal Reserve System
or branch thereof from serving at the same time as a
director, officer, or employee of any other bank or
branch thereof located in the same city, town or village or in cities, towns or villages contiguous or adjacent thereto, except in certain classes of cases
enumerated in the statute and except that the Board
of Governors may by regulation permit such service as
a director, officer, or employee of not more than one
other institution or branch thereof.
"The Board of Governors is not now authorized, as
it was prior to the enactment of the Banking Act of 1935,
to grant permits in individual cases. Its power of granting permission is limited to doing so by regulations of
general applicability with the result that an exception
applicable to Mr. Flemer's particular situation would be
applicable to all similar cases and remove from the prohibitions of the Clayton Act numerous interlocking relationships which, it is believed, it was the intention
of the Congress to prohibit. The Board has consistently
taken the position that its authority to grant permission by regulations of general applicability should be
limited to filling out the pattern established by Congress in the statute and that only such permission as
conformed to this general principle should be granted.
"In view of the foregoing, it does not appear that
the Board can, consistently with the purposes of the
Clayton Act, grant permission which would provide for
Mr. Plemer's situation. However, a copy of your letter
and of this reply are being forwarded to the Federal
Reserve Bank of New York and if you have any further
questions respecting this matter it is suggested that
it may be more convenient for you to discuss them with
that bank which, because of its knowledge of the pertinent facts, is in a position to advise you fully as
to the particular situation."




Approved unanimously.




Thereupon the meeting adjourned.