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868 A meeting of the Board of Governors of the Federal Reserve 8Yetem was held in Washington on Wednesday, June 23, 19371 at 2:45 p.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Broderick Szymczak McKee Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. 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 DOard: The minutes of the meeting of the Board of Governors of the Federal Reserve System held on June 221 19371 were approved unanimously. Telegrams to Messrs. Young and Leach, Presidents of the Federal 13-eserve Banks of Boston and Richmond, respectively, and to Mr. Thomas, Chairman of the Federal Reserve Bank of Kansas City, stating that the Illoard approves the establishment without change by the banks today of the rates of discount and purchase in their existing schedules. Approved unanimously. Telegram to Mr. Walsh, Federal Reserve Agent at the Federal Reserve Bank of Dallas, reading as follows: "Board approves bonds executed on June 181 19371 by You and C. C. Hall as Federal Reserve Agent and Assistant Federal Reserve Agent, respectively, at Federal Reserve Bank of Dallas." Approved unanimously. 869 6/23/37 -2Letter to Mr. Drinnen, First Vice President of the Federal Re- serve Bank of Philadelphia, stating that the Board approves the changes iii the personnel classification plan of the bank, as requested in his letter of June 19, to provide for increases in the maximum annual salaries for the positions of "Elevator Operator" in the Building Departinerit and "Cook" in the Cafeteria from 4'1,140 to a1200. Approved unanimously. Letter to Mr. Hamilton, President of the Federal Reserve Bank °f Kansas City, reading as follows: "The Board of Governors has learned with regret from Mr. Helm's telegram of this date of the loss sustained by your board of directors in the death on June 21 of Mr. C. C. Parks, one of the class 'A' directors of your bank. "It will be appreciated if you will express to Mr. Parks' family the deep sympathy of the Board of Governors." Approved unanimously. Letter to the board of directors of the "Clarkston State Bank", Clarkston, Michigan, stating that, subject to the conditions of member81111D numbered 1 to 5 contained in the Board's Regulation H and the fol1°17ing special condition, the Board approves the bank's application for taellthership in the Federal Reserve System and for the appropriate amount stock in the Federal Reserve Bank of Chicago: "4. Such bank shall make adequate provision for depreciation in its banking house and furniture and fixtures." Approved unanimously, together with a letter to Mr. Schaller, President of the Federal Reserve Bank of Chicago, reading as follows: 870 6/23/37 -3- "The Board of Governors of the Federal Reserve System approves the application of the 'Clarkston State Bank', Clarkston, Michigan, for membership in the Federal Reserve System, subject to the conditions prescribed in the inclosed letter which you are requested to forward to the board of directors of the institution. Two copies of such letter are also inclosed, one of which is for your files and the other of which you are requested to forward to the Commissioner of the Banking Department of idchigan for his information. "According to the report of examination as of May 24, 1937, the bank's net sound capital amounted to only approximately 8% of total deposits. However, the bank as reported to be in a good asset condition and under capable management, and it is understood that no dividend policy will be formulated without the sanction of the appropriate supervisory authorities. It is assumed that the special attention of the bank has been, or will be, called to the provisions of standard condition of membership numbered 2 regarding the maintenance of adequate capital and that the bank understands that at least the continued conservation of earnings will be expected until a more favorable ratio of capital structure to deposits is attained. "It has been noted from the presentation memorandum acbank comcompanying the application that, in the event the the to necesn attentio call will pletes its membership, you accounts certain deposits savings sity of transferring from which do not conform to the provisions of the Board's Regulation Q and to the need of using a form of certificate of deposit which provides for a definite maturity; and that the institution will be requested to reduce balances with nonmember banks to within the limitations fixed by section 19 of the Federal Reserve Act. "It has been noted also that the bank has been granted limited trust powers, but that no such powers have ever been exercised; therefore, the application has been approved on the same basis as if the bank did not have trust powers, and should it desire in the future to exercise its trust powers, application for permission to do so should be made to the Board in accordance with the provisions of condition of membership numbered 1." Memorandum dated June 23, 1937, from Mr. McKee referring to the "tion taken at the meeting of the Board on December 29, 1936, in approving the application of the "iAmongahela Trust Company", Homestead, 871 6/23/37 -4- Pennsylvania, for membership in the Federal Reserve System s-bject to the condition that: "As soon as practicable and not later than the expiration of one year after the date of admission to membership, such bank shall dispose of any direct or indirect ownership of all stock held in the First National Bank of Homestead, Pennsylvania, and the Hays National Bank of Hays, Pennsylvania, in which national banks it now holds a controlling stock interest, or convert such national banks into branches of the Monongahela Trust Company". elld stating that the trust company had been unwilling to accept the above condition a-d its admission to membership accordingly had been deferred, End that Mr. McKee had discussed the matter with representatives of the Federal Reserve Bank of Cleveland from whom it was understood that the trust comnany would be willing to accept a condition which would give them five years in which to dispose of their holdings of stock of the two netional banks. The memorandum also stated that such a modification would 4°t result in a reversal of the policy of the Board in prescribing the e°ndition and would merely extend the time originally fixed in the conditi0n within which the requirement might be complied with, and recommended, ill view of all the circumstances, that the Board modify the condition of Mealbership accordingly and authorize its Secretary to advise the trust company to this effect. The memorandum stated further that the time with- &II which the trust company may become a member of the Federal he-erve Systemunder the Board's present authorization was limited to June 30, 1937, 64d recommended, therefore, that the time within which the necessary steps t° accomplish membership may be effected be extended to July 31, 1937. Approved unanimously. 872 6/23/37 Letter to the Presidents of all Federal reserve banks, prePared in accordance with the action taken at the meeting of the Board 'with the Presidents of the Federal reserve banks on June 8, and reading as follows: "As you will recall, at the recent meeting of the presidents of the Federal Reserve banks, members of the Board brought up for discussion the desirability, as a System matter, of working out programs to take care of any State member banks which may be in a weakened condition or faced with such unfavorable prospects as to raise a question as to their future. In reality, such a concerted program would be a continuation of the rehabilitation program begun in the summer of 1933, with the difference that, whereas the earlier phase of the program was concerned primarily with the strengthening of the capital position of the banks, the current phase of the program, while not ignoring the question of adequacy of capital or neglecting efforts to obtain adjustments where needed, would be concerned primarily with the fundamental questions of management and economic justification for a bank. "In accordance with the understanding reached at the Presidents' Conference, therefore, it is requested that a survey be made by each Federal Reserve bank of the banking situation in communities in its district where State member banks are located, with a view to determining which, if any, banks are faced with serious difficulties, either because of an over-banked community, lack of economic justification on any other grounds, inefficient management, or any other reason. "If a bank's difficulties are due to an inefficient management, every effort should be made to effect an improvement in the management. Such a suggestion does not contemplate, of course, that the Reserve banks are to attempt to run the State member banks, select their managements, or dictate to the managements. It does contemplate, however, that, if a bank is suffering because of management or its future appears uncertain on that account, the situation be brought clearly and emphatically to the attention of the directors of the bank, and that the directors be urged to fulfill their primary responsibility of providing a proper management. In such situations it is felt that efforts should be made to enlist the cooperation of the appropriate State authorities, if they are not already working on the problem. If the directors are unable 873 6/23/37 "or unwilling to provide adequate management in the circumstances, it would seem that the Federal Reserve bank and State authorities should consider carefully whether the best interests of the depositors, the stockholders, the community itself, and the Federal Deposit Insurance Corporation v.ould not require that the bank be absorbed by some other institution or placed in voluntary liquidation at a time when the deposits may be paid off without loss to the depositors or the Federal Deposit Insurance Corporation, and the stockholders may yet receive something on their stock. "If the question is not one of management, but of the lack of basic justification for the existence of the bank, a similar program for absorption or voluntary liquidation would seem to be in order. "The suggested program involves, of course, cooperation to the fullest extent by the Federal Reserve banks, the State authorities, the Comptroller of the Currency, the Federal 7eposit Insurance Corporation, and the heconstruction Finance Corporation where that Corporation is interested, as situations may indicate all manners of consolidations or mergers, State member banks with other State member banks, with national banks, or with insured nonmember banks, or any other combination of the three classes of banks; perhaps even the organization of a new bank to assume the liabilities of existing institutions. In this connection you are familiar with the fact that the Federal Deposit Insurance Corporation has made a number of absorptions possible through loans on unacceptable assets, and it should be noted that the right of the Federal Deposit Insurance Corporation to purchase assets or make such loans expires July 1, 1938. "The Board appreciates the fact that, working along the lines discussed in this letter, the Federal Reserve banks have been instrumental in a number of cases in bringing about mergers and effecting changes in managements, and that in other cases the 1- eserve banks are working on definite programs to improve existing banking situations. It is believed, however, that Intensification of efforts along these lines and a development Of a program for the System as a whole is highly desirable. "It is requested that a report be submitted to the Board by September 1, 1937, as to the results of the survey, the accomplishments to rate, and the status of each of the other cases where it is felt that action of some kind or degree along the lines discussed is desirable. In asking for a rePort by September 1, it is realized, of course, that considerable time will be necessary in working out some of the individual programs, but the Reserve banks are familiar with the 6/2S/37 -7- 874 "situations in their respective districts, and it is hoped that some of the situations on which they have been working may have been satisfactorily adjusted by that time." Approved unanimously. Letter to Mr. Wm. McC. Martin, President of the Federal Reserve Bank "t. Louis, reading as follows: "This refers to your letter of June 2, 1937, with regard to certain currency exchanges located in the State of Illinois which, it is indicated, may be engaged in banking in violation of the laws Of such State as well as section 21 of the Banking Act of 1933. "In view of the statement of the Auditor of Public Accounts of the State of Illinois contained in your letter that such cur1 encY exchanges are not under the supervision of that department, : lt is presumed that such exchanges are not subjected by the law or the State of Illinois to examination and regulation, and that they- have not submitted to periodic examination by the banking authority of such State nor published periodic reports of conditlon, as required by section 21(a)(2) of the Banking Act of 1955. In the circumstances, it is suggested that you report the matters referred to in your letter to the local United States Attorney and Ierward three copies of your report to the Board for transmission to the Attorney General in accordance with the Board's usual practice in cases of this kind." Approved unanimously. Memorandum dated June 17, 1937, from Mr. Morrill, which had been apAtove, by the Personnel Committee, recommending that a resolution be adopted 111 'e customary form making the semi-annual assessment against the Federal teee I ve banks to provide funds for the expenses of the Board for the second ' hazt of the calendar year 1937 in the estimated amount of $974,724.49. The 411105 ldum stated that the assessment would cover (a) the unexpended balktez - of the current budget for the calendar year 1937, except that rent th 'e Shoreham and Washington Buildings would be covered only to the end or a. t 411Y, 1937, aggregating $703,028.16; (b) estimated expenses of occupanV Of the Board's new building, including the cost of transfer thereto, Ilre, furnishings, equipment, supplies, uniforms and miscellaneous exaggregating $196,438; and (c) estimated expenses of maintenance 875 6/23/57 arld -8- operation of the Board's new building for the remainder of the calen- dar Year 1937, aggregating V75,258.33. The following resolution levying an assessment in accordance with Mr. Morrill's recommendation was approved unanimously: . "WHEREAS, Section 10 of the Federal Reserve Act, as amended, contains the following provisions: 'The Board of Governors of the Federal Reserve System shall have power to levy semiannually upon the Federal reserve banks, in proportion to their capital stock and surplus, an assessment sufficient to pay its estimated expenses and the salaries of its members and employees for the half year succeeding the levying of such assessment, together Tith any deficit carried forward from the preceding half year, and such assessments may include amounts sufficient to provide for the acquisition by the Board in its own name of such site or building in the District of Columbia as in its judgment alone shall be necessary for the purpose of providing suitable and adequate quarters for the performance of its functions. After approving such plans, estimates, and specifications as it shall have caused to be prepared, the Board may, notwithstanding any other provision of law, cause to be constructed on the site so acquired by it a building suitable and adequate in its judgment for its purposes and proceed to take all such steps as it may deem necessary or appropriate in connection with the construction, equipment, and furnishing of such building. The Board may maintain, enlarge, or remodel any building so acquired or constructed and shall have sole control of such building and space therein. * * * * 4 * * **** * * ** * * * * * * * 'The Board shall determine and prescribe the manner in which its obligations shall be incurred and its disbursements and expenses allowed and paid, and may leave on deposit in the Federal reserve banks the proceeds of assessments levied Upon them to defray its estimated expenses and the salaries of its members and employees, * * and funds derived from such assessments shall not be construed to be Government funds or appropriated moneys.' "WHEREAS, it appears from a consideration of the estimated expenses of the Board of Governors of the Federal ieserve System for the six months' period beginning July 1, 1937, including expenditures for furniture, equipment, furnishings, supplies, and expense of moving, in connection with the occupancy of the Board's new building, and the cost of maintenance and operation of the building, that it is necessary that a fund equal to three hundred and nineteen 876 6/23/37 "thousandths of one per cent (.00319) of the total paid-in capital stock and surplus (Section 7 and Section 13b) of the Federal reserve banks be created for such purposes, exclusive of the cost of printing, issuing and redeeming Federal reserve notes, "NOVd, THEREFORE, BE IT RESOLVED BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, That: "(1) There is hereby levied upon the several Federal reserve banks an assessment in an amount equal to three hundred and nineteen thousandths of one per cent (.00319) of the total paid-in capital and surplus (Section 7 and Section 13b) of each such bank at the close of business June 301 1937. "(2) Such assessment shall be paid by each Federal reserve bank in two equal installments on July 1, 1937, and September 1, 19371 respectively. "(3) Every Federal reserve bank except the Federal Reserve Bank of Richmond shall pay such assessment by transferring the amount thereof on the dates as above provided through the Interdistrict Settlement Fund to the Federal Reserve Bank of Richmond for credit to the account of the Board of Governors of the Federal Reserve System on the books of that bank, with telegraphic advice to Richmond of the purpose and amount of the credit, and the Federal Reserve Bank of Richmond shall pay its assessment by crediting the amount thereof on its books to the Board of Governors of the Federal Reserve System on the dates as above provided." Memorandum dated June 211 19371 from Mr. Smead, Chief of the Hvislon of Bank Operations, submitting the resolutions adopted by the boards °f directors of all Federal reserve banks which provided for the payment °11 June 30, 1937, of dividends to stockholding member banks, at the rate °f 6% per annum for the first six months of 1937. The memorandum called attention to the fact that the estimated dividend requirements for all r the Federal Reserve banks totaled ' 237,000 less than the estimated 41110unt available for dividends, and that the Federal Reserve Bank of New York Was the only bank reporting estimated dividend requirements greater than the estimated amount available therefor. The memorandum also stated 877 6/23/37 -10- that the dividend resolutions had been reviewed and recommended that the payment of the regular semi-annual dividend by each Federal reserve bank be approved by the Board. Approved unanimously. Federal Reserve Bank Letter to Mr. Gidney, Vice President of the of New York, reading as follows: "Reference is made to your letter of June 11, 1937, reBanking Act garding the applicability of section 32 of the of of 1933 to Mr. Edward J. Wood who is serving as director an employee as The Owego National Bank, Owego, New York, and of P. W. Brooks & Co., Inc., New York, New York. "As you say in your letter, the only question involved ly seems to be whether P. W. Brooks & Co., Inc. is 'primari sale, public ting, engaged in the issue, flotation, underwri e or distribution, at wholesale or retail, or through syndicat es' similar securiti Participation, of stocks, bonds, or other Within the meaning of section 32. "The memorandum opinion of counsel to your bank which You inclosed summarizes the information which you have obtained year 1936 aggrein this connection and indicates that for the ting and disunderwri gate gross income from participation in total gross of cent tributing new issues amounted to 22.6 per y sales' 'securit from income, and that aggregate gross income V. & Co., brooks P. amounted to 65.4 per cent. It appears that is what commonly to refer Inc. used the term 'security sales' to g seknown as 'secondary distribution' consisting in acquirin them through curities in blocks or small amounts and selling salesmen to its clients. no reason to "In the circumstances there appears to be your counsel that differ with the conclusion reached by you and the relation to le applicab as be regarded should section 32 ships in question." Approved unanimously. had been approved Mr. Morrill submitted a recommendation, which Board by Messrs. McKee and Clayton for the Personnel Committee, that the authorize the purchase of a one-ton Dodge truck with panel body, 1::ode1 878 • 6/23/57 —11- 4D 21, for use at the Board's newbuilding, as 1 at ed in Order No. 1670, a cost of $733.64. Approved unanimously. Thereupon the meeting adjourned. Chairman.
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