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1237 A meeting of the Board of Governors of the Federal Reserve System 11 Was held in Washington on Thursday, June 25, 1936, at 11:00 a. m. PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Broderick Szymczak McKee Davis 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 Mr. Bradley, Assistant Chief of the Division of Security Loans There was presented a memorandum addressed to the Board by Mr. Parry under date of June 22, 1936, with respect to a proposed amendment to Regulation T, Extension and Maintenance of Credit by Brokers, Dealers, and Members of National Securities Exchanges, and two proposed amendto Regulation U, Loans by Banks for the Purpose of Purchasing or Carrying Stocks Registered on a National Securities Exchange. The mem- 4r811dum had been prepared by Mr. Parry following the discussion of sugg6sted amendments to the two regulations at the meeting of the Board 414 June 11, 1936, and copies of the memorandum had been furnished to the tembers of the Board prior to this meeting. 6/25/56 -2Attention was called to the fact that at the meeting on June 11 the members of the Board had agreed upon the adoption of the amendment to section 2 of Regulation II, recommended in Mr. Parry's memorandum, Which would add at the end of such section two new subsections reading as follows: "(j) Any loan to a member of a national securities exchange for the purpose of financing his or his customers' bona fide arbitrage transactions in securities; "(k) Any loan to a member of a national securities exchange for the purpose of financing such member's transactions as an odd-lot dealer in securities with respect to which he is registered on such national securities exchange as an odd-lot dealer." After a brief discussion of the reasons presented by Mr. Parry for the proposed amendment, during which Mr. Szymczak, who was not present at the meeting of the Board on June 11, 1956, stated that he favored the proposed change, the amendment was approved and adopted, to become effective July 1, 1956. The second amendment to Regulation U, recommended in Mr. Parry's memorandum, would change subsection (e) of section 5 of Regulation U to read as follows: "(e) A bank may accept the transfer of a loan from another bank, or permit the transfer of a loan between borrowers, without following the requirements of this regulation as to the making of a loan, provided the loan is not increased and the collateral for the loan is not changed; and, after such transfer, a bank may permit such withdrawals and substitutions of collateral as the bank might have permitted if it had been the original maker of the loan or had originally made the loan to the new borrower." Mr. Parry reviewed the reasons for the proposed amendment as well 12:" 6/25/36 as the considerations whichhad been advanced for a suggested alternate amendment which would permit the transfer of undermargined loans from brokers and dealers to banks and the reasons why, in his opinion, the alternate amendment should not be adopted. The proposed amendment and suggested alternate therefor, were discussed and Mr. McKee moved that the amendment as recommended by Mr. Parry be approved and adopted, to become effective July 1, 1936. Mr. Broderick moved as a substitute for Mr. McKee's motion that subsection (e) of section 5 of Regulation U be amended to read as follows: "(e) Without following the requirements of this regulation as to the making of a loan, a bank may permit the transfer of a loan between borrowers or may accept the transfer of a loan from another bank or from a broker, or dealer who is subject to the provisions of Regulation T or does not extend credit to customers except in accordance therewith: Provided, That the loan is not increased and the collateral for the loan is not changed. After such a transfer of a loan from one bank to another or from one borrower to another, the bank accepting or permitting the transfer may permit such withdrawals or substitutions of collateral as it might have permitted if it had been the original maker of the loan or had originally made the loan to the new borrower; but, after such a transfer of a loan from a broker or dealer to a bank, the loan shall be subject to the provisions of this regulation regarding withdrawals and substitutions of collateral." The substitute motion was put by the Chair and lost, the members voting as follows: Mr. Mr. Mr. Mr. Broderick Eccles Szymczak McKee "aye" "no" "no" "no" Mr. McKee's motion was then put by the Chair and carried. 1240 -4— 6/25/36 Mr. Parry outlined the reasons for the recommendation contained in his memorandum that subsection (b) of section 3 of Regulation T be amended by adding at the end thereof a new paragraph reading as follows: "Notwithstanding any provisions of section 4 of this regulation, the creditor may permit such other member, broker, or dealer to withdraw money or securities from such a special account if such withdrawal, in combination with any other transactions made on the same day and together with demands for additional margin in connection therewith, does not result in any increase of the excess of the adjusted debit balance of the account over the maximum loan value of the securities in the account." After a discussion of the purpose of the suggested amendment, Mr. Broderick moved that it be approved and adopted, to become effective July 1, 1956. Carried. As Mr. Davis had been sworn in as a member of the Board only this morning and this was his first opportunity to sit with the Board, he did not participate in the actions taken on amendments to Regulation T and U. It was understood that the three amendments as approved by the Board would be telegraphed to the Federal reserve banks today with the request that they have the amendments printed and copies forwarded to all interested parties. The question was raised as to whether the Board should give consideration at this time to a change in the margin requirements prescribed in the supplements to Regulations T and U and it was pointed cut that at the meeting of the Board on June 3, 1936, Chairman Eccles had advised that Mr. Ransom had requested that before the Board took 12, 6/25/36 -5- action in this matter he be given an opportunity to state his views and that as there appeared to be no necessity for a change at that time, action had been deferred. It was stated that Mr. Ransom expected to return to the office shortly after July 1, and it was understood that Mr. Parry would be prepared to submit a recommendation to the Board during the week of July 6, as to what, if any, action should be taken with respect to a change in existing margin requirements. There was then presented a letter dated June 19, 1956, from Mr. O'Connor, Comptroller of the Currency, reading as follows: "You are hereby advised that I have appointed Mr. William John Rusch, as Chief of the Federal Reserve Issue Redemption Division, at a salary of t4,500 per annum, effective July 1, 1936, vice Mr. L. G. Copeland, retired." In connection with this matter, Mr. Morrill referred to the letter addressed to the Comptroller of the Currency by the Board on April 14, 1936, inquiring whether he would be agreeable to the substitution, for the arrangement now in effect, of an arrangement under which the Comptroller of the Currency would be reimbursed for the cost (including salaries) of the services rendered by the Federal Reserve Issue and Redemption Division. He stated that a reply to the Board's letter had not been received from the Comptroller but that it was understood that a draft of reply had been prepared and would be forwarded to the Board Shortly in which the Comptroller would state that, after reviewing the history of the arrangement he felt that cedure now in effect. he should continue the pro- 1242 6/25/36 -6After a discussion, during which the opinion was expressed that the appointment of Mr. Rusch as Chief of the Federal Reserve Issue and Redemption Division should not be approved pending a determination of the manner in which the expenses of the Division shall be paid, Mr. Morrill was requested to address a letter to the Comptroller of the Currency stating that action on the appointment of Mr. Rusch had been deferred pending receipt of the reply of the Comptroller to the Board's letter of April 14, and Messrs. Morrill, Wyatt and Smead were requested to submit a recommendation to the Board as to what, if any, action should be taken by the Board in connection with the payment of the expenses of the Federal Reserve Issue and Redemption Division. Mr. Goldenweiser referred to the recommendation made by him and Mr. Smead, in a memorandum addressed to the Board under date of May 22, 1936, on the subject of the participations of the Federal reserve banks in the Government securities held in the System Open Market Account, that the publication of the reserve ratios of the individual Federal reserve banks be eliminated from the Board's weekly statement of condition of the Federal reserve banks, and stated that he believed it desirable that the Board give consideration to that recommendation. It was agreed that Messrs. Goldenweiser and Smead should prepare for the consideration of the members of the Board prior to Tuesday, June 30, 1936, a memorandum setting forth the reasons for the recommendation above referred to and that the matter would be considered at the meeting of the Board on that date. Mr. Davis left the meeting at this point. Mr. Broderick presented a memorandum addressed to him under date 1243 6/25/36 -7- of May 27, 1936, by Mr. Paulger, in which Mr. Paulger advised that at the meeting of the executive committee of the Federal Reserve Bank of Chicago on May 22, President Schaller was requested to call to the attention of the Board the fact that recommended increases in salaries of officers submitted in Mr. Stevens' letter of February 28 had not been finally acted upon by the Board and to advise the Board that the members of the executive committee of the bank were of the opinion that the increases should be allowed and made retroactive to January 1, 1936. The salary increases referred to were as follows: C. S. Young W. H. Snyder A. L. Olson A. M. Black C. M. Saltnes J. J. Endres R. H. Buss Title Assistant Federal Reserve Agent Vice President and Cashier Assistant Vice President Manager, Planning Department Assistant Cashier Auditor Managing Director of Detroit Branch Present Salary Proposed Salary Amount Increase t13,500 $15,000 1k1,500 16,000 17,500 1,500 6,500 7,500 1,000 4,800 5,200 5,000 5,100 5,500 6,000 300 300 1,000 12,000 12,600 600 t6,200 Mr. Broderick moved that the salary of Mr. Young as Assistant Federal Reserve Agent be fixed at the rate of $15,000 per annum, and that the other increases listed above be approved by the Board, all retroactive to January 1, 1936. Carried unanimously and the Secretary was requested to advise President Schaller of the Board's action. At this point Messrs. Thurston, Wyatt, Paulger, Goldenweiser, Smead, Parry and Bradley left the meeting and consideration was then (t 6/25/36 -8- given to each of the matters hereinafter referred to and the action stated with respect thereto was taken by the Board: The minutes of the meeting of the Board of Governors of the Federal Reserve System held on June 24, 1936, were approved unanimously. Telegram to Mr. Sargent, Secretary of the Federal Reserve Bank of San Francisco, stating that the Board approves the establishment Without change by the bank today of the rates of discount and purchase in its existing schedule. Approved unanimously. Memorandum dated June 23, 19560 from Mr. Goldenweiser, Director io Of the Division of Research and Statistics, recommending the appointment of Mr. George P. Doherty as a junior research assistant in the Division, with salary at the rate of $2,600 per annum, effective as of the date upon which he enters upon the performance of his duties after having passed satisfactorily the usual physical examination. Approved unanimously. Memorandum dated June 23, 1956, from Mr. Goldenmeiser, Director of the Division of Research and Statistics, recommending the appointment of Miss Grace R. Sahm as an assistant in drafting work in the Division, with salary at the rate of $1,680 per annum, effective as of the date upon which she enters upon the performance of her duties after having passed satisfactorily the usual physical examination. Approved unanimously. 6/25/36 Letter to Mr. Pillistin, Assistant Federal Reserve Agent at the Federal Reserve Bank of New York, reading as follows: "Receipt is acknowledged of your letter of June 19, 1936, and, in accordance with the recommendation contained therein, the Board approves the appointments of Frederick W. Campbell, William L. Paul, Peter F. Sullivan, and Charles N. Pond as assistant examiners in the Federal Reserve Agent's department of your bank. Please advise the effective dates of the appointments." Approved unanimously. Letter to the board of directors of "The State Bank of Taupun", 17aupun, Wisconsin, stating that, subject to thP conditions of membership numbered 1 to 3 contained in the Board's Regulation "H", and the following special condition, the Board approves the bank's application for membership in the Federal Reserve System and for the appropriate amount of stock in the Federal Reserve Dank 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. Young, Assistant Federal Reserve Agent at the Federal Reserve Bank of Chicago, reading as follows: "The Board of Governors of the Federal Reserve System approves the application of 'The State Bank of Waupuni, Taupun, Wisconsin, 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 Banking for the State of "isconsin for his information. "The estimated losses as shown in the report of examination as of June 8, 1936, made by your examiner and which the Reserve Bank Committee recommended be eliminated as a condition 1246 -10- 6/25/36 "of membership amount to e741.72, and consist of 4687.50 depreciation in certain defaulted bonds and t54.22 estimated loss in one parcel of other real estate. Inasmuch as the securities account shows a net appreciation of !'19,000, elimination of the depreciation listed as an estimated loss has not been required in accordance with the Board's general policy outlined in its letter of December 9, 1933, X-7705. Neither, in view of the nominal amount, has a condition of membership been prescribed requiring the elimination of the estimated loss of p54.22 in the other real estate, a sale for which was said to be pending. "It has been noted from the report of examination as of June 8, 1936, that, although the proper interpretation on the reservation of the right to demand notice of payment incorporated in the bank's form of certificate of deposit Is not clear, such certificates may not conform to provisions of Regulation Q. In this connection it is assumed that you will consider this matter with counsel, acquaint the bank with the provisions of Regulation Q, and request it to effect such changes in its form of time certificates of deposit as may be necessary to bring them into conformity with the Board's recrulatIon." Letter to Mr. Thomas, Federal Reserve Agent at the Federal Reserve Bank of Kansas City, reading as follows: "Reference is made to your letter of June 20, 1936, transmitting with a favorable recommendation the request of the 'Saratoga State Bank', Saratoga, Wyoming, for a modification of condition of membership numbered 5 which reads as follows: 'Prior to admission to membership such bank, if it has not already done so, shall charge off or otherwise eliminate the estimated losses of 1'2,440 in the loan to C. A. Cook et al, and of $230.19 in the loan to George C. Fausett, all as shown in the report of examination of such bank as of December 17, 1935, made by an examiner for the Federal Reserve Bank of Kansas City.' "The information submitted with the bank's application for membership indicates that the loan to C. A. Cook et al is signed by seven of the bank's directors and was given for the purchase of 10 shares of the bank's own stock which had been sold to a former cashier of the bank, now deceased; that the ability of the signers to pay the not was not questioned; and that the note was classified as an estimated loss in view 6/25/36 -11- of the fact that notes given in such circumstances are considered an undesirable class of asset and that the directors had agreed to eliminate the note prior to admission to membership. "It has been noted that the directors of the bank do not feel that they can eliminate the loan prior to admission to membership and have suggested that condition numbered 5 be modified to the extent that they be permitted to effect the elimination of the loan by July 1, 1937, which, it is expected, will be accomplisPed to a considerable extent through the application of directors' fees, amounting to approximately f'11200 annually, toward the reduction of the loan. "In view of the circumstances, the Board amends condition numbered 5, prescribed in connection with the application for membership of the Saratoga State Bank, to read as shown in the inclosed letter to the bank, of which there are three copies, the original of which you are requested to forward to the bank, retaining one copy for your files and forwarding the other to the State Examiner for the State of Wyoming for his information. "The Board also extends to July 22, 1936, the time within which the bank may accomplish membership in the System. Please advise the bank accordingly." Approved unanimously, together with a letter to the board of directors of the "Saratoga State Bank", Saratoga, Wyoming, reading as follows: "As you were advised in a letter dated March 23, 1936, the Board of Governors of the Federal Reserve System approved the application for membership of the Saratoga State Bank subject to the conditions contained in such letter. This is to advise you that condition numbered 5 contained therein has been amended to read as follows: 0. Prior to admission to membership such bank, if it has not already done so, shall charge off or otherwise eliminate the portion of the loan to George C. Fausett classified as an estimated loss in the report of examination of such bank as of December 17, 1935, made by an examiner for the Federal Reserve Bank of Kansas City, and, as soon as practicable, and in any event not later than July 1, 1937, such bank shall effect in a manner other than by charge-off the complete elimination of the loan of '',21440 to C. A. Cook et al shown in the report of examination as of December 17, 1935, referred to above." 6/25/36 -12Telegram to Mr. Clark, Assistant Federal Reserve Agent at the Federal Reserve Bank of Atlanta, reading as follows: "Refer your telegram June 19, 1936. In view of all circumstances involved, Board grants permission to Union Trust Company, St. Petersburg, Florida, in accordance with provisions of membership condition numbered 22, to transfer to surplus the entire P10,000 remaining in special reserve. Please advise bank accordingly." Approved unanimously. Letter to Mr. McRae, Assistant Federal Reserve Agent at the Federal Reserve Bank of Boston, reading as follows: "This refers to your letter of June 18, 1976, regarding the rate of interest which may lawfully be paid upon time and savings deposits by national banks located in the State of Vermont, in view of the order of the Commissioner of Banking and Insurance of the State of Vermont dated May 28, 1936, and the provisions of section 24 of the Federal Reserve Act and section 3(c) of Regulation "As you know, section 24 of the Federal Reserve Act provides that the rate of interest which a national banking association may pay upon time deposits or upon savings or other eposits shall not exceed the maximum rate authorized by law to be paid upon such deposits by State banks or trust companies organized under the laws of the State in which such national banking association is located. "It appears that section 6792 of the Public Laws of Vermont fixes the maximum rate of interest which may be paid on deposits by savings banks in that State, but provides further that the Commissioner of Banking and Insurance, during the years 1935, 1936 and 1937, may fix a uniform maximum interest rate for all savings banks and trust companies which they may pay on deposits in any interest period, and that no savings bank shall pay interest at a greater rate than the maximum so fixed. Section 6807 of the Public Laws of Vermont in like manner fixes the maximum rate of interest which may be paid on deposits by trust companies in that State, but authorizes the Commissioner, during the years 193r, 1936 and 1937, to fix a uniform maximum interest rate for all savings banks and trust companies which they may pay on deposits in any interest period, and provides that no trust company shall pay interest at a greater rate than the 1,2e-L9 -13- 6/25/36 ' ,maximum so fixed. "It further appears that on May 28, 1936, the Comm5ssioner of Banking and Insurance fixed the maximum rate of interest that may be paid on deposits by a mutual savings bank, trust company, or savings bank and trust company during the six months' period ending August 21 1936, at 2 per cent per annum. It is understood that as the result of this order no bank or trust company incorporated under the laws of the State of Vermont may lawfully pay interest on deposits at a rate in excess of that fixed by the Commissioner, and that the order is applicable to the payment of interest on all classes of deposits. "In the circumstances, it is the view of the Board that the rate of interest which has been so fixed by the Commissioner of Banking and Insurance of the State of Vermont, in accordance with the statutory provisions above referred to, is the maximum rate 'authorized by law' to be paid upon deposits by State banks or trust companies organized under the laws of the State of Vermont within the meaning of section 24 of the Federal Reserve Act; and that, therefore, the rate of interest which national banks located in such State may lawfully pay on deposits may not exceed the rate prescribed by the Commissioner in his order of May 28, 1936. It is believed desirable, as suggested in your letter, that notice to this effect be given by you to all member banks which are located in the State of Vermont, calling attention to the applicable provision of section 24 of the Federal Reserve Act and to the provisions of section 3(c) of the Board's Regulation Q. "It is suggested that you advise such banks that the Board of Governors will not object to the payment of interest by a national bank located in Vermont at a rate greater than the rate prescribed by the Commissioner in his order of May 28, 1936, in accordance with the terms of, and until the termination of, any contract existing on the date on which such bank receives notice from you of the rate fixed by the Commissioner, provided such rate is otherwise in conformity with the provisions of Regulation Q and the contract is terminated as soon as possible under the terms thereof. "Please furnish to the Board two copies of any notification which you may send to the member banks in Vermont in connection with this matter." Approved unanimously. Letter to Messrs. F. A. Berry et W. F. Norvall, Jr., Nashville, Tennessee, reading as follows: 6/25/36 -14- "Receipt is acknoledged of your letter of May 16, 1936, setting out certain views you have expressed to your clients, the American National Bank of Nashville, Broadway National Bank of Nashville, The Commerce Union Bank and Nashville Trust Company, upon the subject of certain provisions in Regulation U and requesting advice as to the correctness of your views so expressed. "In this connection, you are advised that it is not the Board's usual practice to issue rulings upon purely hypothetical cases and as lawyers you no doubt can appreciate the reasons for such position. Consequently, it is impossible for the Board to give categorical approval to the conclusions as expressed in your letter. However, the Board desires to be as helpful as possible under the circumstances and the following comments may be of some assistance to you in the problems submitted to you by your clients. "Such inaccuracies in your conclusions as are apparent at this time are occasioned largely from erroneously using the term 'regulated loan' as including ell loans if any one of them is secured by stock and is for the designated purpose. A loan made for a purpose other than purchasing or carrying a stock registered on a national securities exchange is never 'regulated' in the sense that the making of the loan is subject to Regulation U, and it is only when the security for such loan, by virtue of a general loan agreement or otherwise, also secures a 'regulated loan' that withdrawals or substitutions of the collateral securing it may be subject to the provisions of the third paragraph of section 1 of the regulation. This inaccuracy is common to a number of the conclusions in your letter. "Commenting especially upon your conclusion as set out in paragraph numbered 2, it follows from the foregoing that only the indebtedness for the designated purpose incurred after May 1, 1936, and not excepted, would constitute the 'regulated loan', but that as a result of the general loan agreement to which you refer the collateral securing that and all other indebtedness of the borrower would have to be treated as being subject to the provisions of section 1 concerning withdrawals and substitutions of collateral. "7iith regard to the conclusion expressed in paragraph numbered 3, it is to be pointed out that after a bank has made a loan, whether subject to the regulation or not, it may make another loan which is subject to the regulation regardless of what collateral may secure the prior loan if additional collateral for the second loan is then provided which complies with Regulation U. "With respect to whether a statement of purpose should 6/2F/36 -15- wipe included upon the note or as e separate paper, without discussing any question that -,,ight arise by virtue of the Uniform Negotiable Instruments Act or other local State law, it would appear that this inquiry presents a question to be determined by each bank. However, the advisability of the bank being able to retain the statement as a part of its records after the note had been paid if contained on a separate paper might be worthy of consideration by the bank. "It is hoped that with such suggestions as have been here made you will be able to satisfactorily advise your client in this connection. However, if you have further inquiries it is believed that you will find it more convenient to communicate first with the Federal Reserve Bank of Atlanta, the officers of which you will find fully equipped to satisfactorily answer your inquiries." Approved unanimously. Memorandum dated June 23, 1936, from Mr. Smead, Chief of the Division of Bank Operations, submitting the resolutions adopted by the board of directors of all Federal reserve banks which provided for the payment on June 30, 1936, of dividends to stockholding member banks, at the rate of 6% per annum for the first six months of 1936. The memorandum called attention to the fact that the estimated dividend requirements for all of the Federal reserve banks totaled .580,000 more then estimated current net earnings, and that the Federal Reserve Banks of Chicago, St. Louis and Dallas were the only Federal reserve banks reporting current net earnings sufficient to cover dividend requirements. The memorandum also stated that the dividend resolutions had been reviewed and recommended that the payment of a semi-annual dividend by each Federal reserve bank be approved by the Board. Approved unanimously. Letter to Mr. Leo T. Crowley, Chairmen of the Federal Deposit 1254., 6/25/56 -16- Insurance Corporation, reading as follows: "Receipt is acknowledged of your letter of June 17, 1956, concerning the applicability of section 58 of Title 5, U.S.C.A. to an employee of a Federal Reserve bank. "In view of the fact that all of the stock of the Federal Reserve banks is owned by the member banks and that the funds of the Federal Reserve banks do not consist of 'money appropriated by any act', it is the opinion of the Board's counsel that the provisions of section 58 of Title 5, U.S.C.A. do not apply to an employee of a Federal Reserve bank and do not forbid such an employee from receiving a salary from such bank and also a salary from the United States, even though the combined amount of the two salaries exceeds the sum of 62 000 per annum." Approved unanimously. Letter to Mr. McRae, Assistant Federal Reserve Agent at the Federal Reserve Bank of Boston, reading as follows: "Receipt is acknowledged of your letter of June 12, 1956, in which you recommend that no action be taken at this time with respect to Mr. Henry J. Wheelwright who is an officer and director of Columbia Investment Company and of The Merchants National Bank of Bangor, both of Bangor, Maine, in apparent violation of section 32 of the Banking Act of 1935. "In view of your recommendation and in view of the fact that Mr. Wheelwright is not acting as an officer or director of the bank, and in view of the other circumstances which the president of the bank discussed with you, the Board believes that no action need be taken with respect to this matter until the next annual election of the national bank." Approved unanimously. Letter to Mr. McRae, Assistant Federal Reserve Agent at the Federal Reserve Bank of Boston, reading as follows: "Receipt is acknowledged of your letter of June 12, 1936, in which you ask whether, under the Clayton Act, Mr. Roger Amory may serve as a director of State Street Trust Company and of National Rockland Bank of Boston, both of Boston, Massachusetts, after the proposed consolidation of The Union Trust Company of Boston with the State Street 1253 -17- 6/25/36 "Trust Company. "You inclose an opinion of counsel for your bank which points out that Mr. Amory received a permit from the Board on July 17, 1931, authorizing him to serve as a director of the national bank and of The Kidder Peabody Trust Company; that the name of that trust company was later changed to The Union Trust Company of Boston, there being no other change in the corporate entity of the trust company; that Mr. Amory was therefore lawfully serving the national bank and the trust company on August 23, 1935, and that he may therefore continue to do so until February 1, 1939, in view of the applicable provision of the Clayton Act. With reference to the proposed consolidation of The Union Trust Company with State Street Trust Company, he states that the consolidation will, in his opinion, confer upon the State Street Trust Company an interest in the services of Mr. Amory as a director, in view of the applicable provisions of the State law, and he therefore concludes that Mr. Amory may continue to serve that trust company after the proposed consolidation. In this connection he refers to the ruling of the Board published at page 28 of the Federal Reserve Bulletin for January 1925 to the effect that where a Clayton Act permit is granted to an individual to serve a State bank, and the bank consolidates with another bank under a statute which vests in the consolidated institution all the rights, franchises and interests of the consolidating institutions, the permit will continue to be effective and will authorize him to serve the consolidated institution since the consolidated institution would have, as a matter of law, a right to his services. "Of course, the situation is not precisely the same as it was when this ruling was made, because section 8 has since been amended by the Banking Act of 1935. The pertinent part of section 8 now provides that a director who was lawfully serving a trust company on August 25, 1935, may continue such service until February 1, 1939. However, the principle involved appears to be the same as that discussed in the above ruling. Therefore, in the light of the opinion of counsel for your bank respecting the effect of the proposed consolidation under State law, the Board sees no reason to differ with his conclusion that Mr. Amory may serve as a director of the national bank and of State Street Trust Company until February 1, 1959." Approved unanimously. Letter to Mr. Walsh, Federal Reserve Agent at the Federal Re- 1254 6/25/36 -18- serve Bank of Dallas, reading as follows: "Receipt is acknowledged of your letter of June 11, 1936, in which you ask whether, under section 8 of the Clayton Act, Messrs. Edgar Smith and George E. Shelley may lawfully serve as directors of Fidelity Trust Company, Austin, Texas, and of The American National Bank of Austin and The Capital National Bank in Austin, respectively. You state that The American National Bank is challenging Mr. Smith's right to serve at the same time as a director of the trust company; and in this connection there is inclosed a copy of a letter dated June 8 addressed to the Board by Mr. V. P. Patterson, Vice President of The American National Bank, and a copy of the reply thereto. "You point out that Clayton Act permits were issued to Messrs. Smith and Shelley authorizing them to serve as directors of Fidelity Mortgage Company and of the two national banks, respectively, and that under the provisions of section 8 they may lawfully continue to serve these institutions until February 1, 1939. However, you state that the Fidelity Mortgage Company, which was named in their permits, is no longer in business, and that it is your opinion and that of counsel for your bank that the provision of the Clayton Act referred to above does not authorize them to serve as directors of the newly organized 'State bank and trust company' known as Fidelity Trust Company. "If Fidelity Trust Company is a different corporate entity from the Fidelity Mortgage Company referred to in the permits, there would seem to be no reason to differ with the conclusion reached by you and counsel for your bank in this connection, except, possibly, if the change were such that all the 'rights, privileges and franchises' of the latter were transferred to the former by operation of law, in which case the principle underlying the ruling published at page 28 of the Federal Reserve Bulletin for January 1925 might be applicable. "With respect to the question whether these relationships may come within any other exception, you point out that Fidelity Trust Company is a 'State bank and trust company', which enjoys all the banking privileges that are permitted to a 'State bank' as well as certain additional privileges, and it is therefore assumed that it does not fall within the exception which refers to a 'Morris Plan bank, cooperative bank, credit union or other similar institution', even though the letter from the trust company, a copy of which you inclosed, states that 'although we do have a bank and trust charter, our business will be exactly as it has been -- that of making monthly 1255 6/25/36 -19- "payment loans similar to the Morris Plan System.' "You also refer to the exception applicable to a bank or trust company 'not engaged in a class or classes of business in which such member bank is engaged', and you point to the fact that the trust company will issue certificates of deposit, which you feel is the same class of business as that transacted by the national banks in receiving commercial deposits. However, sufficient information has not been submitted to enable the Board to determine whether these certificates of deposit are of the same nature as commercial deposits or as time certificates of deposit or other certificates of deposit issued by the national banks. Also, it does not appear whether the national banks make so-called 'personal loans', which is apparently now one of the principal parts of the business of the trust company. "It is hoped that the above discussion will be of assistance to you and counsel for your bank in determining the applicability of the Clayton Act to the relationships involved. Of course, if you have any further questions regarding the matter, they will receive the most careful consideration. However, in connection with any such question, it will be appreciated if you will furnish the Board with an opinion of counsel for your bank." Approved unanimously. Thereupon the meeting adjourned. Secretary.
@FedFRASER