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1907
A meeting of the Federal Reserve Board was held in Washington
Oil Tuesday,
June 26, 1934, at 1:00 p. m.
PRESENT:
Mr.
Er.
Mr.
Mr.
Mr.
Mr.
Black, Governor
Hamlin
Miller
James
Thomas
Szymczak
i4r.
Mr.
Er.
14r.
Mr.
Morrill, Secretary
Bethea, Assistant Secretary
Carpenter, Assistant Secretary
Martin, Assistant to the Governor
Smoad, Chief of the Division of Bank
Operations
Mr. Goldenweiser, Director of the Division of Research and Statistics
Er. Wyatt, General Counsel
Mr. Vest, Assistant Counsel
Reference was made to the action taken by the Federal reserve
ttgerit
8 and governors at the meeting this morning in approving unani14°1181Y, with certain proposed amendments, the tentative draft of RegulAtioll s,
regarding discounts, purchases, loans and commitments by
?eller41 reserve banks
to provide working capital, and the question
Ike
raised
as to the desirability of the Board's adopting the suggest14 that_
the paragraph of the regulation placing a limitation on the
1)E*iods for
which commitments mcy be mode by Federal reserve banks
111°111d be
eltminated.
After discussion, during mhich it was expressed
as the feeling of a majority of the members that the
limitation should not be imposed, Mr. Szymczak moved
that the suggestion of the agents and governors that
the paragraph referred to be eliminated be approved.
Carried.
14* Wyatt stated that there is in force an executive order of
1908
6/26/34
-2-
resident mhich requires that all bids and contracts entered into by any instrumentality or agency of the United States or
any
G°
'
7ernment-control1ed corporation shall contai
n a clause requiring
the other party to the contract to
comply with the requirements of the
national Industrial Recovery Act, and that the Reconstructi
on Finance
esrPoration has
placed such a requirement in its regulation covering
industrial loans.
Llr. Wyatt stated that, while the question is not entirely
fliao from doubt,
he is of the opinion that the executive order does
11(3t apply to Federal reserv
e banks; because (1) they are not depart.11)lits of the Government; (2) they are not Govern
ment corporations;
44d (3), 'while they act sometimes
as agencies of the Government in con1111021 with bond issues, the paymen
t of Treasury checks and warrants,
411c1 similar fiscal
transactions, they would not be acting as agencies
Of the Government in makin,
; loans to industry but would be performing
PtIrelY banking
functions.
In accordance with this view, 1::r. Wyatt
st°:4)(I, a provision similar to that contained in the regula
tions of
the Reconstruction Financ Corpor
ation had not been incorporated in
e
the
draft of Regulation
S.
Upon motion by Mr. James, Regulation S, as
amended in accordance with the suggestions of the
Federal reserve agents and governors, was approved
in the following form, effective immediately, and,
in order that there might be no delay in getting
the regulation in the hands of the Federal reserve
banks, the Secretary was authorized to send copies
thereof to the banks immediately with the suggestion that they have a sufficient number of copies
Printed to meet their respective needs:
1.909
6/26/34
-3"REGULATION S, SERIES
or
1934
"DISCOUNTS, PURCHASES, LOANS AND COUITMENTS BY FEDERAL RESERVE BANKS TO PROVIDE WORKING CAPITAL FOR
ESTABLISHED INDUSTRIAL OR COLEERCIAL BUSINESSES.
"SECTION I.
STATUTORY PROVISIONS.
"Section 13b of the Federal Reserve Act as amended by the
Act of June 19, 1934, reads in part as follows:
"SEC. 13b. (a) In exceptional circumstances, when it
appears to the satisfaction of a Federal Reserve bank that
an established industrial or commercial business located in
its district is unable to obtain requisite financial assistance on a reasonable basis from the usual sources, the Federal Reserve bank, pursuant to authority granted by the Federal Reserve Board, may make loans to, or purchase obligations of, such business, or may make commitments with respect
thereto, on a reasonable and sound basis, for the purpose of
Providing it with working capital, but no obligation shall
be acquired or commitment made hereunder with a maturity exceeding five years.
"(b) Each Federal Reserve bank shall also have power
to discount for, or purchase from, any bank, trust company,
mortgage company, credit corporation for industry, or other
financing institution operating in its district, obligations
having maturities not exceeding five years, entered into for
the purpose of obtaining working capital for any such established industrial or commercial business; to make loans
or advances direct to any such financing institution on the
security of such obligations; and to make commitments with
regard to such discount or purchase of obligations or with
respect to such loans or advances on the security thereof,
Including commitments made in advance of tho actual undertaking of such obligations. Each such financing institution
shall obligate itself to the satisfaction of the Federal Reserve bank for at least 20 per centum of any loss which may
be sustained by such bank upon any of the obligations acquired
from such financing institution, the existence and amount of
any such loss to be determined in accordance with regulations
Of the Federal Re!7e,
•ve Boards Provided, That in lieu of such
Obligation against loss any such financing institution may
advance at least 20 per centum of such working capital for
azlY established industrial or commercial business without
Obligating itself to the Federal Reserve bank against loss
on the amount advanced by the Federal Reserve bank: FrovIded,
however, That such advances by the financing institution and
191_0
6/26/34
-4.
"the Federal Reserve bank shall be considered as one advance, end repayment shall be made pro rata under such regulations as the Federal Reserve Board may prescribe.
"'(c) The aggregate amount of loans, advances, and commitments of the Federal Reserve banks outstanding under this
section at any one time, plus the amount of purchases and
discounts under this section held at the same time, shall
not exceed the combined surplus of the Federal Reserve banks
as of July 1, 1934, plus all amounts paid to the Federal Reserve banks by the Secretary of the Treasury under subsection
(e) of this section, and all operations of the Federal Reserve banks under this section shell be subject to such regulations as the Federal Reserve Board may prescribe.
"(d) For the purpose of aiding the Federal Reserve
banks in carrying out the provisions of this section, there
is hereby established in each Federal Reserve district an
industrial advisory committee, to be appointed by the Federal
Reserve bank subject to the approval and regulations of the
Federal Reserve Board, and to be composed of not less than
three nor more than five members as determined by the Federal
Reserve Board. Each member of such committee shall be actively engaged in some industrial pursuit within the Federal Reserve district in which the cornittee is established, and
each such member shall serve without compensation but shall
be entitled to receive from the Federal Reserve bank
of such
district his necessary expenses while engaged in the business
of the committee, or a per diem allowance in lieu thereof to
be fixed by the Federal Reserve Board. Each applicat
ion for
any such loan, advance, purchase, discount, or commitment
shall be submitted to the appropriate committee and, after an
examination by it of the business with respect to which the
application is made, the application shall be transmitted to
the Federal Reserve bank, together with
the recommendation of
the committee.'
"SECTION II.
fl(a)\ Leal
TRANSACTIONS BY FEDERAL RESERVE
BANKS MTH FINANCING INSTITUTIONS.
Requirements. -- Under the provisions of subBection (b) of section 13b of the Federal Reserve Act, a Federal
r?servo bank is authorized to discount obligations for, purchase
Cations from, and make loans or advances on the security of
Qelloh
obligations direct to, any bank, trust company, mortgage
,T1
.1134ny, credit corporation for industry or other financing inLotution (hereinafter referred to as 'financing institut
ion')
!crating in its district and to make commitments with regard
to
;3110/
.1 discounts, purchases,
loans or advances, subject to the folJ-04Ing requirements:
6/26/34
•••5111.0
"(1) Obligations which are the subject of such discounts,
Purchases, loans, advances or commitments must have been or
must be entered into for the purpose of obtaining working capital for an established industrial or commercial business;
"(2) Such obligations must have a maturity of not exceeding five years;
"(3) Each such financing institution shall
"A. Obligate itself to the satisfaction of the Federal reserve bank for at least 20 per centum of any loss which may
be sustained by such reserve bank upon any such obligati=
acquired from such financing institution, the existence and
amount of any such loss to be determined in accordance with
subsection (d) of section II of this regulation; or
"B. In lieu thereof, advance at least 20 per centum of such
working capital and in such event the advances by both such
financing institution and the Federal reserve bank shall be
considered as one advance and repayment shall be made on a
pro rata basis.
"(b) Applications by Financing Institutions for Discounts,
Purchases, Loans, Advances, or Commitments with Respect Thereto.
-- Each application* by a financing institution to a Federal
reserve bank for the discount or purchase of an obligation entered into for the purpose of obtaining working capital for an
established industrial or commercial business or for a loan or
advance on the security of such an obligation or for a commitzent with regard to such discount, purchase, loan or advance,
1111Int be transmitted to the Federal reserve bank of the district
in 'which the principal place of business of the applicant is
located and shall be submitted by such Federal reserve bank to
the
Industrial Advisory Committee of such district. Such application must be made in yiriting on a form furnished for that purPose by the Federal reserve bank and must contain or be accomRanied by such information, agreements and documents as the
le tal reserve bank may require.
Ittention is invited to the requirements
l\r)
of subsections (h) and
of
section 22 of the Federal Reserve Act quoted in the apP
o!ndix to this regulation, with regard to material statements or
tOrvaluation of security in connection with applications of
c_J-s kind and with regard to the giving or receiving of fees,
Tmissions, bonuses or things of value for procuring or endeavg to procure from a Federal reserve bank any credit accomiation, either directly from such Federal reserve bank or inrectly through any financing institution.
4
r
1912
6/26/34
-6-
ft(c) Grant or Refusal of Application. -- In making any
discount for or purchase from any firnncing institution of obligations entered into for the purpose of obtaining working capital for any established industrial or commercial business or
making any loan or advance on the security thereof or any commitment with regard to such discount, purchase, loan or advance:
the Federal reserve bank shall ascertain to its satisfaction:
"(1) that such obligations have been or will be entered into for the purpose of obtaining working capital for an established industrial or commercial business located in its
district;
"(2) that the financial condition and credit standing of
the obligor and indorsers, if any, upon such obligations and
of such financing institution and the value of the security
offered, if any, justify the granting of such accommodation;
and
"(3) that the transaction will comply with the requirements
of the law and of this regulation with regard thereto and,
in so far as such reserve bank may be able to ascertain, does
not involve a violation by any person of the provisions of
section 22 of the Federal Reserve Act.
"(d) Existence and Amount of Losses. - - The Federal reserve bank shall be deemed to have sustained a loss upon any
Obligation acquired from a financing institution in accordance
th the provisions of this section of this regulation whenever
the board of directors of such reserve bank, after investigation,
shall have determined that such obligation or any part thereof
is a loss and such reserve bank, after having obtained the apProval of the Federal Reserve Board, shall have charged off of
the books of the reserve bank the amount so determined to be a
1°ss. The amount of loss in any such case shall be deemed to be
1e amount so charged off, together with unpaid interest thereon.
uch financing institution shall reimburse the Federal reserve
bank for the portion of such loss for which such finnncing institution shall have obligated itself, with interest on such
Portion of such loss until the date of such reimbursement. If
?ziy recovery be realized on the amount of the loss ascertained
in accordance with this subsection, such financing institution
844 the Federal reserve bank shall be entitled to share pro rata
in the amount so recovered.
"SECTION III.
DIRECT TRANSACTIONS IN EXCEPTIONAL
CIRCUISTANCES BY FEDERAL RESERVE
BANKS WITH ESTABLISHED INDUSTRIAL
OR CONLERCIAL BUSINESSES.
6/26/34
-7-
t
Lep:al Rupirements. -- A Federal reserve bank may
010
exercise its authority to make loans to or purchase obligations
of an established industrial or commercial business located in
its district or to make commitments with respect thereto under
subsection (a) of Section 13b of the Federal Reserve Act: (1)
in exceptional circumstances; (2) when it appears to the satisfaction of the Federal reserve bank that such established industrial or commercial business is unable to obtain requisite
financial assistance on a reasonable basis from the usual
sources; (3) pursuant to the authority hereinafter granted by
the Federal Reserve Board; (4) for the purpose of providing
such established industrial or corvercial business with working
capital; (5) on a reasonable and sound basis; and (6) with respect to obligations mthich have maturities not exceeding five
Years.
"(b) Authorization b Federal Reserve Board. -- The
Federal Reserve Board, pursuant to the provisions of subsection
(a) of Section 13b of the Federal Reserve Act, hereby authorizes
every Federal reserve bank, in exceptional circumstances, until
such time as the Federal Reserve Board may revoke or modify such
authority, to make loans to and purchase obligations of an established industrial or commercial business in its district, and
to make commitments with respect thereto, subject to the provislons of the law and this regulation.
"(c) Applications by Established Industrial or Comulercial
223sinesses for Loans, Purchases, or Commitments with Respect
Thereto. -- Each application* by an established industrial or
commercial business to a Federal reserve bank for a loan to, or
the purchase of the obligations
of, such business, or a commitIllont with respect to such a loan or purchase, must be transmitted
to the Federal reserve bank of the district in which the primplace of business of the applicant is located and shall
be submitted by such Federal reserve bank to the Industrial Advisory Committee of such district. Such application must be
zade in writing on a form furnished for that purpose by the
*Attention is invited to the requirements of subsections (h)
and (k) of section 22 of the Federal Reserve Act quoted in the
11)1Dendix to this regulation, with regard to material statements
er.overvaluation of security in connection with applications of
this kind and with regard to the giving or receiving of fees,
"Tnnissions, bonuses or things of value for procuring or endeavoring to procure from a Federal reserve bank any credit accom?dation, either directly from such Federal reserve bank or in'Alrectly through any financing institution.
T
6/26/34
"Federal reserve bank and must conta
in or be accompanied by such
information, agreements and documents as the Federal reserve
bank may require.
"(d) Grant or Refusal of Application.
In making any
loan to or purchasing the obligations of any estab
lished industrial or commercial business or making any commi
tment with respect to such a loan or purchase, the Federal
reserve bank shall
ascertain to its satisfaction:
"(1) That the circumstances are exceptional;
"(2) That the obligor upon the obligation to be purchased or to evidence such loan is an established industrial
or commercial business located in its distr
ict;
"(3) That the proceeds of such loan or purchase are to
be used to provide working capital for
such business;
"(4) That such obligor is unable to obtain requisite
financial assistance on a reasonable basis from the usual
sources;
"(5) That the financial condition and credit standing
of the obligor and indorsers, if any, upon
such obligations,
and the value of the security offer
ed, if any, justify the
granting of such accommodation on a reasonable and sound
basis;
and
"(6) That the transaction will comply with the requirements of the law and of this regulation with regar
d thereto
and, in so far as such reserve bank
may be able to ascertain,
does not involve a violation by any person of the provi
sions
of section 22 of the Federal Reserve Act.
"SECHON IV.
InUSTRIAL ADVISORY COLIIITTEES
"(a) Membershiy of Committees -- The Indus
trial Advisory
Colilamittee established in each Federal reser
distr
ve
ict under the
P
jovisions of subsection (d)
of Section 13b of the Federal Rerye Act shall consi
st of five members actively engaged in some
(11.18tria1 pursuit within the Federal reserve
district in which
is established and it shall be the duty of such
;
0mmattee to consi
der all applications made to the Federal re:
I've bank for discounts, purch
ases, loans, advances and commitRellt8 pursuant to the provi
sions of Section 13b of the Federal
be8erve Act and to make recommendations
to the Federal reserve
e'llk with
respect thereto. The membership of such committee shall
pile
eMnitte
e
6/26/34
It
consist of persons who are familiar with the problems and needs
of industry and commerce in such district.
"Az soon as practicable, the board of directors of each
Federal reserve bank shall submit for the approval of the Federal Reserve Board the names of the persons in the district of
such Federal reserve bank selected by such board of directors
for service on such committee and, if approved by the Federal
leserve Board, such persons shall serve as members of said committee until March 1, 1035.
"On or before February 15, 1935, and on or before the fifteenth day of February of each year thereafter, the board of directors of each Federal reserve bani: shall submit to the Federal
Reserve Board for its consideration the names of the persons selected to serve for the ensuing year as members of the Industrial
.holvisory Committee of the district of such Federal reserve bank
°lid, if approved by the Federal Reserve Board, such persons shall
serve for terms of one year commencing on the first day of iviarch
of such year. Vacancies that may occur in the membership of
8uch committees shall be filled in like manner and persons apPointed to fill such vacancies shall hold office for the unexpired
terms of their predecessors.
"(b) Recommendations of Committees -- The Industrial 11dvlsory Committee to which an application for any such discount,
Purchase, loan, advance or commitment by the Federal reserve
bank of the district shall have been submitted, after an examination by it of the business with respect to which the application
ls made and a consideration of the necessity and advisability of
granting the application and of such other factors as it may
deem appropriate, shall transmit the application to the :ederal
reserve bank together with the recommendation of the Committee.
"SECTION V.
AGGREGATE AMOUNT OF ACCOMMODATIONS
1411ICH MAY BE EXTENDED BY A FEDERAL
RESERVE BANK.
"Except with the permission of the Federal Reserve Board,
P8cle aggregate amount of loans, advances and commitments of each
,oral reserve bank made pursuant to the provisions of Section
-L3b of the Federal Reserve Act and outstanding, plus the amount
°f Purchases and discounts acquired under that section and held
at tho same time shall not exceed the surplus of such Federal
!;eserve bank as of July 1, 1934, plus all amounts paid to such
ederal reserve bank by the Secretary of the Treasury under sub(e) of Section 13b of the Federal Reserve Act.
"SECTION VI.
RATES OF INTEREST AND DISCOUNT.
"All rates of interest and of discount established by any
191E6/26/34
-10-
uederal reserve bank with respect to loans, advances, discounts,
and purchases made under authority of the provisions of Section
lab of the Federal Reserve Act shall be subject to the approval
of the Federal Reserve Board.
"SECTION VII.
REPORTS BY FEDERAL RESERVE BANKS.
"Each Federal reserve bank shall make a daily report to the
Federal Reserve Board of all transactions entered into pursuant
to the authority conferred by Section 13b of the Federal Reserve
Act on the Federal Reserve Board's Form B D 4, prescribed for
the reporting of discount transactions.
"SECTION VIII.
CHANGES IN REGULATIONS
"The Federal Reserve Board, pursuant to the authority conferred upon it by Section 13b of the Federal Reserve Act, will
alter, modify or amend the provisions of this regulation from
time to time in its discretion.
"APPENDIX
"There is printed below the text of subsections (h), (1),
(j), and (k) of Section 22 of the Federal Reserve Act, as amended
by the Act of June 19, 1931, which relate in part to the subject
/natter of this regulation.
"(h) Nhoever makes any material statement, knowing it
to be false, or whoever willfully overvalues any security,
for the purpose of influencing in any may the action of a
Federal Reserve bank upon any application, commitment, advance,
discount, purchase, or loan, or any extension thereof by renemal, deferment of action, or otherwise, or the acceptance,
release, or substitution of security therefor, shall be
Punished by a fine of net more than 35,000 or by imprisonment
for not more than twy years, or both.
"(I) Whoever, being connected in any capacity with a
Federal Reserve bank (1) embezzles, abstracts, purloins, or
Willfully misapplies any moneys, funds, securities, or other
things of value, whether belonging to it or pledged or otherwise entrusted to it, or (2) with intent to defraud any Federal Reserve bank, or any other body politic or corporate,
or any individual, or to deceive any officer, auditor, or
examiner, makes any false entry in any book, report, or statement of or to a Federal Reserve bank, or, without being duly
authorized, drams any order or issues, puts forth, or assigns
any note, debenture, bond, or other obligation, or draft,
6/26/34
-11.III
mortgage, judgment, or decree shall be punished by a fine
or not more than 310,000 or by imprisonment for not more than
five years, or both.
"'(j) The provisions of sections 112, 113, 114, 115,
116, and 117 of the Criminal Code of the United States, insofar as applicable, are extended to apply to contracts or
agreements of any Federal Reserve bank under this Act, which,
for the purposes hereof, shall be held to include advances,
leans, discounts, purchase and repurchase agreements; extensions and renewals thereof; and acceptances, releases, and
substitutions of security therefor.
"'(k) It shall be unlawful for any person to stipulate
for or give or receive, or consent or agree to give or receive, any fee, commission, bonus, or thing of value for procuring or endeavoring to procure from any Federal Reserve bank
any advance, loan, or extension of credit or discount or purchase of any obligation or commitment with respect thereto,
either directly from such Federal Reserve bank or indirectly
through any financing institution, unless such fee, commission,
bonus, or thing of value and all material facts with respect
to the arrangement or understanding therefor shall be disclosed
in writing in the application or request for such advance,
loan, extension of credit, discount, purchase, or commitment.
Any violation of the provisions of this paragraph shall be
Punishable by imprisonment for not more than one year or by
a fine of not exceeding c5,000, or both. If a director, officer, employee, or agent of any Federal Reserve bank shall
knowingly violate this paragraph, he shall be held liable in
Ills personal and individual capacity for any loss or damage
sustained by such Federal Reserve bank in consequence of such
violation.'"
At Governor Black's suggestion, he and Li.. Goldenmniser were
NIlested to prepare a statement for release to the press with regard
to the
action taken during the current meetings with the Federal reserve
gents and governors.
The minutes of the meeting of the Executive Committee of the
ecieral Reserve Board held on June 16, 1934, wore approved and the
11,1 recorded therein were ratified unanimously.
/he Board then considered and acted upon the following matters;
191_8
6/25/34
-12Letter dated June 25, 1934, approved by six members of the
44rd, to hr. Williams, Federal Reserve Agent at the Federal Reserve
knk of Cleveland, with regard to the steps which should be taken in
e°11nection with the matters commented on in the report of examination
Of The Nemnrk Trust Company, Newark, Ohio, as of February 5, 1934.
Approved.
Telegram dated June 23, 1934, approved by six members of the
board, to Ni'. Sargent, Assistant Federal Reserve Agent at the Federal
Recerve Bank of San Francisco, reading as follows:
"Your mire June 20 requesting advice whether State member
bank located in place of less than 3000 population with capital
of c;40,000 may reduce its capital ', ,20,000 as part of a plan
whereby its capital will be again increased in an equal amount
through sale of20,000 of preferred stock to Reconstruction
F:inance Corporation, even though the resulting capital will not
be equal to the amount required for organization of a national
bank. Board in a few cases involving similar circumstances has
taken position that since purposes of Federal Reserve Act would
be substantially complied with it would raise no objection to
the reduction of capital provided that after reduction and increase by sale of additional stock capital of bank was at least
equal to amount of its capital prior to such reduction and provided that such reduction was valid under State law. Each case
of this kind involves the question whether purposes of Federal
i eserve Act are being substantially complied with and should be
submitted to Board for consideration with detailed inforation
regarding
plan of rehabilitation, advice as to validity of reduction under State law and recommendation. by Federal Reserve
I
tti?snt. In specific ease referred to Board on basis of informa_lon submitted will raise no objection to proposed reduction
ovided that none of funds released by such reduction are re'
t llrAed to share holders but are used to eliminate any undesirable
!tssets in bank, that reduction is valid under State law and that
lt meets with your approval."
Approved.
Letter to hr. O'Connor, Comptroller of the Currency, reading
f°11ows:
6/26/34
-13-
"In accordance with the recommendation of Acting Comptroller of the Currency Await, contained in his letter of June 21,
1934, the Federal Reserve Board approves a reduction in the
common capital stock of 'The Seaboard-Citizens National Bank of
Norfolk', Norfolk, Virginia, from ;?2,000,000 to ,?1,500,000,
Pursuant to an amended plan which provides that the bank's capital shall be increased by the sale of 500,000 of preferred
stock to the Reconstruction Finance Corporation, and that the
released capital shall be used to eliminate losses and depreciation in lower grade securities, and to establish a reserve for
losses.
"It is observed that the plan as submitted provides for
the elimination of losses and depreciation in lower grade securities aggregating approximately $440,663.39, which is the
total of such items shown in the report of examination as of
March 6, 1934. It is our understanding that approximately
331,234 of the estimated losses have already been charged off,
and it is assumed that your office will require the elimination
of the remaining losses and depreciation in lower grade securities as shown in the last report of examination, and that the
balance of the released capital will be set aside in a specific
reserve to provide for losses to be determined at the next or
subsequent examinations, and for no other purpose."
Approved.
Telegram to la.. Sargent, Assistant Federal Reserve Agent at
Federal Reserve Bank of San Francisco, reading as follows:
"Please advise George L. Browning, 6650 Franklin Avenue,
'os Angeles, California, substantially as follows: 'Reference
Your protest
of June 12, 1934, to Federal Reserve Board against
Issuance of permit to Seaboard National Securities Corporation
to vote stock of The Seaboard National Bank of Los Angeles
°limed or controlled by Securities Corporation at special meeting of bank's shareholders to be held June 26, 1934, Board is
a-dyised and has been furnished information to effect that SeIlritios Corporation is not holding company affiliate of such
uank within meaning of section 2(c) of Banking Act of 1933, and,
. 1-11ce law does not require a corporation to obtain permit from
coard in order to vote stock of member bal.* which it owns or
controls unless corporation is holding company affiliate of
sch bank, it does not appear necessary
for Securities Corporation to
obtain permit from Board before voting its stock in
such national bank at meeting aforesaid.!'?
Approved.
6/26/34
-14Letter, prepared in accordance with the action taken at the
Illeeting of the Executive Committee on June 9, 1934, to the chairmen
Of
all Federal reserve banks, reading as follows:
"Section 21 of the Banking Act of 1933, which by its terms
became effective June 16, 1934, reads in part as follows:
'Sec. 21(a) After the expiration of one year after the
date of the enactment of this Act it shall be unlawful * * * * * * * *
(2) For any person, firm, corporation, association, business
trust, or other similar organization, other than a financial
institution or private banker subject to examination and regulation under State or Federal law, to engage to any extent
whatever in the business of receiving deposits subject to
check or to repayment upon presentation of a passbook, certificate of deposit, or other evidence of debt, or upon request of the depositor, unless such person, firm, corporation, association, business trust, or other similar organization shall submit to periodic examination by the Comptroller
of the Currency or by the Federal reserve bank of the district
and shall make and publish periodic reports of its condition,
exhibiting in detail its resources and liabilities, such
examination and reports to be made and published at the same
times and in the same manner and with like effect and penalties as are now provided by law in respect of national banking
associations transacting business in the same locality.'
"The Federal Reserve Board has given consideration to a
n?mber of questions arising under this section and presents its
views herein for your information.
. "In any case in which a person, firm, corporation, association, business trust or other similar organization shall submit
or offer to submit to examination in accordance with the provi61°/13 of the statute, such submission or offer should be in
741-ltinr and signed by such person or by a duly authorized
representative of such firm, corporation, association, business
trust or other similar organization and his authority to execute
such "writing should be properly evidenced. The costs of such
examinations should be paid by the respective persons or organi4”lens examined and the Federal Reserve 3oard suggests that,
rier to the making of an examination under the provisions of
"ton 21, an agreement in writing to pay the costs of such
6x:
6:lunation be obtained from the person or organization to be
6xamlned. Such agreement, of course, may be so worded as to be
113Plieable to all examinations which may be made subsequently
loTder the authority of that section. In view of the provisions
1 the section, examinations of such persons or organizations
t
1921
6/26/34
n
-15-
should be made at least twice in each calendar year and oftener
if considered necessary.
"In order that the fees charged for examinations made under
the provisions of Section 21 may be uniform, it is believed that
the Federal reserve banks should make charges for examinations
under the section on substantially the same basis as that which
will be used by the Comptroller of the Currency; and it is suggested, accordingly, that Federal reserve banks charge for each
examination made under the provisions of Section 21 the actual
expenses thereof, including salaries, subsistence and transportation costs of the examiners, together with a charge of 410 per
day for each day of the examination to cover overhead expenses
and the cost of typing the report of examination.
"It is the view of the Board, that, in a case in which a
Person, firm, corporation, association, business trust, or other
slmilar organization of the kind described in the statute submats or offers to submit to periodic examination by the Federal
reserve bank of the district and does not submit or offer to
submit to such examination by the Comptroller of the Currency,
the Federal reserve bank should make the examinations prescribed
by the statute.
.
"On the other hand, if any such person or organization submits or offers to submit to examination by the Comptroller of
the Currency and does not submit or offer to submit to examination by the Federal reserve bank of the district, the Federal
reserve bank is under no responsibility to make examinations of
such person or organization.
"If a Federal reserve bank is notified that a person or orcanization submits or offers to submit to periodic examination
either by the Comptroller of the Currency or by the Federal reserve bank of the district, a letter should be addressed by the
bank to such person or organization acknowledging receipt of
such notification and requesting that such person or organization indicate a preference as to whether examinations should be
made by the Comptroller or by the Federal reserve bank. It is
11!Iderstood that the Comptroller of the Currency is following
a
smilar practice when he is notified that a person or organizat,lon submits or offers to submit to examination either by the
Comptroller or by the Federal reserve bank of the district. If
uch Person or organization, pursuant to such
a request from the
?ederal reserve bank or from the Comptroller of the Currency,
•_!1(licates a preference as to the authority to make the examinaon, the examination should be made by the authority thus inas preferred. igith respect to such personser organiza."ns, if any, which shall not indicate a preference as rcquested,
is the view of the Board and it is understood that the Comproller of the Currency concurs, that the work of examining such
P°r8ons or organizations should be divided in an equitable manner
1922
6/2(3/34
-16-
ootween the Federal reserve bank and the Comptroller of the
Currency on such basis as may be agreed upon by representatives
of the bank and the Chief Lauional Bank Examiner of the district in accordance with the practical considerations involved
and their mutual convenience. All examinations of any one person or organization should be made from time to time by the
same authority, i.e., either by the Federal reserve bank or by
the Comptroller of the Currency, and it would seem undesirable,
except where it is necessary for special reasons, when one or
more examinations of a person or organization have been made
by the Federal reserve bank to change the practice so that the
Comptroller of the Currency in lieu of the Federal roserve bank
will then make the examinations of such person or organization,
or vice versa.
"It will be observed that, under the terms of the section,
reports of condition of persons and organizations to which the
statute is applicable are to be made and published at the same
times and in the same manner and with like effect and penalties
O-s are now provided
by law in respect of national banldng associations transacting business in the same locality; and, accord'ugly, such reports of condition, in all cases and without regard to the authority which may make the examinatio
ns referred
to in Section 21,
should be made to the Comptroller of the Currency and published in the same manner as reports of condition
Of national banks. It
is requested that each Federal reserve
bank advise the Comptroller of the Currency of the nares and adcrosses of all persons and organizations which submit or offer
to submit to
examination by the Federal reserve bank or either
bY the Federal reserve bank or by the Comptroller of the
Currency, in order that he may notify such persons and organizations
cr oalls for reports of condition and may furnish them forms
or the
rendering of such reports. It is understood that the
°ffice of the Comptroller of the Currency will furnish to each
Federal reserve bank a copy of each such report of condition
Of each
person and organization which has submitted to examinatlon by such Federal reserve
bank.
inasmuch as examinations required under the provisions of
Section 21 of the banking Act of 1933 are to be made Tyy the Fed!I-al
reserve bank or by the Comptroller of the Currency and no
titles are
placed upon the Federal Reserve Board in this connec-clon by the
statute, for the present, at least, it will not be
necessary to submit to the Federal Reserve Beard copies of retorts of such examinatiohs or analyses thereof. However, the
°ard requests that you report to it promptly the names of all
Pe!"sens or organizations which submit or offer to submit to
exnations by your Federal reserve bank or either by your bank
_1:„ by the Comptroller of the Currency, when examinations are
made
'
1 such persons or organizations,
and any other information in
n
6/26/3,1
-17-
“this connection which you feel should be furnished to
the
Board.
it hile the Federal Reserve Board does not feel that
it is
necessary under the law that Federal reserve banks or the
Federal Reserve Agents make an investigation in order to deter
mine
what persons or organizations in their respective districts
may
be subject to the provisions of Secti
on 21 of the Banking Act
of 1933, the Board suggests that each Federal reser
ve bank take
such steps as it may consider best adapted
to the purpose to
bring the provisions of Section 21 to the attention of
persons
and organizations in its district which there is reason to
believe may be affected by the section. A state
ment released to
the press or a circular transmitte
d directly to such persons
and organizations, or both if consi
dered advisable, may be used
for this purpose. If such a
circular is transmitted to any person or organization, it shoul
d be stated that the Federal
reserve bank is not thereby undertaking to expre
ss an opinion
O.s to the appli
cability of the section to such person or organization but is merely inviting attention to the matte
r for consideration. There is inclosed herewith for your informatio
n a
copy of the Board's statement for the press on this
subje
ct
and
you will note state
d thereon the date and time for release of
statement. If you decide to issue a statement to the press
in this
connection, it is suggested that, in order to avoid the
Possibility of confusion in the matter, you use the Board
's
form of release
inclosed herewith, and that you issue such
statement on the date and at the time of release indicated
on
tne Board's statement.
"With regard to questions which may arise as to -whether
Persons or orr,am
izations or stated transactions fall within the
scope of Section 21 or are affected by its provi
sions, atten”
ron is invited to the
Board's letter of December 16, 1933
in which it is stated that the section does not give
0 the Federal
Reserve Board any jurisdiction or discretion relrding the matters with which it deals
and that the Board does
not feel that it would be appropriate for it
to undertake to
?Press opinions upon questions of this kind.
As indicated in
'flat letter, the section provi
des a penalty of fine or imprison111;n1; for any violation
of its provisions and the determinftion
,
0 the quest
ion mhether a person or organization should be pro'.ecuted for such violation is a matter
entirely within the
A-?'isdiction
of the Department of Justice. The section does
v ct give to the Comptrolle
r of the Currency, the Federal reserve
;a11-17. or the Feder
al Reserve Board any discretion or power to
de_ctluire a person or organization to submit to examinatio
n or to
ermine what persons or or-anizations should
submit to examinat,lon.”
T
•
Approved, together with a statement to be
6/26/34
-18released to the press on June 30, 1934, with rerl,ard
to examinations and reports under section 21 of the
Banking Act of 1933.
Letter dated June 25, 1934, approved by six members of the
130ard, to Mr. Case, Federal Reserve Agent at the Federal Reserve
tank
of liew York, reading as follovrs:
"The Federal Reserve Board has under consideration the
application of Raymond 'a. Oakes under Section 32 of the Banking Act of 1533 for permit to serve at the same time as Assistant Cashier of the Jefferson County National Bank, Watertown, New York, as vice president and director of The First
.
31ational Bank, Lacona, hew York, and as secretary-treasurer of
the Jefferson Securities Corporation, Watertown, hew York, and
has noted your recommendation that the application be refused.
"In its answer to iuestion No. 1 on F. R. B. Form 99c,
the dealer makes the following statement:
'The business of the Jefferson Securities Corporation is now
confined entirely to the execution of such buy and sell
orders as may COM to us from the customers of the Jefferson
County National Bank and others, and is no longer engaged in
marketing or underwriting of securities.'
"However, the statement of the dealer on the same form
shaus that the greater part of the Company's assets is composed
of stocks, bonds and securities which would seem to indicate
that the Company may be engaged in retailing securities.
"Az you know, if the Jefferson Securities Corporation is
not a dealer in securities -within the scope of Section 32, the
applicant can continue to serve that Company and the member
banks without a permit from the Board; but since the information submitted is not sufficient to enable the i;ovrd to determine whether the relationship covered by the application is
within the purview of Section 32, it will be appreciated if
You will obtain detailed information as to the company's business.
"Furthermore, since the relationship involves a national
bank, the Board believes that it should have information as to
7thether the Jefferson Securities Corporation
makes loans se?lared by stock or bond collateral in connection with the carryof margin accounts or otherwise, in order that it may
.ortermine
whether Section 8A of the Clayton Act is applicable
° such relationship.
It is also noted from the dealer's answer to question 2
°11 Form 99c that the Jefferson Securities Corporation is an
affiliate of the Jefferson County
National Bank, that all the
1925
6/26/34.
-19-
"stock of the Jefferson Securities Corporation is held by three
trustees for the stockholders of the Jefferson County National
Bank, and that the stockholders' interest in the securities corporation is evidenced by an indorsement on the bark's stock certificates. As you know, Section 18 of the Banking Act of 1533,
which became effective on June 16, 1934, provides that on and
after that date no certificate representing the stock of a national bank shall represent the stock of any other corporation
except the stock of a member bank or of a corporation engaged
solely in holding the bank premises. It appears from the inferImtion submitted that the indorsement on the stock certificates
of the Jefferson County National Bank comes within the prohibitions of Section 18 and that if it has not already done so,
the Jefferson ColLnty National Bank should take the necessary
steps to comply with the provisions of that statute. It is suggested that you call this to the attention of the national bank.
"It will be appreciated if you will obtain and furnish to
the Board such detailed information with regard to the business
of the Jefferson Securities Corporation as will enable the
Board to determine whether the relationships described herein
cor,e within the provisions of Section 32 of the Banking Act of
1.9 3 or of section 8A of the Clayton Act. The Board will appreciate any further remarks which you may deem pertinent to this
aPPlication."
Approved.
Letter dated June 23, 1934, prepared for the signature of Yr.
141'tir-, Assistant to the Governor, and approved by
six members of
the 80ard,
to Lir. Paul M. Davis, President of The American National
1141k, i
lashville, Tennessee.
The letter read as follows:
"Reference is made to your letter dated June 19, 1934, in
cEard to the application of Lir. J. J. Gray, Jr., under section
°2 of the Banking Act of 1933 for permission to continue to serve
a. a
director of your bank and as president and director of Gray& Co. Your letter has been referred by Governor
Black to me for reply.
"Careful consideration has been given to your statement that
1:11% Gray is one of your strongest and most influential directors
8 well as one of your largest stockholder
s, and that it would
'2? a great loss to the bank not to have him on its Board. It has
;Lso been noted that you state that 1,1r. Gray is not active
in
e securities business and does not in any way participate in
ue buying or selling, but merely invested some money in the
Z
j
1926
6/26/3'1
-20-
"securities company and consented to act as president on account
of his standing in the community. However, in his applica
tion,
Mr. Gray, in answer to question No. 4 of F.R.B. Form 99a described the services actually rendered by him to the dealer in
securities as follows:
"'Applicant is President, and directs the
policy of the dealer in securities'.
"It appears however, that the extent of the activity of Mr.
Gray in the management of the business of the securities company
is not a controlling consideration upon the question of whether
or not a permit should be granted. Your statement has been noted
to the effect that there is not a chance of Gray-Shillinglaw
&
Co., influencing your bank's credit and investment policy. No
doubt this is true in man:,, cases but it was apparently the view
Of Congress that all such interlocking relatio
nships should be
prohibited in order to eliminate any possibility of an improper
influence upon the affairs of member banks.
"In his answer to question No. 2 of F.R.B. Form 99a, Mr.
Gray states that Gray-Shillinglaw ('1 Co. 'buys and sells securities for its own account and for the account of others'.
Furthermore, the statement of Gray-Shillinglaw & Co. on F.R.B. Form
99o, attached to r. Gray's application shows that on the date
the application
was prepared the company had on hand :J.01,330.61
of bonds and stocks, out of total assets
of J118,361.40. It
thus appears that Gray-Shillinglaw & Co. is engaged in the purChase and sale of securities as a dealer, and that accordingly
the relationship covered by jJ1.. Gray's applica
tion is within
the class at
which section 32 was directed. The Federal Reserve
Board believes that since Congres
s has enacted into law a definite
P°1ioy that a relatianship of this type is incarpatible with the
Public interest, the Board
should not grant a permit in such a
?42e, even though the individual applicant has not allowed
his
interest in
a securities company to affect his judgment as an
°fficer or director of a member bank.
"I sincerely regret that on the basis of the facts
stated
it Your letter it appears that no
exception can be made in Mr.
G aVs case. However, if there are any other
j
facts or circurces which you or 1.1r. Gray feel should be considered in conLleotion with this application, the Federal Reserve Board
is preIseci to give careful consideration to such additional matters.
'
tT.. such additional information should
be submitted in writing
"reuCh the Federal Reserve Agent at the Federal Reserve Bank
of
Atlanta."
Approved.
thall
There were then presented the following applications
for
stock of Federal reserve banks:
192'7
6/26/3q
-21-
for ADDITIONAL Stock:
Da.stri-di
No.
"le First National Bank of Greeneville,
Gr
eeneville, Tennessee
Ihe First National Bank of
Montgomery,
litontgoraer,„ Alabama
First
National Bank of Lawrenceville,
Lawrenceville, Georgia
District
1,
8
'he St. Clair
National Bank of Belleville,
Belleville, Illinois
Dist
riot ho. 9.
MG First National Bank of
Gilbert,
Gilbert, Minnesota.
The iqrst
i.ational Bank of Rapelje,
R4Pe1ie, Liontana
Shares
9
300
7
316
30
30
6
12
District Lo. 10.
The Central
National Bank of Poteau,
P°tettla, Oklahoma
7
tist
No. 11.
1111) First
National Bank of La Porte, La
P°rte, Texas
2triot No. 12.
The First
National Bank of Chewelah,
Th Chewelah,
Washington
Bonner County
National Bank of
Sandpoint, Sandpoint, Idaho
APPl
4
12
12
3
5
382
•
for SURRENDER of
Stockl.
NO. 2.
h°
L:ountaTins National Bank of
Tannersville,
iieTannersville, New York
Teaneck Lational
Jer
sey
Bank, Teaneck, New
*trlet
Distr.
No. 3.
Libert
ional Bank of Pittston,
Ilttston,
Pennsylvania
45
39
15
84
I028
6/216/54
-22-
J.21.2L
.
for SURRENDER of Stock: (Continued)
ications
Illat No. 3. (Continued)
the First National Bank of Roseto,
Roseto, Pennsylvania
The Palmyra National Bank, Palmyra,
New Jersey
District No. 3.
T
lrst iational Bank of Abingdon,
Abingdon, Virginia
!!1111IEAp_t No. 6.
itjzens naional Bank of Montezuma
Lontezuma, Georgia
Peoples-First National Bank of Quitman,
Quituan, Georgia
!rict
the eiii-E-
Shares
36
66
117
165
165
30
81
111
120
120
150
150
7.
Rational
Bank of Antigo,
Antigo, lasconsin
katrict No. 8.
?trot ational Bank in St.
Louis,
St. Louis, Nissouri
District
Noe 11.
The
Plrst iational Bank of Aransas Pass,
rm
Aransas Pass, Texas
'"e Adams National Bank of Devine,
Tt
Devine, Texas
American National Bank of Tucumcari,
T
ueumcari, New Mexico
26
45
38
Total
109
856
Approved.
Thereupon the meeting adjourned.
tyL,LL
ecretary.
411PrOVed:
@FedFRASER