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367 A meeting of the Board of Governors of the Federal Reserve 4eltem was held in Washington on Tuesday, March 12, 1240, at 10:30 Eton. PRESENT: Ir. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak (first part of afternoon session) McKee Davis Draper Mr. Morrill, Secretary Ir. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston) Special Assistant to the Chairman Mr. 7iyatt, General Counsel Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Smead, Chief of the Division of Bank Operations Mr. Dreibelbis, Assistant General Counsel Mr. Ransom referred to Bill H.R. 8638 which was introduced in the House of Representatives on February 23, 1940, and referred to the coTh 'utattee on Banking and Currency and which, among other things, would ' Ire the Comptroller of the Currency from the board of directors of the t, "deral Deposit Insurance Corporation, increase insurance to cover 4PORi4. Up to 0_0,000, and reduce the deposit assessment rate from 1/1.2 to 1/14 of 1%. Mr. Ransom said that he had been informed that it w Ets not planned to hold hearings on the bill, and that it might pass the I, n°11ee of Representatives as a substitute for the Byrnes Bill e, 18) which passed the Senate on June 13, 1939, so that when the 144 reached the Senate the action would be in the form of sending 368 V12/40 the than a ged Byrnes bill to conference, and that the bill might have good chance of passage at this session of Congress. After a discussion of whether the Board should take any action in the matter, Messrs. Goldenweiser and Wyatt were requested to prepare an analysis of the bill for consideration by the Board. During the course of the last six weeks the Division of ReCh and Statistics had sent to the members of the Board and members °r the " ' the staff a first and second draft of the text of the Annual Report Board for the year 1939 and members of the Board had discussed the drafts with members of the staff. At this meeting consideration 1148: ellen to a third draft of the report and additional changes were Ilibeed upon. At the conclusion of the discussion the report was approved unanimously subject to such further changes of form as might be approved by Mr. Davis, with the understanding that the report would be submitted to the Speaker of the House of Representatives and President of the Senate as soon as printed and given such further distribution as approved by Mr. Davis. The meeting then recessed and reconvened at 3:00 p.m. with 41,. -"le attendance as at the morning session except that Mr. Smead WA Present and Messrs. Szymczak, Parry, Chief of the Division c48"Ilrity Loans, and Piser, Senior Economist in the Division of Ileee4lIch and Statistics, were in attendance. 369 -3Mr. Davis related telephone conversations which he had during the , -LUnch hour with Messrs. Day, President of the Federal Reserve 11Wc of San Francisco, and Bolden, Deputy Chairman of the bank, during Ithich they expressed a preference for the immediate designation of Mr. l aYmond C. Force, who was appointed a Class C director of the bank 1511 March 8, 1940, as Chairman and Federal Reserve Agent at the bank r(*the balance of the current year. Upon motion by Mr. Davis, Mr. Force was designated as Chairman and Federal Reserve Agent at the Federal Reserve Bank of San Francisco for the remainder of the year 1940 and his compensation as Chairman and Federal Reserve Agent was fixed on the uniform basis fixed for the same Position at all Federal Reserve banks, i.e., the same amount as the aggregate of the fees payable during the same period to any other director for attendance corresponding to his at meetings of the board of directors, executive committee, and other committees of the board of directors. There was presented for consideration a draft of record cover- 1 4 actions on questions of policy taken by the Federal Open Market ON— 'mUttee during the year 1939 and in that connection attention was led to the a memorandum which Mr. Morrill addressed to the members of 8"rd on March 9, 1940, with respect to an addition suggested by kt. arrison, Vice Chairman of the Federal Open Market Committee, to the "trY covering the meeting of the Committee on December 13, 1939. 4 -arrison's suggestion was discussed, but it was decided that no h"ge Should be made in the record as submitted with Mr. Morrill's 370 3/12/40 -4- raEmlorandum of March 9. Thereupon unanimous approval was given to the record as submitted. Mr. Szymczak left the meeting at this point. Mr. Morrill referred to the communications sent by the Board t0141% Berle, Assistant Secretary of State, under dates of March 8 Ettid 9) 1940, with respect to the Inter-American Bank, and raised the 411"tion whether copies of the communications should be sent to the 11"eral Reserve Bank of New York for its information. It was agreed unanimously that there was no need for sending copies of the letters to the New York bank at this time. Mr. Morrill then stated that a request had been received from Ktmball, Secretary of the Presidents' Conference, that he be adOf any topics that the Board would like the Presidents to dis°488 at their conference which had been called to convene at Washington rn'qesdey afternoon, March 19, 1940. It was agreed unanimously to request the views of the Presidents on Bill H.R. 8638, to which reference was made at the morning session of this meeting, and, as soon as the analysis of the bill being prepared by Messrs. Wyatt and Goldenweiser is completed, to send copies to Mr. Kimball for the information of the Presidents with the advice that the analysis had been prepared for the information of the Board but had not yet been considered by it. In connection with the above matter the suggestion was made 371 3/12/40 -5- that it would be a desirable procedure if arrangement were made at c°11farences of the Presidents to hold a joint meeting of the Presi11348 and the Board prior to the separate meetings of the Presidents. It was agreed unanimously that the suggestion should not be made as to the forthcoming conference but Should be offered to the Presidents for consideration In connection with subsequent conferences. At this point Messrs. Thurston, Wyatt, Goldenweiser, Parry, ' e ibelbis and Piser left the meeting and the action stated with reto each of the matters hereinafter referred to was then taken bYsi, Board: The minutes of the meeting of the Board of Governors of the ed ' 1111 Reserve System held on March 9, 1940, were approved unanitouslys Telegram dated March 11, 1940, to Mr. Roger B. Shepard, a Clets 8 C director of the Federal Reserve Bank of Minneapolis, reading 48 t°11owe: "Board of Governors of Federal Reserve System has elVointed you Deputy Chairman of Federal Reserve Bank Of Minneapolis for remainder of year 1940, and will be Pleased to have your acceptance by collect telegram." Approved unanimously. Letter dated March 11, 1940, to Mr. Young, President of the IV Reserve Bank of Boston, reading as follows: 19an "This refers further to your letter of Tanuary 24, submitting a request of representatives of the 372 ' 3/12/40 -6- "Webster and Atlas National Bank of Boston for advice SS to whether, in the view of the Board, the operation of a Common Trust Fund under a plan which is being considered by that bank would conform to the requirements Of the Board's Regulation F. It appears that, disregarding details, the Point upon which the Board's views are desired is whether the operation of a Common Trust Fund Under the proposed plan would be contrary to the followProvisions of subsection (a) of section 17 of Regulation F: 'The purpose of this section is to permit the use of Common Trust Funds, as defined in section 169 of the Internal Revenue Code, for the investment of funds held for true fiduciary purposes; and the operation of such Common Trust Funds as investment trusts for other than strictly fiduciary purposes is hereby prohibited. No bank administering a Coumion Trust Fund shall issue any document evidencing a direct or indirect interest in such Common Trust Fund in any form which purports to be negotiable or assignable. The trust investment committee of a bank operating a Common Trust Fund shall not permit any funds of any trust to be invested in a Common Trust Fund if it has reason to believe that such trust was not created or is not being used for bona fide fiduciary purposes.' "It appears that the creation of the Common Trust Plind is part of a plan under which the bank proposes to solicit the public (through paid solicitors or agents of the bank, newspaper advertisements, circulars, etc.) to create uniform revocable trusts designed specifically to Participate in the Common Trust Fund. With this in view, the bank has prepared an application and receipt form and a so-called 'Participating Trust Agreement' form. Under such trust agreement form, the creator of a trust is to d ePosit with the bank, as trustee, a stated principal sum In 120 equal monthly deposits and the bank is directed to invest such deposits, less authorized deductions, in Participations in the Common Trust Fund. The trust is to terminate upon revocation, death of the creator, notice d elivered by the trustee to the creator after continued , 73 3/12/40 -7- "default in making deposits, or the expiration of 10 Years (i.e., the expiration of the period during which the deposits are to be made). In addition to an acceptance fee of 10, an annual fee of 6 per cent of the income of the trust, and a termination fee of 2 per cent Of the then cash value of the trust assets, the bank is to receive the first year a fee of 2 Per cent of the :tated principal sum and each year thereafter a fee of '5. Among, other things, it is also noted that the trust agreement form refers to the fact that 'other trust estates have been or are to be established under particiPatine trust agreements respectively, substantially similar to this instrument'. In the application form, the person desiring to create such a trust applies for the execution of a Participating Trust Agreement, such Participation' to be in a stated principal sum. Such aPPlication form recites that there is paid therewith a stated sum, consisting of an acceptance fee of '1.0 and the first of 120 equal deposits, and also that the bank will be empowered to invest the net deposits of the apPlicant in a Common Trust Fund to be held and managed by the bank as Collective Trustee pursuant to a Collective Trust Plan of a specified date. The bank's representative receiving the application is to give a receipt for the money but there is to be no binding agreement until the application is accepted by the bank and a Participating Trust Agreement is executed by the bank and the applicant. "In view of these facts and the other details of the matter discussed in the comprehensive opinion of Your counsel, the Board agrees with the conclusion reached by your counsel that the proposed Common Trust could not be considered as being operated in conformity with the Board's Regulation F and particularly that part of the regulation Quoted above. "As you know, it is not the Practice of the Bureau of Internal Revenue to make advance rulings on a hypothetical basis. However, the Board has no doubt that, if the proposed Conmon Trust Fund should be operated as contemplated, the Bureau of Internal Revenue would deny &nach Fund the tax exemption granted to Common Trust lAinds operated in conformity with the Board's regulations. "It is requested that you advise the Webster and as National Bank of the Board's views in the premises. 374 3/12/40 -8- "In view of the full opportunity which representatives Of your bank have afforded representatives of the Webster and Atlas National Bank to present fully all facts and arguments involved, it would not seem that it would serve any useful purpose for representatives of the bank to came to Washington to discuss the matter. However, if uPon consideration of the views expressed herein representatives of the bank should desire to submit any.further information in the premises or should still desire to came to Washington to discuss the matter with representatives of the Board, the Board, of course, will be glad to have them do so." Approved unanimously. Memorandum dated February 28, 1940, from 'Mr. Van Fossen, AssistlInt Chief of the Division of Bank Operations, stating that replies 444 been received from all Federal Reserve agents in response to the letter of November 15, 1939 (R-553), with respect to the de4trtletion of certain records of Federal Reserve agents, and recommendthat Congressional authority be requested to destroy the records list "in the statement attached to the memorandum it being understood t)16:b none of the records listed will be destroyed until their destruction has been authorized by the Board. A form letter addressed to the Illichivist of the United States submitting the list of records referred to Tol also attached to the memorandum. Approved unanimously. Letter to Mr. Young, President of the Federal Reserve Bank of 1°atr, -n, reading as follows: "There are being sent you at this time under 375 3/12/40 -9- separate cover 10 sets of the Federal Reserve LooseLeaf Service, as requested in your telegram of October 91 1939. It will be appreciated if you will see that these sets of the Service are distributed to the proper persons. "Your attention is called to the fact that instructions relating to personnel questions, appointment of examiners, surety bonds, and other related matters have been placed at the end of the Service in a separate division under the heading 'Miscellaneous Matters'. In view Of the suggestion made by one of the Federal Reserve behks that it might be desirable to omit such matters fram the Service, this arrangement has been followed so that it will be possible for any Federal Reserve bank to delete this group of instructions, if it so desires, When sets of the Service are distributed, although the General Index, of course, will include references to the instructions in question. "In order that the maximum usefulness may be obtained from the Federal Reserve Loose-Leaf Service, it is ex'remely Important that each user of the Service familiarize himself with its setup and the mechanics of its Operation by reading carefully the 'Explanation of Service' and 'Federal Reserve Loose-Leaf Service Letter No. 1', which will be found near the beginning of Volume I." Approved unanimously, together with similar letters to the Presidents of all other Federal Reserve banks. Mr. Morrill suggested that the Board authorize the payment of the cost of luncheon served to Mr. John G. Nichols, Chief, Division or Minetions, Federal Deposit Insurance Corporation, and Mr. W. P. ?oig er, Chief National Bank Examiner, Comptroller of the Currency, in the Board's dining room today. Approved unanimously. 376 3/12/40 -10- Thereupon the meeting adjourned. C.,C ) aalo Chairman.
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