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377 Ameeting of the Board of Governors of the Federal Reserve SYlitem was held in Washington on Wednesday, March 13, 1940, at 12:15 PRESENT: Mr. Eccles, Chairman Mr. McKee Mr. Draper Mr. Mr. Mr. Mr. Morrill, Secretary Bethea, Assistant Secretary Carpenter, Assistant Secretary Clayton, Assistant to the Chairman The action stated with respect to each of the matters herein"el' referred to was taken by the Board: Memorandum dated March 11, 1940, from Mr. Morrill recommend- ) for the reasons stated in the memorandum, that, effective imntecliately, Joseph E. Kelleher, Sergeant of the'Guard, be transferred to the Position of Supervisor of Duplicating, Mails and Supplies, in t48 Secretary's Office, on a probationary basis, with no change in 418 Present salary at the rate of ;t1,740 per annum, but with the uncli*18tending that the transfer will be made permanent and his salary Il esed to P2,100 per annum at the end of three months if in the ftent of the Secretary he has fully measured up to expectations. j" Approved unanimously. Memorandum dated March 5, 1940, from Mr. Paulger, Chief of the the ulvision of Examinations, recommending, for the reason stated in Zemorandum, that the Board grant Mrs. Lulu C. Medeiros, a sten- ' IVIler-clerk in the Division, 27* days sick leave with pay, which 378 3/13/40 had been taken by Mrs. Medeiros in excess of her accumulated sick le "s) and that such leave be not charged to any future accumulated sick leave. Approved unanimously. Letter to Mr. Day, President of the Federal Reserve Bank of Prancisco, reading as follows: "Reference is made to your letter of March 5 regarding the Farmers and Merchants Bank, Lodi, California, a Prospective applicant for membership in the System. "It is the Board's view that the provisions of Section 5136 of the Revised Statutes do not make it necesserY for a bank applying for membership to reduce excessive holdings of individual issues of securities to Within the limitations prescribed for member banks or to dispose of nonconforming issues acquired prior to Membership. Furthermore, it is not the general practice of the Board to require, as a condition of membership, that banks bring their securities account into conformity with Section 5136 and the regulations issued thereunder. Whether requirements Should be made in an individual case depends upon the circumstances in that case. "With regard to the Farmers and Merchants Bank of Lodi, it appears from the information submitted by you, and from the latest report of examination of the bank by the Federal Deposit Insurance Corporation, that the bank is in good asset condition except for its securities account, and the securities account does not seem to present an insurmountable problem. The total carrying value of securities represents a relatively small Portion of the bank's total assets and provision has been made for probable losses in the account. Therefore, if Your office is satisfied with the character of the new management and with its ability to effect the imProvements needed, the Board mould not make any requireMents of the bank regarding the securities account, unrequirements less, of course, the bank is now subject to Insurance Corporation or imposed by the Federal Deposit the State authorities in this connection. 379 -3"With respect to the other question presented in Your letter, the Board is not inclined to the view that the filing of the application for membership by the Farmers and Merchants Bank should necessarily be deferred Pending the outcome of present efforts of the bank to adjust and improve its securities portfolio. Such conclusion is based on the fact that the bank is apparently in acceptable asset condition and under capable management, and on the assumption that better progress can be made by the bank within the System than without. "If the bank files its application for membership, it will, of course, be necessary to clear the case with the office of the supervising examiner for the Federal Deposit Insurance Corporation and it is assumed that you will ascertain, also, whether the bank is subject to any requirements which the State authorities may have ti Posed." Approved unanimously. Letter to Mr. Neely, Chairman of the Federal Reserve Bank of Mietta, reading as follows: "At the completion of the examination of the Federal Reserve Bank of Atlanta, made as of January 4, 1940, by the Board's examiners, a copy of the report of examination was left for your information and the information of the directors. A copy was also furnished President Parker. "The report does not appear to contain any matters requiring further comment at this time. The Board will aPPreciate advice, however, that the report has been considered by the Board of Directors. Any comments you may care to offer regarding discussions with respect to the examination or as to action taken or to be taken as a result of the examination will also be appreciated." Approved unanimously. Letter to "The Union National Bank of Superior", Superior, 8co "in, reading as follows: 380 z/13/40 -4- "The Board of Governors of the Federal Reserve System has given consideration to your application for fiduciary powers, end grants you authority to act, when not in contravention of State or local law, as trustee, executor, administrator, registrar of stocks and bonds, Mardian of estates, assignee, receiver, committee of estates of lunatics, or in any other fiduciary capacity in which State banks, trust companies or other corporations which came into competition with national banks are permitted to act under the laws of the State of Wisconsin, the exercise of all such rights to be subject tO the Provisions of the Federal Reserve Act, and the regulations of the Board of Governors of the Federal Reserve System. "This letter will be your authority to exercise the fiduciary powers granted by the Board pending the preparation of a formal certificate covering such authorization, which will be forwarded to you in due course." Approved unanimously. Letter to Mr. Young, President of the Federal Reserve Bank of 11"t°111 reading as follows: "Reference is made to Mr. McRae's letter of March 7) 1940, advising the Board that the Menotamy Trust CamPanY, Arlington, Massachusetts, had reduced its common al, effective March 1, 1940, from $300,000 to 2 0,000 and enclosing a certified copy of the Articles ,0 of Amendment, also a copy of your letter of December 28, 939) to the president of the member bank approving the then proposed transaction on behalf of the Board. "It is assumed that your approval was given pursuant to the Board's letter of May 1, 1937, (X-9882) but that letter confers authority to approve on behalf of the Board °IalY reductions of preferred stock or capital notes or deb entures. "In view of the action taken and the condition of the member bank as indicated by the last report of examination, the Board approves the transaction as effected." (rAit 1 Approved unanimously. 381 3 13 0 / /4 Letter to Mr. Preston Delano, Comptroller of the Currency, readii es follows: "The Board of Governors has received, through the Federal Peserve Bank of Kansas City, en inauiry from The /armers National Bank, Great Bend, Kansas, as to whether its Vice President, L. L. Gunn, who is also a member of the discount committee, is an executive officer within the meaning of the Board's Regulation 0. It is understood that this matter has been the subject of corresPondence between your office and The Farmers National Bank. "From the facts presently available to the Board, it appears that the bank regards Vice President Gunn as inactive to the extent that he does not perform any of the customary duties of a Vice President; that he receives no compensation for his work on the discount committee; and that the board of directors of the bark has adopted e resolution to the effect that he is not authorized to PerticiPate in the operating management of the bank. He is, however, a member of the discount committee, which flider the by-laws consists of 'the president, cashier end three directors appointed by the board', and which has Power to discount and purchase bills, rotes and other evidences of debt, and to buy and sell bills of exchange'. It nlso appears that Mr. Gunn is a member of the examining! committee. "We also wish to point out as having a possible bea irig In connection with this matter that the board of directors of the bank has adopted a resolution to the effect that President Duckwall is not authorized to participate it the operating manacemert of the bank; but, like the Vice President, he is a member of the discount committee in addition to being a director. No question, however, hes been raised as to the status of President Duckwall. "Before the Board undertakes to rule upon this matter, it 'will be appreciated if you will advise us hether in Your judgment, based upon reports of examination and any Other information available to your office, Vice President GUtt participates in the operating management of the bank Otherwise than in the capacity of a director." Approved unanimously. 382 l 13 0 ' /4 -6Letter to Mr. Gidney, Vice President of the Federal Reserve 13aak of New York, reading as follows: "Reference is made to your letter of January 26, 1940, regarding the Clayton Act status of Mr. Kenneth AfICLaren, who is serving as a director of Commercial Trust Company of New Jersey, Jersey City, New Jersey, aS Chairman of the board of The Corporation Trust CamPenY, New York, New York, and as chairman of the board or The Corporation Trust Company, Jersey City, New Xersey. " -You have submitted information to the effect that Commercial Trust Company of New Jersey is a member of the Federal Reserve System and does a general banking and individual trust business. On the other hand, The C°rPoration Trust Company of New York and The Corporation Trust Company of New Jersey are members of a group Of associated companies organized primarily to furnish domestic and foreign statutory representation to organizations throughout the country and to assist counsel in the organization of new corporations. The activities Of the companies cover a wide field of specialized services for corporations including furnishing information and official forms pertaining to the organization of corPoretions under the laws of the various States; conducting organization meetings; procuring necessary stock books and seals; keeping stock books in regular fc)rm; holding annual meetings of the corporations and e4 Pplying inspectors of elections and filing reports eno statements; aaalifying corporations to transact business in foreign States; informing attorneys of all texas and required reports affecting corporations which they represent. "The Corporation Trust Company of New York showed ePProximately 3O,OOO of deposits in a recent published rePort of condition, but Mr. McLaren has explained to Y°1-1 that these moneys were not 'deposits', that they were not subject to check and that they represented princiPally funds left with the Company to pay dividends tOr several corporations and some minor items connected With corporations which the Company represents. He Alrther advised that deposits of approximately $71,000 shovin by a recent report of condition of The Corporation 383 3 /13/40 -'7- "Trust Company of New Jersey are of substantially the same nature as those of the New York corporation. "All three Companies which Mr. McLaren is serving act as transfer agent and registrar for a number of different corporations. The Commercial Trust Company acts as dividend paying agent for six corporations and both Corporation Trust Companies do so for approximately the "Me number. As far as corporate trust business is concerned, the situation seems to be as follows: Commercial Trust Company does not act as corporate trustee, having discontinued such business many years ago, the only exception being that the Company was substituted as trustee for two bond issues of the Erie Railroad Company when it was placed in bankruptcy and the New York banks which had been trustees had conflictina interests. The two Co7Poration Trust Companies did at one time engage in this class of business 'in a rather small way' but do not solicit it at present, being now indenture trustees 0n1Y in one and two instances, respectively. "You state that you do not believe that it was intended that the Clayton Act should prohibit an interlocking relationship between Commercial Trust Company of New J 'ersey, which does a general banking and individual trust business, and the two nonmember institutions, which do not enaage in the banking business as that term is gene/Till' understood since they do not accept deposits or make loans of any kind. You point out that the only activities engaged in by the two nonmember institutions which are engaged in by Commercial Trust Company are those described above and that if their activities as transfer agent and registrar are eliminated as merely an adjunct to the kind of business in which they are engaged and not the kind of business contemplated by the Clayton Act, there would be little left. In fact, all that would be left would be the instances in which the three Companies act as dividend paying agents, and the instances, which have practically reached the vanishing point, where they act as indenture trustee. "The Corporation Trust Companies are a special type Of organization operating in a special field, and the Board agrees with you that it was not intended that the Clayton Act Should prohibit interlocking relationships between such organizations and member banks. Accordingly, 384 3 ./40 /3 -8- "the Board is of the opinion that the statute is not apPlicable to Mr. McLaren's relationships described above." Approved unanimously. Letter to Mr. Day, President of the Federal Reserve Bank of San lilrancisco, reading as follows: "This refers to your letter of February 28, 1940, enclosing a copy of a letter dated February 26, 1940, framMr. Yale C. Porch, Comptroller of the California Bank, Los Angeles, California, presenting for consideration the question whether under the provisions of Section 8 of the Clayton Act, a director of California Bank may, after June 1, 1940, continue to serve as a director of a title and trust company in Los Angeles. "The question apparently arose because of the fact that, although California Bank does not exercise trust Powers, it owns California Trust Company, which does exercise such powers and is understood to constitute, in Practical effect, a trust department for California Bank. 'However, California Bank and California Trust Company ere separate legal entities; and the fact that en individual is a director of California Bank does not make a director of California Trust Company and this must be recognized in determining the applicability of Section 8 of the Clayton Act to the existing interlocking relationship. "The question whether a director of California Bank after June 1, 1940, continue to serve as a director Of the title and trust company to which Mr. Porch refers, depends upon the question Whether such institutions are engaged in any of the same classes of business within •the meaning of the exception set forth in Section 2(d) (6 of the Board's Regulation L or whether the relation) !hip is such as to came within Section 3(c) (as amended 'January 3, 1940) of Regulation L. The Board is not in e Position to reach any conclusion on this question on the basis of the limited information submitted with your letter. "If, in the light of the pertinent information and footnote numbered 9 of Regulation L, you end counsel for Your bank are of the opinion that California Bank and the title and trust company referred to are not engaged 385 3 13/40 / "in any of the same class or classes of business, or the Interlocking relationship is such as to cone within section .3(c) (as mnended Tanuery 3, 1940) of Regulation L, It is suggested that you advise the California Bank accordingly. However, if you still desire e ruling by the Board on the question, it will be helpful if you will sub nut detailed facts with respect to the business done by the institutions involved, particularly that of the title and trust company, together with a statement of your views." Approved unanimously. Thereupon the meeting adjourned. 46A. io Secretary.
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