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411 A meeting of the Board of Governors of the Federal Reserve System was held in Washington on Tuesday, March 16, 1937, at 2:15 p. m. PRESENT: Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Broderick Szymczak Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Clayton, Assistant to the Chairman Consideration was given to each of the matters hereinafter reed to and the action stated with respect thereto was taken by the BOarci The minutes of the meeting of the Board of Governors of the FedReserve System held on March 15, 1937, were approved unanimously. Telegram to Mr. Sargent, Secretary of the Federal Reserve Bank c't 541n Francisco, stating that the Board approves the establishment thoiIt change by the bank today of the rates of discount and Purchase tt's existing schedule. Approved unanimously. Letter to Mr. Max Lowenthal, Counsel, Senate Railroad Investip.ati l earamittee on Interstate Comerce, reading as follows: "Receipt is acknowledged of your letter of March 15, requesting that the Board grant Mr. George H. Folsom, one of he Board's examiners, leave without pay beginning today, in order that his services may be immediately available to the Committee on Interstate Commerce for a further period. , "The Board approves the arrangement outlined in your letter and the necessary leave of absence, on the under2tanding, as stated in my letter of March 1, 1937, that the oramittee will assume the payment of Mr. Folsom's salary during the further period his services are utilized by it, and 3/16/37 -2- "that he will be released by the Committee to resume his duties with the Board at the earliest possible date." Approved unanimously. In connection with the above matter consideration also was " 11 to a memorandum dated March 16, 1937, from Mr. Bethea, Assistant Secretary, recommending that the Board authorize the continuance of its c4Itributions to the Retirement System on behalf of Mr. Folsom in order to Preserve his retirement status during the period his services are 4ti1ized by the Committee, In accordance with Section 4, Paragraph 3, of the Rules and Regulations of the Retirement System, with the underStd ing that Mr. Folsom will continue to make his own contributions to the Retirement System fund during such period. The memorandum t"ed that Mr. Folsom had advised that, in the event the compensati°1a Paid him by the Committee i In excess of the salary which he is 1141 receiving as an employee of the Board, he will reimburse the Board 11°1% the contributions which it makes on his behalf (or such part there14 48 nlaY be equitable) which would be accepted by the Board's Fiscal 4€elit es "miscellaneous receipts". Approved unanimously. Letter to the board of directors of the "Carroll County Trust conth v411Y of Carrollton, Missouri", Carrollton, Missouri, stating that, 811bie + the to the conditions of membership numbered 1 to 6 contained in )3()Iird'e Regulation H and the following special conditions, the 44q0 4PProves the bank's application for membership in the Federal Re- sel e SYsten and for the appropriate amount of stock in the Federal 413 3/16/37 -3- Reserve Bank of St. Louis: ”7. 118. Such bank shall make adequate provision for depreciation in its banking house and furniture and fixtures. Prior to admission to membership, such bank, if it has not already done so, shall charge off or otherwise eliminate estimated losses of $6,826.48, as shown in the report of examination of such bank as of January 13, 1937, made by an examiner for the Federal Reserve Bank of St. Louis." Approved unanimously, together with a letter to Mr. Martin, President of the Federal Reserve Bank of St. Louis, reading as follows: "The Board of Governors of the Federal Reserve System aPProves the application of the 'Carroll County Trust ComParlY of Carrollton, Missouri', Carrollton, Missouri, 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, °Ile of which is for your files and the other of which you ere requested to forward to the Commissioner of Finance for the State of Missouri for his information. "It has been noted that, although the bank is authorized to exercise full fiduci ary powers, the volume of trust bUsiness is small and the trust department is maintained Primarily as an accommodation for the bank's customers. It aas been noted also that a trust committee has not been apPointed and that purchases and sales of trust investments 614d other important matters pertaining to trusts are not authorized or approved by the directors. One of the fundalaental principles in the operation of a trust department, Isecognized both in the Statement of Principles of Trust Inapproved by the Executive Council of the Americ an ...ankers Associetior. and the Board's Regulation F pertaining trust powers of national banks, is that the responsibility lor the administration of trusts should not be vested in ! en individual but in a committee composed of capabl e and Parienced officers or directors of the instit ution. Trust 41ainess, no matter how smell, should not be accepted unl!ae the bank is organized and equipped to handle it properly 1 it is suggested, therefore, that you satisfy yourself at proper steps are taken to bring the operations of the 7 414. 3/16/37 -4- "trust department of the bank into conformity with recognized principles of sound fiduciary practice." Letter to the board of directors of the "State and Trust Bank", Righland, Illinois, stating that, subject to the conditions of mmbershill numbered 1 to 6 contained in the Board's Regulation. H and the fol1)'wilag special conditions, the Board approves the bank's application for tattibership in the Federal Reserve System and for the appropriate amount Of St0ek in the Federal Reserve Bank of St. Louis: ft7 Such bank shall make adequate provision for depreciation in its banking house and furniture and fixtures. tt8. Prior to admission to membership, such bank, if it has not already done so, shall charge off or otherwise eliminate estimated losses of 0,871, as shown in the report of examination of such bank as of January 18, 1937, made by an examiner for the Federal Reserve Bank of St. Louis." Approved unanimously, together with a letter to Mr. Martin, President of the Federal Reserve Bank of St. Louis, reading as follows: "The Board of Governors of the Federal Reserve System ?Proves the application of the 'State and Trust Bank', Bigh"ds Illinois, for membership in the Federal Reserve System, 811,bieet to the conditions prescribed in the inclosed letter "ch you are requested to forward to the board of directors or the institution. Two copies of such letter are also inone of which is for your files and the other of !hich you are requested to forward to the Auditor of Public Recounts of the State of Illinois for his information. "It has been noted that one of the directors of the bent_ L. M. Stoecklin, is reported to be a salesman for a :,trit dealing in securities and that Mr. Wood has suggested uat the bank be advised that Mr. Stoecklin cannot continue th° serve as a director of the bank after its admission to -aaership and retain his connection with the securities or?lzization. It is assumed, of course, that it has been aseltained that Banning and Company, the firm in question, is Z 415 3/16/37 engaged in the business described in section 32 of the Banking Act of 1933, end that the business of the firm is not confined to securities of the type which would permit the relationship to continue under the exceptions provided in the Board's Regulation R. On such assumption, it is requested, therefore, that, in accordance with the suggestion Of Mr. Wood, the bank be informed of the neces sity of complywith the provisions of section 32 and the Board's Regulation R as they relate to the services of Mr. Stoecklin. Please advise the Board of the steps which are taken to conform to such provisions. "On the date of the membership examination the trust department had approximately t62,000 on deposit in the banking department. It is assumed in this connection that the managetlent's attention has been called to the fact that condition Of membership numbered 6 will requi re the pledge of collateral With the trust department when trust funds are deposited in the banking department; that, however, such condition contemplates a valid pledge; that it is understood that under the laws of the State of Illinois a State bank may not effect a valid pledge of collateral to secure trust funds, and that, so long as such condition prevails, the bank, after admission to membe rship, cannot deposit trust funds in its °wn banking department or otherwise use such funds in the conduct of its business. "The papers submitted with the bank's application for membership did not include a copy of the application which aa executed in connection with the organization of the bank 411 1903. In order that the Board's records may be compl ete, I! will be appreciated if you will furnish it with a properly :frtified copy of such application to organ ize, since it is nclerstood that the application is analogous to the articles n‘ineorporation which are usually filed by State banks in v ner states." Z Letter to Mr. Peyton, President of the Federal Reserve Bank of 413°11 a, reading as follows: "The Board has reviewed the informatio n submitted in A,°11nection with the appli cation of The Manistique Bank of 'anistique Michigan, for membership in the Federal Reserve SYsten. t , "It appears from the information submitted that, as was b'e case when the previous application of the bank for memrehiP was considered last February, the bank's general 114118noial condition and prosp ects are not such as to warrant PProval of the applicatio n. Therefore, in accordance with 4 416 3/16/37 -6- "Your recommendation, in which the Federal Reserve Agent concurred, the Board does not approve the application of The Manisticue Bank of Manistique, Michigan, for membership at this time. In taking this action the Board, as you know, has necessari1r had in mind the factors to which it must give consideration in order to furnish to the Federal Deposit Insurance Corporation the certificate required by law in view of the fact that the applicant has not heretofore obtained insurance from that Corporation. In the circumstances, it is suggested that you communicate with the bank and suggest the withdrawal of the applicatio n from further consideration. In such event, although the application itself and the accompanying papers will remain a part of the Board's files, no adverse action thereon will be taken . . "From the information submitted it appears that the situation would best be served by a merger or consolidation of the applicant with one of the other banks in the community, . 1°11t if, at a later time you feel that the Board would be Justified in again considering an application by the bank for r_4!mbership, the Board will be glad to do so upon the basis °r current information accompanie d by your recomendation." Approved unanimously. Letter to Mr. Fry, Vice President of the Federal Reserve Bank of Ri clam On d reading as follows: "Reference is made to your letter of March 9, 1937, smitting the request of the 'Hagerstown Trust Company', Ilaeerstown, Maryl and, for Permission in accordance with the 1.s1ons of membership condition numbe red 8 to purchase ;01 '$80,000 the banking quarters which it now occupies under 'ease from the Surety Real Estate Corporation. "In view of the information submitted and in accordice with your recoLimend ation the Board interposes no ob;'ection to such investment in the amount indicated, and it ;2 reque sted that you advise the bank accordingly. It is wlilegested that you acqua int the bank with the Board's views, h which you are familiar, with respect to makin w. adequate ovision for depreciation in banking quarters owned." T Approved unanimously. A1114,1 Letter to Mr. Sinclair, President of the Federal Reserve Bank of elPhia, reading as follows: "The Board of Governors of the Federal Reserve Syste m has 417 3/16/37 -7- "considered the recommendation contained in your letter of Tanuary 12, 1937, in which the board of directors of your bank concurs, and, pursuant to the provisions of Section 19 of the Federal Reserve Act, grants permission to 'The 'Northeast National Bank of Philadelphia', Philadelphia, PenneYlvania, to maintain the same reserves against net demand deposits and time deposits as are required to be maintained by member banks not in Reserve or Central Reserve cities, effective as of March 16, 1937. "Please advise the bank of the Board's action in this matter, calling its attention to the fact that such permission is subject to revocation at any time by the Board of Governors of the Federal Reserve System." Approved unanimously, having also been previously approved by Mr. Davis. Letter to Mr. Evans, Vice President of the Federal Reserve Bank 1)ft. , --14-18e, reading as follows: "Reference is made to your letter of January 29, 1937, requesting advice as to the applic ability of the provisions (14* Regulation U in a situation disclo sed in a recent examination of the Continental-American Bank & Trust Company, Shreveport, Louisiana, described as follows: '* * on April 28, 1936, the bank loaned $4,330 to a customer to enable him to purchase certain stocks registered on a national securities exchange, and * on July 29, 1936, the bank loaned the same custom er ti,soo additional for a similar purpose, and at the same time renewed the $4,330 note referr ed to above, i taking a single new note from him in the sum of 6,130 to cover both the new advance and a renewal of the old loan. In both cases the advanc es were secured Partly by stocks. 'At the time the new note was taken, the collateral held by the bank had a market value sufficient to meet the requirements of Regulation U for a loan Of $1,800, but not sufficient for a loan of $6,130.' "In this connection you refer to section 3(d) of the regIllation which provides that: 'The renewal or extension of maturity of a loan need not be treated as the making of a loan if the amount of the loan is not increased except by the addition of interest or service charges on the loan or of,taxes on transactions in connection with the loan.' 418 3/16/37 -8- "Since this provision states that the renewal or extension of maturity of a loan need not be treated as the making of a loan if the amount of the loan is not increased except by the items specified, it is reasonab ly to be implied that the increasina of a loan in any othe mann r er should be treated as the making of a loan. While the provision does not exPressly state whether or not it applies to loans made before May 1, 1936, it is the view of the Board that it should be construed as applying to such loans. Thus the renewal or extension of maturity of such a loan need not be treated as the making of a loan if the amount of the loan is not incr eased except by the items specified. Similarly, any othe incr r ease should be treated as the making of a loan, and it would seem that such an increase should be so considered even in the absence of section 3(b). For example, it woul seem d that in the present case, even with out sect 3(b) ion , the :.4,3 30 loan is the only loan which could properly be considered to have been made prior to May 1, 1936 since neither the new loan 2f t1,600 nor what might be cons idered the combined loan of 4 6,130 came into existenc e until after that date. "For these reasons, it is the opinion of the Board that although section 3(d) permits the .i4,3 30 loan to be continued :s a loan made prior to May 1, 1936 it does not permit the loan to be so treated. While the $4,330 loan need not be considered to have lost its status as an old loan mere ly because it is now represented by the same note which repreC;elltS the new loan of 0.,800, the $1,800 loan can not take On the status of the old loan merely because it is repr esented by that note. 1, "As indicated in the Board's lett er (X-9599) of Tune 1, t'"56, the $1,800 loan could be made ir this case without eirlifl additional collateral and, therefore, it would that the seem Il bank has not violated the regulation. It shou ld be illderstood, however, that a loan for the purpose of nurchas2g or carrying stocks registered on a national securities change has been made after May 1, 1936 in the amou nt of 1:$800 and, ther efore, is subject to the provisio ns of the eulation. This should be take n into account in making fur?r loans to the borrower or permi tt1nf7 withdrawals or sub:Iltutions of collateral; and if the bank prefers to have a note represent both the old loan and the new loan, it rs advisable that the identity of the two loans be indicor cad in some way, such as by a notation on the note, so that Ilsion may not result in the future." j Approved unanimously. A Tel __ an , to Mr. Clerk, Secretary of the Federal Reserve Bank of enta, reading as follows: 41.9 3/16/37 -9- "Referring your March 12 letter, Board has no objection to your bank holding its regular April meeting at Jacksonville, Florida." Approved unanimously. Letter to Mr. /bung, President of the Federal Reserve Bank of 13"ton, reading as follows: "Reference is made to your letter of March 3 in regard to expenditures of the Federal Reserve bank in connection with the encouragement and suppo rt given by the Federal Reserve bank to the local chapter of the American Institute of Banking and the Graduate School of Banki ng at Rutgers Univereity. "It is noted that in accordance with the pract ice followed by your bank for a numbe r of years employees were advised prior to the beginning of the school year last fall that those who qualify to take the examination in any courses Provided by the local chapter would be reimbursed for the ees in such courses, and the Board will interpose no objecuion to this arrangement for the current school year." f Approved unanimously. Thereupon the meeting adjourned. Chairman.
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