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420 A meeting of the Board of Governors of the Federal Reserve System '418 held •In lashington on Wednesday, March 17, 1937, at 11:30 a. m. PRESENT: Mr. Ransom, Vice Chairman Mr. Broderick Mr. Szymczak Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Consideration was given to each of the matters hereinafter referred to 4nd the action stated with respect thereto was taken by the Board: Telegrams to Mr. Paddock, First Vice President of the Federal Re%Ire Bank of Boston, Mr. Austin, Chairman of the Federal Reserve Bank of l'41111clelPhia, and Mr. Stewart, Secretary of the Federal Reserve Bank of St. tollis, stating that the Board approves the establishment without change by the respective banks today of the rates of discount and purchase in their e4Bting schedules. Approved unanimously. Memorandum dated March 6, 1937, from Mr. Van Fossen, Assistant of'the Division of Bank Operations, submitting a summary of the inforcontained in statements received from the Federal reserve banks in e°41Riance with the Board's request of November 23, 1936, giving the name 411t1 41411141 salarY of each employee as of January 1, 1937, together with the 44ry of each such employee on January 1, 1936, or the annual salary if 114% during 1936. The memorandum stated that the salary lists as submittic11531' each Federal reserve bank had been examined and such differences as 1141d bee 11 found between these lists and the personnel classification plans 421 V17/37 -2" ils with the Board had been brought to the attention of the Federal teeerve banks. The memorandum recommended approval of letters attached the advising the Federal reserve banks that the salaries of employees januarY 1, 1937, as shown in the salary lists furnished the Board, had been noted with approval, and that the letters to the Federal Reserve Banks °t at. -ouis, T. Kansas City and Dallas also authorize the payment of salaries ' eas of those provided in the recently approved personnel classificatiO4 PlanS to employees at the banks whose salaries have heretofore been ezp, 'ass of such maximums as shown below: Federal Reserve Bank of St. Louis Position Maximum for posiAnnual tion in personnel salary classification plan St. Louis j. Bruckner .44,earior Kourek boerner B. Johnston s At: 11A*41a Goddard W. gtAth Sassier B rauroth 4441 ' Burlhart Silb erman 17. riengstorff tsw Sraith Lute (1-4•24beth Mudd es°1`ge J. Bode, Jr• buesing 1'. lioke (1% B. liarvey Bagot General Bookkeeper Stenographer "A" (Accounting Dept.) Junior Clerk "A" (Accounting Dept.) Night Janitor Foreman Pastry Cook Head of Collateral & Custody Dept. Secretary Secretary File Clerk "A" Head of Money Department Paying and Receiving Teller Doctor Welfare Worker Head of Purchasing Dept. Purchasing Clerk General Clerk (Collateral and Collection - R. F. C. Dept.) Head of Stock, Duplicating & Telephone Dept. Head of Transfer - Telegraph Dept. Teletype Operator $2,700 1,560 1,560 1,860 1,440 3,120 2,040 2,040 1,560 4,260 3,000 3,300 2,200 3,300 1,860 $2,400 1,500 1,500 1,800 1,200 3,000 1,800 1,800 1,500 5,600 2,700 2,700 1,800 2,700 1,800 2,160 2,100 2,500 3,060 1,860 2,400 3,000 1,500 3/17/37 -3Federal Reserve Bank of St. Louis (Contld) Annual salary Maximum for position in personnel classification plan $2,500 $1,800 Head of Credit-Discount $3,075 Dept. Sorting & Shipping Teller 2,400 3,075 General Utility Clerk 1,320 Telephone Operator $3,000 2,100 2,700 1,200 Position Louisville unimers Recorder (Collateral & Custody Dept.) Memphis a• N. Perkins all R. ' Freeman X. Strickland trticle Bartholomew Federal Reserve Bank of Kansas Ci_ty, 441 11, ikbe'4rly Harriso n Position Supervisor of Supplies Stenographer - A Annual salary $2,496 1,896 Maximum for position in personnel classification plan $2,100 1,800 Federal Reserve Bank of Dallas Position C 41„..', . I. L:4 ,A Nailders J 4-tt n t() II Assistant Examiner Junior Clerk - A Teletype Operator Annual salaxE Maximum for position in personnel classification plan $3,000 1,800 1,800 $2,400 1,680 1,500 In connection with the above matter, consideration was also given enl°randum dated March 6, 1937, from Mr. Smead, Chief of the Division 1144k u ,telltio Psrations, stating that in reviewing the revised personnel classi4 Plans recently submitted to the Board it appeared that a number of Ped el'al reserve banks were placing maximum salaries on certain positions 423 ' V17/37 -4ruer to cover salaries actually being paid; that it had been suggested t°the) , -anke that the maximum salary fixed for a given position should ePraselat the maximum salary which the position was considered to be worth 41d, anY employees were receiving salaries in excess of such maximums ') for certain reasons, they wished to continue paying, the permission the Board should be obtained therefor; and that in a number of cases the ke,rd had already authorized the banks to pay to specified employees a salaceBs of the maximum provided in the personnel classification plans. ulemorandum also stated that, in the case of the employees covered by the 414estB from the St. Louis, Kansas City and Dallas banks, it appeared that t4eba„ --s had given careful consideration to the salaries paid the employees glies tlon and felt that under all the circumstances it would be inadvis4ble t° reduce them at the present time for the purpose of bringing them kit414 the maximums now provided in the personnel classification plans, and Nec>kaencled in the circumstances that the requests of these banks be approved. The recommendations were approved unanimously. Letter to Mr. Sargent, Vice President of the Federal Reserve Bank S44 Francisco, reading as follows: of "This refers to your letter of February 10, 1937, advising lie the change on February 4, 1937, of the address of the West ej niceleY office, Berkeley, California, of the American Trust Peg4nY, San Francisco, from 1095 University Avenue to 1990 San /40,r Avenue. It is noted that this change merely necessitated o lg the banking quarters to the rear portion of the building ' tti llPied by such office. It is noted also that, in your opinion, c4 change of address did not constitute the establishment of 424 6/17/37 -5H e new branch requiring the Board's approval under the provisicIns of section 9 of the Federal Reserve Act. The Board con, curs in your conclusion." Approved unanimously. Letter to Mr. Hamilton, President of the Federal Reserve Bank of 44'648 City, reading as follows: "This refers to your letter of February 9, 1937, stating that in connection with a recent examination of Merchants Bank Kansas City, Kansas City, Missouri, a question had arisen concerning the propriety of the bank's selling to itself as ruetee certain mortgage loans insured under Title II of the aational Housing Act and inquiring whether such transactions . 11ould be criticized. This matter was again mentioned in your tetter of February 17, 1937, and the report of examination of ..11e bank as of December 28, 1936, inclosed therewith. "It appears that in connection with the two transactions in question the bank executed declarations of trust in the so'short form' prepared by the Federal Housing Administrawl°n. Such form and a so-called 'long form' of trust agreement s prepared in 1935 and distributed for the guidance of trust e! letitutions. Subsequently it was suggested that certain provielcus of such forms and the accompanying memoranda appeared to santemplate practices which might not be in accordance with alTInd principles of trust administration and might result in 13 uses. The matter was discussed by representatives of the the Comptroller of the Currency, and the Federal Housing ' `e- ulinistration and, in order to clarify the situation, the FedHousing Administration advised those to whom the forms had 1 1en sent that such forms should be disregarded and, in lieu reereof, it suggested certain clauses which, in view of certain i, ' c llirements applicable to insured mortgage loans, should be a'cluded in trust agreements under which insured mortgage loans ? to be held. It was pointed out that it is essential that j41);trust instruments be prepared in accordance with sound trust in"tices and that this principle is in no wise affected by the /4c4.u31on of insured mortgage loans in the corpus of the trust. te this connection, your attention is called to the Board's letof December 18, 1935, (X-9396), and its inclosures. 11 "The transactions to which you refer must be judged in the be t of the same principles of trust administration which would 4PPlic8ble if assets other than insured, mortgage loans were "v°1ved. It is needless to point out the evils and dangers j 425 V17/37 -6"inherent in self-dealing by trustees. However, in some instances, a trustee may be required by the terms of the trust to invest trust funds in assets purchased from itself and in the light of such a requirement or other facts and circumstances, Particular transactions may not be improper in the absence of aPPlicable statutes or regulations prohibiting such transactions, although self-dealing as a general practice is subject to severe criticism. In the absence of complete information as to what took place prior to the execution of the declarations of trust 14 the two cases to which you refer, it is impossible to express !definite opinion concerning the question whether the transac4ions were improper. However, it should be noted that since !AY transaction involving self-dealing by a trustee is subject (11 question and a trustee should not enter into such a transaction unless it is fully prepared to defend its action, it would aPpear desirable that the propriety of such action be clearly t ahown by the terms of the instrument evidencing or creating the ,ruBt. If, after consideration of the particular transactions the light of the foregoing discussion, you or your examiner flould have any question, the Board, of course, will be glad to advise you. "You also inquire generally whether transactions similar to those to which you refer would be in violation of the provi! jells cf section 11(a) of Regulation F if they were entered into national banks. However, the Board prefers, as a matter of c° icY, not to undertake to pass upon questibns of a hypotheti! 14. nature, where it does not have before it the specific facts -lid circumstances of actual cases which must be acted upon." Approved unanimously. Letter to Mr. E. W. North, Assistant Cashier, The Central National krap n 'Jolumbus, Nebraska, reading as follows: "This refers to your letter of March 10, 1967, regarding a qtie stion arising under the provisions of Regulation Q. It is aerstood that in the case presented, one of your customers, has a number of unmatured time certificates of deposit each 84ed on different dates and maturing one year frOm date of is; desires to have them all combined into one certificate. You e:k Whether you would violate Regulation c if you computed interon each certificate for the time it had run, paid the accrued th ' erest in cash, and issued to the depositor one certificate for ! ti .combined amount of the original certificates, said new cerleate to run for a period of one year from date of issue. It also understood that the accrued interest on the certificates Z 426 3/17/37 -7"has not been added to the deposits so as to become a part of the principal thereof. "Ivith the understandings stated above, the payment of accrued interest under the circumstances stated in your letter would not violate Regulation Q or section 19 of the Federal Reserve Act, provided the rate of interest paid does not exceed the applicable maximum rate stated in the Supplement to Regulation Q. "If you should have any further questions regarding this matter or any similar matter, it is suggested that you communicate with the Federal Reserve Bank of Kansas City." Approved unanimously. Letter to Mr. Gibbs Lyons, Deputy Comptroller of the Currency, reesi 4 as follows: "This refers to your letter of iarch 4, 19'671 regarding the Taestion whether the payment by member banks of assessments under !'he provisions of Senate Bill No. 1 of the Indiana Legislature w?uld constitute a payment of interest on demand deposits in 1ra-elation of section 19 of the Federal Reserve Act and the Board's Regulation Q. cle "Some time ago the Board reviewed a proposed bill for a new , 1 11)0El-tory act for presentation to the Eightieth General AssemZY of the State of Indiana and advised one of the officers of Ce State that, in the Board's opinion, if the proposed bill should , !enacted into law, the payment by member bank depositories of l assessments provided for in the bill would not constitute the "e 0 /1; Yraellt of interest on deposits within the meaning of section 19 the Federal Reserve Act and Regulation Q. "Although Senate Bill No. 1 is somewhat different from the °Posed bill which was submitted to the Board, it appears that a2 Provisions of the bill relating to the insurance of deposits substantially similar to those contained in the proposed bill p'_Ileh the Board reviewed. Accordingly, it is our view that, if ;rate Bill No. 1 should be enacted into law in the same form ID° that containd in your letter, the payment by member bank deco ! It°ries of the assessments provided for in the bill would not of"stitute a payment of interest on deposits within the meaning wi,section 19 of the Federal Reserve Act and Regulation Q. You the understand, of course, that changes in certain portions of as Proposed bill might have the effect of converting these or essments into interest payments which would be in violation the law. "In accordance with your request the copy of Senate Bill Z X 427 V17/37 -8"No. 1 which was inclosed with your letter is returned herewith." Approved unanimously. Letter to Mr. Dillistin, Assistant Vice President of the Federal Itefieww *ve bank of New York, reading as follows: "This refers to your letter of January 11, 1957, containadditional information with regard to the question whether indebtedness of assistant examiner Charles A. Robinson to wle First National Bank, Media, Pennsylvania, is in violation °f section 22(a) of the Federal Reserve Act. "Since it appears that Mr. Robinson has never examined the 1,1ational bank in question and that he has no authority under the law to examine a national bank outside of the second Federal Re° ,,ervs District, the Board has reached the conclusion that the Zrahsaction in question does not constitute a violation of sec2(a)e. either on the part of thr. Robinson or the national nalak. Accordingly, the Board is not reporting the matter to the DePa of Justice and it will not be necessary for you to 44ka a report to the local United States Attorney." ig Approved unanimously. or Chi Lett3r to Mr. Young, Vice President of the Federal Reserve Bank cago, reading as follows: i "This refers to your letter of December 24, 1936, containaddonal information with regard to the question whether Br indebtedness of examiner E. M. Joseph to the First National ak, DanvillP, Illinois, is in violation of section 22(a) of rr Federal Reserve Act. It is understood that Mr. Joseph bored 3.32.25 from the national bank on September 250 1935. It 41s0 understood that Mr. Joseph has never examined the bank m question. ept "Tha second paragraph of section 22(a) relating to the acof loans by examiners, prohibits any examiner from actZ:ing a loan from a bank examined by him, and since it appears is :-' Mr. Joseph has never examined the national bank to which he aicIladebted, there would seem to be no reasonable basis for contool.ering that he has violated the law. Accordingly, the Board is be ' rePorting the matter to the Attorney General and it will not Ati.riecessary for you to make a report to the local United States "°rney. Act "The first paragraph of section 22(a) of the Federal Reserve 'as amended by the Banking Act of 1935, approved August 23, j /17/37 -9- "1935, prohibits any member bank from making any loan to any examiner or assistant examiner who examines or has authority to examine such bank'. Under the provisions of section 21 of the Federal Reserve Act, it is provided that a Federal Reserve bank may, with the approval of the Federal Reserve Agent or the Board of Governors, provide for special examinations of national banks within its district and a question of law arises as to whether this provision grants authority to an examiner for a Federal Reserve bank to examine national banks. Although this question may be doubtful, it has been the Board's practice n?t to undertake to Jlake a determination of doubtful legal questlons in cases of this kind. It is also the Board's practice not to refer to the Attorney General possible violations of the criminal statutes by national banks, but to submit the facts ?I' such possible violations to the Comptroller of the Currency la order that he may report them to the Attorney General or take !uch other action as he may deem advisable. In the circumstances, ale Board is referring to the Comptroller f the Currency the faC5 of this case." Approved unanimously. Letter to Mr. Hill, Vice President of the Federal Reserve Bank of 1144ds1Phia l reading as follows: "This refers to your letter of December 19, 1936, containing additional information with regard to the question whether 611s indebtedness of assistant examiners George C. Robinson and op W. Snyder to national banks in your district is in violation tt section 22(a) of the Federal Reserve Act. It is understood Mr. Robinson borrowed k3500 from the Tradesmens National ak and Trust Company, Philadelphia, Pennsylvania, in its capacias trustee for Harry Morris, under the will of Samuel Morris, , ecsased, on November 22, 1965, and that Mr. Snyder became into the First National Bank, Sunbury, Pennsylvania, in by dei3.4 virtue of his signing a collateral note to secure an into utedness formerly incurred by members of his family. It is e's0 understood that the assistant examiners involved have never amined the national banks to which they are indebted. "The second paragraph of section 22(a), relating to the acce of loans by examiners, prohibits any examiner or assistant , examiner from accepting a loan or gratuity from a bank ex' 4.tr : 111111sd by him, and since it appears that the assistant examiners ir olved have never examined the banks to which they are indebted, vre would seem to be no reasonable basis for considering that r I 429 6/17/.67 -10"Such assistant examiners have violated the law. Accordingly, the Board is not reporting the matter to the Attorney General and it will not be necessary for you to make a report to the local United States Attorney. "The first paragraph of section 22(a) of the Federal Reserve Act, as amended by the Banking Act of 1935, approved 4ngust 23, 1935, prohibits any member bank from making any loan O any 'assistant examiner who examines or has authority to exsuch bank'. Prior to that time and at the time the indebtedness of Mr. Snyder was incurred, the first paragraph of section 22(a) prohibited any member bank from making any loan t4:? any bank examiner'. Under the provisions of section 21 of Federal Reserve Act, it is provided that a Federal Reserve rnk may, with the approval of the Federal Reserve Agent or the srd of Governors, provide for special examinations of nationa'c) 41 banks within its district and a question of law arises as to whether this provision grants authority to an examiner or assistant examiner for a Federal Reserve bank to examine national banks. Although this question may be doubtful, it has been the Board's 11?ractice not to undertake to make a determination of doubtful :gal questions in cases of this kind. It is also the Board's actice not to refer to the Attorney General possible viola4r4s of the criminal statutes by national banks, but to submit re facts of such possible violations to the Comptroller of the en'ancY in order that he may report them to the Attorney Genor take such other action as he may deem advisable. In the cumstances, the Board is referring to the Comptroller of the IlrrencY the facts of the cases above mentioned. of . "In reviewing the statement of personal indebtedness of 0 leers and employees of your bank as of July 1, 1956, submitted crl Form B-208, it appears that the Fidelity-Philadelphia Trust a°111PanY, Philadelphia, Pennsylvania, a State member bank, and ,13.s1stant examiner G. W. Shadle have become involved in an ap;'rent violation of the provisions of section 22(a) of the FedReserve Act by virtue of a loan made by the Fidelity-Philatb'Yhie Trust Company and Margaret J. Freeman, trustees under 1"e Will of Frank A. Freeman, deceased, to Mr. Shadle on October 1?25. While it is noted that Mr. Shadle became indebted to doatoenk in its capacity as fiduciary and, therefore, it may be icill tful whether a violation of the provisions of section 22(a) or -Ldvolved, nevertheless, it is felt that this is a question J4,17,w which should have the consideration of the Department of 40:'1oe and the United States Attorney, and that the Board should kri. ' undertake to make a determination of this question. As you this is in accordance with the usual policy of the Board cases of this kind. Accordingly, it is requested that you j 430 3/17/37 -11- report the matter to the local United States Attorney and forward three copies of such report to the Board for transmission to the Attorney General." Approved unanimously. Letter to Mr. J. F. T. O'Connor, Comptroller of the Currency, l'eactillg as follows: "It has come to the attention of the Board that Messrs. Jeorge C. Robinson and C. W. Snyder, assistant examiners for the Federal Reserve Bank of Philadelphia, have become indebted ....ts0 the Tradesmens National Bank and Trust Company, Philadelphia, rennsylvania, and the First National Bank, Sunbury, Pennsylvania, lesP.ectively; and that Mr. E. M. Joseph, an examiner for the rederal Reserve Bank of Chicago, has become indebted to the First National Bank, Danville, Illinois. The question arises 48 to whether these transactions involve a violation of section 22(a) of the Federal Reserve Act. The facts in each of these cases are inclosed herewith. "As you know, the first paragraph of section 22(a) of the Federal Reserve Act, as amended by the Banking Act of 1935, prohibits any member bank from making any loan to any 'examiner or ssistant examiner who examines or has authority to examine such ' alnk' and the second paragraph of such section prohibits an exiner or assistant examiner from accepting a loan from a bank examined by him'. Since it appears that in each of the cases !sferred to above the examiner and assistant examiners in queslon have never examined the national banks to which they are debted, the Board has reached the conclusion that in so far ".6 such examiners are concerned there is no reasonable basis j 4 hr Considering that they have violated the law. Accordingly, 6 Board is not reporting the matter to the Department of Justice t "However, since there is involved a possible violation of law by the national banks, the Board, in accordance with usual practice where national banks are involved, is not ferring these cases to the Attorney General, but is submitting ,'s facts in each of them herewith for your consideration as whether they should be reported to the Attorney General or °r such other attention as you may deem advisable." •the j r Approved unanimously. bul Letter to Mr. McKinney, President of the Federal Reserve Bank of ) reading as follows: 431 3/17/57 -12- . "This refers to your letter of January 9, 1957, contalning additional information regarding the question as to Whether the indebtedness of Mr. W. J. Evans, Vice President d Chief Examiner, to the United Savings Bank, Detroit, kchigan, is in violation of section 22(a) of the Federal Reserve Act. "Since it appears that at the time the loan in question was made Mr. Evans was not an examiner for a Federal Reserve .lank, the Board has reached the conclusion that the transacdon does not involve a violation of such section either on the Part of Mr. Evans or the bank. Accordingly, the Board is Ilot reporting the matter to the Attorney General and it will llot be necessary for you to make a report to the local United 6tates Attorney." Approved unanimously. Thereupon the meeting adjourned.
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