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Ameeting of the Board of Governors of the Federal Reserve 4ste1 was held in Washington on Thursday, March 2, 1939, at 10:15 14 . PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chaiman Ransom, Vi ce Chairman Szymczak McKee Davis 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 hereintItter referred to was taken by the Board: The minutes of the meeting of the Board of Governors of the el Reserve System held on March 1, 1939, were approved unanimously. Memorandum dated February 27, 1939, from Mr. Goldenweiser, 41'ect °- of the Division of Research and Statistics, recommending that .kr, 04 "'lee Lottie Kriegel, a secretary in that division, be retained e basis when her probationary appointment expires at the elos. c Of business on may 7, 1939, and that her salary be continued at '411te of 4,620 per annum. Approved unanimously. M emorandum dated March 1, 1939, from Mr. amead, Chief of the ber ' 4 of Bank Operations, recommending that the Board's weekly mem'44k statement be amended to show separately reporting member 3/V39 -2- ballics' holdings of Treasury notes, Treasury bills, and United States b°11c18, -which heretofore had been published as a single item. The mem.- °1%"ditilil stated that this classification of United States Government obit, ulons had been made possible by the revision of the weekly. member 4zk.. ' Qndition report which was put into effect on February 8. Approved unanimously. Telegram to Dr. Alfred H. Villiams, Lean, valarton School of ce, University of Pennsylvania, Philadelphia, Pennsylvania, read"f0110WS: "Boa-rd of Governors of Federal Reserve System has 'kAPointed you class C director of Federal Reserve Bank °I* Philadelphia for unexpired Portion of three-year term : Ming December 31, 1941, and will be pleased to have ' our acceptance by collect telegram." Approved unanimously. Letter to Mr. Brainard, Chairman of the Federal Reserve Bank (4047 eland) reading as follows: "The Board will be pleased to know that you have time out from a busy life to study the excerpts : 13 °fll.the Annual Report for 1938 relating to problems of and banking supervision and also that you proto intensify the work of increasing membership in e System. b "The reasons that are most effective with nonmember dr" vary so much in the different districts and in inpjidual cases that the Board has never attempted to prea formal statement of the arguments that might be ;.1...esented. However, it will no doubt be of interest to beli, t0 know that the most successful work of this kind is ti " . -g done in the Chicago district by and under the direc°4 of Vice President Young, of the Chicago Bank. The • C-Na 130 3/2/39 7 "Chicago Bank has been able not only to sell the idea ?f membership directly to many individual banks but also, 111 same instances, to obtain the cooperation of corresPondent banks. It has been evident that the best results ere obtained from working everlastingly at the problem through the medium of personal, friendly contacts and correspondence rather than merely through formal solidiitp atlon. Emphasis on maintaining continuous touch with tanks generally through the bank relations activities and 4.hrough extension of every reasonable service and facility uo members should be advantageous in this connection. "In the circumstances, if I might venture the suggestion, it seems to me that one of the most helpful things You could do in developing plans along the lines you have 20.mind in your letter would be to get in touch with the „.111caeo Bank and I believe that arrangements could be made 1.? have Vice President Young meet you for the purpose of giVing You the benefit of their methods and experience." Approved unanimously. Letter to Mr. Parker, President of the Federal Reserve Bank of Atitinta ) reading as follows: c . "There is enclosed herewith a copy of a letter re11:178d bY the Board from the President of The Barnett i' 1°nal Bank of Jacksonville, Jacksonville, Florida, ienclUiring whether the provisions of section 22(c) of the vIrerel Reserve Act prohibit a director of a member bank, in the real estate business and the business of mortgage loans, from receiving a commission from the b made by the orrower on a real estate mortgage loan 1 bank or by the trust department of the bank. It r, 1 b e appreciated if you will reply to this inquiry -cm the President of The Barnett National Bank. or your information in connection with your repl„ it may be stated that, while it is not clear to us b- what basis a transaction such as that described would "cePted from the law, violations of section 22(c) of the Federal Reserve Act are misdemeanors punishable by orile or imprisonment and, accordingly, the determination the question whether any particular transaction con„l'tiltes a violation of the provision is a matter within 3/2/39 -4,- "the jurisdiction of the Department of Justice. The Board Of Governors is not given authority to prescribe regulations Ifd-th regard to this provision of the law, and the Board 18 therefore not in a position to express an opinion on a question arising thereunder which could be considered controlling. However, with respect to the acceptance of a fee in connection with a loan by the trust department of a member bank, attention is invited to a ruling made by Board of Governors on a somewhat analagous question, whether a loan made by the trust department of a M:ember bank to one of its executive officers is a viola!ion of the provisions of section 22(g) of the Federal ' eeerve Act with regard to loans to executive officers member bsnks. This ruling is published at page 324 of the 1936 Federal Reserve Bulletin." Approved unanimously. Letter to Mr. McRae, Chief ExRriner of the Federal Reserve Bank Or 41at reading as follows: "Consideration has been given to your letter of Jan30, 1939, and the enclosed memorandum opinion of unsel for your bank regarding the applicability of sec11 32 of the Banking Act of 1933 to the service of Mr. B-141'ence Coolidge as a director of The National ShEmmut of Boston and. as a director of Fidelity 'Fund, Inc. "It appears that Fidelity Fund, Inc. is an investent trust and has never engaged in underwriting or distsribUting securities, except its own. The question whether rection 32 as anended applies in the present case, theree e, depends solely on whether the Fund is 'primarily ngaEed' in selling its own shares. "Accordinp, to the information submitted, Fidelity 41 :1d) Inc. has been in operation for about nine years and du a ng the past three years it has sold and repurchased IIPPI"oxtmetely one-third of its shares each year with a riet increase of about 5 per cent each year of the total ener of shares outstanding. In his memorandum opinion for your bank has drawn a distinction between an i7estment trust to which the issue end sale of shares Of Primary importance in order to obtain the necessary j ) 4' 3/2/39 -5"working capital, and an investment trust which has been oPerating for some time, where the sale of its own shares 12 no longer of primary importance or one of its primary activities but where its primary activity is the investment and reinvestment of its funds. Your counsel consider that by reason of its history and the nature of its operations Fidelity Fund, Inc. should be regarded as coming 1:1:thin the latter classification and that while the cluesis not entirely free from doubt, the investment trust Is not primarily engaged in the issue and sale of its shares or in any of the other activities described in section 32 of the Banking Act of 1933. "As your counsel point out, each case of this kind lst be decided on its own facts, and in view of all the information submitted in this case, the Board sees no feason to differ with the conclusion reached by your counsel that section 32 is not applicable." Approved unanimously. Thereupon the meeting adjourned. Chai man.
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