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Minutes of actions taken by the Board of Governors of the Federal Reserve System on Thursday, March 20, 1952. The Board met inexecutive session in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Szymczak Evans Vardaman Powell Mills Robertson At the conclusion of the executive session the following Members of the staff joined the meeting: Mr. Carpenter, Secretary Mr. Vest, General Counsel Mr. Allen, Director, Division of Personnel Administration The Chairman advised the Secretary that at the executive sesaio n the following actions were taken by the Board: After consideration of a memorandum prepared by the staff under date of March 17, 1952, the following letter to the Presidents of all Federal Reserve Banks was approved unanimously: n "One of the matters taken up with the Board of Gover8°1's at the time of the last Presidents' Conference was the brstion that the Board give consideration to the possitY of changing the position which it had taken in the ; pact.i and authorize the Federal Reserve Banks to make concr uutions to such organizations as Community Funds, Red ' H42", and hospitals, such contributions to be at the irretion of their own Boards of Directors and in conwith whatever broad directive the Board might issue. As you know, this matter has been presented to the B c3ard on a number of occasions. It was thoroughly reviewed 3120/52 -2- "in 1945 when its letter of January 16, 1945, s-8261 was sent to the Chairmen and Presidents of all the Federal Reserve Banks. Subsequently, requests were received by Federal Reserve Banks for contributions of this kind and, after reviewing the matter again, the Board came to the conclusion that the existing policy should not be changed. The Chairmen and Presidents of the Federal Reserve Banks were so advised in the Board's letter of May 13, 19460 S-911. "In 1950 one of the Federal Reserve Banks, in a th oughtfully worded letter, raised the question with the fcard again, and after reviewing the problem thoroughly 'he Board replied as follows: 'In support of your proposal, you comment that with respect to such contributions the Reserve Banks do not differ greatly from other Federal and Statechartered institutions which recognize their cornUnity responsibilities in this manner. We recognize that in the communities in which the Reserve Banks are located, the public may tend not to distinguish between the Reserve Banks and other banks and business concerns which make such contributions, and that there may be some feeling that the Reserve Banks are shirking their responsibilities. We continue to believe, however, that the nature of the organization, purposes, and operations of the Reserve Banks is such as to make it very difficult, at best, to find a direct relationship between contl'ibutions for community welfare and the conduct of the affairs of the Reserve Banks which would justify a conclusion that the contributions are necessary exPenses of the Reserve Banks; and it seems to us that there is a substantial difference between the reserve Banks and commercial banks in this respect. tn addition, the residual interest of the Government ri the assets of the Reserve Banks and the disposi,i°n which is now being made of their earnings, raises 11.rther doubt as to the propriety of contributions by 'ne Reserve Banks which are not made by Government agencie3. h rfou also point out that express statutory authority as been given to national banks and to (State chartered) t 3/20/52 "Corporations to make contributions of this nature. The fact that such specific authority was considered necessary in the case of national banks is itself a reason for questioning the authority of the Reserve Banks to make these contributions in the absence of a similar authorization. Moreover, you will recall that the original bill to authorize national banks to make such contributions contained a provision author— izing contributions by the Reserve Banks, but this Provision was omitted from the bill which was finally enacted. In order to take a liberal position today With respect to contributions by the Reserve Banks, it would be necessary to disregard this legislative history, Swell as the long—established position of the Board which might be considered an administrative interpre— tation of the law. tiihile the question concerning the legal authority of the Reserve Banks to make these contributions can— not be answered with finality and there may be well— founded differences of opinion with respect to it, we believe that it is essential that a uniform position be taken by the Reserve Banks. Differences in policy mong the Reserve Banks or the fact that a particular Reserve Bank made contributions in certain cities or or certain purposes and did not make other contribu— tions would invite questions by the public and by C ongress. trhe absence of other Governmental controls and super— ision under existing law places upon the Board and the t'sderal Reserve Banks a peculiar responsibility to be Certain that any expenditures are clearly authorized by -Law and to be able to justify fully any item which may be questioned. 'In view of the foregoing, the Board, while sympathetic 11.1-th the motives which prompted your request, does not Lelieve that it should depart from the position which it as taken in the past.' sn, "It is realized that the Federal Reserve Banks may have jurillle difficulty in explaining the unique position they occupy b the local community and why they are different from local tnics and business concerns. However, in view of the considera ' ulls set forth above the Board does not believe that it should 4S'7 4 3/20/52 "depart from the position it has taken in the past." The purchase of an additional 1,000 copies of the printed answers to the questions submitted by the Patman Subcommittee was approved unanimously. The primary consideration of matters relating to the supervision and examination of State member banks was transferred from Mr. Powell to Mr. Robertson. At the request of the Chairman, the Secretary reviewed the eiteutstances surrounding the various actions taken by the Board with tesPect to the approval of agreements between the Federal Reserve Banks Of Bo at°11,Philadelphia, and Minneapolis and Presidents Erickson, and Peyton, respectively, under which the Bank in each case e°11tra n+ --%.ed to pay to the President named after his retirement an amount Der Li which, together with his regular retirement allowance under the R. -4ireMent System, would aggregate $10,000 per annum. The Secretary stated that no reply had been received from the Bureau of Internal Roveho Board's request for a ruling on the question whether a reti Piellt of payments provided by the agreements would be subject to income tit • in the Year in which he retired on the total present value of all PaYglents which he might expect to receive under the agreement. lie /Qs ° maid that -when President Peyton was in Washington recently he tilted t hat if the agreement went into effect and he were taxed on the 3/20/52 4814 of the present value of the payments he would receive no benefit 111 them, that he had discussed the matter with his directors, and that he Was wondering whether the Board would be willing to approve (1) a contribution by the Federal Reserve Bank of Minneapolis to the 4titement System to provide payments through the Retirement System el/lillelent to those contemplated by the existing agreement, or (2) an 4reemsnt between Mr. Peyton and the Reserve Bank under which Mr. Peyton 114LIA. be retained as an adviser and the Bank would pay him annually the 41°1114 now provided by the existing agreement. Mr. Carpenter made the ttither statement that the matter had been discussed by the staff and felt that, inasmuch as any arrangement made through the Retireniebt 83ratem would be in lieu of the existing agreement which might be oilbjec t to taxation, it would be unwise to approve such an arrangement 'Qq" of the danger that it might subject the entire Retirement System (NA in -- now exempt from taxation as an employees' trust) to taxation beo 4" of alleged discrimination in favor of Federal Reserve Bank officers to It was suggested that in the circumstances there were possibly ,a+ got, 4srnatives available to the Board: (1) make a further effort to Nharita -hg from the Bureau of Internal Revenue on the question whether under the existing agreements would be taxable in the year in 444(.'k the President retired, (2) approve the suggestion that the payments 31 /52 -6- beProvided through the Retirement System, which would raise the ctilestion of subjecting the entire Retirement System to taxation, (3) Provide the payments by the purchase of an annuity from an outSide i nsurance company, or (4) make no change in the existing agree1444 and let Mr. Peyton determine whether he would accept the payments Neat to the risk that they might be taxed in the year in which he retired. In the discussion which ensued it was agreed that there was little .2„ s -LI any, likelihood of getting a favorable ruling from the Bureau of int °Mal Revenue at the present time and that for the reasons stated the, eqraerits should not be provided through the Retirement System. Mr. Robertson suggested that steps be taken by Mr. Peyton or the 14_ -uard to get the opinion of a tax expert as to whether the payments Provide d by the existing agreement would be subject to taxation in the hitt, ill ilhich Mr. Peyton retired. 044 11 Oe e Vardaman suggested that the existing agreements should be d and that the Board should approve an arrangement under which ht e 4158Peetbre Reserve Banks would enter into a contract of employment I'llth Metiar. ,.. --4 46 Erickson, Williams, and Peyton under which they would re411% Stated amount for services rendered after they retired which )4)41d be in addition to the amounts which they would receive as retireet be— "etits under the Retirement System. 4GO 3/20/52 -7Mr. Szymczak suggested that consideration might be given to tile appointment of Mr. Peyton as chairman of the board of directors of the Minneapolis Reserve Bank, in which event he would receive compensation . in the form of director's fees. At the conclusion of the discussion the Secretary was requested to advise Mr. Peyton informally that the Board had considered the various alternatives available and felt that because of the various considerations involved it should not approve any arrangement in lieu of the existing agreement but that it would be glad to reconsider the matter in the light of any additional comments that he might wish to make. At this point Messrs. Vest and Allen withdrew, and the action etated• with respect to each of the matters hereinafter referred to was ten by the Board: Minutes of actions taken by the Board of Governors of the al R.. , serve System on March 19, 1952, were approved unanimously. Pecler Me morandum dated March 12, 1952, from Mr. Bethea, Director, 141rision of Administrative Services, recommending that the resignat14)11 °f Burton F. Yates, Telegraph Operator in that Division, be €11.tecl to be effective in accordance with his request at the close bIlSille "4y- 21 1952. Approved unanimously. Mftorandum dated March 18, 1952 from Mr. Bethea, Director, 3/20/52 411sion of Administrative Services, recommending the appointment Of Elizabeth J. Beer as Stenographer in that Division, on a tempo1'47 indefinite basis, with basic salary at the rate of $3,175 per 411111)413 effective as of the date upon which she enters upon the per"ce of her duties after having passed the usual physical examitlati°4 and subject to the completion of a satisfactory employment irl\restigation. Approved unanimously. Telegram to Cecil Puckett, College of Business Administra'Lion T, 'rniversity of Denver, Denver, Colorado, prepared pursuant to aCtlon ''aiCerl by the Board on March 13, 1952, reading as follows: "The Board of Governors of the Federal Reserve ,Ystem has appointed you Class C director of Federal : : t eserve Bank of Kansas City for unexpired portion of merlin ending December 31, 1953, and as Deputy Chairaan of Bank for remaining portion of year 1952. Your ceePtance by collect telegram will be appreciated.' Approved unanimously. New Letter to Mr. Bilby, Vice President, Federal Reserve Bank of YOrlp reading as follows: "In accordance with the request contained in letter of March 12, 1952, the Board of Governors &es the continuation of the payment of salaries ratune 12 employees referred to in your letter at lixides below their respective grade minimums, with the retel:standing that none of these employees will be allied in this status for a period in excess of six • 3/20/52 -9months from the date of the original employment." Approved unanimously. Letter to Mr. Diercks, Vice President, Federal Reserve Bank Or chic age, reading as follows: "Reference is made to your letter of March 100 ; 1 952, submitting the request of the Genesee County °avings Bank, Flint, Michigan, for permission to establish a branch at Swartz Creek, Michigan, followthe proposed purchase of assets and assumption of clePosit liabilities of the Bank of Swartz Creek, Michigan, a noninsured private bank. "In view of your recommendation, the Board approves th n e establishment and operation of a branch in Swartz ek, Michigan, by the Genesee County Savings Bank, Michigan, provided the absorption of the Bank of flts ;artz Creek is effected substantially in accordance ,t1'1 the plan as submitted and the Federal Deposit Insures Corporation gives its prior written consent to the g'sumption of the deposit liabilities of the Bank of '''!artz Creek, Michigan, as required by Section 18(c)(2) °r the Federal Deposit Insurance Act. 0„ "It is understood the transaction has the approval fl the appropriate State authorities and that Counsel " t the Reserve Bank will review and satisfy himself as t? the legality of the steps taken to effect the absorp-Lc'n and establish the branch." il7 Approved unanimously. aa Letter to the Presidents of all Federal Reserve Banks, reading 4•10Ws: se "There have been forwarded to you today under roParate cover the indicated number of copies of the fr, 1°I'ling forms, a copy of each of which is attached, isW use of State member banks and their affiliates submitting reports as of the next call date: 3/20/52 -10- 'Number of pis Form F. R. 105 (Call No. 123), Report of condition of State member banks. Form F. R. 105e (Revised May 1948), Publisher's copy of report of condition of State member banks. Form F. R. 105e-1 (Revised May 1948), Publisher's copy of report of condition of State member banks. Form F. R. 220 (Revised March 1952), Report of affiliate or holding company affiliate. Form F. R. 220a (Revised March 1952), Publisher's copy of report of affiliate or holding company affiliate. "All of the forms relating to the reporting of affiliates and holding company affiliates have been revised. p, 'Form F. R. 105b (Schedule 0), Loans and Advances to Aflliates of This Bank and Investments in and Loans Secured by ubligations of Affiliates, has been eliminated. The decision t 1,0 discontinue this form was based largely on the desire to truce the reporting burden of member banks, particularly of t.°se with large trust departments which have a number of ,:tecidentall fiduciary affiliates. The essential information "etofore contained in Schedule 0 can be obtained from exami"ation reports shonld it be required. A, "Form F. R. 220, Report of Affiliate or Holding Company 1,'filiate, and the related publisher's copy, F. R. 220a, Ire been revised in the interest of clarification and ' 14Plification. , "The instructions for the preparation of these forms, merly printed on form F. R. 220b but now on the back of 4°1'm F. R. 220, have been revised for consistency and there c13 also a change in the terms of waiver. The dollar limit ' , affiliate indebtedness in the terms of waiver has been nEed from 1$5,000 or 1 per cent of the bank's capital ce',Lsurplus, whichever is the smaller' to 1$5,000 or 1 per rIthe bank's capital and surplus, whichever is the ef grZtc' "The affiliate Schedule FT of the Report of Condition, r. R. 105, has been amended to call for the number of reports that must be submitted on form F. h. 220, ttaler than the total number of affiliates as heretofore. j Z 3/20/52 -11.- "The revised instructions and terms of waiver will be substituted on page 23 of form F. R. 105a, Instrucons for the Preparation of Reports of Condition, when is reprinted. In the meantime, you mAys if you deem J-T, advisable, send a copy of the revised instructions to each State member bank for its files. "The Office of the Comptroller of the Currency is ng substantially the same changes in its affiliate 'c)rms and instructions." Approved unanimously, with the understanding that the letters would be mailed when the forms have been printed.
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