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738 A meeting of the Federal Reserve Board was held in Washington °II Friday, March 22, 1955, at 2:40 p. m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Governor Thomas, Vice Governor Hamlin Miller James Szymczak O'Connor Mr. Mr. Mr. Mr. There Morrill, Secretary Bethea, Assistant Secretary Carpenter, Assistant Secretary Clayton, Assistant to the Governor as presented a memorandum dated March 11, 1935, from Mr. Jaine8 quoting the following resolution adopted by the board of directors f the Federal Reserve Bank of Atlanta and communicated to Mr. James c3ver the telephone by Mr. Clark, Assistant Federa Reserv Agent l e at the barilt WHEREAS, the press is carrying stories to the effect that a general strike is threatened in Cuba; and VHEREAS, any such strike might be a source of danger 40 the Havana Agency of this bank, THEREFORE BE IT RESOLVED That the Federal Reserve Board be, and it hereby is, requested to keep this situation in mind, and, in the event some threat to the aecurity of the property of this bank located in said agency should develop, the Board use its good offices in Of State protection for the Agency through the Department 1J1 of the United States or otherwise, as the Board waY see appropriate. Mr. Hamlin moved that the Secretary be requested to prepare a letter to the State Department transmitting the resolution for such action as may be thought necessary in the circumstances. Carried. Consideration was then given to a letter dated February 11, 1935, 7 739 3/22/35 from Governor Harrison of the Federal Reserve Bank of New York, replying to the Board's letter of January 22, 1935, with regard to the salary recommendations made by the board of directors of the bank for the °fficers for the year 1935, and submitting the revised recommendations °f the directors with respect to salaries for the current year. There "re also presented letters dated January 17 from Governor Calkins of the Federal Reserve Bank of San Francisco, January 18 and February 15 tr°m Mr. Moore, Deputy Chairman of the board of directors of the San Fralicisco bank, and February 15, 1935, from the executive committee of the hanky urging that the Board give favorable consideration to the rec°rnmendations previously submitted by the board of directors with reglird to salaries of the officers of the bank for the current year. Mr. James, as Chairman of the Committee on Salaries and 31x-Peri • dltures, stated that, in view of the fact that the Board's letter ""larY 5, 1935, with regard to salary policy was not sent out until 4rter agreements had been reached between the directors of the Federal 've Banks of New York and San Francisco and the Board's Committee On 'Jtu,ries and Expenditures and the district committees with regard to kaar. les for the current year, he would suggest that the recommendations Qr the boards of directors of the two banks be approved. Mr. Hamlin moved that the recommendations of the board of directors of the Federal Reserve Bank of San Francisco be approved and that the Secretary be requested to prepare a letter to the Deputy Chairmen of the bank advising of the Board's action. Carried unanimously. 740 3/22/t5 -3There followed a discussion of the recommendations of the board Of directors of the Federal Reserve Bank of New York, particular con- sideration being given to the recommendations that increases be made in the salaries of Mr. W. S. Logan, Deputy Governor and General Counsel, fr°111 $22,000 to $25,000, L. V. Knoke, Assistant Deputy Governor, from 44)000 to $15,000, and H. V. Roelse, ASsistant Federal Reserve Agent elid Manager, Reports Department, from $8,000 to $10,000. During the dis- e1188ion it was pointed out that one of the reasons given by the New York directors for the three increases referred to is that it is desired to bl'ing them into line with the salaries paid other officers of the bank, 444 in this connection some of the members of the Board expressed the on that, instead of increasing these salaries, the adjustment sh°111d be accomplished by reducing the salaries of other officers. The l'ec°mmendations of the board of directors of the New York bank included 4 l'eccmmendation that the salary of Mr. Carl Snyder, General Statistician, be a Pl3roved for the year 1935 and it was pointed out that the Federal Rese've Board on July 2, 1934, approved the salary of Mr. Snyder only to APril 23, 1935, Mr. James moved that the recommendations of the board of directors of the Federal Reserve Bank of New York be approved with the exception of the recommendation with regard to the salary of Mr. Snyder. Governor Eccles suggested that, if the Board approved Mr. James' motion, the New York bank be advised that the Board is taking such action because of the fact that its letter of January 5, 1935, was sent after an understanding had been 741 3/22/35 -4-reached by the Board's Committee on Salaries and Expenditures and District Committee with the board of directors of the New York bank, and before the receipt of advice of the Board's policy as set forth in Governor Eccles' letter of January 5, 1935, and that it is the feeling of the Board that adjustments of this type in official salaries should be made by reductions in the higher salaries rather than increases in the salaries which it is felt are out of line. Mr. James' motion was put by the chair and carried, and the Secretary was requested to prepare a letter to the Federal Reserve Bank of New York in accordance with Governor Eccles' suggestion. In connection with the above matter Mr. O'Connor stated that a short time ago the Chief National Bank Examiner for the Second Federal Reserve District recommended the employment of an additional 81L grapher with salary at the rate of $90 per month, and that he had l'ePlied to the recommendation that the employment of stenographers at elleh a low salary was unjustified and that the minimum salary for such a ic)eition should be $125 per month. He said that he felt that the Board - give careful consideration, not only to the salaries of officers -e"ral reserve banks, but also to the situation with regard to the rai salary positions at the Federal reserve banks with the view to nC all salaries at the banks to reasonable minimums. It was stated that a conference of representatives of the Federal r'eaerlie banks is being arranged for the purpose of reviewing the personnel : 48ificati0n plans of the banks for the purpose of simplification and b g about greater uniformity in the plans of the various banks. Mr. °Ie°1111c3r said that he felt it was important that the Board and the banks 742 3/22/55 -5- should adopt the policy of fixing salaries of employees at a figure where the employees would feel that their positions are a little better than the average. He said that he intended to follow such a policy in the °face of the Comptroller of the Currency. There was then presented a draft of a reply, prepared by c°1111selt3 office, to a letter dated JulY 13, 1934, from Mr. Dillistin, Aasistant Federal Reserve Agent at the Federal Reserve Bank of New York, sing the question whether the Community Tater Works Company and its fifty-two subsidiaries are affiliates of the Chemical Bank and Trust CoMpany, New York, New York, it being understood that the trust company ecIltrols a majority of the common stock of the Community Water Works e°111PanY but, because of a default in payment of dividends on preferred Stock, holders of such preferred stock have the right to elect a majority c3f the board of directors of such company, although common shareholders he the right to elect a minority of the board of directors and to eelleise full voting rights on all other matters. The proposed reply stat^, zkl that the water works company is an affiliate of the trust company the reason that the latter owns a majority of the voting shares even though, during the continuance of the default, the right to elect a 141113°11tY of the board of directors of the rater works company is in the holders Of the 'preferred stock. The reply also stated that the fifty-two 84158idiaries, a majority of the stock of each of which is owned or contr'4311ed by the water works company, are not affiliates of the trust 13411Y for the reason that, during the period of the default, the trust 743 3/22/35 -6- comPany does not have the power to elect a majority of the directors of the water works company and hence does not control the shares of the fiftY-two subsidiaries which the water works company owns. The file had been circulated among the members of the Board and M1'. Hamlin and Mr. Thomas had attached memoranda to the files expressing the °Pinion that the water works company, during the period of such is not an affiliate of the trust company. Mr. Miller moved that the Board rule in accordance with the opinion expressed by Messrs. Thomas and Hamlin. Carried, with the understanding that counsel would be requested to prepare a revised draft of reply in accordance with the Board's action. Reference was made to memoranda dated February 18, 1955, from ttir 'Wingfield, Assistant Counsel, and February 20, 1955, from Mr. Wyatt, Gerie'ILL Counsel, with further regard to the disposition by the Mercantile C°111111erce Bank and Trust Company of St. Louis, St. Louis, Missouri, of the atc3c1 of the Mercantile Commerce National Bank. Mr. Wingfield's memoStated that counsel for the trust company had discussed the nitItter with various members of the Board and its staff and had filed a bll'ef setting forth its position in the matter, and in a letter dated 4/114117 17, 1954, trlaat company is tion Of the the counsel for the trust company had indicated that the prepared to contest in the courts the validity of any taken by the Board to enforce its views regarding the disposition stock of the national bank. The memorandum from Mr. Wyatt expressed the opinion that, while position heretofore taken by the Board in the matter is legally ect, the Board's record contains several serious weaknesses which 744 V22/35 -7- would make this a very undesirable case in which to test several legal questions of far-reaching general importance which probably would be inin the case and which affect some of the Board's most important Powers With respect to State member banks, and stated that in view of the weakness in its own record he doubted that the Board would have an e'ien chance to aucced in such litigation and in his judgment the possible disadvantages of unsuccessful litigation would be much greater than any P°ssible advantage to be gained from successful litigation. Mr. Wyatt 8111miitted with his memorandum a draft of letter to the Mercantile CO amerce Bank and Trust Company in accordance with the position taken ill his memorandum. The file had been circulated among the members of the Board who had discussed informally the question what action should be taken in the circumstances. Mr. Hamlin had attached a memorandum to the file suggestig that the bank be advised thrt, while the Board has grave doubt whether the bank has fully complied with the spirit of the Board's requirement that it di.s13°8e of the stock of the national bank, inviewof the fact that the trust company is prohibited by law from exercising its option to purchase the sto _ "of the national bank, the Board is content to take no further "tion in the matter. Mr. Thomas attached a memorandum criticising the ill'c'P°seti letter, expressing doubt as to the validity of the condition of inekbership which denied the trust company the right to "retain its full %ter and statutory rights as a State bank", and maintaining that the ni"ner Of acquiring the stock in controversy was not a violation of the e(4114ti°11 of membership nor did the taking of the option to purchase con- 745 3/22/35 -8- stitute acquiring an "interest" in the stock. He urged that the Board adopt the suggestion made by Mr. Hamlin. Some of the other members present indicated that they were in agreement vith Mr. Hamlin's suggestion. At the conclusion of the discussion, Messrs. Hamlin and Thomas, in consultation with Mr. James, were requested to prepare a letter along the lines of Mr. Hamlin's suggestion for the consideration of the Board. There was then presented a draft of a letter to Mr. Sargent, Assistant Federal Reserve Agent at the Federal Reserve Bank of San FranStating that the Board has reviewed the information submitted in c°114ection with the application of the First National Bank of Ketchikan, Alaska/ for membership in the Federal Reserve System and that, while it 4PPears that the bankts general financial condition is such that favorable c°11sideration properly could be given to the application, in view of the l'ecc)minendation of the executive committee of the Federal reserve bank that consideration of the application be deferred until such time as an econ0-3 "Ltc survey can be made of the entire Alaskan territory, the Board does not approve the application at this time. The file had been eil'eulated among the members of the Board and Mr. Hamlin had attached a nielli°11enclum suggesting that in view of all the circumstances the Board °''Te favorable considerEtion to the application. Reference was made to the following reasons given by the executive eQramittee Of the Federal reserve bank for its recommendation: (1) : 11!mbership in the Federal Reserve System would have little, any, advantages to banks in Alaska. (2) aPPlicant bank is the only one desirous of membership. '"e others are not interested unless the applicant is (3) ad'flitted, Federal Deposit Insurance is now available to Alaskan banks 746 3/22/35 -9- without membership in the Federal Reserve System and the applications of the First National Bank, Ketchikan and the First National Bank, Juneau, have already been approved by the Corporation, according to advice of the San Francisco Agency. Admission of the applicant to membership would no doubt be followed by applications from other three national banks and probably all competing territorial banks. If the stronger banks are admitted and the weaker ones denied admission, confidence of the community would be destroyed and failures would likely follow. This would be disastrous to the member and nonmember banks alike as well as to the whole Territory of Alaska. (6) Membership for the First National Bank, Ketchikan Alaska, , at this time has potential consequences, the responsibility of which the Committee does not care to assume. (4) (5) The °Pinion was expressed by some of the members present that, since the applicant apparently is in a position to meet all the requirements of the law and the conditions of membership which would be imposed by the Board, it sh °11-Ld not be denied membership because of the unsatisfactory condition Of Other banks in the territory. It was pointed out that considerable in- formation with regard to the banking and economic situation in the territory, 4ad been developed by the national bank examiner who had made examinaby of the four national banks in the territory in the Fall of 1954, and the Pederal reserve bank, and it was suggested that another survey of e°nditions in the territory would accomplish no useful purpose. There W" e°neiderable discussion of the question whether the Federal Reserve 1)°ard should act on the application without further delay or defer action to afford the Federal Reserve Bank of San Francisco an opportunity to reconeider the euryey matter and, if thought necessary, to have a representative make a the territory and submit a further recommendation to the Board. At the conclusion of the discussion, upon motion by Mr. Szymczak, the Secretary was requested to prepare, for the Board's consideration, a letter to Mr. Sargent along lines suggested by Mr. Szymczak. Carried unanimously. 747 —10Mr. James moved that Mr. Hamlin, who is the member of the Board in charge of membership applications, be requested to prepare for the use of the members of the Board in connection with the further consideration of the application of the First National Bank of Ketchikan, a memorandum reviewing the consideration given, and action taken by the Board with regard, to the admission to membership of banks located in the territories, dependencies, or insulpr possessions of the United States, including Blerto Riot) and Hawaii. Carried. Mr. Morrill stated that his office had been advised over the tele Phone today by Mr. Gidney, Assistant Federal Reserve Agent at the l'ederal Reserve Bank of New York, that Mr. J. S. Rippel of Newark, New 11 jel ' seY, had requested that, in order to avoid the necessity of his making °ver-night trip to Washington in connection with the hearing before the Board in regard to his application under the provisions of section 32 of the Banking Act of 1953 for permission to serve as officer and clir'ector of the Merchants and Newark Trust Company and of J. S. Rippel & Com, l'anY, both of Newark, New Jersey, the Board fix a time later than 11100 a. m. on March 27, 1935, for the hearing. Messrs. Thomas and Hamlin were requested to meet with Mr. Rippel for a discussion of his application at such time on March 27 as they Should agree upon with Mr. Rippel. The Board then acted upon the following matters: Pede-_, ate/re„ Letter dated March 211 19351 from Mr. Sproul, Secretary of the Reserve Bank of New York, and telegram dated March 22 from Mr. Chairman of the Federal Reserve Bank of Chicago, both advising that, at meetings of the boards of directors on the dates stated, no 748 3/22/35 -11- changes were made in the banks' existing schedules of rates of discount and purchase . Without objection, noted with approval. Letter to Mr. McAdams, Assistant Federal Reserve Agent at the ?ecieral Reserve Bank of Kansas City, reading as follows: 11 "This refers to your letter of March 12, 1935, transmitting a certified copy of a resolution adopted by the Board of Directors of the Federal Reserve Bank of Kansas City on March 7, 1935, amending certain sections of the bylaws of the Federal Reserve Bank of Kansas City for the Operation of its branches at Omaha, Nebraska, Denver, Colorado, and Oklahoma City, Oklahoma, so as to eliminate the requirements that all checks and vouchers be signed by the managing director , cashier, or assistant cashier and to provide that all checks and vouchers for the payment of money be signed by any one of the officers specifically mentioned in the by-laws of each branch. "It is understood that the Board of Directors of your bank adopted a resoluti on on December 20, 1934, directing that all checks and vouchers for the payment of money which may be issued by the Federal Reserve Bank of Kansas City or anY of its branches shell bear, in addition to such signature as may be required by the by-laws, a counter-signature by an 2!Ticer or employee duly authorized to sign in such capacity by the Board of Directors or the Executive Committee, but that this resolution did not amend the by-laws of the Federal Reserve Bank of Kansas City for the operation of its branches. "It appears that the amendments to the by-laws described ;rya are in proper form and the Federal Reserve Board has, ."13 day, approved them. "It will be appreciated if you will forward to the Board fo, -44.- copies of the by-laws as amended." Approved. Letter to the Attorney General of the United States, reading as roliows: ad_ "This refers to your letter of March 1, 1935, in which you pe ' ,lsa r that you have no objection to the Board transmitting to " 1"al reserve agents copies of your letter of January 16, 749 3/22/35 -12- "1935, concerning the question of prosecutions of executive officers of member banks who, through inability, may fail to discharge indebtedness to member banks within the period prescribed by section 22(g) of the Federal Reserve Act as amended by section 12 of the Banking Act of 1933. In this connection, there is attached hereto a copy of a letter to all Federal reserve agents transmitting a copy of your letter of January 16, 1935. "It is noted that you do not contemplate the publica. tion of your letter of January 16j 1935, as an opinion, but request advice as to 17hether the Board has any objection to Your furnishing copies of such letter to United States Attorneys and to the Comptroller of the Currency for transmission by him to national bank examiners. In the circumstances, you are advised that the Board has no objection to your adopting such a course." Approved. Letter to the chairmen of all Federal reserve banks, reading as follows: "An examination of the summary report on the amount of industrial loans and commitments made by the Federal Reserve banks to March 6, 1935 shors that the banks have approved $73,660,000 or applications, that 22,258,000 of this amount represents conditional approvals, and that $8,287,000 represents applications finally approved which are in process of completion. It is presumed that the delays in connection with conditional approvals and the completion of the necessary details in connection with advances and commitments finally approved are due largely to the borrowers or financing institutions through which the advances have been requested. The Board feels that the completion of advances should be exPedited as much as possible and, therefore, requests that .r,c311 have a careful analysis made of each of these applications to determine whether there is anything that may be done by .) T lar bank to expedite the completion of all details in 'orinection with these loans so that funds may be advanced and commitments executed more promptly. s "In the Board's letter, B-10621 of January 171 1935, ending out the pamphlet on industrial loans, it was stated in the future it was thought desirable to lay somewhat that„ " I;ZrI:e stress on advances through member banks and other ancing institutions and that the inclosed pamphlet had 750 V22/35 -13- "been drafted with that idea in mind. Since then, or in a Period of two months, applications approved for advances to or in association with member banks and other financing institutions have increased by less than $5,400,0001 of which about $4,800,000 represented commitments. This might suggest the conclusion that there are now very few enterprises in need of additional funds, but having sufficient collateral and earnings capacity to permit of advances on a reasonable and sound basis, that are not able to get accommodation from the usual sources. Information constantly coming to the Board's attention, however, indicates the existence of a strong feeling that this is not the case and in order that every effort may be made by the System to be as helpful as possible it is requested that a special effort be made by your bank to bring to the attention of the banks in Your district the advantages to them and to their communities of making loans for working capital purposes wherever possible. Their attention should, of course, be called to the fact that ?ommitments may be obtained from the Federal reserve banks, ln advance of the making of the loans, in cases there the banks themselves do not feel warranted in carrying the full risk. "While the Board is desirous of seeing loans made direct to borrowers where no financing institution is willing to Participate, it believes that it is in the best interests of the 1?orrower and the banking community for advances to be made through financing institutions wherever possible. The reasons for this are obvious. "It will be appreciated if you will read this letter to Your board of directors and if you will keep the Board advised 'rom time to time of such progress as you are able to make 111 expediting the advancing of funds to industry on approved aPPlications'and of your efforts to bring about a more active 20?peration by banks in your district in the making of indusrlal advances to industries in need of additional working capital." Approved. Thereupon the meeting adjourned. 4PProved: Governor.
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