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61'7 Minutes of actions taken by the Board of Governors of the Federal Reserve System on Friday, March 27, 1953. The Board met in the Board Room at 10:40 a.m. PRESENT: Mr. Mr. Mr. Mr. Szymczak, Acting Chairman Evans Mills Robertson Carpenter, Secretary Kenyon, Assistant Secretary Hackley, Assistant General Counsel Nelson, Assistant Director, Division of Examinations Mr. Chase, Assistant Solicitor Mr. Mr. Mr. Mr. Reference was made to the folloaing memoranda, submitted under date of March 25, 1953: (1) Memorandum from the Division of Examinations concurring in a recommendation of the Federal Reserve Bank of Chicago that action be taken immediately under section 9 of the Federal Reserve Act to terminate the membership of Devon-North Town State Bank, Chicago, Illinois, in the Federal Reserve System. (2) Memorandum from Mr. Chase, Assistant Solicitor, recommending that the Board adopt the recommendation made by the Federal Reserve Bank of Chicago. After reviewing the facts of the case, as related in the two memoranda, Governor Robertson recommended: (1) that the Board issue a Complaint and Notice of Hearing pursuant to the provisions of section 9 of the Act, and (2) that upon assembly of the necessary facts, the Federal Reserve Bank of Chicago be authorized to issue a warning as a Preliminary step in a proceeding under section 30 of the Banking Act 61 -2- 3/27/53 of 1933 looking toward the removal from office of Henry J. Beutel as president and director of Devon-North Town State Bank. or RobertRegarding the proposed section 30 proceeding, Govern a hearing son said that probably it would never reach the stage of ns with the because Mr. Beutel might choose to resign his positio section 9 of bank and, even if he did not, because the action under the Act presumably would be concluded before the steps could be coming under section pleted that are required in connection with a proceed 30. The real purpose of the latter proceeding, he said, would be to set down a record of Mr. Beutel's activities which might serve to overkeep him out of other banks in the future. In this connection,G nor Robertson referred to Mr. Beutelts questionable activities in been three other banks with which he was currently associated or had and the associated in the past, namely, the Belmont National Bank State West Irving State Bank, both of Chicago, Illinois, and the First Bank of Elmwood Park, Illinois. DisGovernor Robertson went on to comment concerning Bankers y affiliate of count Corporation, of Dallas, Texas, holding compan stock interest Devon-North Town State Bank by virtue of the majority of Which it acquired in February 1953, and principal stockholder -3- 3/27/53 certain other banks. In the course of his comments, Governor Robertson described the circumstances under which the Corporation, which Operates 19 wholly-owned finance companies in the States of Texas, Tennessee, and California, borrowed ,$85,000 from Devon-North Town State Bank on February 3, 1953, on an unsecured basis, and following acquisition of the majority stock interest in the member bank later in the same month, sold to the bank without recourse a substantial amount of installment loan paper, a large proportion being past due at the time of sale to the member bank. Citing the annual report of the Corporation for the year ended June 30, 1952, which was submitted with the Corporation's request for a determination of its holding company affiliate status following purchase of the State Bank of Whiting, Nhiting, Indiana, he pointed out that if the Corporation had been able to liquidate its assets as of June 30, 1952, at 100 cents on the dollar, the common shareholders would have received nothing and the preferred shareholders less than par. Action by the Board under section 9 of the Act might, he thought, discourage Bankers Discount Corporation from attempting to expand its bank shareholdings. Mr. Chase commented that in a telephone conversation this morning, Mr. Pondrom, Vice President of the Federal Reserve Bank -4- 3/27/53 taking of Dallas, stated that the Banking Commissioner of Texas was Discount Corporasteps to verify the bank shareholdings of Bankers violation of its tion after which he would cite the Corporation for order the Corporation charter powers and, if the facts warranted, g Commissionto divest itself of the stock. If it refused, the Bankin of the State er intended to turn the case over to the Attorney General the State Bankfor consideration in the light of a recent holding of tution and ing Commission that branch banking violates the consti which holds the statutes of the State and that a holding company ions. stock of two competing banks is violating those provis Following a discussion, unanimous approval was given to a Complaint and Notice of Hearing in the following form, with the understanding that a copy would be sent today to DevonNorth Town State Bank and that representatives of the Board and the Federal Reserve Bank of Chicago would proceed with the preparation of a warning to Mr. Beutel under section 30 of the Banking Act of 1933: "UNITED STATES OF AMERICA BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM In the Matter Of DEVON-NORTH TOWN STATE BANK, CHICAGO, MLINOIS 621 3/27/53 -5"COMPLAINT "Pursuant to the provisions of Section 9 of the Federal Reserve Act and by virtue of the authority vested in it by said Section, the Board of Governors of the Federal Reserve System (hereinafter referred to as the Board), having reason to believe that Devon-North Town State Bank (hereinafter referred to as the respondent) a member bank of the Federal Reserve System, has violated the provisions of said Section or the regulations of the Board made pursuant thereto, hereby issues its complaint, stating its charges as follows: "PARAGRAPH ONE. On or after February 171 19531 and while an unsecured loan by respondent to Bankers Discount Corporation, Dallas, Texas, in the amount of approximately $851000 was outstanding respondent purchased from said Bankers Discount Corporation, a holding company affiliate of respondent, instalment obligations in the aggregate amount of approximately $971,974.23 of which an aggregate amount of over $2901000 was past due at the time of purchase and of which an aggregate amount of over $931000 was past due sixty days or more at the time of purchase, in violation of U. S. Code Title 12, Section 371c, and respondent's Condition of Membership No. 1 (Board's Regulation H, Section 7). "PARAGRAPH TWO. While an unsecured loan by respondent to said Bankers Discount Corporation in the amount of approximately $85,000 was outstanding respondent permitted overdrafts by said Bankers Discount Corporation in the amount of $121366.16 on February 23, 19531 and in the amount of $35,139.01 on March 71 19531 in violation of U. S. Code Title 120 Section 371c, and respondent's Condition of Membership No. 1 (Board's Regulation HI Section 7). "PARAGRAPH THREE. Respondent between about January 200 1953 and about March 21 1953, purchased from Belmont National Bank of Chicago, Illinois, loans aggregating approximately $77,092.47, which had been guaranteed by respondent's president and which had been criticized or adversely classified by the national bank examiner, in violation of respondent's Condition of Membership No. 1 (Board's Regulation H1 Section 7). 3/27/53 -6- "WHEREFORE, THE PREMISES CONSIDERED, The Board of Governors of the Federal Reserve System on this 27th day of March, 1953, issues its complaint against said respondent. "NOTICE given to you, Devon-North Town hereby is "Notice that the 29th day of April, herein, respondent State Bank, as the time, and the fixed is 11., A. 1953 at 10 o'clock, Chicago, Illinois, building, Chicago of Bank Federal Reserve be had before a will hearing a where and as the place when of Governors of Board the by appointed Trial Examiner to be forth in set charges the on System, the Federal Reserve have the will you place and this Complaint, at which time an Order why cause show and right under said Act to appear stock your surrender should not be entered requiring you to and rights all in the Federal Reserve Bank and to forfeit Reserve System. privileges of membership in the Federal "You are hereby notified that the opportunity is afforded you to file with the Board an answer to this Complaint on or before the twentieth day after service of it upon you. Such answer, if one is filed, should contain a concise statement of the facts which constitute the ground for defense and should specifically admit or deny each of the facts alleged in the Complaint unless you are without knowledge, in which case you should so state. Failure to file an answer or to plead specifically to any allegation of the Complaint shall constitute an admission of such allegation. "If you desire to waive hearing on the allegaticns of facts set forth in the Complaint and not to contest the truth of said allegations, the answer may consist of a statement that respondent admits that all the material allegations of fact charged in the Complaint are true. Said answer will constitute a waiver of any hearing as to the facts alleged in the Complaint; and thereupon, without any intervening procedure, findings as to the facts and conclusions based upon such answer and such findings will be made and an order will be entered disposing of the matter. The respondent may, however, reserve in such answer the right to submit proposed findings and conclusions of facts or of law under Rule V (b) of the Board's Rules of Practice for Formal Hearings. , 2 A. f" (; -7- 3/27/53 "Failure to file answer within the time provided and failure to appear at the time and place fixed for hearing, shall be deemed to authorize the Board, without further notice, to find the facts to be as alleged herein and to issue an order requiring respondent to surrender its stock in the Federal Reserve Bank and to forfeit all rights and privileges of membership in the Federal Reserve System. "IN WITNESS WHEREOF, the Board of Governors of the Federal Reserve System has caused this, its Complaint, to be signed by its Secretary and its official seal to be annexed at Nashington this 27th day of March, 1953. "By the Board. (sEAL) The meeting then adjourned. (Signed) S. R. Carpenter S. R. Carpenter, Secretary." During the day the following additional actions were taken by the Board, with all of the members except Chairman Martin and Governor Vardaman present: Minutes of actions taken by the Board of Governors of the Federal Reserve System on March 26, 1953, were approved unanimously. Telegrams to the Federal Reserve Banks of New York, Cleveland, Richmond, Atlanta, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco stating that the Board approves the establishment without change by the Federal Reserve Bank of San Francisco on March 24, and by the Federal Reserve Banks of New York, Cleveland, Richmond, 26, Atlanta, Chicago, Minneapolis, Kansas City, and Dallas on March 624 -8- 3/27/53 1953, of the rates of discount and purchase in their existing schedules. Approved unanimously. Memorandum dated March 13, 1953, from Mr. Sloan, Director, Division of Examinations, recommending, the appointment of Dora R. Kriel as Clerk in that Division, on a temporary indefinite basis, With basic salary at the rate of $3,335 per annum, effective as of the date upon which she enters upon the performance of her duties after having passed the usual physical examination and subject to the completion of a satisfactory employment investigation. Approved unanimously. Memorandum dated March 23, 1953, from Mr. Hostrup, Assistant Director, Division of Examinations, recommending the appointment of Hanvey Stanford as Assistant Federal Reserve Examiner in that Division, on a temporary indefinite basis, with basic salary at the rate of 5,435 per annum, and with official headquarters in Washington, D. C., effective as of the date upon which he enters upon the performance of his duties after having passed the usual physical examination and subject to the completion of a satisfactory employment investigation. Approved unanimously. 625 -9- 3/27/53 Memorandum dated March 25, l953, from Mr. Hostrup, Assistant ment of Director, Division of Examinations, recommending the appoint DiviJohn P. Donovan as Assistant Federal Reserve Examiner in that the sion, on a temporary indefinite basis, with basic salary at rate of $4,205 per annum, and with official headquarters in -Nashenters upon ington, D. C., effective as of the date upon which he the performance of his duties after having passed the usual physical ctory employexamination and subject to the completion of a satisfa ment investigation. Approved unanimously. r, Memorandum dated March 24, 1953, from Mr. Bethea, Directo re-employment Division of Administrative Services, recommending the of Mary C. Tippett as Telephone Operator in that Division, on a temporary indefinite basis, with basic salary at the rate of $2,950 per annum, effective as of the date upon which she enters upon the Performance of her duties, and with the understanding that no Physical examination or repayment for leave would be required. Approved unanimously. Memorandum dated February 11, 1953, from Mr. Young, Director, Division of Research and Statistics, recommending increases in the basic annual salaries of the following employees in that Division -10- 3/27/53 in the amounts indicated, effective March 29, 1953: Salary Increase To From Name and Title Howard G. Smith, Economist Monica F. Jones, Clerk Winofred C. Racz, Clerk Vera F. Small, Clerk-Typist Ruth D. Stone, Secretary $4,455 $4,58o 3,785 3,910 4,035 4,16o 3,270 3,350 41420 4,545 Approved unanimously. Memorandum dated March 24, 1953, from Mr. Hostrup, Assistant Director, Division of Examinations, recommending that sick leave in an amount not to exceed 45 days, beginning April 2, 1953, and ending May 291 1953, be advanced to Att W. Hammons, Jr., Assistant Federal Reserve Examiner in that Division. Approved unanimously. Memorandum dated March 261 19531 from Mr. Hostrup, Assistant Director, Division of Examinations, recommending that a leave of absence without pay for a period not to exceed three months, beginning March 30, 1953, be granted to Alexander S. Barnes, Assistant Federal Reserve Examiner in that Division. Approved I unanimously. - Secretary
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