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A meeting of the Federal Reserve Board was held in Washington on Wedriesftay, March 98, 1934, at 10:30 a. m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mr. Black, Governor Hamlin Miller James Thomas Szymczak 01 3onnor Mr. Mr. Mr. Mr. Mr. Mr. Morrill, Secretary Carpenter, Assistant Secretary Bethea, Assistant Secretary Martin, Assistant to the Governor Wyatt, General Counsel Paulger, Chief of the Division of Examinations The Board considered and acted upon the following matters: Telegram to "The First National Bank of Elgin", Elgin, Illinois, ren,a -')-411g as follows: "Your letter March 23, 1934. Board hereby amends its letter of March 19, 1934, which authorized your bank to exercise full fiduciary powers effective if and when it con— solidated with the Elgin City Banking Company, Elgin, Illinois, to -aake such authorization effective this date. This tele— gram will be your authority to exercise such powers. Formal certificate covering such authority will be sent you promptly." Approved. Letter to Mr. O'Connor, Comptroller of the Currency, reading as r°110\vs. "In accordance with your recommendation, the Federal Reserve ar(, approves a reduction in the common capital stock of the eoPles National Ban1,- & Trust Company of Belleville', Belleville, -17 Jersey, from $200,000 to $100,000, pursuant to a plan which 13r°vides that the bank's capital shall be increased by $200,000 of preferred stock to be sold to the Reconstruction Finance ° crPoration and/or others and that the released capital, together with the bank's surplus and undivided profits, shall be used to e-irlinate a corresponding amount of unsatisfactory assets, all as 879 3/28/34 -2- 4 set forth in your memorandum of March 21, 1934. "In considering the plan under which the reduction in common !aPital is to be effected, it was noted that securities deprecia6ion remaining in the bank after the proposed adjustments will be slafficient to impair the common capital to the extent of approximately $45,000. It is assumed, however, that you have this condition in mind and that whenever it becomes feasible to do so you will obtain such further corrections as may be practicable." Approved. Telegram dated March 27, 1934, approved by five members of the Board, to urs Case, Federal Reserve Agent at the Federal Reserve Bank of New York, 4g that the Board has considered the application of the "President and bire etc:Ts of the Manhattan Company", New York, New York, for a voting per414 1144 -er the authority of section 5144 of the Revised Statutes of the United States, aS amended, entitling such organization to vote the stock which it ^v.r controls in "The County Trust Company", White Plains, New York, and 114 alatItorized the issuance of a limited permit to the applicant for the 4110 WirIC Purpose: "To act upon a proposal to reduce the present authorized 111/ ber of directors of such bank from seventeen to sixteen." 1/1,6- tuele gram also authorized the agent to have prepared by counsel for the I4J- reserve bank, and to issue to the President and Directors of the 1444hatt accordance with the telegram. a4 Company, a limited voting permit in Approved. Federal Reserve Telegram to Mr. Case, Federal Reserve Agent at the la4lt of 'Iew York, reading as follows: Trust 00 "The Board has approved the request of the Montclair March of letter its 17t1113411V, Montclair, New Jersey, contained in within time of the period )14: P34, for an extension of 90 days in agreeits in forth 'ea to make the required eliminations as set 880 3/28/34 -3- ment dated December 28, 1933, in connection with the issuance of the permit to vote shares of the First National Bank of Cedar Grove, Cedar Grove, New Jersey, and the Peoples National Bank of Montclair, Montclair, New Jersey. Please notify Montclair Trust Company." Approved. 1.1 Letter prepared in accordance with the action taken at the meeting Of tha executive committee on March 23, 1934, to the chairmen of all IPIral reserve banks, reading as follows: "Upon their return from the meeting of the board of trustees of the retirement system of the Federal reserve banks, Mr. James and Mr. Van Fossen advised the Board of the decision of the board 2f trustees -to request the Federal reserve banks and the Federal Ilaserve Board to defray the traveling and subsistence expenses incurred during the first year of the system's operation by the Members of the board of trustees and of the various committees of the retirement system. The action of the board of trustees has Qeen considered by the Federal Reserve Board and it has authorized the Payment, by the Board's fiscal agent of the expenses of its aPPointee and of the member elected by its employees, and approves the Payment by your bank of the expenses of the representatives °I Your bank and its employees, on the board of trustees and any Committees of the retirement system of which they may be members, 1°r one year from March 1, 1934. "It is understood that all of the Federal reserve banks have opted, or will nut into effect immediately, the requirement that all new employees pass a physical examination. In view of he fact that all new regular employees of the Federal Reserve ?oard are required to be members of the retirement system, the Board has adopted a similar requirement." r Approved. of the Letter dated March 27, 1934, approved by four memhers 1/41tr Reserve Bank of Boston, t° Mr. Curtiss, Chairman of the Federal 41ag as follows: Federal Reserve "Peferring to your letter of March 1, the directors at their -411 approves the action taken by your a contribution be made eetinC on February 21 in voting that ; Society the Federal Reserve Society to be expended by the r welfare and educational work among the employees of the u avo._ be approximately the "& the amount of such contribution to S&31 3/28/34 "same as the aggregate amount of the dues paii3 by the members Of the Society in 1933. In this connection the Board notes from your letter that the dues paid by the members of the Society in 1933 aggregated about $2,000; also that for several Years up to December, 1931, it was the usual practice of the airectors to authorize an annual contribution of $2,500 to the Society." Approved. Telegram dated March 27, 1934, approved by four members of the 13"‘na, to Mr. Fleming, Deputy Governor of the Federal Reserve Bank of Caeveland, reading as follows: "Your letter March 23rd to Mr. James has been brought to attention of Board and it will interpose no objection to rronosed continuance of contributory insurance plan with understanding that expen(Titure on part of Federal reserve bank will be less than 4)100 for one year beginning April 1, 1934. As it is understood that other Federal reserve banks are also giving consideration to question of policy involved in continuance of this form of surance it is asr.mmed that situation will be reviewed and matter ,rouht to Board's attention in ample time for further considerabefore expiration of the new contract if it Should then be clesired to continue it or any substitute in force." Approved. Letter to Mr. Newton, Federal Reserve Agent at the Federal Reserve Of San Francisco, rearling as follows: re, "Reference is made to Mr. Sargent's letter of February 23, 1934, of audits, ,rdlng the procedure followed in sub-dtting reports "n1c11. was re-corted to be as follows: of 1. Reports covering the various operating departments bank; the of Cashier the Head Office to be addressed to practice to any suggestions as to Change in Procedure or be incorporated therein. 2. Beoorts covering losses of any kind or unusual transacBoard. tions to be reported to the Chairman of the 30 and. June 3. Reports submitted at the close of business of the semiDecember 31 each year, covering a resume Chairman of the annual period, to be addressed to the to the Board; these reports to include a statement all departof made been had effect that periodic audits ments. 882 q28/34 -5"4. With the inauguration of branch auditing, it was decided that the semi-annual audit reports of each branch be addressed to the Chairman of the Board. "An auditor of a Reserve Bank is responsible through the Chairman of the Board to the Board of Directors, and, while the procedure as outlined is quite complete, the Board feels that it should be carried one step farther and that reports of all audits should be submitted to the Chairman of the Board, copies being furnished, if desired, to the proper operating officers." Approved. Letter dated March 27, 1934, approved by five members of the 110ard., to Mr. Wood, Federal Reserve Agent at the Federal Reserve Bank of 4 ' Louis, reading as follows: "Receipt is acknowledged of your letter of January 26, 1934, together with its inclosures, regarding the question whether the payment of interest is required under State law on deposits of public fluids made by or on behalf of the State of Mississippi. "It appears that Section 4328 of the 1930 Mississippi Code recillires that State funds shall be placed on deposit with the banks Proposing the best terms, having in view the safety of such funds; and that Section 4324 provides that any bank receiving deposits from the State Treasurer shall be required to pay to the State for the Privilege of holding them, not less than the amount agreed to be on such deposits, subject to such regulations as are imposed by law and rules adopted by the State Treasurer. "On the basis of the information submitted, the Board sees no reason for differing from the conclusion reached by counsel for Your bank that the payment of interest is required under State law nth respect to State funds of the State of Mississippi within :ne meaning of Section 19 of the Federal Reserve Act, which excepts 4rom the prohibition upon the payment of interest on deposits payable on demand deposits of public funds with respect to which the PaYment of interest is required under State law. It is understood that similar statutory provisions are ,PPlicable to deposits of county funds, and, if so, payment of 14terest on such funds would also come within the exception afore- Approved. Letter dated March 27, 1934, approved by five members of the 11Q, ' to !Ir. Peyton, Chairman of the Federal Reserve Bank of Minneapolis, 411 t4.411 4e as follows: 88 3/28/34 -6- "Receipt is acknowledged of your letter of March 5, 1934, 'ogether with its inclosures, in regard to the question whether the payment of interest is required under State law with respect to certain public funds in the State of North Dakota. "It is understood that the funds of the State of North Dakota are not here involved and, therefore, no opinion is here expressed upon the question whether the provisions of Section 714a10 Supp. of the Compiled Laws of North Dakota, require the PaYment of interest with respect to such funds within the meaning of Section 19 of the Federal Reserve Act as amended. "In connection with public funds other than those of the State of North Dakota, it is noted that Section 714a13 Supp. of the Compiled Laws of North Dakota, provides as follows: 'The rate of interest on all public funds deposited as herein provided shall not exceed two per cent on daily balances subject to check or draft, credited monthly, and shall not exceed four per cent on time deposits. It is the intention of this act that depositories of public funds in this State shall pay substantially the same rate of interest thereon as such banks pay to individual depositories Upon individnal deposits.' "It is observed from the opinion of your counsel that the law formerly prescribed a minimum rate of interest which might 1931 be Paid on such funds, but this requirement was repealed in Moreforth. set above as and. the statute was amended to read with respect Over, the clause regarding the intention of the Act this connecin ation consider to the payment of interest deserves intention the with ty tion; and it would appear to be in conformi in funds public on therein expressed that no interest be paid ual individ upon t interes cases in which banks discontinue paying . inuance discont dePosits, irrespective of the reason for such Board "In view of these considerations, the Federal Reserve the by and counsel concurs in the conclusions reached by your Assistant Attorney General of the State of North Dakota to the s is not effect that the payment of interest on such deposit II 19 of Section of required under State law" within the meaning 1933." of Act Banking the Federal 'Reserve Act, as amended by the Approved. five members of the Letter dated March 27, 1934, approved by likra Bank of Dallas, reading to Governor McKinney of the Federal Reserve 4 follows. 1934, together "This refers to your letter of January 5, the Herring with its inclosures, regarding the question whether 884 3/28/34 -7- "National Bank of Vernon, Texas, may lawfully pay interest on aeposits of the City of Vernon which are payable on demand. The determination of the question presented depends upon whether the payment of interest upon the funds in question is required Wider State law within the meaning of Section 19 of the Federal Reserve Act, as amended. "Under Article 2559 of Vernon's Annotated Texas Statutes the governing body of every city, town and village in the State of Texas is authorized to receive sealed proposals for the custody of city funds from any bank or banker that may desire to be selected as a depository, and it is provided therein that any bank or banker desiring to bid shall deliver to the City Secretary within a certain period after notice that bids will be received a sealed proposal stating the rate per cent upon daily b alancesthat such bidder 'offers' to pay to the city, town or village for the privilege of being made depository of the funds. Article 2560 of said statute provides that the governing body Shall select as a depository of such funds the bank or banker Offering to pay the largest amount for such privilege, but the governing body is specifically given the right to reject any and all bids and to readvertise for new proposals. It is understood that it is the opinion of your counsel that if the governing body of a city should deposit city funds without attempting to obtain the Payment of interest thereon, such action would constitute a violation of the duty imposed upon such governing body by the aforeid provisions of State law, but it appears that the governing u0kr is under no duty to deposit such funds in accordance with the procedure set forth therein, and that circumstances might arise in wl-ich it would be permissible for the governing body to deposit such funds in banking institutions without interest. "As you know, the Board ruled in its letter of December 9, 1933, that the payment of interest on funds of the City of Dallas 1,..8 not required by the provisions of the charter of that city. 14 that connection, it will be recalled that the Board stated that, although Article 2559 of the Texas Statutes appears to authorize a city to receive proposals from banks stating the rate which will be paid on daily balances of city funds, the as it • Procedure prescribed therein apparently is not mandatory was not followed by the City of Dallas. an "In vier of the foregoing and of the general rule that construed, strictly eXception to a statutory provision should be it is the view of the Federal Reserve Board that the payment of interest with respect to deposits of funds of the City of Vernon Articles 2559 raade in accordance with the procedure set forth in is not reouired under 4°1- 2560 of Vernon's Annotated Texas Statutes ! the law of that State within the meaning of Section 19 of the , a member bank Pederal Reserve Act, as amended, and, accordingly are payable rae,Y not lawfully pay interest on such deposits which 04 demand." Approved. 885 3/28/ -8Letter dated March 27, 1934, approved by five members of the Board, t0 Mr. Newton, Federal Reserve Agent at the Federal Reserve Bank of San ?rancisce, reading as follows: "This refers to Mr. Sargent's letter of January 26, 1934, regarding the payment of time certificates of derosit before their maturity in violation of Section IV(b) of the Federal Reserve Beard's Regulation Q. Mr. Sargent states that it has come to your attention that when the owners of time certificates of deposit issued by a certain member bank present them for.payment before maturity, arrangements are made by this member bank with another member bank to purchase or discount these certificates and hold them until their maturity; and it is understood that you wish to be advised whether such procedure constitutes an evasion of the prohibition against the payment of time certificates of deposit before maturity and also whether a violation of the law would result where the purchasing bank, in good faith, deals directly with the drawee of the certificate without the knowledge and solicitation of the issuing bank. "It is the opinion of the Board that the mere sale by a dePositor before maturity of a time certificate of deposit held by him to a bank other than the bank issuing such certificate would not necessarily come within the prohibition against the payment of time deposits before maturity, but, if the member bank issuing such certificate should solicit the ether bank to purchase the certificate with the intent to evade such prohibition and to make available to tile depositor in substance the funds evidenced by the certificate, or if the purchase should be made pursuant to an arrangement or 1 derstanding between the bank purchasing the certificate and the 1n ,ark issuing the same, it is the opinion of the Board that such a t1ransactien would constitute an evasion of the spirit and intent of °ection 19 of the Federal Reserve Act and of the Board's Regulation and that it should be regarded as a violation of the prohibition 0 ,,f the provision of law forbidding the payment of time deposits belore maturity. "In the final analysis, the question whether a sale by the holder before maturity of a time certificate of deposit to a bank Other than the member bank issuing the same comes within the prohibition of the law against the payment of time deposits before maturity dePends unon whether the sale is made in good faith or for the pur13°se of evading the prohibition in question. It is not believed that any general rule can be prescribed to govern all cases, and each case should be deterrlined on the liasis of its own particular undertake to 4ets. It would not be practicable for the Board to deterline such questions as they may arise in individual cases, S86. 3A8/34 -9- and the Federal Reserve Board feels that the question whether any such transaction should be regarded as a payment of a time deposit before maturity is a matter to be considered by the member bark at tae time such transaction is proposed and to be determined by such bank in the exercise of its best judgment and in the light of the Provisions of the law and of the Board's regulations. However, if the circumstances with respect to any such transaction are such as to raise a question as to whether it constitutes a violation of the prohibition against the payment of time deposits before maturity, the bank must be prepared to show clearly that such transaction was not in contravention of the provision of law aforesaid." Approved. Letter dated March 27, 1934, approved by five members of the toard to Mr. Case, Federal Reserve Agent at the Federal Reserve Bank of York, reading as follows: "In your letter of November 15, 1933, in which you inclose a !°Py of a letter from Messrs. root, Clark, Buckner and Ballantine, 1.1.e Question is raised whether Section 32 of the Banking Act of 1933 ..13 applicable to certain officers and directors of the Bank of the lanhattan Company who are also directors of various New York bond !Ind mortgage companies which are now in the hands of the State Super?Intendent of Insurance. It appears that, under the provisions of the New York statute, the directors of the bond and mortgage companies are enjoined by court orders from interfering in any manner in the Tanagement of the companies which are in the hands of the Superintenasnt as Pehabilitator. Messrs. Root, Clark, Buckner and Ballantine suggest that, although the directors in question still bear the title (3f their office, they should not be regarded as 'officers, directors or managers' within the meaning of Section 32. "The Board is of the opinion that the words quoted have referAce to persons who manage, direct, or control the affairs of a cor?oration or who have authority to do so, and that, if a person bearthe title of director has been deprived by law or by court order power of control and management, the section is not applicable 4 all , ‘6 "However, the Board has not been furnished with sufficient information regarding the practical effect of the statutory provisions court orders referred to by Messrs. Root, Clark, Buckner and 4°allantine to be able to decide definitely whether Section 32 is still applicable to the directors in question. Possibly, the preecling discussion will enable you to answer the Question raised; ullt, if you desire a definite ruling, it would be appreciated if s c)11 WOIlld submit the matter to the Board with such addational inforulation and comments as the counsel for your bank may deem necessary 887 3/28/34 -10- "in the light of this letter." Approved. Letter dated March 27, 1934, approved by five members of the Board, t0 Mr. R. E. Shepherd, Vice President of Montgomery Investors, Inc., Norrist°71111 Pennsylvania, reading as follows: "Reference is made to your letter of August 15, 1933, regarding the applicability of Section 32 of the Banking Act of 1933 to the ser!ice of directors of member banks of the Federal Reserve System as airectors of Montgomery Investors, Inc. "It appears from the information contained in your letter and from the sample contract inclosed by you that Montgomery Investors, Inc., is an organization engaged primarily in effecting the sale on the installment plan of shares of Nation-Wide Securities Company. Under the cir!"astances, it would seem that Montgomery Investors, Inc., is a corpora'engaged primarily in the business of purchasing, selling, or negotiating securities' and that the service of directors or officers cf member banks as directors or officers of that corporation would be Prohibited by the provisions of Section 32 unless such service were covered by permits issued by the Federal reserve Board. "In the circumstances, it is sus,:gested that you communicate with tlie Federal Reserve Agent at the Federal Reserve Bank of Philadelphia, who will be in a position to advise you further regarding the necessity of , Obtaininf, : permits and the procedure to be followed in making applica tion therefor." Approved. Letter dated March 27, 1934, approved by five members of the Board, 4.1„. CY1-1-ls H. Adams, Chicago, Illinois, reading as follows: applica, t, "The Federal Reserve Board has given consideration to your serve to permit a for 1933 2.0n under Section 32 of the Banking Act of '7 the same time as a director of First National Bank of Lake Forest, „ake Forest, Illinois, and as officer and director of Lee Higginson Poration, a dealer in securities, of Chicago, Illinois. was "The Federal Reserve Board has reached the conclusion that it the 2 reall terminate 1 1. ,..ntent of the Congress in enacting Section 32 to in securidjlonships of certain types between member banks and dealers tend to might relationships i ies, apparently because it felt that such to advice policies and their trilence the banks' credit and investment in respecting investments 4eir correspondent banks and other customers 888 3128/34 -11- a manner which the Congress deemed to be incompatible with the public interest. The Board accordingly feels that it may not properly grant per-lits authorizing relationships which are actually of the kind referred to in that section, and that its authority to issue Permits should be exercised only in exceptional cases; for example, those which are included within the literal terms of the statute but Which are actually of a kind different from those at which its provisions were directed. "It appears that Lee Higginson Corporation is primarily engaged in the underwriting and distribution of securities and that, therefore, the relationship covered by your application is within the class which that section was designed to terminate. Acco,.dingly, the Board is unable to find that it would not be incompatible with the public interest as declared by the Congress to grant your application, even though nothing has been called to its attention which would reflect in any degree "on your desirability as a director of the bank, except that the relationship covered by your application is within the prohibitions of Section 32. "In the event that you desire to submit further facts or arguments in support of your application, the Board is prepared to give them careful consideration. However, any such additional facts or arguments should be submitted as promptly as possible, in writing, through the Federal Reserve Agent." Approved. Letter dated March 27, 1934, approved by five members of the Board, tc)141% David A. Edgar, Milwaukee, Wisconsin, reading as follows: "The Federal Reserve Board has given consideration to your ?Pplieation Tinder Section 32 of the Banking Act of 1933 for a permit t? serve at the same time as a director of the Marine National Exlilange Bank of Milwaukee, and as director and officer of Edgar, lcker et Company, a dealer in securities, both of Milwaukee, Wise011ein. "The Federal Reserve Board has reached the conclusion that it Was . the intent of the Congress in enacting Section 32 to terminate 11 relationships of certain types between member banks and dealers ! 4!1 securities, apparently because it felt that such relationships 11tht tend to influence the banks' credit and investment policies . 21d their advice to their correspondent banks and other customers ;especting investments in a manner which the Congress deemed to be tlaccmpatible with the Public interest. The Board accordingly feels I hat it may not properly grant permits authorizing relationships that ich are actually of the kind referred to in that section, and exceptional in 5 only "' authority to issue permits should be exercised 1 n 889 3/28/34 . -12- cases; for example, those which are included within the literal terms of the statute but which are actually of a kind different from those at Which its provisions were directed. "It appears that Edgar, Ricker & Company is primarily engaged in the purchasing, selling, and negotiating of securities and that therefore the relationship covered by your application is within the class Which that section was designed to terminate. Accordingly, the Board is unable to find that it would not be incompatible with the public interest as declared by the Congress to grant your application, even though nothing has been called to its attention which would reflect in any degree upon your desirability as a director of the bank, except that the relationship covered by your application is within the prohibitions of Section 32. "In the event that you desire to submit further facts or arguments in support of your application, the Board is prepared to give them careful consideration. However, any such additional facts or arguments should be submitted as promptly as possible, in writing, through the Federal Reserve Agent." Approved. Letter dated March 27, 1934, approved by five members of the Board, to 'r. Stevens, Federal Reserve Agent at the Federal Reserve Bank of Chicago, NAA4 --Lialg as follows: "Your letter of January 19, 1934, and the previous correspondence re 4 Cardin; the application of Mr. rarwell Winston under Section 32 of Bamking Act of 1933, raises primarily the question whether the var'Ying of what are commonly known as margin accounts by brokers in)lves the making of 'loans secured by stock or bond collateral' with: 44 the meaning of Section 8A of the Clayton Act. "As you state in your letter, if the relationship covered by Mr. riinston's application is prohibited by Section 8A of the Clayton Act, :Permit 8 issued under Section 32 of the Banking Act of 1933 would ”rve no useful purpose. See the Board's letter of December 22, 1933 °!-7734). "It appears from your letter and the inclosures, including a copy of the letter of the General Counsel of your bank, and of the forms 11;!ed in connection with such transactions by the brokerage firm in ioh Mr. Wirston is a partner, that the margin accounts are carried 4 substantially the following manner: "The customer deposits with the broker margin in the form of or sell certain ash or securities, and orders the broker to purchase ! furnishes the and order lecurities for him. The broker executes the are securities The alance required for the execution of the order. c 890 3/28/34 -13- II acquired or sold by the broker for the account and risk of the customer, but all securities in the account are held by the broker. The customer authorizes the broker to pledge, as collateral for any indebtedness of the broker, all securities thus held by the broker, and such pledge may be for a greater sum than the amount which the customer owes to the broker. The broker usually avails himself of this right, in whole or in part, in order to supply himself with funds with which to carry out the orders thus received from his customer. The broker has the right to close the customer's account by sale or purchase, as the case may be, whenever he deems it necessary to protect himself from loss on the customer's obligation. Since the securities are purdhased or sold for the account and risk of the customer, he is liable to the broker for any deficiency remaining after the closing of the account. Likewise, any appreciation in the value of the securities bought and any income therefrom during the life of the account are the property of the customer. Securities thus held by the broker for the account of the customer, except those issued in bearer form, are usually issued in the name of a broker and indorsed in blank in order to facilitate handling. "After careful consideration, the Federal Reserve Board has reached, the conclusion that the opinion of your counsel is correct that, in carrying margin accounts in which are held stocks or bonds in the manner described above, the broker makes loans to his customers secured by stock or bond collateral' within the meaning of Section 8A of the Clayton Act, and that therefore that section will be applicable to the service of ITr. Winston as a director of the national bank and as a partner in the brokerage firm. "Additional support for this view is furnished by the legislative history of the Banking Act of 1933 and of Section 33 of that Act, which added Section BA to the Clayton Act, since it appears that one of the PrilllarY purposes of that Act was to check the excessive diversion of I redit from commerce and industry to speculative uses on stock exchanges. Targin accounts, and the broke,.0 .loans b which they were financed to a large extent, constituted some of the principal ways in which credit was made available for such speculation; and therefore an interpretation of Section 8A based on the conclusion that the carrying of margin accounts does not involve the making of loans secured by stock or bond collateral within the meaning of that section would defeat, in a large rileas-ore, its purpose. "Although the Board is authorized, to issue permits under certain circumstances covering relationships otherwise prohibited by any proof the Clayton Act, the provision of Section 8 which authorizes the Board to issue permits refers only to banking institutions of cer,fain classes, with the result that, unless the brokerae firm of which 'Ir. Winston is a partner is such an institution, the Board would have 110 authority to issue such a permit." Approved. 891 3/28/34 -14Mr. Hamlin, as Chairman of the Committee on District No. 3, reported that the Committee met yesterday following the meeting of the 13clard with the directors of the Federal Reserve Bank of Philadelphia and cleeided to recommend to the Board that the Philadelphia bank be advised that the Federal Reserve Board is still of the opinion that the official 'taff of the bank needs strengthening, but that as the board of directors feel that no changes, other than those recommended by the directors, are 11"esearY at the present time, and as they are primarily responsible for the sa tisfactory operation of the bank, the Board approves the salaries f4ecl. by the directors at the annual rates shown below: C. A. McIlhenny Davis Donaldson Morris Deputy Governor, Cashier, and Secretary Assistant Deputy Governor Assistant Deputy Governor Assistant Cashier $13,200 10,000 5,000 5,000 onnection with the committee report, Mr. Morrill read a memoranc'um "3111itted to the committee by "!r. ririnnen,Federal Reserve Examiner, under (i4te of March 28, 1934. The salaries above referred to were voted on separately and approved, Messrs. Miller and Szymczak voting "no" on the salaries of Messrs. McIlhenny and Donaldson, and the Secretary was requested to prepare a letter to Yr. Austin, Chairman of the Philadelphia bank, in accordance with the recommendation of the Committee on District No. 3. Mr• James stated that, in accordance with the action taken at the of the Board yesterday, he and Mr. Szymczak had met as a committee k(1.11„, considered the telegram received from Governor Calkins under date membership from banks 4"1 26, 1934, with regard to applications for 892 3/28/34 -15- ill Alaska and Hawaii; that the committee had reviewed the report of exalanation of the First National Bank of Ketchikan, Alaska, made as of 22, 1932, and the information submitted in October 1933 by the Cashier of the bank to the Federal Reserve Bank of San Francisco; that, 48 it is apparent that no material change has taken place in the unsatisfee t°17 condition of the bank since the last examination, the committee felt that no useful Purpose would be served in making another examination ' et this time in connection with the bank's application for membership; and that the committee desired to recommend that it be suggested to Governor Calk. ifle that he discuss the matter with the cashier of the national bank Ilith the thou.tht that he will prefer to withdraw the application, which 11(114 obviate the necessity of the Board's taking adverse action with rehereto, it being understood that this action will not prevent the 4i1ing an application for membership at a later date when improvement 14 ite condition warrants consideration of such application. Mr. James e414c1 that, apparently, the only reason the bank has for desiring member111AID is in order to become eligible for insurance of deposits by the Feder- Posit Insurance Corporation. The recommendation of the committee was approved, Mr. Thomas voting "no". In explanation of his vote Mr. Thomas stated that he felt the Federal Reserve Board should admit to membership as many banks as the condition of the applicants will permit, and that for that reason the matter should be left open and the application of the bank considered on the basis of a current report of examination. 11r. James called attention to the fact that according to the advice ` t)11t lied in Governor Calkin0 telegram, counsel for the Federal Peserve 893 3/28/34 -16- Of San Francisco will return from Hawaii on March 29, and if he has 44Y additional information with regard to banks in that territory ernor Calkins will forward it to the Board for consideration. With regard to the informal request from the Reconstruction Fi4841 "Corporation for an expression from the Board as to what its position 1c)/11c1 be upon an application for membership from a new national bank to be ° g11 ized in the Virgin Islands, Mr. James stated that the committee felt that the Federal Reserve System would not be in a position to make available to ' e proposed new bank the services which are incident to the membership of in the United States and that apparently the only reason for the "G of the application would be to comply with the condition imposed by the, " - econstruction Finance Corporation that the bank become a member of the system. After discussion, Mr. Szymczak moved that the Reconstruction Finance Corporation be advised informally that, in the absence of a formal application and the information which should be supplied to the Board in connection therewith, the Board is unable to express any opinion with regard to the admission of the bank to membership, but that it will be glad to give careful consideration to an application if and when submitted. Carried. Szymczak stated that the committee had also given consideratiolat the advisability of continuing the employment of Mr. Pole as lb Adviser to the Board and had decided to submit the matter to the )104ra f or its decision. At the conclusion of the ensuing discussion, it was decided that, in the absence of developments -17requiring the continuation of the services of Mr. Pole, his employment will be terminated on April 13, 1934. reference was made to the memorandum dated March 16, 1934, from 41*' James, which was considered at the meeting of the Executive Committee (34118 ch 23, and Mr. James stated that, at the request of the Comptroller Of the Currency, !tr. William P. Folger, Chief National Bank Examiner, disellased with him (Mr. James) yesterday the matter of the organization in the office of the Comptroller of the Currency of a department for the supervi8i°4 of the examination of trust departments of national banks, and that P°1ger had advised that the Comptroller's office was undertaking to 1.113 such a aenartment, but that the office had been so busy with other 41Ltter,„ - "11ring the past year or more that little had been accomplished in thai. airection and that, while additional examiners had been employed who itave special qualifications for making such examinations, no report could be 11144e at this time as to when the organization of the department would be "fectei Mr. Folger had also stated, Mr. James said, that he realized Nay the responsibility of the Comptroller's office in seeing that adequate e4raIllaticIns of trust departments are made and that active consideration W°111a be given to the organization of a department for the supervision of that work. At the request of Mr. O'Connor, Mr. F. G. Await, Deputy Comptroller Of the 1)eill ClIrrency, and 'tr. Folger were invited into the meeting and the steps taken by the Comptroller's office to discharge its responsibility in e°14Iection with the examination of trust departments of national banks were .71C 3/28/34 -38- l'eviewed, it being pointed out by Mr. Await that, because of the banking 11°1iclaY and the demand made upon national examiners in connection with the elftainations made by the Federal Deposit Insurance Corporation, the plans fc)r the tl'Ust establishment of an adequate procedure for the examinations of departments had not been fully formulated. Mr. O'Connor stated that the past seven months his office had been conducting a campaign in ala attempt to obtain a discontinuance of the practice of banks investing tIsilst funds in securities purchased from their commercial departments, and that considerable progress had been made in this regard. Some of the members of the Board expressed the opinion that there i8 4 definite responsibility on the part of the Federal Feserve Board in ' I eeard to securing adequate examinations of trust departments of national bank ' 2 and suggested that the Board would be willing to cooperate with the ecftaPtr oller's office in setting up a procedure to provide for the making Of 811ell examinations. In tlds connection, it was pointed out that under the, vr°visions of the last paragraPh of section 21 of the Federal Reserve Act, A.„ -- amended, the Comptroller of the Currency is required to assess --', alr„ national banks exercising trust powers the cost of examining the dePartments, and it was stated by Mr. Folger that provision had been kade r, -r taking care of the expense of this work. At the conclusion of the .1.iscussion, it was unerstood that the Comptroller's office would take immediate steps to complete the plans which have been under consideration for the establishment of a department for the supervision of examinations of trust departments of national banks, and that the Board would be advised currently of the action taken in this connection. 896. -19- 6/28/34 Reference was made again to the question of the action to be tr-o-4.en With regard to the three employees whom the Board agreed to con- tinue on the -)a7.71.011 of the Federal Reserve Issue and Pedemption Divifor a further period of three months from January 1, 1934, in order to afford the Comptroller of the Currency an orroortunity to arrange to transfer them to the payroll of his office. 'Tr. Await stated that the Coniptroller's office had been unable to obtain the necessary appropriatio4 to cover the salaries of the employees, that it was planned to recertain divisions in the Comptroller's office, which would make it lx)ssible to dispense with the service of these employees in the ISSIIR 'Ion of that office so that they could be returned to the Federal ve Issue and 'Redemption Division, but, inasmuch as their services are pr,.. needed in that Division, arrangements night be made to transfer ()lie tae to the Insolvent Banks Division of the Comptroller's office coMptometer onerator, and that it might be possible to make provisiorl 'L(31" one of the other two. At the conclusion of the ensuing discussion, Messrs. James and O'Connor were appointed a committee to look into the matter and submit a recommen'ation to the Board as to the manner in which it should be disposed of. Messrs. Await and FolEer left the meeting at this point. to tlie 11r. James, Chairman of the Committee on .District No. 1], referred re si,;nation submitted under date of January 30, 1934, of 'fr. E. A. , 11e- as a director of the Houston branch of the Federal Reserve Bank. of ' and recommended appointment by the Board of Tfr. W. K. Morrow, 3/28/34 -20- dent of the Standard :P.ice Milling Company, as a director of the 131 ' 84411 for the unexpired portion of the term ending December 31, 1936, to succeed Mr. Peden. He also stated that in a letter addressed to the 80ard by 'Tr. Walsh, Chairman of the Board of Directors of the Federal 11"erve Bank of Dallas, under date of February 7, 1934, Mr. Morrow was azaed as the first suggestion of the board of directors of the Dallas 11114cas a successor to Mr. Peden, and that he had discussed the matter with other parties in the Houston territory who recommended the appointof Mr. Morrow as a representative of the rice milling industry. 11r. Thomas, the other member of the Committee on District No. 11, stated that the letter dated February 7 from the Chairman of the Federal R-Aft ..aerser "e Jidank of Dallas, transmitting the resignation of Mr. Peden and I stiIle Mr. Morrow as first suggestion of the directors, had been received th A e -oardls offices and referred to him during the absence of Mr. Janes, szid, n (:)t kn"inganyone in the Houston territory with whom he could confer, he 10,, "discussed the matter with !Tr. Jesse Jones, Chairman of the Recon- 81411aticln Finance Corporation, who Ivo recommended Mr. Sam Taxi)), of 11°1-lit 21, who is in the wholesale tobacco business; that upon receipt of this l'e"ralleadation he had discussed 'Ir. Taub with Mr. Walsh and Governor 44e,Y, who advised that Mr. Taub previously had been considered for ap13°i/ltraent by the Dallas bank as a director of the Houston branch but was to be ineligible as he was at that time a director of a commercial bawl. that his name had been inadvertently omitted from the letter of ' and that it was felt be would be a desirable director. 7 7.4°148-8.tlien Mr. stated that, in view of these circumstances, he desired to 898 3/28/34 -21- recommena Mr. Taub for appointment as a successor to Mr. Peden. Governor Black stated that the names of Mr. W. K. Morrow and Mr. Sam Taub were in nomination for appointment as a director of the Tiouston branch of the Federal Reserve Bank of Dallas for the unexpired portion of the term ending December 31, 1936. Votes were cast by the members present with the following result: Messrs. Miller, Thomas, Szymczak and O'Connor. For Mr. Morrow: Governor Black, Messrs. Hamlin and James. For Mr. Taub: Governor Black declared Mr. Taub elected as a director of the Houston branch for the unexpired portion of the term ending December 31, 1936. Mr. Morrill then presented a mellorandum dated March 27 from Mr. Ukme 3r) chief telegraph operator, reporting that Mr. James E. Tanner, 44 °Perator in the Washington office, reported for duty yesterday morning 11111d* the influence of liquor. Mr. Morrill stated that, in view of the ei"lanitstances set forth in the memorandum, it is recommended that, as a cli8eiAlinary measure, Mr. Tanner be furloughed for one month without 84417 b eginninE March 27, and that he be advised d efinitely that a repetitiO 4 of the offense will not be countenanced under any circumstances 411t1 Will result in immediate dismissal. Mr. Morrill also stated that if the .„ 'uove recommendation were approved it would be necessary to engage to take Mr. Tanner's place during his absence, authority for Whicu ' 4 was requested. Tecommendation approved and authority for temporary employment of another operator granted. There were then presented the following applications for original °nal stock, or for the sur-ender of stock, of Federal reserve banks: 3/28/34 —22— k:Ilication for ORIGINAL Stock: District ro. 4. 1Tational Bank of Union City, Iirlion City, Pennsylvania A „Mcations for ADDITIONAL Stock: g. First National Bank of Appleton, Appleton, Minnesota 'ecurity National Bank of Hopkins, Iiopkins, Minnesota 411e Continental National Bank of Harlowton, „ 4arlowton, Montana '4e First National Bank of Groton, Groton, South Dakota -°"of Southern Utah, Cedar City, Utah lications for SURRENDER of Stock: CtNol Pirst National Bank of Fort Kent, Fort Kent, Maine 1831,ere National Bank in Houlton, „ ,zle110111ton, Maine Berlin National Bank, hrlin, New Hampshire strict No 2 %Pirst National Bank of Trenton, .'renton (Barneveld P.O.) New York Westside National Bank of West Paterson, qt. hat Paterson, New Jersey ‘41elsIational Bank of Newport, Rewport, New York -4rict n). 4. National Bank in Carrollton, Ohio 4tiona1 Bank of Union City, Ukto The 4 City, Pennsylvania li'lrst National Bank of Moundsville, °Iltaaville, West Virginia Shares 74 74 1 15 18 40 30 Total 30 70 78 72 120 270 32 68 39 139 g4 75 120 42 237 360 360 latri Tile - -et No. 5. rilers National Baia 8c Trust Co. of 5t°11-.Sa1era, Winston—Salem, N. C. npo 3/28/34 lications for SURRENDER of Stock: (Continued.) . Shares The Galva First National Bank, Galva, The Pirst National Bank of Cresco, Cresco Iowa 60 District No. 8. The First National Bank of Mansfield, Mazsfield, Arkansas 4.z1e Security National Bank of Jackson, Jackson, Tennessee 20 District No. 10. 711e Parmers National Bank of Cherokee, C herokee, Oklahoma yirst National Bank of Waynoka, Ilraylloka, Oklahoma 30 51 84 17 milistrict No. 11. Pearsall National Bank in Pearsall, ?earaall, Texas 21 Total 111 104 47 21 1,289 Approved. Thereupon the meeting adjourned. (INV:APPKi;k41k.17) ecretary. ° ad: L'S :Governor.
@FedFRASER