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853 Minutes of actions taken by the Board of Governors of the Federal Reserve System on Thursday, May 12, 1949. PRESENT: Mr. Mr. Mr. Mr. McCabe, Chairman Eccles Szymczak Draper Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Thurston, Assistant to the Board Minutes of actions taken by the Board of Governors of the Peder_, cu. Reserve System on May 11, 1949, were approved unanimously. Memorandum dated May 10, 1949) from Mr. Young, Associate ector of the Division of Research and Statistics, recommending ther — vases in the basic annual salaries of the following employees Mat Division, effective May 15, 1949: ,Nale William J. Powers '„: 111-le R. MacLean wiarles G. Trescott Title Research Assistant Library Assistant Library Aid Salary Increase To From $3,351.00 $3,)476.)4O 2,974.80 3,100.20 2)799.24 2,874.48 Approved unanimously. Memorandum dated May 10, 1949, from Mr. Leonard, Director of th . 'ulvision of Bank Operations, recommending the appointment of A. 4. Moore, a retired employee of the Board, to work regularly each 4ic1 V night as night settlement clerk in the Interdistrict Settle— tient 'Ilnd Section of that Division for the remainder of 1949, at a 854 5/12/49 -2- rate of $7.50 per night of his employment, effective as of the date 111/°11 which he enters upon the performance of his duties. Approved unanimously. Memorandum dated May 5, 1949, from Mr. Vest, General Counsel, reading as follows: "Colonel Ellery C. Huntington, representing Morris Plan Corporation of America, recently discussed with me briefly the subject of Federal Reserve membership of banks controlled by that Corporation. "Colonel Huntington stated that he wanted us to understand that his Corporation does not have any policy that its subsidiary banks shall not be members of the Federal Reserve System, and that matters of this kind are left to the local bank managements. While this statement appeared somewhat inconsistent with past views and actions of Morris Plan Corporation, he said that the only which has stood in the may of membership has been the fear of the banks that if one of them became a member the System (which would require Morris Plan Corporation and the companies which control it to obtain voting permits), the Board might require all of the subsidiary o'nks to become members pursuant to the following provision of the voting permit application form (Form P-1): '10. The Applicant expressly agrees that if, during the life of any permit granted hereunder, it shall appear to the Board that any State nonmember banking institution is a subsidiary of the Applicant, and that the continuance of the relationship of the Applicant and its subsidiary member banks to any such subsidiary nonmember bank is not compatible with the public interest, the Applicant, if so requested by the Board, will cause any such subsidiary nonmember bank to apply for membership in the Federal Reserve System or will forthwith surrender any voting permit granted to the Applicant by the Board upon the failure of any such bank to make such application and become a member of the Federal Reserve System, or will divest itself 5/12/49 -3- "of its ownership or control of such bank; and, for failure so to do, any and all rights under any voting permit granted to the Applicant by the Board may be forfeited.' He indicated that if this problem were satisfactorily solved, the banks in Richmond, Washington, and New York, and perhaps others, might apply for membership. He stated that there was no other reason to prevent such banks from becoming members. "The above-quoted provision is not required by law but was incorporated in the voting permit application form When that form was originally drafted in 1933. The Board has never taken any action pursuant to it and it is doubtful whether the Board would or could do so in the future since it would be necessary for the Board to make a finding that the continuation of the relationship of a holding compaw and its subsidiary member banks to the subsidiary nonmember banks 'is not compatible with the public interest'. The original reasons for this provision are not clear. The best explanation that we can now give is that, at the time the form was drafted, the great majority of State banks were not subject to any restrictions of Federal law or to supervision by any- Federal agency and the adequacy of State laws and supervision in some instances may have been questioned. Since virtually all banks now are insured banks, this explanation is now only partially valid at best. There may have been other reasons which are not nc'w apparent but, in any event, there appears to be no necessity for the provision today. The only possible objection to its elimination is the fact that any change in the application form may result in requests for other Changes and that it is preferable to maintain the status quo unless there is real reason for a change. "As the matter now stands, there is no present occa810n for formal action by the Board amending the voting 12erMit application form. It is recommended, however, that be authorized to advise Colonel Huntington inforrally L"at, in the event the questicn actually arose as the result of an application for membership by any of his Cor1 ??ration's subsidiary banks, the Board probably would not ject to the deletion of the provision in question from voting permit applications of his Corporation and the :;111Panies which control it. It would, of course, be made ;I-ear that, aside from this question as to the form of the °ting Permit applications, the admission of particular t Z 5/12/49 "banks and the granting of voting permits would depend Upon all of the pertinent facts developed in connection With the Board's consideration of the applications and the willingness of the applicants to comply with such conditions as might be prescribed. If the Board approves this recommendation, it would be desirable before any advice is given to Colonel Huntington to check with Mr. Townsend to see that the elimination of the provision in question would have no effect on the Transamerica proceeding. The Division of Examinations concurs in the above recommendation." Approved unanimously. Secretary. Approved.
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