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743 Minutes of actions taken by the Board. of Governors of the Federal Reserve System on Thursday, May 13, PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. 1954. Martin, Chairman Szymczak Evans Vardaman Mills Robertson Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Minutes of actions taken by the Board of Governors of the Federal Reserve System on May 12, 1954, were approved unanimously. Letter to Mr. Bryan, President, Federal Reserve Bank of Atlanta, reading as follows: In view of the circumstances described in your letter of May 6, 1954, the Board of Governors approves the retention of Mr. C. R. Camp in a nonofficial capacity following his retirement as an officer of the Bank on May 31, 1954, and the payment of salary to him for the period June 1, 1954, through December 31, 1954, at the rate of $7,500 per annum. Approved unanimously. Letter to Mr. Latham, Vice President, Federal Reserve Bank of Boston, reading as follows: This refers to your letters of April 2 and May 6, 1954, regarding the request made on behalf of Post Publishing Company, Boston, Massachusetts, for a determination by the Board that the Company is not a holding company affiliate. In the enclosures to your letters, it is stated that Post Publishing Company is engaged principally in the business of publishing a daily and Sunday newspaper. However, it is also stated that the Company has many other interests, including ownership of a radio station, the drilling of natural gas wells, the discovery, development and exploitation of natural gas deposits, and the purchase and resale of 744 5/13/54 natural gas. The Board understands that Post Publishing Company is a holding company affiliate of The Perth Amboy National Bank, Perth Amboy, New Jersey, by reason of the fact that it owns 23,842 shares of the common stock of that bank which represents more than 90 per cent interest in the authorized and outstanding shares of such stock. The Board also understands that over 20 per cent of the assets of the Company are invested in these shares of stock of the national bank and it appears that it is the intent of the Company to participate actively in the control and management of the bank. As you know, section 2 of the Banking Act of 1933, as amended, excludes from the definition of "holding company affiliate" (except for the purposes of section 23A of the Federal Reserve Act) any company which is determined by the Board not to be engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies. While this provision refers to banks in the plural, it is believed that, under rules of statutory construction prescribed by Congress (U.S. Code, Title 1, sec. 1) it also includes the singular. Although Post Publishing COmpany controls only one bank, it appears to be engaged substantially in the business of holding bank stock and in the business of managing and controlling such bank. On the basis of all of the facts of the case as presented to the Board and in view of the nature of the Company's business, the Board has concluded that it would not be warranted in making the determination requested, and it will be appreciated if you will so advise the Post Publishing Company. Consequently, the Company will not be in a position legally to vote the stock of The Perth Amboy Nationnl Bank unless a voting permit iscibtained from the Board. Approved unanimously. Letter to Mr. Denmark, Vice President, Federal Reserve Bank of Atlanta, reading as follows: This refers further to your letter of March 8, 1954, with which you enclosed a copy of a letter dated March 4, 1954, from Mr. William S. Woods, President of Trust Company of Georgia Associates, advising that Associates had purchased the 745 5/13/54 -3- controlling stock in the DeKalb National Bank, Brookhaven, Georgia. On May 4, Mr. Sibley of the Trust Company of Georgia, discussed this matter with Chairman Martin, Governor Robertson, and members of the Board's staff, particularly with respect to the question whether the purchase of such stock was consistent with the provisions of section 9 of the Federal Reserve Act which makes State member banks subject to the limitations of section 5136 of the Revised Statutes. Before undertaking to express an opinion with respect to this question, the Board feels that it would be desirable for it to have information as to the amount of stock purchased, the manner in which the purchase was financed, the nature and purpose of the arrangement under which the stock Is being temporarily held by trustees, and any other information having a bearing on the question. In the course of the discussion of this matter with Mr. Sibley, mention was made of other cases in which the Board has taken the position that the purchase of stock by a subsidiary of a member bank was inconsistent with the provisions of section 9 of the Federal Reserve Act and section 5136 of the Revised Statutes; and Mr. Sibley indicated that he would appreciate being advised as to the factual situation in these cases. In one of these cases, arising in 1953, a State member bank had a subsidiary which had been organized prior to 1933, and of which the member bank owns 95 per cent of the stock, but which for some time had been relatively inactive. It was proposed that this subsidiary would acquire a majority of the stock of a national bank in another county with the thought that eventually the State member bank would absorb the national bank and convert it into a branch if and when State law should be amended to permit the establishment of out-of-county branches. The Board took the position that the proposed purchase of the stock by the subsidiary would be inconsistent with the provisions of section 9 of the Federal Reserve Act and section 5136 of the Revised Statutes. In another case which arose in 1949, a wholly owned subsidiary of a State member bank, which was engaged in the business of managing real estate and acting as an insurance agent, had purchased the stock of an insurance company. The Board took the position that the purchase of such stock by the subsidiary was contrary to the spirit and purposes of the law and that the facts and circumstances of the case afforded ample justification for disregarding the corporate fiction and holding that the stock had been purchased by the member bank •5/13/54 _14_ in violation of the law. In addition, the Board took the position that the acquisition of the stock was not in compliance with a condition of membership applicable to the member bank which required it to obtain the permission of the Board of Governors before exercising, either directly or through the subsidiary, any powers not being exercised when the bank was admitted to membership. Accordingly, the Board requested that the stock be disposed of as promptly as practicable. It will be appreciated if you will advise the Trust Company of Georgia of the substance of this letter, requesting that it furnish the information indicated above and advising it also that the Board will be glad to have the benefit of any views or comments which the Trust Company may care to make in connection with this matter. In transmitting the Trust Company's views, the Board will, of course, be glad to have any comments which your Bank may wish to submit. Approved unanimously. Letter for the signature of the Chairman to The Honorable David McK. Key, Assistant Secretary of State, Washington, D. C., reading as follows: This is in reply to your letter of May 3, 1954, regarding representation at international conferences during the fiscal year 1956. As you know, the Board does not operate with appropriated funds and its participation in international conferences, therefore, does not involve the budgetary procedure outlined in your letter. However, the statutory responsibilities of the Board make it necessary that it have a continuing interest in some international and monetary conferences. In addition, the membership of the Chairman of the Board on the National Advisory Council on International Monetary and Financial Problems makes it advisable for the Board and its staff to participate in certain conferences dealing with monetary and related matters. It is not possible to state at this time the particular conferences in which the Board will participate during the fiscal year 1956. The Board's decision is likely to depend on the agenda of the particular conference and on the degree to which the Department of State or other agencies arranging for United States participation may indicate the need of experts in monetary, banking, or related fields for the United 747 5/13/54 -5- States delegation. Whenever the Department indicates to the Board the need for assistance of this type for a particular international conferencelyou may be assured that the Board will assist in every way possible. In the past, members of the Board and its staff have participated in the annual meetings of the Boards of Governors of the International Monetary Fund and the International Bank for Reconstruction and Development, which are included in your list of international conferences. Members of the Board's staff have also participated occasionally in meetings of the United Nations Economic and Social Council or of its commissions or subcommissions, and it is possible that during the fiscal year 1956, the Board will wish to have its staff participate in such meetings. Approved unanimously.