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1046 A meeting of the Board of Governors of the Federal Reserve System with the Federal Advisory Council was held in Washington on Tuesday, May 19, 1936, at 10:00 a. m. PRESENT: Mr. Mr. Mr. Mr. Eccles, Chairman Broderick Szymczak McKee Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Smead, Chief of the Division of Bank Operations Mr. Paulger, Chief of the Division of Examinations Mr. Vest, Assistant General Counsel Messrs. Steele, Loeb, Braun, Gohen, Young, Brown, Smith, Wold, Kemper, Frost and Arnold, Members of the Federal Advisory Council representing the First, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh, and Twelfth Federal Reserve Districts Mr. Lichtenstein, Secretary of the Federal Advisory Council President Smith stated that, as it seemed likely that there would be no banking legislation at the present session of Congress, the Council had decided not to discuss with the Board the two topics (advice of which contained in Mr. Lichtenstein's letter of May 13, 1936, to Mr. Morrill) which had been suggested for discussion at this meeting of the Council. 14 this connection, Chairman Eccles outlined briefly the circumstances 1711tell led to the decision that no legislation relating to banking would be, 'eoommended by the Board to the present session of Congress. In response to an inquiry from President Smith as to whether there lakd been any change since the last meeting of the Council in the status 1047 5/19/36 Of subsection l(f) of Regulation "Q" which prohibits the absorption by member banks of exchange and collection charges, it was stated that the effective date of the subsection had been deferred pending further consideration of the subsection by the Board in the light of the regulation issued by the Federal Deposit Insurance Corporation with respect to the Payment of interest by insured nonmember banks; that Mr. Ransom had been 81414ing the matter and had obtained the views of many banks and clearing house associations with respect thereto; and that as soon as he Iseturned to the office he proposed to take the matter up again with the l'ecleral Deposit Insurance Corporation following which he would make a I'ecommendation to the Board concerning the action to be taken by it. President Smith expressed the opinion that the regulation issued by the Comptroller of the Currency on February 15, 1936, govern14 the purchase of investment securities and further defining the term 'vestment securities" was not practical in its operation and would in member banks purchasing only high grade securities at a high 13reillillm on which they would be apt to suffer loss. He also stated that the ,. ' egulation operated to exclude from the investment portfolios of Illeraber banks the security issues of local concerns which were not included in r_ ' cognized rating manuals. During the discussion which followed, Mr. Broderick stated that, res Ponse to inquiries made by the Federal Reserve Bank of New York, the 0011a,4. l'"xoller of the Currency had issued rulings interpreting the regulatiorl. 2 that it was understood that the Federal Reserve Bank of New York 1048 5/19/36 -3- had suggested that these rulings be published or that the Federal reserve bahk be authorized to send them to its member banks; and that it was believed that the rulings would answer a number of questions raised by the regulation. Chairman Eccles suggested that, in view of all the circumstances, it would be desirable for the Federal Advisory Council to study the effects of the regulation and submit to the Board a report thereon with reco mmendations as to the action to be taken. In connection with a statement by President Smith which indicated Ereeling on his part that there should be some simplification of the law relating to the payment of dividends by national banks, Chairman Eccles l'eferred to the consideration given by the Board recently to Senate Bill 4514 relating to the payment of dividends by national banks and stated that there were certain objections to the bill in its present form and that there was little likelihood that it would be passed at the present 8eseion of Congress. President Smith referred to the informal understanding reached at the meeting of the Federal Advisory Council with the Board on February 11, 196, that the fall meeting of the Council would be held on September 21-22, 1966, and stated that in view of the fact that the annual convention of the American Bankers Association will be held on September 21 to 24, 1966, Inclusive, it had been suggested that the fall meeting of the Federal 1411eO17 Council be held on September 9-10. It was indicated that the 4tes suggested for the meeting of the Federal Advisory Council were 10L-1 5/19/zie sa tisfactory to all present. Mr. Wold inquired as to the nature of the comments received by the Board with respect to the revised Regulation "F", Trust Powers of National Banks, recently issued by the Board and Chairman Eccles stated that few comments had been received and that they had been generally favorable. Mr. Wold expressed the opinion that it would be extremely clifficult to get directors of national banks exercising trust powers to serve on the trust investment committee required by the regulation. Reference was made by Mr. Brown to questions which would arise under subeection 11(a) of the regulation which provides that funds received or held by a national bank as fiduciary shall not be invested in stock or obligati0 n3 of, or property acquired from, the bank or its directors, officers, or employees, or their interests, and it was stated that the form in which the regulation was drawn had been given special study and it was telt that the practical way to deal with the matter would be for the Board to j,'sue rulings on the basis of specific cases as they arise. At the request of Mr. Broderick, statements were made by each Ilinlber of the Federal Advisory Council with regard to general business ecllditions in the respective Federal reserve districts. The reports incliatedimprovement in the general business situation, with substantial -°vement in agricultural conditions and in residential construction in cl‘tain districts. 1050 wisvlse Thereupon the meeting adjourned. Secretary.
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