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1.2TO A meeting of the Federal Reserve Board was held in Washington on 11°11claYs May 7, 1934, at 3:30 p. m. PRESENT: Mr. Er. Mr. Mr. Mr. Mr. Black, Governor Hnmlin Miller Tames Thamas Szymczak Mr. Mr. Mr. Mr. Morrill, Secretary Carpenter, Assistant Secretary Bethea, Assistant Secretary Martin, Assistant to the Governor The Board considered and acted upon the following matters: Telegram dated May 4, 1934, approved by five members of the Board, to Mr -• Case, Federal Reserve Agent at the Federal Reserve Bank of Kew York, had; 41E as follows: , "Your letter April 30. Board approves designation of Frederick ' 19 . Liptrott as Assistant Examiner in Federal Reserve Agent's de44 lpirtment your bank at salary rate of '',:2,500 per annum. Please advise gate commissioned." Approved. Telegram dated May 4, 1934, approved by five members of the Board, to ttr. Stevens, Federal Reserve Agent at the Federal Reserve Bank of reading as follows: p "Your letter May first. Board approves appointment of Victor ,' Schumacher as assistant examiner in Federal Reserve Agent's deyour bank at salary rate of ,:2,400 per annum effective upon al11111/38* duties. Please advise effective date." Approved. Letter dated May 5, 1934, approved by five members of the Board, to ulb. 0 ase, Federal Reserve Agent at the Federal Reserve Bank of New York, 4g as follows: "Reference is made to the analysis of the report of examination 1271 5/7/34 -2- "Of the Ogdensburg Trust Company, Ogdensburg, New York, conduct ed by State authorities as of November 13, 1933. "The analysis indicates that estimated losses amounted to :189,000 and that unclassified depreciation in securities below the four highest grades amounted to „47,000. The report of earnings and dividends for the six months' period ending Decembe r 30, 1966, shows that during the Period the bank charged off k59,222 on account of losses in loans, `A1,080 on account of losses or depreciation in securities, and 'cA,788 on account of losses in other real estate. As indicated in the Board's letter of April 6, 1934, X-7848, the Board has consistently maintained the position that losses as classified by the examiner should be charged cnr or otherwise eliminated from the assets of the bank, and it is reqUested that you endeavor to obtain such action by the Ogdensburg Trust ?„ : (3111PanY. In the interests of cooperation, it may be advisable to take his matter up first with the appropriate State authori ties. The (3ard'3 views with respect to the minimum amount of depreciation in ecurities to be eliminated following the examination of State member ks is also expressed in its letter X-7848. "It has been noted that on the date of examination the bank had Ileeerves of ,88,000 for losses and depreciation. The Board feels that estimated losses and depreciation listed for elimination have not been P. : 10Perly eliminated by the setting up of reserves which are include d nth the bank's capital accounts in its publish ed statements. Such feeerves should be used either in making charge-offs of the estimat ed tc)sses and depreciation or treated as valuati on reserves and deducted 41'om the assets against which they are allocated, showing only the net , 1c)1 11nt of the assets in the published stateme nt. If any reserves for t°eses are shown among the capital accounts they should represent alofr surplus and/or undivided profits to cover possible or en ential losses; or, in other words, represe nt true 'reserves for -fltiagenciest. "The analysis reflects continued violations of the conditions membership in that the loan to Nathan frank's Sons is in excess the limits prescribed by the banking laws of the State of New York, was at the time of the examinations as of :lune 3, 1933, and ajember 12, 1932; that the credit data continued to be inadequate in the previous criticisms and the assurances given by the Z?sident of the bank in his letter of September 23, 1932, to La'. 4tVistin that satisfactory credit files would be maintained; and a,t the bank has not disposed of the shares of its own stock held . collateral. hav "It will be appreciated if you will advise the Board what steps conlei been taken to effect corrections of these matters and obtain 13"Liaace with the conditions of membership. tru "According to the analysis of the report of examina tion, the v/a8st department was not examined; but the safekeeping department bel.checked and the whole system found to be unsatisfactory. It is leyed that the next examination should include an examina tion of 1272 5/7/34 "the trust department, and you are requested to give the necessary Instructions to your examiners." Approved. Letter dated Lay 5, 1934, approved by five members of the Board, to Austin, Federal Reserve Agent at the Federal Reserve Bank of Ilil adelphia, reading as follows: "We regret that pressure of other matters has prevented an earlier reply to Mr. Hill's letter of September 12, 1933, inclosing copy of a resolution adopted on Tune 6, 1933, by the Carlisle ;trust Company of Carlisle, Pennsylvania, which was admitte d to MB111uerehip in 1921. "By this resolution the Carlisle Trust Company adopted the 13eard's standard conditions of membership as revised on March 11, -933, and Er. Hill states that this action was entirely voluntary, 4. 1th0ugh we suggest ed such procedure when, during the course of : ! 1 8 last examination, our examiner submitted a list of the condicli °11's to the president'. Mr. Hill assumes that these revised conshould be considered as binding on the member trust company states that, unless you hear from the Board to the contrary, you , , 1111 report any violation of these conditions in the same manner as 2 4 11 would report violations of the conditi ons imposed at the time of institution's admission to membership. "For the reasons hereinafter stated, it is doubtful that the p --Luary acceptance of the new conditions of membership by the -tIrlisle Trust Company has any legal effect, and it is doubtful that r violation of such conditions would constitute a sufficient legal : 11 81e for the expulsion of such bank from members hip in the Federal rve System. There is no objection, however, to your reporting ITlations of such conditi ons in the same manner that you would reanY other unsound or undesirable banking practices engaged in -4r Member banks. be "It would be desirable to have the revised conditions of memillr?hiP observed by all State member banks; but your attention is prIllted to the fact that, under the law, the Board is authorized to h4!seribe conditions of membership only at the time a bank is adto membership and has no right to require State banks to ePt new conditions subsequ ent to their admission to membership. stet "The observance of this principle is importa nt, because many 40 , 6 banks became members of the Federal Reserve System in reliance - the amendments to Section 9 of the Federal Reserve Act contained poethe Act of June 21, 1917, which were adopted for the specifi c pur'aalonE others, of assuring State member banks that, except to thee re, extent prevent ed by the provisions of the Federal Reserve Act, 'Illetions of the Board pursuant thereto and conditions of member- n 1273 1 5/7/34 -4- "ship prescribed by the Board and accepted by such banks at the time Of their admission to the Federal Reserve System, such banks shall retain their full charter and statutory rights as State banks or trust companies and may continue to exercise all corporate powers granted them by the States in which they were created. Moreover, When the Board first incorporated its standar d conditions of membership in Regulation H in 1924, such action resulted in much eriticiam of the Federal Reserve System by the National Association of Supervisors of State banks and also by certain members of Congress. (See the Board's letter of February 2, 1926,--X-4521-a-to the Chairman of the Banking and Currency Committee of the House or Representatives). This criticism resulted from the mistake n iMPression that the Board was attempting to prescribe such conditi°ns for banks previously admitted to membership, although the !egulations clearly stated that they were to be prescribed for uanks thereafter admitted to membership. "In view of these circumstances, if the representatives of the Federal reserve banks suggest to State member banks the observance or accepta nce of new conditions of membership which were 1 1, 1°t prescribed for them at the time of their admissi on to the tecleral Reserve System, such representatives should be cautioned t?, be very careful about the manner in which they make such sugges2°as and to guard carefully against saying or doing anything which :Ight create the impression that member banks are required to accept ,tleh new conditions of membership, or that any attempt is being made uo coerce them to do so." Approved. aerve Letter to Mr. Williams, Federal Reserve Agent at the Federal ReOf Cleveland, reading as follows: t , "Reference is made to Mr. Fletcher's letter of April 9, 1934 oclalleraitting the request of The First-Central Trust Company, Akron, for cancelation of the Board's condition of membership numbered Provides that the bank shall pledge with its trust departfor trust funds held by the banking department opeuliltY in the same manner and to the same extent as is required 'national banks exercising fiduciary powers. err,"It is understood that the Ohio General Code, Section 710-165, tiav-ie ,tive Tune 14, 1933, provides that after that date :trust funds be held as a deposit in the trust department or may be deposited , 11Y department of the bank, subject in other respects to the proVis7' oth-418 of law relating to deposit of trust funds by trustees and Of ere, and that in the event of insolvency, closing or suspension pa,!Ileh bank, the funds so deposited shall be preferred as to the ti.'047ent thereof . It is further understood that one of the condi48 Prescribed by the Ohio State Banking Department inciden t to 1274 5/7/34 -5- "the licensing of The First-Central Trust Company provides that at least 25 per cent of the aggregate amount of the bank's capital, surplus and deposits shall be kept invested in obligations of the United States Government, free and unencumbered, that because 01 such condition, together with the requirements imposed by the Board's condition numbered 18, the bank is compelled to carry United States Government obligations to an extent which overbalances Its statement. "In view of the provisions of Section 710-165 of the Ohio General Code above referred to, The First Central Trust Company has requested that condition numbered 18 be canceled, and Mr. Pletcher raises the question as to whether the Federal Reserve Board wishes to give consideration to waiving its standard condition 4uMbered 18 in so far as it concerns Ohio State banks. "Section 11 (k) of the Federal Reserve Act vests in the Federal iReserve Board the authority to grant by special permit to national ,!nks applying therefor, when not in contravention of State or local 4471, the right to act in certain fiduciary capacities. Section 11 (k) also provides that 'funds deposited or held in trust by the bank await ng investment shall be carried in a special account and shall 40t be.used by the bank in the conduct of its business unless it ! hall first set aside in the trust department United States bonds ' ' 1 other securities approved by the Federal Reserve Board,. The Board feels that the provision of law expressed in the above section I. ,sound and desirable for both State and national banks exercising powers, and, accordingly, has prescribed such a requirement , luciarY `t ' ' 08 , a standard condition of membership for State banks, regardless 1 What the provisions of State law may be in connection therewith which the bank is operated. The Board, of course, does not have the 11 authority to waive such provision in the case of national ! I s and does not feel that it would be justified, under the cirstances, in rilskin an exception thereof in the case of any State Thnk which has accepted the provision as a condition of membership. bee lact, of course, that trust funds deposited in a State bank may i4 Preferred as to payment thereof under State laws in the event of sur, snrency or suspension of the bank does not necessarily mean that runds would be paid in full in the event of insolvency or susinsion of the bank as circumstances may be imagined under which an ,l5°1vent or suspended bank would not be able to pay even its proCreditors in full. Tul "In view of all the circumstances, therefore, and after careit. consideration, the Board feels that it would not be justified the caneelinG condition numbered 18 prescribed in connection with ealci ,PPlication for membership of The First-Central Trust Company "is requested that you advise the bank accordingly." r Approved. Letter to Er. Stevens, Federal Reserve Agent at the Federal 1275 b/7/34 -6- Reserve Bank of Chicago, reading as follows: "In reviewing the report of examination of the State Savings 111:ank of Ann Arbor, Michigan, as of December 21, 1933, and information submitted in connection therewith, it has been noted that doubtful assets, estimated losses and depreciation in securities e4ceed the bank's capital accounts by a substantial amount. It has been noted also that the bank is having difficulty in effecting a satisfactory rehabilitation of its capital structure and that eXaminations of the two State member banks in Ann Arbor are now befl'de for the purpose of obtaining current information upon which 112 may be developed for correction of the entire Ann Arbor situa"-°n. It is understood that an examination of the national bank in Ann Arbor has recently been completed and that in working out these Plans you are cooperating with the Chief National Bank Examiner. "In the circumstances, therefore, with the exception of the rfatters discussed below, the Board will defer consideration of the -t-ePort,of examination of the State Savings Bank of Ann Arbor pending l'eceipt of the report of the examinations now being made. 21 l On pages 55 and 56 of the report of examination as of December 4 2 -Lv33, the examiner lists certain bonds which the bank sold durfig the year 1933 at a loss of ;;;41,792.50, which loss, however, was charged off and other bonds were purchased with the proceeds of b 6 bonds sold and were thereupon written up on the books of the k to the extent of41,360. It is understood that the State BankDepartment permits trading of this character, with the bonds acIlired in the transaction carried at approximately the book value of c ltl,et bonds sold. For your information, however, the Attorney General cu the United States has advised the office of the Comptroller of the rel ' ' I encY that cases of this kind involving national banks should be ej?rted to the Department of Tustice for possible criminal proseon the theory that they may involve false entries made with the ee intent to deceive the examiners and to defraud the public in and, in the circumstances, a report of the transactions he;"edton Pages 55 and 56 of the report of examination referred to 811 Lbeen forwarded to the Attorney General of the United States for vea action as he considers advisable. A copy of the letter address1, 1.t0 the Attorney General in this connection is inclosed herewith re,Ir°11r further information and you are requested to make a similar vc)rt to the local United States Attorney. It has been noted further that some municipal bonds have been tjehased from the bank for investment of trust funds. Even though be Profits are taken by the bank in the sales, such transactions should 131,121V.scontinued as they are not in accordance with the best fiduciary t ices and in so dealing with itself a bank may incur heavy legal aui lities." Approved. Letter. dated May 1934, approved by six members of the Board, 1276 5/7/34 -7- to mr. Wood, Federal Reserve Agent at the Federal Reserve Bank of St. /41115) reading as follows: "Reference is made to the report of examination of the Fordyce Bank Ec Trust Co., of Fordyce, Arkansas, as of February 8, 1934, and the analysis thereof. "On the last page of the analysis it is reported that prior to admission to membership the bank sold its insurance department to °Ile of its directors, and also charged old dormant accounts 4,500 and credited that amount to income. The report of exnmination includes a statement of the insurance department of the Fordyce Bank Trust Co., as of Tanuary 31, 1934, showing total liabilities of 01,432.16, including accounts payable amounting to 4,329.75. In" IllUoli as the bank was admitted to membership on September 22, 1933, Prlor to which time the insurance department was sold, it is not clear why the department should still be operated in the name of !he bank. It will be appreciated if you will advise the Board as 40 the present relations between the bank and the insurance departit and whether the liabilities of the department are in fact -"abilities of the bank and should be so reported. "It will be appreciated also if you will advise the Board by authority the bank appropriated 4,500 deposit accounts to Z 4 it_s own use. Unless the laws of the State specifically provide 4 ?at dormant accounts revert to the bank, and unless the transac! ,!10A. wa3 carried out in strict compliance with such laws, these 'Iltrles should be reversed and the deposits carried as such." Approved. Letter to lir. O'Connor, Comptroller of the Currency, reading as 1'0110178 to "In accordance with your recommendation, the Federal Reserve mn,.fd approves a reduction in the common capital stock of the 'First 1;:l°11a1 Bank in Sidney', Sidney, New York, from 400,000 to .,;50,000, 1;"1 :811ant to a plan which provides that the bank's capital shall be ceased by ,7b,000 of preferred stock to be sold to the Reconstructor Finance Corporation and/or others, and that the released capiae, shall be used to eliminate a corresponding amount of undesirable -ets, all as set forth in your memorandum of April 23, 1934. re "In this connection, it is understood that your ofrice will 14qUire the elimination of all estimated losses and depreciation in cet tment securities by the application, in addition to the released elVall of such portion of the bank's undivided profits, reserves /or surplus as may be necessary." Approved. 1277 -8Letter to Er. O'Connor, Comptroller of the Currency, reading as tollows: "In accordance with your recommendation, the Federal deserve 13°8.rd approves a reduction in the common capital stock of 'The First National Bank of Morrisville', Morrisville, New York, from :50,000 to'42,500, pursuant to a plan which provides that the bank's capital shall be increased by37,500 of preferred stock to be sold to the Reconstruction Finance Corporation and/or others, and that the released capital shall be used to eliminate substandard assets, all a! set forth in your memorandum of April 28, 1934. In this connection) it is understood that your office will require the elimination ° .f all estimated losses classified in the report of examination of 1-8.rch 6, 1934, and all securities depreciation on the basis of present Market values, by the use, in addition to the released capital, of such portion of the bank's undivided profits account as may be necessary,” Approved. Letter dated May 5, 1934, approved by five m.embers of the Board, Mr. ot Connor, Comptroller of the Currency, reading as follows: "In accordance with your recommendation, the Federal Reserve 13oard approves a reduction in the capital stock of 'The First Naic)nal Bank of Convoy', Convoy, Ohio, from :i-. 50,000 to ,25,000, ! Irsuant to a plan which provides that the bank's capital shall be 1.1?.ersased by ;:?35,000 of preferred stock to be sold to the ReconstrucFinance Corporation and/or others, and that the released capishall be used to eliminate a corresponding amount of substandard 2sets, all as set forth in your memorandum of April 27, 1934. In connection it is understood that your office will require the r4- iitlination of all estimated losses by the use, in addition to the aele,assd capital, of such portion of the bank's undivided profits lulfor surplus as may be necessary. "In considering the plan under which the proposed reduction tie "Imon capital is to be effected, it has been noted that securisids depreciation unprovided for of approximately ;25,100, if canezterad as a loss, would impair the bank's common capital to the th exit of approximately ,24,400. In addition, there will remain in 10 !banka large aggregate of slow and doubtful assets in which same ' co a seems probable. It is assumed, however, that you have these itions in mind and that whenever it is feasible to do so you 4- require such further corrections as may be practicable." t Z 4 Approved. 1278 5/7/34 -9Letter dated Lay 5, 1934, approved by five members of the Board, ti3Lir. O'Connor, Comptroller of the Currency, reading as follows: "In accordance with your recommendation, the Federal Reserve Board approves a reduction in the common capital stock of the 'First National Bank of Reidsville', Reidsville, North Carolina, from .400,000 to ',ui50,000, pursuant to a plan which provides that the bank's capital shall be increased by the sale of ç5O,OOO preferred stock to the Reconstruction Finance Corporation, and that the released capital shall be used to eliminate approximately .15,824 of unsatisfactory " sets) and to establish a reserve for losses and contingencies of aPProximately 44,176, all as set forth in your letter dated April 23, 1934.” Approved. Letter to NT. O'Connor, Comptroller of the Currency, reading as t°110ws: "In accordance with your recommendation, the Federal Reserve Board approves a reduction in the common capital stock of 'The ' aciples National Bank of Albia', Albia, Iowa, from .75,000 to ,)25,000, PlIrsnant to a plan which provides that the bank's capital shall be in...'eased by ;25,000 of preferred stock to be sold to the Reconstruc: -4?n Finance Corporation, that the released capital shall be used to 7,4101inate unsatisfactory assets, and that a note of (,)5,350, classed :a a loss, be paid by local interests, all as set forth in your ' allwrandum of April 26, 1934. "In considering the plan under which the proposed reduction in ClarrIMr. capital is to be effected, it was noted that although your i Liiirler severely criticized the management, no change is contemplated. 17 iS assumed, however, that you have this condition in mind and that ellever it becomes feasible to do so, you will require such changes a, Y be practicable." Approved. Letter to jr. O'Connor, Comptroller of the Currency, reading as 0110,4a: Bon "In accordance with your recommendation, the Federal Reserve rd approves a reduction in the common capital stock of 'The se; a °4d National Bank of Belvidere', Belvidere, Illinois, from O2°00 to ,50,000, pursuant to a plan which provides that the be-.°8 capital shall be increased by 50,000 of preferred stock to 301d to the econstruction Finance Corporation, and that the 1279 b/7/34 -10go "released capital, '6ogether with contributions of . 13,000 and a Portion of the surplus, profits and reserves, shall be used to , 1171/1inate unsatisfactory assets in the amount of approximately 03,442, all as set forth in your memorandum of April 27, 1934." Approved. Letter dated May 5, 1934, approved by five members of the Board, 'both. --- O'Connor, Comptroller of the Currency, reading as follows: "In accordance with your recommendation, the Federal Reserve 13?ard approves a reduction in the common capital stock of 'The 21t1zens National Bank of Tell City', Tell City, Indiana, from 950)000 to ,25,000, pursuant to a plan which provides that the released capital shall be used in eliminating a corresponding azount of substandard assets and securities depreciation, all as aet forth in your memorandum of April 30, 1934." Approved. Letter to Mr. O'Connor, Comptroller of the Currency, reading as tOliows: "La accordance with your recommendation, the Federal Reserve approves a reduction in the common capital stock of 'The 118t National Bank of Wolf Point', Wolf Point, Montana, from )000 to •25,000, pursuant to a plan which provides that the t114Ic's capital shall be increased by ,A5,000 of preferred stock r0,be sold to the Reconstruction Finance Corporation, and that the 8!'ea3ed capital shall be used to eliminate substandard assets and ,7eur1ties depreciation in the amount of approximately :22,027 and ;) increase the reserves for contingencies account by approximately ' 973) all as set forth in your memorandum of April 30, 1934." Boto,,1 Approved. Letter to LIT. O'Connor, Comptroller of the Currency, reading as tob• ,owza: "In accordance with your recommendation, the Federal Reserve approves a reduction in the common capital stock of 'The First bh, 4*()Ilal Bank of Horton', Horton, Kansas, from :50,000 to cp35,000, 1; ' 14:suant to a plan which provides that the bank's capital shall be ateraased by ,J.5,000 of preferred stock to be sold to the Reconilletion Finance Corporation, and that the released capital shall Boa 1280 v7/34 -11- "be used to eliminate unsatisfactory assets in the amount of apPr°ximately ',7,000 and to increase the bank's surplus in the amount of approximately ,;8,000, all as set forth in your memorandum of April 26, 1934." Approved. Telegram dated flay 5, 1934, approved by five members of the 804 to La.. Williams, Federal Reserve Agent at the Federal Reserve Bank o 0). eveland, stating that the Board has considered the application of the io Corporation”, authority or Columbus, uhio, for a voting permit under the section 5144 of the Revised Statutes of the United States, 48 amellaed, entitling such organization to vote the stock which it owns (*Controls in "The Bank of Marysville Company", liarysville, Ohio, and 1148 W thorized the issuance of a limited permit to the applicant for the l'°11°WinE purpose: "At any time prior to July 1, 1934, to act upon a proposal or, "roPosals to increase the common capital stock of such bank 4 seventy-five thousand dollars (075,000) to one hundred thousand p°11ars (l00,000) and to absorb The Commercial-Savings Bank of : arYsville, Marysville, Ohio, by the assumption of its liabilities ' a'.? depositors and other creditors and the purchase of its assets, 8.4 ' 1 in accordance with a plan which shall be satisfactory to the , 1 131 '0Priate supervisory authorities and to the Federal Reserve Agent : 6 the Federal Reserve Bank of Cleveland; and in connection therewith 141.° elect certain directors and to take such other action as may be eeessary to the proper consummation of said plan." tele gl'am also authorized the agent to have prepared by counsel for 2 the Ped "al reserve bank, and to issue to the BancOhio Corporation, a Ilkited 7"ing permit in accordance with the telegram. Approved. t MI. In connection with the above telegram there was presented a letter ililliams, Federal Reserve Agent at the Federal Reserve Bank of 1281 v7/34 -12- Ole7eland, reading as follows: "Reference is made to las. Fletcher's letter of April 24, 193/1, recommending approval of the application of The Bank of Marysville Company, Marysville, Ohio, for permission to absorb The Commercial-Savings Bank of Marysville, Marysville, Ohio, a nonmember bank. "The Board has reviewed the information submitted, from which it appears that the transaction will result in no material change in the general character of the assets of, or broadening in the ecoPe of functions exercised by, the member institution within the meaning of the general condition miler which the bank was admitted Membership. The Board will, therefore, interpose no objection to the transaction provided none of the assets of The CommercialSavings Bank of Marysville which were classified as doubtful, loss and inadmissable by your examiner in his report of February 26, 1934, re taken into the assets of the member bank, that the capital struc, 11re of the member bank is increased in an amount sufficient to prode proper protection for the combined deposit liability and that 6ne transaction is approved by appropriate State authorities. "It is understood that the absorption will not result in any el?.ange in the corporate existence of the Bank of Marysville which 7411 affect its status as a member bank or in any amendment to its ?harter except possibly in connection with the increase of its :aPital stock. However, if you have not already done so, it is Il gested that you obtain the advice of your counsel on these Poolats. Please also furnish the Board with a copy of any opinion r Your counsel in this connection together with a copy of any nendment to the charter of the member bank as a result of the 4ransaction." Z Approved. Telegram dated May 5, 1934, approved by five members of the 13°4q.61 -' tOLir. iTewton, Federal Reserve Agent at the Federal Reserve Bank or sa_ anciseo, reading as follows: /3 , "Referring last paragraph Sargent's letter April 25. Although tiv,ard believes charge-offs or eliminations of nature specified in ipoments executed by iransamerica Corporation and Transamerica is44 Holding Company in fulfillment of prescribed conditions of „suance of limited voting permits to them is advisable with retvelot to subsidiary nonmember banks intention of Board in NCIGAR dateu January 8, 1934, was that applicants should cause t14.17 subsidiary member banks to make such charge-offs or eliminaof°43 and Board believes that this intention is manifest in language a reements inasmuch as words 'such subsidiary banks' refer to 1282 b/7/34 -13- subsidiary member banks'. Board is accordingly of opinion that agreements were not made with respect to Bank of America (State) and that no extension of time with respect to that bank is necessary." its " Approved. Letter dated May 5, 1934, approved by five members of the Board, t . Newton, Federal Reserve Agent at the Federal Ile serve Bank of San 4E4 Oisco,reading as follows: , r "This will acknowledge receipt of your letter of April 17, 4-9°49 and the inclosures therein contained armnding the voting per.11.1t applications of Transamerica Corporation and Transamerica Bank °1ding Company by adding the First National Bank in Reno, Reno, Nevada, as one of the subsidiary member banks with respect to which each of the voting permit applications is filed. "Please notify the applicants that the Board has accepted the e4endments and considers their respective voting permit applications aillerlded accordingly." Approved. Letter to the governors of all Federal reserve banks, reading as 1'011017a: "Following the conference between the Board and a Committee of the !G°vernors' Conference on October 12, 1933, with regard to reimbh e' -scbcent of Federal Reserve banks for extraordinary expenses inrl'ed during and immediately after the banking holiday, the clues11 ; °4 was taken up with the Treasury Department and on April 10, 1934 VILI. H. McReynolds, Administrative Assistant to the Secretary, ea letter to the Comptroller General of the United States, a copy nich is inclosed, in which he advised the Comptroller General it Re ls the opinion of the Department that the vouchers of the Federal seacIlre banks for reimbursement 'should include all items which reproreimbursement for out of pocket expenses incurred in connection banks and making available to raeab the actual licensing of member 1 banks proclamations, orders, regulations and interpretations the:!' 1111;-.17°f, after the issuance of the i-roclamation of March 6, 1933, at'!11 bears the hour of signature as 1 A. M.' Yr. McReynolds also itola ed that, in accordance with the law and regulations, supplemental collchers will be suhmitted to the Comptroller General's office, for til) cialderation and direct settlement, covering the cost of transportath 4, etc., of gold and gold certificates, which were disallowed by e °rfics of the Comptroller of the Currency; also that the vouchers j 1283 5/7/34 -14- "returned by the Comptroller General will be reexamined, reapproved in accordance with Mr. McReynolds, letter, and resubmitted to the Claims Division of the Comptroller's office for further consideration as rapidly as possible. "These vouchers are now being reexamined and resubmitted and, as soon as the Board receives advice of the action taken thereon by the Comptroller General, you will be advised thereof for your guidance in preparing claims for reimbursement for banking holiday expenses Or which vouchers have not already been submitted. "For your information, the Treasury Department has infonnally advised us that it has asked for the inclusion in the next deficiency bill of a provision which will permit the Department to reimburse the Pederal Reserve banks for abrasion on light-weight gold abs)rbed by them since the banking holiday." Approved. Letter to the Federal reserve agents at all Federal reserve banks, IclinC as follows: "It has recently come to the attention of the Federal Reserve Bc)ard that the Attorney General of the United States has advised the ! trice of the Comptroller of the Currency that, in the future, all 4l ' ansactions in which a national bank sells bonds at their market l!lue, which is less than the figure at which they were carried on tue books of the bank, and purchases with the proceeds realized r el'abY other bonds which are set up on the books of the bank at a , 4'eure in excess of their market value, should be reported to the 'JPartment of Justice for possible criminal prosecution, on the 3. e°rY that the transactions may involve false entries made with ' cl'ae intent to deceive the bank examiners and the Comptroller and to tZraud the public in general. The Attorney General advised further re t) even though the transactions are regarded as an exchane, a 13(3rt of such matters should be made to his Department, since the ;aew bonds are entered on the books of the bank at an amount in exthr of their known market value. The Attorney General requested the Comptroller advise his examiners and the officials of the -10nal banks generally of the views entertained by the Department 3-113tice with regard to transactions of this kind. "In the circumstances, you are requested to advise the examfor your Federal reserve bank and the officials of the State Ge'usr banks in your district of the position taken by the Attorney tolleral with regard to transactions of the kind described above and l*ePort to the Board and the local United States Attorney in the lanner all cases hereafter coming to your attention in which raL -44-1-ar transactions have been consummated involving such State banks. In this connection, the Attorney General has advised 1284 517/34 -15- "the Comptroller of the Currency that it is not necessary to make a search of the Comptroller's records for previous cases of this kind, and accordingly, it will not be necessary for you to make a search of the records of your bank for such cases." Approved. Letter to Mr. Curtiss, Federal Reserve Agent at the Federal ile"e Bank of *Boston, reading as follows: "With your letter of February 16, 1934, you forwarded a copy Of a letter from Arthur Guy, Comulissioner of Banks of the CommonWealth of Massachusetts, dated February 14, 1934, referring to the Gloucester Safe Deposit and Trust Company, Gloucester, Massachusetts. 4, 18 lir. Guy's letter raised a alestion as to the authority of State onpervisors to exercise supervision over State member banks in view ! f the President's Proclamation oi March 6, 1933, declaring a holiuaY to be observed by all banking institutions in the United States, and of the subsequent Executive Orders and Proclamations with re!Peet thereto, the letter was referred to the Secretary of the Trea117 and there is now inclosed for your information a copy of the elaY which the Secretary of the Treasury has sent to Er. Guy." T Approved, together with a letter Federal reserve agents at all Federal banks, inclosing a copy of the letter Secretary of the Treasury referred to letter to Mr. Curtiss. to to the reserve from the in the Letter dated May 5, 1934, approved by five members of the Board, Case) Chairman of the Federal Reserve Bank of New York, reading toiaows: "Receipt is acknowledged of your letter of May 3 in regard to a. le, uter dated April O sent by La.. Tames L. West, Executive Direc60r p„ Of 'Financial Affairs', to Er. X. T. Martin, Executive Vice igeident, Commercial National Dank and Trust Company, New York, York; with reference to salaries of executive officers of banks. er "The Board concurs with the view expressed in the last paractPh of your letter that no official action should be taken regardthis matter at this time." Approved. Letter to Mr. Case, iederal eserve Agent at the Federal Reserve r ICew York, reading as follows: 1285 5/7/34 -16- "The Board is in receipt of a copy of a letter dated March 23, 1934 addressed to Lir. Downs, Assistant Federal Reserve Agent of the l'ederal deserve Bank of New York, and signed on behalf of the Bankers Trust Co., New York City, N. Y., by H. L. Simms, Comptroller. This letter refers to a letter dated LArch 13, 1934 from the Federal Reeerve Board to you in which, on the basis of facts then available, the Board reached the tentative conclusion that three corporations were affiliates of the Bankers Trust Co., inaamuch as substantially all of the shares of stock ov each was believed to be held by the Bal°kers Trust Jo., as trustee. The Bankers Trust Co., now indicates its belief that the Board was in error in this tentative conclusion cLu- requests a reconsideration of the matter. "The letter signed by Mr. Simms explains that the three corporaWere organized pursuant to Section 111 of the Decedent Estate Lr of New York to take title to real estate acquired under the fore°,311re of mortgages which had been held in various trusts of which ,he Bankers Trust Company was either sole or co-trustee. Under the 1efinition of an affiliate in Section 2 (b) of The Banking Act of 933 neither the nature of a corporation nor the reason for its !=:cistence is apposite to a determination of its existence as an afate, but the fact that a ccntrolling interest in its stock is aeld by a corporation in trust is, of course, an important factor in , eteraining the existence of an affiliation between the two corpora"The Board has recognized that in performing its duties as tee a corporation is not acting in its ordinary corporate capacity, the Board has heretofore ruled that ownership of stock in trust a Y carry with it control of the kind referred to in the statutory ta irinition of an affiliate. The existence of such control is a quesst°4 of fact to be determined in the light of all pertinent circumr, ahces and principally in view of the way in which a decision is 'ached as to thc, voting of the stock. co "Please therefore request the Bankers Trust Co., to furnish a asPY Of each will or deed of trust under which the Bankers Trust Co., ti2Ole or co-trustee, holds stock in one or more of the three corporareferred to. In the event that any instrument contains proviproll clearly inapplicable to the determination here to be made such to vleions may be omitted although the Board may find it necessary Theliequest submission of the entire instrument at some future time. co,rar instruments should be forwarded by you to the Board with any pialv ellts Which you or counsel for your bank care to make and accom,(1 by an opinion of counsel for the Bankers Trust Co., as to • vaele 4trii ," each of the three corporations in question is or is not an 2071ate of the 3ankers Trust Co., within the meaning of section Of the Banking Act of 1933. is doubted whether the control which is exercised in flew York ,uY the Supreme Court with respect to inter vivos deeds of trust uY the Surrogate's Court with respect to testamentary trusts is 1, 1286 5/7/34 -17- "more than a general supervision, not at all inconsistent with the exercise of control by the trustee over shares of stock in the corpus of the trust. Nevertheless if the Bankers Trust Company is cr n contrary belief, the opinion of its counsel should contain a full exposition of the nature and extent of judicial control with Particular emphasis upon the extent to which such control affects the voting of stock held in trust." Approved. Letter dated Ylay 4, 1934, approved by six members of the Board, to Rollorable Frederic C. Walcott, United States Senator, reading as follows: "This refers to your letter of April 10, 1934, inclosing drafts c)f Proposed amendments to Section 19 of the Federal Reserve Act, to Section 12B, subsection (1), of that Act, and to Section 5197 of the Revised Statutes, and requesting an expression of opinion thereon. "The proposed amendment to Section 19 of the Federal Reserve Aet would extend the exception to the prohibition upon the payment Of interest on deposits payable on demand to include any deposit !!ab1e only at an office of a member bank located 'in Alaska or the l?'Enla Canal Zone or in a dependency or insular possession Of the ilited States', and, in addition, would make the provisions of that section relating to the payment of interest on time and savings deOSits deposits payable outside of the 'Continental united inapplicable to States'. "It appears that the rates of interest customarily paid on deby foreign banking institutions are often in excess of the ::tes which may be lawfully paid by member banks of the Federal Re,?ve System on the sane kinds of deposits, and, as a result therebranches of member banks operated in places outside of the l_lted States may lose substantial amounts of deposits unless they ! ae Permitted to meet competition by paying interest at a rate equivagilt to that currently paid by competing foreign banking institutions. az, view of such circumstances, it is the opinion of the Board that an A _ cndment to Section 19 of the Federal Reserve Act which would except '070eits payable only at an office of a member bank located outside the States of the United States and of the District of Columbia interest on deposits payable the prohibition upon the payment of to the payment of relating demand and from the provisions desirable. be would cl'eet on time and savings deposits 14 "It should be noted, however, that the language which is used the first paragraph of the draft of the proposed amendment to said seet i°11 19 and which is designed to aid in the accomplishment of such lallr, 'c3ses is not sufficiently broad to except from the prohibition r 1287 5/7/34 -18- "Upon the payment of interest on deposits payable on demand deposits Payable only at an office of a member bank located in a territory °f the United States other than Alaska, and that the term 'Continental United States', which appears in the second paragraph of the draft, is of doubtful meaning. It is the view of the Board that it would be desirable to use language of broader scope and of more precise sigairicance than that suggested, and there is inclosed herewith a draft of a bill to amend Section 19 of the Federal Reserve Act which it is believed will obviate any doubt as to the exact scope of the !mandment and will accomplish the purposes desired. There is also luclesed a draft of a revision of the last two paragraphs of Section 19 which shows the textual changes which would be made by the bill if enacted. "Your attention is invited to the fact that the inflexibility Of the provisions of the last two paragraphs of Section 19 in a 411Mber of instances has caused hardships to member banks and to their .t?Positors and has given rise to numerous difficulties in administra1°11. It is believed that it is desirable to vest in the Board Ipecific authority to define the terms 'time deposits', 'savings clePosits', 'deposits payable on demand', and 'trust funds' and to 'saoribe such rules and regulations as may be necessary to effectuate A he Purposes of these paragraphs and to prevent evasions thereof. ! t?oordingly, the Board has incorporated in the draft of the bill sub:bed herewith amendments which it believes will accomplish the u aired ends and will serve to further the purposes of the present Lois r T ."You will observe that the Board has inserted in such draft a &vision which would except from the prohibition upon the payment iaterest on deposits payable on demand any deposit of trust funds 1J't11 respect to which the payment of interest is required by State The laws of a number of States require the payment of interest : a flinvested funds held in trust by banks, and, since trust funds IltinG investment as a practical matter must usually be available : 13;,amand and may not ordinarily be carried as time deposits, it is 1,-Lleved that the prohibition upon the payment of interest on deposZs_ Payable on demand should be made inapplicable to deposits of trust ,uda with respect to which the payment of interest is required by "wIte law „ "The present law provides that the prohibition upon the payment i;"'r taterest on deposits payable on demand shall not be construed to th°41bit the payment of interest by a member bank in accordance with terus of any certificate of deposit or other contract entered into vie°d faLth and in force on June 16, 1933. The proposed bill proi." substance that such prohibition shall not be construed to co::14:Y to any payment made in accordance with the terms of a bona fide all:ract in force on the date on which the bank becomes subject to 111:0 Provisions. The amendment would except from the prohibition taelo: the Payment of interest on deposits payable on demand any pay-" Illade by a bank entering the System subsequent to the enactment 1288 6/7/34 -19- "of the Banking Act of 1933, provided such payment is made in accordance with the terms of a contract entered into in good faith aad in force on the date the bank becomes a member of the System. '-'11ch an amendment is believed to be desirable. "It is the view of the Board that the absolute prohibition against the payment of any time deposit before maturity should be relaxed so as to permit the payment of such deposits before maturity in exceptional circumstances and in order to avoid hardships. Accordingly, the proposed bill provides that no time deposit may be Paid before its maturity 'except upon such conditions and in accordance with such rules and regulations as may be prescribed by the Federal Reserve Board,. "It should also be noted that the draft submitted herewith contains language which would make the provisions of the last two paragl'aPhs of Section 19 applicable to every bank whose deposits are inTIred under the provisions of Section 12B of the Federal Reserve Act. .tt is the view of the Board that banks which are not members of the eral Reserve System, but the deposits of which are insured under .re provisions of said section 1213, should be on the sane basis as ° the Payment of deposits and of interest thereon as member banks °I* the Federal Reserve System. Under the existing law banks which 1.'e members of the Federal Reserve System are subject to certain Jaraitations and restrictions with respect to the payment of deposits "d of interest thereon which are not applicable to other banking !Tnstitutions, notwithstandinc, that their deposits are insured under che provisions of said Section 12B, and such institutions are thereby forded a competitive advantage over member banks. The proposed ,?lendnient would place all banks whose deposits are insured under ection 12B on a basis of equality in this respect. al "From a draft inclosed in your letter, it appears that it is a-80 proposed to amend Section 5197 of the Revised Statutes se as to 8,1. ;itherize a branch of a member bank located outside of the United ,,'ates to charge a rate of interest equal to the 'rate allowed by 41e laws of the country, territory, province, dominion, insular pos; peseion, or other political subdivision where the branch is located'. 311 ' reasons similar to those set forth in the third paragraph of /4013 letter, the Board believes that such an amendment is desirable. br,17?7er, it is the view of the Board that the language proposed to Inserted in Section 5197 should be changed by striking out the urds 'elsewhere than in the continental United States, excluding woaska and the Panama Canal Zone', and inserting, in lieu thereof the orl'd3 'outside of the States of the United States and the District ae1,2°1untia'. In addition, it is believed that there should be inth ed after the word 'territory' and before the word 'province', 'aord 'dependency'. suggested amendment to Section 12B, subsec*4 vJ.04 "In „ regard to the (1), of the Federal Reserve Act, which would exclude in any clef 01.werMination of the insured deposit liabilities of any closed bank (pr the total net deposit liabilities of any bank which is a holder 4 12S9 -20"of Class A stock of the Federal Deposit insurance Corporation the amounts of all deposits of such bank which are not payable in currency of the United States and all deposits which are payable at 61aY office thereof which is not located within one of the States of the United States or the District of Columbia, it is believed that such an amendment would be in harmony with the present purpose of the section to exclude deposits payable only at an office thereof located in a foreign country. In addition, it is not believed to be desirable that banks located in the United States should be required to contribute to the satisfaction of losses incurred by banks located outside of the United States. "It is not clear, however, whether the proposed amendment would exclude, in any determination of the insured deposit liabilities of sllY closed bank or of the total net deposit liabilities of any bank which is a holder of Class A stock of the Federal Deposit Insurance Corporation or a member of the fund provided for in subsection (y) Of Section 12B, only such deposits of a bank as mny be payable at a branch office thereof located without the States of the United States and the District of Columbia, or whether it is of broader 8e0pe and would exclude deposits which may be payable at the main rice of a bank which may be located outside of the States of the united States and the District of Columbia, as well as deposits payle only at a branch so situated. It is suggested, therefore, that ,uch lan;fuage be used as will eliminate any uncertainty in this reand will indicate clearly that the amendment would exclude in '11Sr such determination deposits payable only at an office located Itside of the States of the United States and the District of Colum,v,4Et and would render ineligible for insurance under the provisions ; af Section 12B deposits of any bank so situated, whether or not a ,,etber of the Federal Reserve System. There is submitted herewith !,t_draft of a revision of the seventh paragraph of subsection (1) ur Section 128 of the Federal Reserve Act to accomplish such purses- You will observe that such draft does not contain a provil?n excluding deposits which are 'not payable in currency of the rIted States'. It is the view of the Board that there is no good ellson why such an exception should be made." Approved. Letter to Li*. Peyton, Federal Reserve Agent at the Federal Retie l'Ire Aim Ilk of Minneapolis, reading as follows: ' 1, 11.1 Reference is made to your letter of April 21, 1934, to Mr. 4 Pr, Chief, Division of Examinations, relative to the policy Of . "la Federal Reserve Bank of Minneapolis in connection with exam"ions of State member banks. tio "The Board notes that it is your practice to conduct examine43 of State member banks jointly with representatives of the 1290 -21"State banking departments whenever practicable but that regardless of whether such examinations are made jointly or independently, a complete and independent examination is made by your examiners and in no case are they to be considered as being credit investigations. oection 9 of the Federal Reserve Act as amended provides that the expenses of all examinations made by Federal reserve banks may, in the discretion of the Federal Reserve Board, be assessed against zhe banks examined and when so assessed shall be paid by the banks examined. In this connection the Board in its letter of July 26, 19,)0, X-6665, issued the following instructions: "If a State examination is unsaGisfacta7y, and an investigation will not provide sufficient information upon which the agents may act intelligently, a complete examination should be made for Which the member bank should be charged. It is realized, however, that in some instances unusual circumstances may exist which would warrant the Board's exercising the discretion vested in it under the recent amendment and waiving charges ror specific examinations. AnY case which, in the opinion of the Federal reserve agent, warrants such special consideration should be submitted to the Board la advance, with a complete statement of the reasons why it is considered desirable to have the examination charges waived by the Board. Examinations of State banks incident to their admission to membership in the System may be made without charge.' , "It will be appreciated if you will advise the Board whether !flarges for examinations made by the Federal Reserve Bank of Einne!P°1is of State member banks are being made in accordance with in°truetions contained in theBoard's letter of Tuly 26, 1930." Approved. Letter dated May 5, 1934, approved by five members of the Board, t0 t11.. . 11-eClure, Federal Reserve Agent at the Federal Reserve Bank of City, reading as follows: al) "This refers to your letter of April 13, 1934, concerning the 4etlieat10n of The First National Bank of Newman Grove, Newman Grove, at?"ka, for the cancelation of 4 shares of Zederal Reserve bank aCek. It is noted that your records show that the 30 shares of now held by the subject bank were issued on September 23, 1915, th e basis of a capital of ,;45,000 and a surplus of :A,000, and el : 44 subsequently the bank reduced its capital to .25,000 and ine"ed its surplus to ,25,000, later reducing the surplus to )20,000. 1/at The records of the Board show that on Eay 1, 1914, The First al:nal Bank of Newman Grove made an initial application for 27 '" of stock of the Federal Reserve Bank of Kansas City based upon 1291 5/7/34 -22- capital and :20,000 surplus, and that on September 23, 1915, the bank applied for 3 additional shares of Federal Reserve stock based upon an increase of s,;5,000 in surplus, which application was approved by the Board on October 29, 1915. Our records do not indicate any further change in the capital or surplus of the bank prior to a notice received from the office of the Comptroller of the Currency dated February 24, 1934, that the capital Or the subject bank had been increased from :„;25,000 to ;;37,500 thr°ugh the issuance of J2,500 preferred stock sold to the Reconstruction leinance Corporation. It is also understood that the records of the Col:ptroller's Office show no change in capital of the bank from the date of its organization until the issuance of the y12,000 preferred stock referred to above. . "In the circumstances, it is suggested that a revised appli!ation be submitted for the cancelation of the Federal Reserve uWik stock which the subject bank desires to surrender." Approved. Letter dated Lay I), 1934, approved by five members of the Board, to *. c -rthur Larschan, Auditor, '1.- 8.de Bank of New York, New York, readaS follows: "This refers to your letter of January 26, 1934, in which you .1.11 attention to Section 3 of Regulation B issued by the Federal Dosit Insurance Corporation and inquire whether your bank, a or of the Federal Reserve System, may continue to pay interest „ 'ilne deposits at the rate of 3 per cent per annum, compounded terly. Z "Under the law the Federal Reserve Board is required to limit rer7 04 t .ulation the rate of interest which may be paid by member banks be IlIce deposits and is authorized to prescribe the rate which may 1,eid by such banks on time and savings deposits. i-ursuant to the ale113°nsibility thus imposed upon it by the statute, the Federal Reafter a careful study of the subject, promulgated its 1:9'atio11 CI, which contains the provision that no member bank shall ' Ilterest on any time or savings deposit 'at a rate in excess of bzirj cent per annum, compounded semiannually, regardless of the raezbe 4Pon which such interest may be computed'. Accordingly, no or ! 4 1" bank of the Federal Reserve System, although it is a member 011 4c Temporary Federal Deposit Insurance Fund, may pay interest ber 11/r time or savings deposit at a rate in excess of 3 per cent 1141r 4114uM, compounded semiannually; and, therefore, no such bank it trY interest compounded at lesser intervals than six months eatount of interest so compounded exceeds the amount of intf*e cobvioet which would be payable at a rate of 3 per cent per annum, -°1111ded semiannually. You will observe that it is provided in 1292 V7/34 -23- "Section 4 of Regulation C of the Federal Deposit Insurance Corporation that neither that regulation nor amended Reulation B of the Corporation is intended to make any requirement or impose any restriction as to member banks of the Federal Reserve System inconsistent with any regulation concerning interest payable by such memof the Federal Reserve Board is in ber banks and that Regulation 40 manner affected by such Regulation C or amended Regulation B of tne Corporation. with respect to the compounding "The provision of Regulation Of interest has recently been again carefully considered by the Federal Reserve Joard and it is the Board's conclusion that the requirement in Regulation Q that no member bank shall nay interest on 44Y time or savings deposit tat a rate in excess of 3 per cent per a44uM, compounded semiannually' should not be modified in any way at this time. "The Federal Reserve Board has called to the attention of the Federal Deposit Insurance Corporation the fact that the regulations Qf the latter, which relate to nonmember banks of the Federal Reexve System whose deposits are insured under Action 12B of the dcral Reserve Act, differ fram the regulations of the Federal Re!erVe Board, which are applicable to member banks, with respect to minimum period for the compounding of interest at the rate of 3 Per cent per annum." Approved. Letter to Ur. Robert 2merson Linnich, Editor, Federal Bank Service, • Ice-Hall, Inc., New York City, New York, reading as follows: "This refers to your letter of March 17, 1934, regarding the .1:11estion whether a member bank may make a loan to a savings deposi;?r oh the security of the depositor's savings pass book, and also 0, , 1ether, if such loan is made, the bnnk may continue to pay interest tr,,the savings account represented by such pass book. You state tt the sane auestion has arisen in connection with time certifig6ee cf deposit. "As you know, footnote 10 of the Federal Reserve Board's Regu104 q provides that the making of a loan to the owner of a ni7 4gs deposit by a member bank for the purpose of evading any re;;Iiirellasnt of Section VI of the regulation will, to the extent of 421.1 loan, be deemed to be a payment of such deposit or waiver of (1 61ce with respect thereto in violation of such requirement. The illeetion whether a loan made by a member bank to the owner of a savse 3 dePosit constitutes a violation of any requirement of this thction depends upon whether the loan is made in good faith or for Plirpose of evading such a requirement. It is not believed that wss. eneral rule can be prescribed to govern all cases, and each encUld be determined on the basis of its own particular facts. 1293 b/7/34 -24"It would not be practicable for the Federal leserve Board to undertake to determine such questions as they may arise in individual cases, and the Board feels that the auestion whether any such transaction should be regarded as a payment of a savings deposit in violation of the requirements of the regulation is a matter to be considered by a member bank at the time such transaction is proposed and to be determined by such bank in the exercise of its best judgtient and in the light of the provisions of the law and of the Board's regulation. However, if the circumstances in respect to any such transaction are such as to raise a question as to whether it constitutes a payment of a savings deposit or waiver of notice with respect thereto in violation of any requirement of Section VI of ttlieregulation, the bank must be prepared to show clearly that such ransaction was not in contravention of the provision of law in question. "The same principles are applicable to the making of a loan by .rilember bank to the owner of a time deposit, in view of the provisions of footnote 7 of Regulation Q. "What is said above with respect to loans to the owners of ,avirkgs or time deposits is applicable whether or not interest is id by a member bank on such deposits. With regard to savings :Posits, however, it should be noted that, if it is the practice ,1 a member bank to pay savings deposits without requiring notice `,.:1 Withdrawal, a loan by such bank to the owner of such a savings ;.;Posit would not involve an evasion of the requirements of Section Of Regulation Q if the amount of the loan does not exceed the .-trunt or percentage of such deposit which it is the practice of e bank in conformity with the provisions of said Section VI to vay without requiring notice." r Approved. Letter to Lr. F. H. li.eeker, President of The Unadilla National 484illas New York, reading as follows: eti "This refers to your letter of December 19, 1933, presenting 13011 atc. inquiries with respect to the form of a certificate of de114!:t issued by your bank, a cony of which you inclosed with your gshi r. Due to pressure of other urgent matters arising under the t(-3 1118 Act of 1933, the Board regrets that it has not been possible /114ke an earlier reply to your letter. the The form of certificate concerning which you inquire contains dr use 'This deposit is subject to thirty days' notice of withand, accordingly, appears to be one with respect to which bank reserves the right to require thirty days' notice before aZient but such notice is not required to be in writing and preIt mblY is not actually required to be given in the usual case. loosTY not, therefore, be classified as a time certificate of deWithin the meaning of Ikegulation q, a copy of which is inclosed 1294 5/7/34 -25- "herewith for your information, since, as you will observe from footnote 4 of the regulation, for the reasons there stated interest malr not be paid on a certificate of deposit with respect to which the bank merely reserves the right to reouire notice of not less than thirty days. "Furthermore, the deposit represented by the certificate in qestion may not be considered a savings deposit within the meaning Of Regulation because it does not provide that the depositor may be required by the bank to give notice in writing of an intended Withdrawal not less than thirty days before such withdrawal and because it does not appear to constitute a 'pass book or other form °I' receipt' within the definition of a savings deposit contained the regulation. The phrase 'other form of receipt' in the regulation recognizes the fact that in some circumstances banks may rind it desirable to issue receipts for savings deposits which are 11°t in the usual form of savings pass books; but it is the intention °r the regulation that every such receipt for savings deposits should ue a contract of a continuing character evidencing deposits the aZoUnt of which may be increased or decreased from time to time without the necessity of surrendering the receipt or issuing another 81ach receipt. "It is suggested, therefore, that your bank give consideration ,, vile desirability of changing the form of certificates of deposit ih it uses so as to bring them into conformity with the definition i,time certificates of deposit contained in Regulation or, if : 1:1 is desired to classify the funds represented by such certificates 0!,eavings deposits, that savings pass books of the usual type or 1"ler forms of receipt which comply with the intention of the regufatioa as discussed above be substituted therefor. You will observe df°M the definition of savings deposits in the regulation that such 13; 0sits must consist of funds accumulated for bona fide thrift , 13°see. For your information with respect to the forms of time ee,. ificates of deposit which comply with the requirements of the : /1 11'd's liegulation C, there is inclosed herewith a copy of the F - ederal c;rrve Bulletin for November, 1933, which contains on page 708 eic ifieate forms which meet these requirements. .1.1here is also in19pd herewith a copy of the Federal Reserve Bulletin for December, ti114 . ! containing a statement at page 768 with regard to the desirltY of stamping or printing on certificates of deposit a provi' aws to the effect that the rate of interest payable thereunder is eol;ject to change by the bank to such extent as may be necessary to to V-Ir with requirements of the x'ederal Reserve Board made from tine pursuant to the Federal Reserve Act. or d "There is no objection to the inclusion in a time certificate of the clause 'interest at 3,; per annum for even calendar rtic3Iltlep°;lit -f left six months', if the certificate also conforms to the The ll'eMents of the regulation regarding time certificates of deposit. °ther clauses mentioned in your letter and in its inclosures e4/1 'to refer to savings deposits and their use in connection with 1295 c 5/7/34 -26"tinae certificates of deposit would seem inappropriate." Approved. Letter to Lir. C. 0. Getter, Cashier of The First Ilational Bask or 1\r„ "'wville, Pennsylvania, reading as follows: "This refers to your letter of April 20, 1934, regarding the Pa:fluent of certificates of deposit which represent bona fide thrift e.ccounts, and to your previous letters with respect to this matter. ie Board regrets that due to the pressure of other urgent matters !!1-514G in connection with the Bailling Act of 1933, it has not been gule to complete its consideration of this question at an earlier aate t , "You state that it would appear from regulations issued under lie Banking Act of 1933 that deposits made in a bona fide thrift accolInt reoresented by a savings account book may be withdrawn with(0-ving thirty days' notice, while deposits in a bona fide thrift '?eount represented by certificates of deposit cannot be withdrawn In7Ybh°ut giving notice of 30 days prior to such withdrawals. In such : lreUmstances, you suggest the advisability of a ruling that deposits nsisting of funds accumulated for bona fide thrift purposes, when 17T'esented by certificates or deposit as referred to above, may be c.11(lrawn without notice so that depositors who accept such certifies maY be treated the same as savings depositors who accept sayaccount books and so that banks issuing the certificates of 13°3it in question may be on an equal basis with banks which issue '1-'vinGs account books. co "One of the reouirements of the definition of savings deposits lantElined in L',ection V of the Federal Aeserve Board's Regulation cle,that the 'passbook or other form of receipt' evidencing such a _.1Joait must be presented to the balk whenever a withdrawal is made. J1Ir letter, taererore, raises the question whether a certificate of eel,?°81t of the kind described therein may constitute a 'form of rez:ithin the meaning of this requirement so that deposits repre,4ted thereby may properly be regarded as savings deposits. 40 t."Section 19 of the Federal Reserve Act as amended provides that deposit may be paid before maturity bya member bank, whereas the la PeZment or savings deposits without requiring notice of withdrawal ei1 14der certain conditions, permissible under the law. In order to b. oUt the intention of the statute, in this connection, it is e4c1 Ved important that neither the law nor the Board's regulation the ' d be so interpreted as to encourage or facilitate evasions of ity Prohibition upon the payment of time deposits before their maturthe prohibition upon the payment of interest on deposits ell;u-Le on demand. A certificate of deposit, as that term is generederstood, is on instrument evidencing the receipt of a single -'&14 on deposit, the entire amount of which will be repaid at one r 4 ;2 DElyn°.: 1 °I? 1296 6/7/34 -27"time and only upon the surrender of the certificate. Savings deposits, on the other hand, are received under continuing contracts covering deposits made from time to time, from which withdrawals mny be permitted from time to time, all of which are evidenced by a single form of receipt which laist be presented but need not be surrendered whenever a withdrawal is made. There is thus an essential distinction between certificates of deposit and receipts r°r savings deposits within the commonly accepted meaning of these l er'MS; and the Board feels that the preservation of this distinction is necessary in order to carry out the purposes of the statute. Accordingly, the phrase 'other form of receipt' as used in the definition of savings deposits in the Board's Regulation q is not to be interpreted as including a certificate of deposit which by its tellue contemplates that only one deposit will be evidenced thereby and that the entire amount will be repaid upon the surrender of the celtificate. The phrase in question recognizes the fact that in some eir curastances banks may find it desirable to issue receipts for °°krvings deposits which are not in the usual form of savings pass but it is the intention of the Regulation that every such ' e!eeipt for savings deposits should be a contract of a continuing oliaraeter evidencing deposits the amount of which may be increased ,! decreased from time to time without the necessity of surrendering ulle receipt or issuing another such receipt. "In view of the foregoing discussion, the Federal Reserve Board tee le that deposits represented by ordinary certificates of deposit Y not properly be classified as savings deposits within the mean•g01 Regulation so as to permit the payment of such deposits ;;;11?Ut requiring notice in accordance with the provisions of aectl°n VI of that regulation, even though such certificates reprelit funds accumulated for bona ride thrift purposes." t Approved. Letter dated May 5, 1934, approved by five members of the Board, N 'S. Calhoun, President of the Security National Bank, Greensboro, 11°11h Carolina, reading as follows: rer, "This refers to your letter of January 11, 1934, in which you palest to be advised whether the fact that your bank is not issuing b°01cs in connection with its savings deposits is in any way thai°1ati0n of the Federal Reserve Board's regulations. You state Asar,' Pending the adoption by the North Carolina Clearing House „c`Jciation of rules of fair trade practice relating to savings .xicl°111 , 1te, Your bank has delayed printing savings deposit pass books, deD0 411 the meantime, has not issued pass books to its savings ot. sitors, but has issued duplicate deposit tickets in lieu there- 1297 34 -28- 'Without an opportunity to examine the form of duplicate deposit tickets in Question the Federal Reserve Board is unable to advise Yon definitely whether the deposits represented thereby may properly be classified as savings deposits within the meaning of Regulation on which interest may lawfully be paid. "However, for your information in this connection, you are advised that the Federal Reserve Board has expressed the view that the , 13hl'ase 'other form of receipt' as used in the definition of savings uePosits in Regulation q is not to be interpreted as including a certificate of deposit which by its terms contemplates that only °Ile deposit will be evidenced thereby and that the entire amount vlal be repaid upon the surrender of the certificate. Section 19 °' the Federal Reserve Act provides that no time deposit may be paid before its maturity by a member bank, whereas the payment of savings dePosits without requiring notice of withdrawal is, under certain conditions, permissible under the law. In order to carry out the intention of the statute in this connection, it is believed imPortant that neither the law nor the Board's Regulation should be !° interpreted as to encourage or facilitate evasions of the pro' t ibition upon the payment of time deposits before their maturity „11 the prohibition upon the payment of interest on deposits payable "11 demand. A certificate or deposit, as that term is generally (1n.d er3to0d, is an instrument evidencing the receipt of a single c olant on T deposit, the entire amount of which will be repaid at and only upon the surrender of the certificate. on the other hand, are received under continuing Savingsce0Pozt, contracts b„Irerik; deposits made from time to time from which withdrawals may 31 Permitted from time to time, all of which are evidenced by a 1,311Ue form of receipt which must be presented but need not be surdind°red whenever a withdrawal is made. 'Itere is thus an essential deetinction between certificates of deposit and receipts for savings I.30Pcsits within the commonly accepted meaning of these terms and the feels that the preservation of this distinction is necessary to °rder to carry out the purposesof the statute. The phrase 'other i?'41s of receipt', as used in tlie definition of savings deposits b;Ipculation q, recognizes the fact that in some circumstances IPlaY find it desirable to issue receipts for savings deposits thee ' are not in the usual form of savings pass books; but it is de„ intention of the regulation that every such receipt for savings dersi:ts should be a contract of a continuing character evidencing toTits the amount of which may be increased or decreased from time Without the necessity of surrendering the receipt or issuing ' 6ner such receipt. to th"In view of the statements contained in your letter with regard expected issuance of savings pass books by your bank, it is d that the bank has now issued or will soon issue savings 40 Vpooks covering all of its savings deposits so that there may ae uneer be any auestion as to the proper classification of such P°sits." Approved. 1298 5/7/34 -29Letter dated May 4, 1934, approved by six members of the Board, toLIr. Curtiss,' Federal Reserve Agent at the Federal Reserve Bank of 14ton, reading as follows: "This refers to your letter of January 11, 1934, containing (3111' inquiry iTO. 43 in regard to the applicability of the provisions of Section 32 of the Banking Act of 1933 to the service of directors o.nd officers of a member bank as directors and officers of Lawyers 14)rtC;age Investment Corporation of Loston and the Lawyers Title InCompany. In this connection, you inclose a copy of a letter iO 1.:3=. Bartlett Harwood of the Firm of Herrick, Smith, Donald and :4112-eY, dated January 9, 1934, together with the papers inclosed in Harwood's letter. "It appears from Mr. Harwood's letter that the Lawyers Title Ilisnrance Company is engaged in insuring the title to real estate tdalso the sufficiency of mortgages as collateral for mortgage notes. appears that this company is required to maintain a ',:uaranty invested in bonds of certain kinds, and that, except for buyand selling bonds of this character in connection with the mainOf this fund, the company does not deal in securities in i waY. Under the circumstances, it would appear that this company 8 not an organization of the kind referred to in section 32. "The information submitted would indicate that the Insured Pir 14e,,,st laprtgage Certificates issued by the Lawyers Mortgage Invest: Corporation are 'securities' within the meaning of L.ection 32, i, that, therefore, such corporation should be regarded as a 'dealer 1;14 securities' within the meaning of that section. However, the t ' e rd does not feel that the information is sufficient to enable it 11o: ".oh a definite conclusion in regard to this question. :is you te1.4$ sines the date of your letter, the Board has written its letbel,(3f APril 16, 1934 (X7866), relating to this matter and it is ' -evcd that the question here presented may be answered in accor4,17e with the principles stated therein. If you should still der4 ,t1le ruling of the Board with respect to this question, it is -etisd that you submit to the Board information relating thereto th,`Illtlined in the Board's letter, together with your comments and °pinion of counsel for your bank." r Approved. Letter dated May 5, 1934, approved by five members of the Board, illeodore V. Whitmarsh, New York, New York, reading as follows: rataz tie— ,-104nvaslderation has been given to your application for perPursuant to Section 32 of the Banking Act of 1933 to serve 1.99 b/7/4 "at the same time as director of Irving Trust Company and as president and director of Ridgely Trading Corporation of Delaware, both Of New York, New York. "It appears that the corporation was organized to facilitate the administration of certain trusts for your relatives, most of v740mt are abroad; that the corporation is engaged in the management °f securities which it holds, selling or reinvesting as occasion 1 :squires and in collecting the income from the securities and turning Lt over to the trusts for the beneficiaries; that you are not a stockholder of the corporation and have no finmacial interest in its °Peration; that during 1933 the sales of securities represented less hall 3% of the total investment account, and profits fram the sales °f securities represented 2% of total income for the year and only .08% of the total investment account of the corporation; and that the corporation has never participated in the underwriting or the issue °I securities of other corporations. 4., "In view of the facts disclosed in your application it appears flat Ridgely Trading Corporation of Delaware is not 'engaged primarily 11,1. the business of purchasing, selling or negotiating securities', rlthin the meaning of Section 32 of the Banking Act of 1933, but, r4ther, in the investment of its funds. Therefore, no permit is . equired under the provisions of that section covering your service ' 8 President and director of that corporation and as director of 117Ing Trust Company." 1 Approved. Letters dated May 4, 1934, approved by six members of the Board, w'le following applicants for permits under section 32 of the Banking Of itet 1933; each letter stating that it appears that the relationship °telcied bY the application is within the class which section 32 was -11"Iled to terminate, and that, accordingly, the Board is unable to find thEtt It would not be incompatible with the public interest as declared °°4gress to grant the application, although, in the event the tIDI/lieliart desires to submit further facts or arguments in support of the tikie"iola, the Board is prepared to give them careful consideration: 141% tizeAzthur H. Almstedt, for permission to serve at the same "a director of the Citizens Union National Bank and as Illber Of the firm of Almstedt Brothers, both of Louisville, 1300 5/7/34 Isaac Hilliard, for permission to serve at the same time a8 a director of the Citizens Union National Bank and as a tlezber of the firm of T. 3. B. Hilliard & Son, both of :LouisVille, Kentucky. Approved. to th 6 Letters dated Lay 5, 1934, approved by five members of the Board, f0110wing applicants for permits under section 32 of the Banking Aet - each letter stating that it appears that the relationship by the application is within the class which section 32 was deecl to terminate, and that, accordingly, the Board is unable to find 11 it would not be incompatible with the public interest as declared by the 004a.rees ekt desires e4t104, the to grant the application, although, in the event the appli- to submit further facts or arguments in support of the appliis Board prepared to give them careful consideration: sia--sJ , X. Weinberg, for permission to serve at the same Qs e as a director of the i.lanufacturers Trust Company and irOlitPartner a4 of Goldman, 3achs Co., both of New York, New 14.11 . (4,1 S. Rippel, for permission to serve at the same time : Ziev la irnlan of the Board and director of the Merchants and 01.7,11t Trust Company, Newark, New Jersey, and as Chairman i/evle't lle Board of Directors and director of X. S. Rippel & Co., rk, New Jersey. Approved. Letters to the following applicants for permits under section 32 1"Q111tillE Zwt of 1933; each letter stating that it appears that the 1"1°48111P covered by the application is within the class which section 114 de"ened to terminate, and that, accordingly, the Board is unable 61° "Ild th„ would not be incompatible with the public interest as 'Q4treci by the Congress to grant the application, although, in the event 1301 5/V34 -32 the , '4'PPlieant desires to submit further facts or ar8 .uments in support or the application, the Board is prepared to Eive them careful consideration: Lir. Charles A. Collins, for permission to serve at the sane tlaas as a director of The Jentral National Bank of Lynn, LY44, Massachusetts, and as an officer and senior partner of Collins Breed Cz Company, Boston, Lassachusetts. Lir* U. x'eabody Gardner, Jr., for permission to serve at the 8ams time as a director of the Boulevard Trust Company of Bookline, Brookline, 1:.assachusetts, and as partner of the flxv.m of Jackson Curtis, Boston, Massachusetts. aarold C. Payson, for permission to serve at the same fl.le as a director of the First National bank of Lewiston, and as a pai.tner of H. N. l'ayson & Co., _Portland, -▪ dzank D. Stranahan, for permission to serve at the same as a director of The Commerce Guardian Lank, and as a • ector and officer of Stranahan, Harris Company, Incorporated, °t11 of Toledo, Ohio. i t' liobert A. Stranahan, for permission to serve at the same as a director of The Toledo Trust Company and as an of,cor and directol. of Stranahan, Harris Compt-my, Inc., both Toledo, Ohio. ▪ 41 'He Tinsman, fo ' , permission to serve at the same time Lti, • 4 (1j-recto1 of the Inter-3tate National Bank, _ansas City, --'1343 and as an officer of frescott, 'dricht, Cnider Company, City, Missouri. ipproved. to Letter dated May 1934, approved by five members of the Board, a.4 Q 111)1-leant for a permit under the Clayton Act, advisinc of approval '413:P1ioation as follows: 4 e.i(14"• Jolly, for permission to serve at the same time as and officer of The Bank of Haileyville, BaileyJ1 and as a director of The National Bank of Cr, LicAlester, Oklahoma. Approved. :DGA0,zactlf. eLlul_aapes -pouanorlye Strp.oan oiq uodnoaetur, -paAoaddv 90. 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