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1538
Minutes of actions taken by the Board of Governors of the Fed—
el l Reserve
System on Friday, November 1, 1946.
The Board met in the
8
".Room at 10:40 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Eccles, Chairman
Ransom, Vice Chairman
Draper
Evans
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Carpenter, Secretary
Sherman, Assistant Secretary
Morrill, Special Adviser
Paulger, Special Adviser
Thurston, Assistant to the Chairman
Smead, Director of the Division of
Bank Operations
Bethea, Director of the Division of
Administrative Services
Thomas, Director of the Division of
Research and Statistics
Vest, General Counsel
Nelson, Director of the Divis.on of
Personnel Administration
Townsend, Assistant General Counsel
As stated
in the minutes of October 30, 1946, Mr. Vardaman was
al3sEtt on
Presta
official business.
There were presented telegrams to Mr. Treiber, Assistant Vice
ellt of the Federal Reserve Bank of New York, Mr. McLarin, Presi—
clent
f
the
Federal Reserve Bank of Atlanta, and Messrs. Dillard,
Stewart
Chicago
'and Mangels, Vice Presidents of the Federal Reserve Banks of
tn
St, Louis, and San Francisco, respectively, stating that the
approves
the establishment without change by the Federal Reserve
of
Atiaalt San Francisco on October 29, by the Federal Reserve Banks of
4 anC1
St. Louis on October 30, and by the Federal Reserve Banks
1539
11/11/46
of
-2-
14ew York and Chicago on October 31, 1946, of the rates of discount
aliciPurchase in their existing schedules.
Approved unanimously.
Mr. Evans referred to the authorization by the Board on Feb12, 1946,
of the printing of 20,000 copies of a revised edition
Of the
Federal Reserve Act and related legislation and of an expenditime
,
Of 41
5,000 for that purpose, wi.th the understanding that before
the
reused
edition was ready for distribution a recommendation would
be nlad
e as to the policy to be followed in distributing copies. In
4ce("allee with that understanding, there was submitted, and the
4creta/7
read, a memorandum from Mr. Evans dated October 29, 1946,
Which
3 after
stating that the first copies of the revised edition
W°113-ci be received from the printer about November 25, 1946, read as
follows:
"On the basis of letters received from the Federal
!erve Banks specifying their requirements, it is recomofuded that the Reserve Banks be furnished with a total
ah,45!,300 paper-bound copies, 1,420 buckram-bound copies,
'
ex J59 loose-leaf sets. Such distribution will comply
er tlY with the number of copies requested by each FedwhichReserve Bank except in tit.o or three instances in
hi ,_ the number reauested has been deemed unreasonably
g" and has been reduced to some extent.
co
"It is further recommended that a buckram-bound
toPY of the revised Act be sent directly by the Board
thee fh member bank and that the loose-leaf sets and
'"umb-indexed leatherette copies be distributed as
buti0"4-cated in the attached detailed schedule of distriwp•
of the"lth respect to the matter of charging for copies
ador,4 new edition, it is recommended that the Board
"a Policy of making free distribution of paper-
t
1540
11/1/46
-3-
Copies to the Federal Reserve Banks for the use
of their staffs, to member banks, members of Congress
and Government officials, libraries of educational institutions
and public libraries, foreign central banks
and governments, and the press; that a charge of 50
cents a
copy be made for paper-bound copies requested
,_°1 Y the general public; and that a charge of
a copy
ir made for buckram-bound copies reciuested by member
anks (in addition to the single complimentary copy)
Or by the general public.
t1,4 "In order that the Federal Reserve Banks may use
°coasion to further their relations with their
;emuer banks, it is suggested that shortly before the
sends copies of the Act to member banks, the
board.
give advance notice to the Federal Reserve Banks
Order that the Reserve Banks may, if they wish, ad:!*ess a letter to each member bank in their respective
advising that a buckram-bound copy of the
new
"ew
edition will shortly be mailed to it by the Board.
"It is expected that the printing costs plus the
eio_sts of binders
for the loose-leaf sets will be less
than the
amount
$15,000 which was authorized by
of
the
e Board for this purpose."
r
It was unanimously agreed that
the plan of distribution outlined
in the memorandum should be followed.
Mr. Draper
stated that on October 31, 1946, representatives
ot a
committee of the American Bankers Association conferred with him,
41'.
Morrill, and Mr. Paulger with respect to an announcement by the
814'e411 °.{1 Internal Revenue that enforcement of the provisions of
8"ti°r1 102 of the
Internal Revenue Code would be tightened for the
calendar Year 1946 with the result that banks might find themselves
ilbject to a
penalty surtax upon their undistributed earnings. It
alao
stated that the representatives of the Association under-
1541
11/1/46
-4-
tcle'd that the Bureau of Internal Revenue contemplated, as a general
rille-or-thumb, that any corporation, including banks, which did not
distribute
•
to its stockholders at least 70'IJ of its net earnings for
the Year 1946 would have placed upon it the burden of showing cause
why
it
should not be subjected to the Section 102 surtax, which would
ia levying of a tax at rates as high as 38-1/2% in addition to
the n,
'ralal corporation tax and surtax. Mr. Draper made the further
stete
raent that
representatives were calling on the Board of Governors,
the
Com ptroller of the Currency, the Federal Deposit Insurance Corpo-
ratio4
'and the Secretary of the Treasury to ascertain their views on
the matter.
MIX'.
Ur. Dra
Morrill said that during the conference referred to by
Per it was understood that the representatives of the Association w
°uld submit to the Board informally a written statement of their
Views
and why special treatment should be afforded to banks, and that
th4 1110
rqing such a statement was received which read in part as fol1011418:
batiks"Such a large distribution of earnings of chartered
poll Is, of course, completely contrary to good banking
ave-cY and to the requirements of the various supervisory
4,11,!ies which have control over bank operation. Certainly
114 Dank which
sought to distribute as much as 70% of its
o in dividends to its shareholders would be
tlbj:;Ir
tn
err
serious criticism.
vise It has been
the accepted policy of all of the superdendr
jagencies to re.iuest--even to insist-- that divithat Paid to bank shareholders be kept suall in order
the balance of bank earnings be plowed back into
1542
11/1/46
—5—
capital funds and the ratio of those capital funds to
the present deposit liabilities increased. This retIlrement on the part of the supervisory agencies is
111 the public interest, is good public policy and
should be continued.
, "Certainly this is no time to change this policy.
'tank earnings, it is believed, are likely to decrease
rather than increase, in the years immediately ahead.
oank losses, at a minimum the last few years, are like?' to increase, and adequate reserves against such
sses, should be provided now from present earnings.
Few banks
have had 'excess profits' during the war
years, and
repeal of that law has had little effect
°II bank earnings. Bank deposits, other than government deposits, seem likely to remain at a high level,
Q41c1 capital funds, therefore, still need to be augmented.
"We urge, therefore, that the supervisory agencies
LII:de
representations to the proper officials in order
that thjs rule (requiring 70% of earnings to be paid
ut in dividends) shall not apply to banks."
Chairman Eccles stated that a strong argument could be made
in °PP"iti°n to the position presented in the memorandum, and that
befor
e 6ttlY decision was reached by the Board, he would like to have
4 atat
ement prepared of the reasons for and against special treatnierit °I' the bank8.
After a general discussion, it was
agreed unanimously that (1) Mr. Paulger
would advise the representatives of the
American Bankers Association informally
that the Board wished to study all of
the aspects of the matter, including its
relation to monetary and fiscal policies,
before expressing its views, and (2) that
Messrs. Smead, Thomns, and Leonard would
prepare for consideration by the Board a
draft of a statement of (a) the reasons
for and against the position submitted
by the representtives of the American
1543
u/v46
-6Bankers Association, and (b) a proposed
substitute for the 70% rule which might
be proposed for use by the Bureau of Internal Revenue as a basis for determining whether a bank should be subject to
the penalty tax.
At this point, Mr. Paulger withdrew, and Messrs. Parry and
) Director and Assistant Director of the Division of Security
43alls, joined the
meeting.
At Mr. Draper's request, the Secretary read a memorandum
"dressed to
Mr. Draper by Mr. Parry under date of October 31, 1946,
s
ummarized as follows the replies received from the Federal
Ser e
Re
Banks to the Board's request for their comments on the pro)8eci amendments to Regulations T, Extension and Maintenance of
elr'edit by
Brokers, Dealers, and Members of National Securities Exellangee, and u, Loans
by Banks for the Purpose of Purchasing or
411'71-11g Stocks Registered on a National Securities Exchange, which
Wollid
provide that a shareholder receiving "subscription rights" to
13111‘elia8e shares of
new stock might obtain credit for the purpose of
ece/'cising' such
rights:
ci_
%.1
1,. -'Plaes from six of the Reserve Banks (Boston,
t41:hmond, Atlanta, Minneapolis, and Dallas)
general approval of the proposed amendde13.
1 : The other six Reserve Banks (New York, Philacis
'
-3\-a, Chicago, St. Louis, Kansas City, and San Francone()) make
suggestions for enlarging the scope of the
aatloica
granted by the amendments, the nature and
A
t of
the
enlargement varying as between one Res-rve n_
I
and another.
4110, "The broadest suggestion for enlargement came from
'
as City, which suggested that instead of the proposed
1544
4/1/46
—7—
emendments an amendment be adopted restoring to Regulation Ti a provision formerly in that regulation which, in
effect)
exempted loans made by banks to any person for
the purpose of purchasing stock purchased directly from
the issuing corporation. A similar but narrower sugge.!'i°11 came from Chicago, which is much interested in havI-lig the amendment broadened to permit loans to finance
th
Purchase of stock, directly from the issuer, by ofticers and employees of the issuing companies, pursuant
]
.
.oyee stock purchase plans, options, or other con*rrae4113s
"The most important suggestion for enlargement is
°Ile from New York, Ahich has also been approximated by
Philadelphia,
St. Louis, and San Francisco. New York
!?uld enlarge the scope of the amendments by permitting
the
cre stockholder to obtain 100 per cent of the amount of
it needed to purchase the new stock (instead of only
_DL) per cent).
In addition, the reply from New York extroessee the opinion that 'the proposed amendments are
an°
in scope to provide the appropriate relief'
re`4 g°es on to tuestion the advantage of amending the
unless the amendment is expanded according
togulation'
their
suggestion."
The
memorandum also stated that the Securities and Exchange
C15111alissi°11 in a letter dated October 221 1946, advised that it had
11° 1311ticular
comments to make either for or against the proposed
4111eIld1nents)
but that subsequent advice was to the effect that the
411141-88i°11 might wish to suggest changes in the amendments.
On the latter
point, Mr. Parry stated that he understood
tl'°14e°1117erSat1onS with representatives of the Securities and ExLite
commission that the Commission would address a letter to the
,
8711'd Pr°13°8ing that the amendments be expanded to permit the exten°f credit in connection with the purchase of securities of comPtliea being reorganized pursuant to the "death sentence" provisions
1545
11/1/46
-8"
Ile Public Utilities Act.
With respect to the proposal of the
deral Reserve Bank of New York, Mr. Parry felt that it should have
carep-'ui consideration, but that there was a question whether the
424'd should act on it separately or whether the change should be
414 at the time the Board decided to reduce margin requirements or
°therm
'
- 8e acted to liberalize the regulations. He saw no economic
reason
for adopting the amendments at this time but suggested that
IrLight
well be justified as a matter of public relations.
The points raised by Mr. Parry were
discussed and it was agreed unanimously
(1) that drafts of the amendments to
Regulations T and U which would take into account the proposals made by the Federal Reserve Bank of New York and the
Securities and Exchange Commission should
be perfected and considered by the Board
not later than December 1, 1946, and (2)
that it should be made clear in the press
statement to be issued, in the event the
amendments were adopted, that the action
of the Board was for the purpose of meeting the special problems involved and did
not represent a change in the general policy of the Board with respect to the use
of credit for purchasing or carrying securities.
In
connection with the above matter, Mr. Vest referred to the
eligge8ti°11 that
Regulation F, Trust Powers of National Banks, be amendPe
a national bank to exercise, on behalf of a trust account
istered
V it, rights held in the account for the purchase of new
'c'ek being issued by the bank.
He stated that a reply to the Board's
1546
4/1/46
-9-
requeSt for the views of the American Bankers' Association as to the
ci
ability of such an amendment had not been received, and inquired
whether
it was felt that the amendment was sufficiently related to
he
Proposed amendments to Regulations T and U as to make it desirable
that action on all three amendments be taken at the same time.
All of the members present were in
agreement that the amendment to Regulation F was not closely enough related
to the amendments to Regulations T and
U to require simultaneous action on all
three and that a decision on the amendment to aegulation F should not be made
until after the views of the American
Bankers' Association had been received.
At this point,
Messrs. Parry and Brown withdrew from the
4leeting.
Chairman Eccles stated that a letter had been received from
tlIANational Labor Relations Board, dated October 30, 1946, stating
that
it had
decided, by a two to one vote, to hold a hearing in the
r(leAr of
the labor case pending at the Federal Reserve Bank of Dallas,
With
a view to
giving all parties the opportunity to develop such
tacts as
they desired bearing on the question whether the National
Lab°r
Relations Act was applicable to the Federal Reserve Banks.
He aleo said
that he had discussed with Messrs. Vest and Townsend
the
quest:Lon of the
further steps that Should be taken by the Board
ofGoverno
rs in the
matter and that Mr. Townsend would present a
O5s
13ib1e Pr
ocedure that might be followed.
1547
11/1/46
-10Mr. Townsend outlined reasons why it was believed desirable
tO
-"°id or delay as long as possible a decision by the National
Labor
Relations Board and the courts on the legal question involved
'
4c1 stated
that there was a proceeding known as an election before
hearing which, if requested by the Board, undoubtedly would be arranged bY the Labor Board and under which the election would be held
before the
hearing with the express understanding that by consenting
to the
election the Federal Reserve Bank and the Board of Governors
" not be
surrendering their right at a later time to raise the
clition of the
applicability of the statute to the Federal Reserve
8ax1
ics. If a majority of the employees of the Dallas Bank, he said,
did
licA vote for the labor union to represent them, that would end
the
Proceeding and no hearing would be held.
Following a discussion of the procedure
outlined by Mr. Townsend, it was agreed
unanimously that he should go to Dallas to
discuss the matter with the Chairman, President, and other officers of the Federal
Reserve Bank and that if it appeared probable that the results of an election would
dispose of the matter, an effort should be
made to have the Labor Board hold an election prior to the hearing.
The Board of Governors also approved
unanimously the following letter to Mr.
Gilbert, President of the Federal Reserve
Bank of Dallas:
lett "I enclose herewith for your information a copy of a
which I have received from the Chairman of the Nat
Labor Relations Board with reference to the question
t14.1ethe aPPlication of the National Labor Relations Act to
'
ederal Reserve Bank of Dallas.
1548
11/1/46
-11"This matter has been the subject of discussion by
the Board of
Governors and, since it is a matter of System
concern and in view of the interest of the Board
Under the law in its outcome, the Board has instructed
its
Counsel to intervene in the proceedings, either for1fora
Tmallyby
motion or on an informal basis, as Counsel might
think best. The Board's Counsel will, of course, collaborate with Counsel for your bank to the end that the interests of the System may best be presented nnd protected."
Mr. ToWnsend stated that it was expected that the National
tab°1" Relations
Board would issue a press statement in connection
wtth its decision to hold a hearing and he raised for consideration
the Cluestion whether the Board of Governors should request an opportijr% to see
the statement before it was released or should undertIte t° issue a statement at the same time as the release of the
tabor
Board
was given to the press.
These points were discussed and it
was agreed that the Board should do
nothing at this time and that after
the statement of the Labor Board had
been released a decision should be
made as to the kind of statement, if
any, that should be given out by the
Board of Governors.
At this
atid Toy
point Messrs. Smead, Bethea, Thomas, Vest, Nelson
msend withdrew from the meeting and the action stated with
tiesPeet
to each of the matters hereinafter set forth was then taken
bY the Board:
The minutes of actions taken by the Board of Governors of the
Reserve System on October 311 1946, were approved unanimously.
1549
1:0/46
—12—
Memorandum dated October 29, 1946, from Mr. Thomas, Director
of the n4
,ivision
-L
of Research and Statistics, recommending the follow—
ing increases in
basic annual salaries of employees in that Division,
effective November
4, 1946:
Name
ReedNewton, James
Harvie
,
Samie
Rogers,
Edward D.
Title
Messenger
Messenger
Messenger
Salary Increase
To
From
2,168.28
,093.04
2,093.04
2,020.00
2,093.04
2,020.00
Approved unanimously.
Memorandum dated October 28, 1946, from Mr. Smead, Director
of the
Division of Bank Operations, recommending, for the reasons
1:'eLted, that
sick leave be granted to Mr. Thomas M. Parsons, Tech—
Assistant in
that Division, for a period not to exceed six
114)rith5
beginning with October 28, 1946, and that such leave not be
ellariged against any leave accruing after his return to duty.
Approved unanimously.
Memorandum dated October 29, 1946, from Er. Bethea, Director
or the Division of Administrative services, recommending that Mr.
bavict
Paul itkitter
be appointed as a Euard in that Division, on a
ten1Porary
indefinite basis, with basic salary at the rate of ,2,020
Per an11141, e
ffective as of the date upon which he enters upon the
lert°1111anee of his duties after having passed the usual physical
The memorandum also stated Mr. 'iiitter would become
rnelliber of the
Federal aeserve retirement system.
Approved unanimously.
1550
11/1/46
-13Letter to Mr. Willett, First Vice President of the Federal
Reserve
Bank of Boston, reading as follows:
"In view of the recommendation contained in your
letter of October 22, 1946, the Board of Governors
will interpose no objection, under condition of memLership numbered 8 to which the member bank is subject,
Lo the investment of a,000 by the Bar Harbor Banking
lad Trust
Company, Bar Harbor, Maine, in a lot for the
expansion of
its branch office in Lubec, Maine."
Approved unanimously.
Letter to Mr. i,ayne, Vice President of the Federal Reserve
Of Richmond,
reading as follows:
19/ "Reference is made to your letter of October 26,
, 16, regarding the proposed plan of the American
'
-- 1-ty and Trust Company, Washington, D. C. to purchase the
assets of The Columbia National Bank of Washand establish a branch at the present location
Of that
institution.
t, "The Board of Governors concurs in your opinion
art the proposed
transaction will not result in a
seRnge in the
general character of business or the
s °13e of the corporate powers exercised by the American
d4,1:1ritY and Trust Company, within the meaning of conof membership numbered 1 to which it is subject.
intZin view of your recommendation, the Board will
tio-'Pose no objection, under the provisions of condipann of membership numbered 8 to which the trust com6 is subject, to the investment of approximately
eu;
i'°00 by the trust company in the premises now oclish,
d bY the national bank, for the purpose of estabIng and maintaining a branch at that location."
0
Approved unanimously.
1551
11/1/46
-14Letter to Mr. Young, President of the Federal Reserve Bank
ofrN4
'
cago, reading as follows:
"This refers to Mr. Diercks' letter of September 27,
1946, submitLing the reauest of the Commonwealth Bank,
Detroit, Michigan, for permi.ssion to act as escrow agent,
fiscal agent, registrar and transfer agent of stocks and
ariicggent under property management agreement, and
xadi
that the bank be permitted to act in those
capacities without the prescription of the standard trust
co
nditions.
"Consideratf
actor
has been given to the generally satiscondition
and
capable management of the applicant,
to the
Probable nature of the transactions to be handled
flder the
authorization of the Banking Department of the
State
,t
of Michigan, dated August 28, 1946, and to the fact
the bank does not wish to engage in fiduciary activlties
generally.
vouile acting as registrar and transfer agent of
°eks and bonds are recognized fiduciary functions and
C anot,
be
from the performed by national banks without permission
Board, the three standard trust conditions ore)
lcnarilY prescribed by the Board for State member banks
ci:reising trust poers are not applicable to the exeror e of those powers. It appears that the other types
'
.!'ansactions which may be handled under the powers
appliedei
for are mainly if not entirely agencies, some
powl;"ich might be handled by a bank not having trust
tio-rs, and to which the Board's standard trust condins"likewise
are not applicable.
tio
Accordingly, the Board will interpose no objecin,
n2 t0 the Commonwealth Bank, Detroit, Michigan, act„
6 ln the
capacities enumerated above and will not
isicribe the trust conditions. This action is taken
type
„the understanding that handling of agencies of the
tidC.in question will not involve the performance of
appi?larY duties such as would make the trust conditions
shoulable, and that, if at any future time the applicant
desire to engage to any greater extent in fiduof
activities, it will first obtain the permission
diti-e Board and accept the three standard trust conra !
ns ordinarily prescribed by the Board for State
cm` banks
exercising trust powers.
Please advise the Commonwealth Bank accordinaly.”
br:te
qZ
I
Approved unanimously.
Thereupon the meeting ad*
@FedFRASER