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1662 A meeting of the Board of Governors of the Federal Reserve SYstem was held in Washington on Thursday, November 11, 1943, at 1:30 A.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Draper Evans Mr. Mr. Mr. Mr. Morrill, Secretary Bethea, Assistant Secretary Carpenter, Assistant Secretary Clayton, Assistant to the Chairman The action stated with respect to each of the matters hereinafter referred to was taken by the Board: The minutes of the meeting of the Board of Governors of the ederal Reserve System held on November 10, 1943, were approved unani1.11011s4 Memrandum dated November 10, 1943, from Mr. Morrill, recomMending that Bricen Barnes be appointed as a laborer in the Secretary's Offic . - On a temporary basis for an indefinite period, with basic salary at the rate of $1,200 per annum, effective as of the date upon which he enters upon the performance of his duties after having passed satisfactoril —.7 the usual physical examination, with the understanding that if allYthtng derogatory should develop in the investigation of his references his services may be terminated immediately. Approved unanimously. Delia 17 Memorandum of this date from Mr. Morrill, recommending that Mrs. " Payne be appointed as a charwoman in the Secretary's Office on 1663 11/11/43 4 -2- temporary basis for an indefinite period, with basic salary at the rate of 4,200 per annum, effective as of the date upon which she enters upon the performance of her duties after having passed satisfactorily the usual physical examination, with the understanding that if anYthing derogatory should develop in the investigation of her references her services may be terminated immediately. Approved unanimously. Memorandum dated November 5, 1943, from Mr. Smead, Chief of the sion of Bank Operations, recommending that the following increases in basic annual salaries of employees in that Division be approved, ef- fectixe November 16, 1943: Name Daniels, Mortimer B. Conkling„ Gerald M. Goheen, Loretta Trott, Sarah L. Chadik, Mary Ann Garrison, Doris 4bs0n, Dorothy Designation Technical Assistant Technical Assistant Senior Clerk Secretary to Mr. Horbett Clerk Clerk Clerk Salary Increase To From 15,200 5,100 2,200 1,980 1,740 1,620 1,440 $5,400 5,400 2,300 2,100 1,800 1,740 1,560 Approved unanimously. Memorandum dated November 5, 1943, from Mr. Smead, Acting Administrat or for the War Loans Committee, recommending that the following increa— . Q" In basic annual salaries of employees in the Office of the Admin- istrat or for the War Loans Committee be approved, effective November 16, 1943: 1664 11/11/43 -3- Name Fields, Catherine Holmes, Mary Designation Secretary to Mr. Boothe Clerk Salary Increa.se To From $1,980 1,740 $2,100 1,800 Approved unanimously. Memorandum dated November 5, 1943, from Mr. Morrill, submittiag the resignation of Mrs. Sadie U. Mann as a charwoman in the SecretarY's Office, to become effective as of the close of business on 140Irember 18, 1943, and recommending that the resignation be accepted as of that date. The resignation was accepted. Letter to Mr. Gidney, Vice President of the Federal Reserve Bank of New York, reading as follows: "In accordance with the request contained in your letter of November 4, 1943, the Board approves the apPointments of J. Bennett Barlow, Joseph Garfinkel, Frederick J. Scholz and Richard R. Tollas as assistant examiners for the Federal Reserve Bank of New York. Please advise us of the dates upon which these appointments become effective." Approved unanimously. Letter to Mr. Leach, President of the Federal Reserve Bank of Richnlond, reading as follows: "The correction contained in your letter of November 1943, with respect to the annual salary of Mr. Herbert ;Lewis, whose appointment as an assistant examiner for e Federal Reserve Bank of Richmond was approved by the Jooard on November 1, 1943, has been duly noted." t Approved unanimously. 1665 11/11/43 -4Letter prepared for the signature of Mr. Ransom to Honorable Claud e Pepper, United States Senate, reading as follows: "Chairman Lccles told me of your recent telephone conversation with him in regard to the Board's ruling published in the September 1943 issue of the Federal Reserve Bulletin (p. 817) and the inquiry of the American National Dank of Jacksonville, Florida, regarding the apPlication of this ruling to the bank's practice. "This is the bank which was formerly a State bank under the name of the South Side Bank and which was converted to the American National Bank of Jacksonville under a charter issued by the Comptroller of the Currency as of January 2, 1943. As you may know, it is located a residential section about two miles from the main business section, on the opposite side of the St. Johns River. "Before the bank obtained its national charter it had deposits of less than 800,000 derived almost entirely from the people of the community and it carried no bank ,,eposits. In these circumstances the Comptroller of the Irrency recognized it as a bank located in an outlying qlstr.,ct and accordingly approved its conversion to a NatIonal bank with a capital of N_00,000 instead of i'200,000 would ordinarily be the minimum required of National Danks in cities the size of Jacksonville. On the basis of these facts, and upon the bank's application, the Board 0,f Governors granted permission to the bank to carry recluced reserves, that is to say, instead of carrying the, re required of the other National banks in Jacksonle, which is a reserve city, it was permitted to carry 6ne lower reserves required of 'country banks'. "Last Spring, however, the Board was advised that the bank was actively soliciting bank accounts and it appeared that the bank held balances of other banks in the 'amount, of 'l (),876,000, or over 82', of its total deposits °f8,367,000, as of June 30, 1943. In soliciting Lc?ounts from correspondent banks, the bank offered, as an ducement, to absorb the cost of collection on nonpar ,LTIls, provided compensating balances were carried with it, 7 .10 stated that the balance necessary to offset all costs mlgures around 2 for each l of nonpar items during the °rIth. In these circumstances, the Board of Governors r 1666 11/11/43 -5- "on July 31, 1943, revoked the permission previously granted to carry lower reserves against deposits than are required to be maintained by member banks in reserve cities, Which means that the bank since then has been required to maintain the same reserve percentage as the other National banks located in Jacksonville. "Aside from the fact that these circumstances required the revocation of the permission to carry reduced reserves, the method by which this bank has acquired and is carrying bank deposits appears to be contrary to the Board's ruling in the Federal Reserve Bulletin for September 1943. In that ruling the Board acted upon the request of the Comptroller of the Currency for a ruling upon the facts of a Specific case involving another bank, arising under the 16anking Act of 1933, which provided that no member bank 'shall, dia'st. ,1y or indirectly,12z any device whatsoever, Pay any interest on any deposit which is payable on deilland t (italics ours) and the Banking Act of 1935 which authorized the Board of Governors 'to determine what shall be deemed to be a payment of interest, and to prescribe such rules and regulations as it may deem necessary to effectuate the purpose of this section and prevent evasions thereof.' "Clearly, it is not a natural thing for a number of Other banks to carry demand deposits in a small residential 1 e°111mun ty bank like this one--it is obvious that these balances have been diverted from other uses. Not only is the :f.iducement offered evidently a device to evade the prohilticm against the direct payment of interest on such deposits, but for a small bank like this the carrying of , large amounts of demand deposits for other banks(more than our-fifths of its total deposit liabilities) for no reason other than the inducement in question is an unsound banking practice which might at any time lead to serious consequences if the bank were faced with the essity of liquidating assets in haste and possibly !us in order to meet withdrawals without previous l. e "A further explanation of the Board's published rul4_ ing is set out in the enclosed mimeographed statement !hlch was transmitted to the Presidents of the Federal Reserve Banks for their information. "The Board's action in issuing this ruling was rested squarely on the meaning of the term 'interest' as a matter ; r notZc 1667 11/11/43 -6-- "of general law. The Courts have dealt with hundreds of cases, particularly in the usury field, in which the same genera' conception of 'interest', as defined by the Board in its Regulation Q, was applied to the facts of particular cases and judgment rendered accordingly. "As you know, the Banking Acts of 1933 and 1935 are Congressional enactments of general application throughout the United States to all banks subject to their provisions, and consequently the Board would treat all banks alike that were following substantially similar practices. The failure of any one bank or group of banks to comply would be no excuse for any other bank or group of banks to violate the law. In due course of examination of banks, violations of this statute will be investigated, reported, and treated in the same manner as are violations of other Federal laws relating to banks. "I will be glad at any time to discuss the whole subject with you. If you will let me know, I will COMB to Your office for this purpose." Approved unanimously. Telegram to The Dealers Building Products Co., Pittsburgh, Pennsyl- vania, reading as follows: "No change in Amendment No. 6 to Regulation W (to bring it in line with Conservation Order L-41 of the War Production Board as amended effective November 1, 1943) has been made or is contemplated." Approved unanimously. Thereupon the meeting adjourned. 1q4Z4 ier)WAT Secretary. Chairman.
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